<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 31, 1996
REGISTRATION NO. 333-12235
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PANAVISION INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 5043 13-3593063
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification No.)
organization)
</TABLE>
------------------------
6219 DE SOTO AVENUE
WOODLAND HILLS, CALIFORNIA 91367
(818) 316-1000
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------------------
WILLIAM C. SCOTT
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
PANAVISION INC.
140 EAST 45TH STREET
NEW YORK, NEW YORK 10017
(212) 867-5420
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
CHRISTOPHER E. MANNO, ESQ. SAMUEL F. PRYOR, III, ESQ.
WILLKIE FARR & GALLAGHER DAVIS POLK & WARDWELL
ONE CITICORP CENTER 450 LEXINGTON AVENUE
153 EAST 53RD STREET NEW YORK, NEW YORK 10017
NEW YORK, NEW YORK 10022 (212) 450-4000
(212) 821-8000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
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
effective registration statement for the same offering. / / ___________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / ___________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $.01 par value 4,025,000 $18.00 $72,450,000 $24,840(3)
</TABLE>
(1) Includes shares issuable upon exercise of the Underwriters' over-allotment
option. The shares of Common Stock are not being registered for the purpose
of sales outside of the United States.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457.
(3) Includes a filing fee of $23,794 registering 3,833,333 shares previously
paid on September 18, 1996. The fee was calculated at the then applicable
filing fee based on a proposed maximum offering price of $69,000,000.
------------------------
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 THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 31, 1996
3,500,000 SHARES
PANAVISION INC.
[LOGO]
COMMON STOCK
(PAR VALUE $0.01 PER SHARE)
----------------
Of the 3,500,000 shares of Common Stock offered, 2,800,000 shares are being
offered hereby in the United States and 700,000 shares are being offered in a
concurrent international offering outside the United States. The initial public
offering price and the aggregate underwriting discount per share will be
identical for both Offerings. See "Underwriting."
All of the 3,500,000 shares of Common Stock offered hereby are being sold by
the Company. Prior to the Offerings, there has been no public market for the
Common Stock of the Company. It is currently estimated that the initial public
offering price per share will be between $16.00 and $18.00 . For factors to be
considered in determining the initial public offering price, see "Underwriting."
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE COMMON STOCK.
The Common Stock has been approved for listing on the New York Stock
Exchange under the symbol "PVI," subject to notice of issuance.
------------------
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>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE DISCOUNT (1) COMPANY(2)
-------------- -------------- --------------
<S> <C> <C> <C>
Per Share........................................................ $ $ $
Total (3)........................................................ $ $ $
</TABLE>
- ----------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
(2) Before deducting estimated expenses of $ payable by the Company.
(3) The Company has granted the U.S. Underwriters an option for 30 days to
purchase up to an additional 420,000 shares of Common Stock at the initial
public offering price per share, less the underwriting discount, solely to
cover over-allotments. Additionally, the Company has granted the
International Underwriters a similar option with respect to an additional
105,000 shares as part of the concurrent International Offering. If such
options are exercised in full, the total initial public offering price,
underwriting discount and proceeds to Company will be $ , $
and $ , respectively. See "Underwriting."
------------------
The shares offered hereby are offered severally by the U.S. Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part. It is expected that certificates
for the shares will be ready for delivery in New York, New York on or about
, 1996, against payment therefor in immediately available funds.
GOLDMAN, SACHS & CO.
SCHRODER WERTHEIM & CO.
COWEN & COMPANY
------------------
The date of this Prospectus is , 1996.
<PAGE>
[PICTURES OF PANAVISION CAMERA, LENS, OSCAR STATUETTES AND LISTS OF FILMS AND
TELEVISION SHOWS WHICH HAVE USED PANAVISION EQUIPMENT]
<PAGE>
IN CONNECTION WITH THE OFFERINGS, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
ADDITIONAL INFORMATION
The Company has filed with the Commission under the Securities Act a
Registration Statement on Form S-1 with respect to the Common Stock offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement in accordance with the rules and regulations of the
Commission. For further information pertaining to the Company and the Common
Stock offered hereby, reference is made to the Registration Statement, including
the exhibits thereto and the financial statements, notes and schedule filed as a
part thereof. Statements contained in this Prospectus as to the contents of any
contract or other document are not necessarily complete and, in each instance,
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. The Registration Statement may be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's Regional
Offices in New York (Seven World Trade Center, New York, New York 10048) and
Chicago (Suite 1400, Citicorp Center, 500 West Madison Street, Chicago, Illinois
60661). Copies of such material can be obtained from the public reference
section of the Commission at prescribed rates by writing to the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
Such materials can also be inspected at the offices of the New York Stock
Exchange, Inc., 20 Broad Street, New York, New York 10005 or on the Internet at
http://www.sec.gov.
---------------------
Panavision-Registered Trademark-, PRIMO ZOOM-Registered Trademark-,
Panaflex-Registered Trademark-, Panahead-Registered Trademark-,
3-Perf-Registered Trademark- and Panastar-Registered Trademark- are registered
trademarks of the Company. Oscar-Registered Trademark- is a registered trademark
of the Academy of Motion Picture Arts and Sciences.
The Company intends to furnish its stockholders annual reports containing
audited financial statements and quarterly reports containing unaudited interim
financial information for the first three fiscal quarters of each fiscal year of
the Company.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION, INCLUDING "RISK FACTORS" AND
THE HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS AND NOTES
THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. EXCEPT AS OTHERWISE INDICATED
HEREIN, THE INFORMATION IN THIS PROSPECTUS (I) ASSUMES NO EXERCISE OF THE
UNDERWRITERS' OVER-ALLOTMENT OPTION, (II) GIVES EFFECT TO A 1,413 : 1 STOCK
SPLIT OF THE COMMON STOCK TO BE EFFECTED PRIOR TO THE CLOSING OF THE OFFERINGS,
(III) GIVES EFFECT TO AN AMENDMENT AND RESTATEMENT OF THE COMPANY'S CERTIFICATE
OF INCORPORATION TO BE EFFECTED PRIOR TO THE CLOSING OF THE OFFERINGS AND (IV)
ASSUMES THE ISSUANCE AND SALE OF COMMON STOCK IN THE OFFERINGS AT $17.00 PER
SHARE (THE MID-POINT OF THE RANGE OF THE INITIAL PUBLIC OFFERING PRICES SET
FORTH ON THE COVER PAGE OF THIS PROSPECTUS). UNLESS THE CONTEXT INDICATES OR
REQUIRES OTHERWISE, AS USED IN THIS PROSPECTUS, THE "COMPANY" OR "PANAVISION"
MEANS PANAVISION INC. AND ALL OF ITS SUBSIDIARIES AND ITS RESPECTIVE
PREDECESSORS.
THE COMPANY
Panavision Inc. (the "Company" or "Panavision") is a leading designer and
manufacturer of high-precision film camera systems, comprising cameras, lenses
and accessories, for the motion picture and television industries. The Company's
camera systems are not available for sale and are rented exclusively through its
domestic and international owned and operated facilities and agent network.
Panavision-Registered Trademark- is recognized in the motion picture and
television industries as the preeminent brand name for cinematography equipment.
Since the Company was founded, Panavision has received two OSCARS and 17 Awards
for Scientific and Technical Achievement from the Academy of Motion Picture Arts
and Sciences. Since 1990, two-thirds of the Academy Award nominees for Best
Cinematography, and five of the six cinematographers who have won the OSCAR for
Best Cinematography, used Panavision camera systems.
Panavision camera systems were used to film all of the 1995 top 10 U.S. box
office movies requiring film cameras, including BATMAN FOREVER, APOLLO 13, DIE
HARD WITH A VENGEANCE and ACE VENTURA: WHEN NATURE CALLS. Similarly, many of the
top box office films in 1996, including MISSION: IMPOSSIBLE, INDEPENDENCE DAY,
ERASER, TWISTER, THE ROCK and A TIME TO KILL, were filmed with Panavision camera
systems. In addition to the Company's involvement in the motion picture
industry, a predominant number of U.S. prime time episodic, or "series,"
television programs that are shot on film use Panavision camera systems,
including FRIENDS, SEINFELD, FRASIER and E.R.
The Company believes that its position as an industry leader results from
its broad range of technologically superior and innovative products, its
longstanding collaborative relationships with filmmakers, the breadth of its
inventory of camera equipment and its dedication to customer service. Panavision
is the only supplier of cinematography equipment that manufactures a complete
camera system incorporating its own range of proprietary prime and zoom lenses,
the most critical components of a camera system. The Company continuously
addresses the technical and creative needs of its customers by designing and
manufacturing unique accessories that in many instances have become the industry
standard.
The motion picture and television industries have shown steady growth over
the past several years, and the Company expects the industries to continue to
grow for the foreseeable future. The Company has been successful in providing
camera systems to these industries, capturing over 75% of the market in 1995 for
major studio feature films and episodic television programs in North America. In
addition, the Company estimates that in 1995 it serviced over one-third of the
independent feature film market in North America and 14% of the feature film
market in the United Kingdom and Europe. The Company also supplies camera
systems to the television commercial market in North America, the United
Kingdom, Europe and Japan.
While the Company has been successful in growing its business, its ability
to capture a larger share of the U.S., U.K. and European feature film and
commercial markets has been inhibited by rental equipment shortages resulting
from limited manufacturing capacity and capital expenditure constraints
3
<PAGE>
imposed by the Company's credit facilities. With the Company's relocation to a
new manufacturing facility, its recent recapitalization and proceeds from the
Offerings, the Company believes it will be well-
positioned to (i) significantly increase its production of camera systems, (ii)
increase its leading share of the North American feature film market, (iii)
increase its share of the international feature film market with an emphasis on
Europe and (iv) increase its share of the North American and international
commercial markets.
In addition to manufacturing and renting camera systems, the Company also
rents lighting, lighting grip, power generation and related transportation
equipment through Lee Lighting Limited, the largest lighting rental company in
the United Kingdom, as well as through two owned and operated facilities in
Orlando and Toronto. The Company also manufactures and sells lighting filters
and other color-correction and diffusion filters through Lee Filters.
For information concerning the compilation of market share and certain other
information, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Overview."
Panavision Inc. was incorporated in Delaware in 1990. Predecessors of the
Company have been engaged in the design and manufacturing of cinematography
equipment since 1954. The Company's principal executive office is located at
6219 De Soto Avenue, Woodland Hills, California 91367, and its telephone number
is (818) 316-1000.
THE RECAPITALIZATION
The Company conducts its business through Panavision International, L.P.
("PILP") and PILP's subsidiaries. In May 1996, the Company effected a
recapitalization (the "Recapitalization"), pursuant to which, for a total of
$126.1 million in cash, the Company acquired all of the equity interests in PILP
it did not previously own and retired all of PILP's outstanding debt securities.
As part of the Recapitalization, Warburg, Pincus Capital Company, L.P. (together
with its wholly owned subsidiaries, "Warburg, Pincus") and management loaned the
Company $12.5 million in the form of subordinated debt, and the Company borrowed
$110.0 million through a credit arrangement. The balance of the funds required
came from the Company's cash on hand. See "The Recapitalization."
THE OFFERINGS
The offering of 2,800,000 shares of Common Stock initially being offered in
the United States (the "U.S. Offering") and the offering of 700,000 shares of
Common Stock initially being offered in a concurrent international offering
outside the United States (the "International Offering") are collectively
referred to as the "Offerings." The closing of each of the Offerings is
conditioned upon the closing of the other Offering.
<TABLE>
<S> <C>
Common Stock offered:
U.S. Offering................................. 2,800,000 shares
International Offering........................ 700,000 shares
Total....................................... 3,500,000 shares
Common Stock to be outstanding after the
Offerings:.................................... 17,630,000 shares(1)
Use of Proceeds................................. Repayment of outstanding indebtedness.
See "Use of Proceeds."(2)
Proposed NYSE symbol............................ "PVI"
</TABLE>
- ------------------------
(1) Excludes 2,190,150 shares of Common Stock reserved for issuance under the
Company's stock option plan, of which options for 1,766,250 shares have been
granted or will be issued upon completion of the Offerings. See
"Management--Compensation Pursuant to Plans." Assumes the Underwriters'
over-allotment options are not exercised. If such over-allotment is
exercised, up to an additional 525,000 shares will be issued and sold by the
Company.
(2) Of the $53.5 million of estimated net proceeds of the Offerings (based on an
assumed initial public offering price of $17.00 per share, the mid-point of
the range of the initial public offering prices set forth on the cover page
of this Prospectus), approximately $12.9 million will be used to repay
indebtedness (including accrued interest) owed to Warburg, Pincus and
management. See"Use of Proceeds" and "Certain Transactions."
4
<PAGE>
SUMMARY HISTORICAL FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------- ----------------------
<S> <C> <C> <C> <C> <C>
1993 1994 1995(1) 1995 1996(2)
--------- --------- ----------- --------- -----------
STATEMENT OF OPERATIONS DATA:
Revenue:
Camera rental.................................. $ 54,031 $ 61,642 $ 75,083 $ 54,055 $ 62,814
Lighting rental................................ 933 1,160 4,121 3,210 7,598
Sales and other................................ 11,746 14,298 16,124 12,213 14,638
--------- --------- ----------- --------- -----------
Total...................................... 66,710 77,100 95,328 69,478 85,050
Gross margin....................................... 30,278 36,105 50,959 36,860 44,971
Operating income................................... 9,131 14,453 19,487 13,131 19,987
Net interest expense............................... 5,229 5,318 5,616 4,373 5,589
Income before non-controlling partners' interest in
PILP and income taxes............................ 4,085 9,800 14,286 9,477 14,610
Net income......................................... $ 3,305 $ 7,078 $ 5,563 $ 4,435 $ 8,098
--------- --------- ----------- --------- -----------
--------- --------- ----------- --------- -----------
Net income per common share........................ $ .22 $ .46 $ .36 $ .29 $ .53
--------- --------- ----------- --------- -----------
--------- --------- ----------- --------- -----------
Shares used in computation......................... 15,277 15,277 15,277 15,277 15,277
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
--------------------------
<S> <C> <C>
ACTUAL AS ADJUSTED(3)
--------- ---------------
BALANCE SHEET DATA:
Total assets............................................................. $ 164,713 $ 164,713
Total current liabilities................................................ 28,784 28,441
Long-term debt........................................................... 110,492 57,335
Stockholders' equity..................................................... 24,158 77,658
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1993 1994 1995(1) 1995 1996(2)
--------- --------- --------- --------- ---------
OTHER DATA:
EBITDA (4)...................................... $ 23,910 $ 30,149 $ 37,381 $ 26,615 $ 33,938
Net cash provided by operations................. 19,304 26,379 34,317 21,146 17,645
Net cash used in investing activities........... (11,444) (15,449) (15,699) (7,682) (22,483)
Net cash used in financing activities........... (2,827) (4,379) (9,724) (6,083) (18,226)
Capital expenditures............................ 12,678 16,251 19,454 11,060 16,641
EBITDA margin percentage (5).................... 35.8% 39.1% 39.2% 38.3% 39.9%
Gross margin percentage (5)..................... 45.4 46.8 53.5 53.1 52.9
Operating income percentage (5)................. 13.7 18.7 20.4 18.9 23.5
</TABLE>
- --------------------------
(1) Includes operating results of Panavision Canada Corporation, a former agent,
since its acquisition effective January 20, 1995.
(2) Includes operating results of Lee Lighting Limited since its acquisition
effective July 1, 1996.
(3) Adjusted to reflect (i) the sale of 3,500,000 shares of Common Stock in the
Offerings and (ii) the application of the estimated net proceeds therefrom.
See "Use of Proceeds."
(4) EBITDA is calculated by adding back all depreciation and amortization and
net interest expense to income before non-controlling partners' interest in
PILP and income taxes. The Company believes that EBITDA serves as an
important financial analysis tool for measuring and comparing financial
information such as liquidity, operating performance and leverage. EBITDA
should not be considered by the reader as an alternative to net income or
other cash flow measures determined under generally accepted accounting
principles as an indicator of Panavision's performance or liquidity.
Additionally, due to the capital intensive nature of the Company's business,
depreciation and amortization is a significant component of the Company's
operating results. EBITDA as disclosed herein may not be comparable to
similarly titled amounts disclosed by other companies.
(5) EBITDA margin percentage is defined as EBITDA as a percentage of revenue,
gross margin percentage is defined as gross margin as a percentage of
revenue and operating income percentage is defined as operating income as a
percentage of revenue.
5
<PAGE>
SUMMARY PRO FORMA FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following pro forma statement of operations information gives effect to
the Recapitalization and the July 1996 acquisition (the "Lee Lighting
Acquisition") of Lee Lighting Limited ("Lee Lighting"), in each case as if such
transactions had occurred at the beginning of the period presented. The pro
forma financial information should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations, the
Unaudited Pro Forma Condensed Consolidated Financial Statements and the
Consolidated Financial Statements of the Company and Lee Lighting and the notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
YEAR ENDED --------------------
DECEMBER 31, 1995 1995 1996
-------------------------------- --------- ---------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Camera rental......................... $ 75,083 $ 54,055 $ 62,814
Lighting rental....................... 22,081 16,945 17,260
Sales and other....................... 17,913 13,697 15,376
---------- --------- ---------
Total............................. 115,077 84,697 95,450
Gross margin.............................. 55,163 40,577 47,250
Operating income.......................... 20,750 14,392 20,735
Net interest expense...................... 9,458 7,094 7,109
Net income................................ $ 10,382 $ 6,997 $ 11,080
---------- --------- ---------
---------- --------- ---------
Net income per common share(1)............ $ .68 $ .46 $ .73
---------- --------- ---------
---------- --------- ---------
Shares used in computation................ 15,277 15,277 15,277
OTHER DATA:
EBITDA (2)................................ $ 40,616 $ 29,266 $ 35,563
Net cash provided by operations........... 33,868 20,963 16,946
Net cash used in investing activities..... (17,108) (8,888) (23,618)
Net cash used in financing activities..... (9,724) (6,083) (18,226)
Capital expenditures...................... 20,936 12,321 17,791
EBITDA margin percentage (3).............. 35.3% 34.6% 37.3%
Gross margin percentage (3)............... 47.9 47.9 49.5
Operating income percentage (3)........... 18.0 17.0 21.7
</TABLE>
- --------------------------
(1) Supplementary pro forma net income per share adjusted to reflect the use of
the proceeds from the Offerings would be $.75, $.52 and $.73 for the year
ended December 31, 1995 and the nine months ended September 30, 1995 and
1996, respectively.
(2) EBITDA is calculated by adding back all depreciation and amortization and
net interest expense to income before income taxes. The Company believes
that EBITDA serves as an important financial analysis tool for measuring and
comparing financial information such as liquidity, operating performance and
leverage. EBITDA should not be considered by the reader as an alternative to
net income or other cash flow measures determined under generally accepted
accounting principles as an indicator of Panavision's performance or
liquidity. Additionally, due to the capital intensive nature of the
Company's business, depreciation and amortization is a significant component
of the Company's operating results. EBITDA as disclosed herein may not be
comparable to similarly titled amounts disclosed by other companies.
(3) EBITDA margin percentage is defined as EBITDA as a percentage of revenue,
gross margin percentage is defined as gross margin as a percentage of
revenue and operating income percentage is defined as operating income as a
percentage of revenue.
6
<PAGE>
RISK FACTORS
PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY SHOULD CONSIDER
CAREFULLY ALL OF THE INFORMATION SET FORTH IN THIS PROSPECTUS, AND, IN
PARTICULAR, SHOULD EVALUATE THE FOLLOWING RISKS IN CONNECTION WITH AN INVESTMENT
IN THE COMMON STOCK.
DEPENDENCE ON FEATURE FILM INDUSTRY
The Company's operations are dependent on the feature film market,
including, in particular, that in the United States. Over the past four years,
the Company has benefited from an increase in the number of major studio feature
films (and especially large-budget action films), which tend to use larger
camera packages than the feature films made by independent producers. A
significant reduction in the total number of feature films produced, including,
in particular, major studio or large-budget action films, could have a material
adverse impact on the Company's operations.
COMPETITION
The market for the Company's cinematography equipment is highly competitive,
primarily driven by technology, customer service and, to a lesser extent, price.
The Company's continued success will depend on its ability to develop,
manufacture and market its products. As a manufacturer of equipment, the
Company's primary competitors are Arriflex Corporation ("Arriflex") and Moviecam
F.G. Bauer G.m.b.H ("Moviecam"). As a renter of equipment, the Company competes
with numerous rental houses, which purchase equipment from other manufacturers
and then rent that equipment to their customers. There can be no assurance that
the Company will be able to continue to develop, manufacture and market its
products successfully against existing or new competitors. See "Business--
Competition."
TECHNOLOGICAL CHANGE
The motion picture and television industries are subject to technological
change, evolving industry standards, changing customer requirements and
improvements in and expansion of product offerings. The Company's ability to
anticipate changes in technology, industry standards, customer requirements and
product offerings and to develop and introduce new and enhanced products will be
significant factors in the Company's ability to remain a leader in the
manufacturing and rental of cinematography equipment. Although the Company
believes it is well-positioned to meet the changing needs of the motion picture
and television industries, there can be no assurance that products or
technologies developed by others will not render the Company's products or
technologies noncompetitive or obsolete. See "Business--Products--Research and
Product Development."
DEPENDENCE ON KEY PERSONNEL
The Company is dependent upon the continued services of the key officers and
management personnel listed under "Management." The loss of key personnel could
have a material adverse effect on the Company. The Company believes that its
future success also will depend significantly upon its ability to attract,
motivate and retain additional highly skilled managerial, operational, technical
and sales and marketing personnel. Competition for such personnel is intense,
and there can be no assurance that the Company will be successful in attracting,
assimilating and retaining the personnel it requires to develop, manufacture and
market its products or expand its operations. See "Business--Employees,"
"Management--Executive Officers and Directors" and "--Other Key Employees."
DEPENDENCE UPON KEY SUPPLIERS
The Company uses outside vendors for the manufacture of certain components
used in its products, such as the grinding, manufacture and polishing of certain
camera lens elements. Although the
7
<PAGE>
Company believes that such vendors could be replaced, the loss of one or more of
such vendors could disrupt the Company's business. See
"Business--Products--Manufacturing and Assembly."
INTERNATIONAL SALES; FOREIGN EXCHANGE RISK
In 1993, 1994 and 1995, approximately 39%, 45% and 45% of the Company's
revenue, respectively, was generated outside of the United States, primarily in
the United Kingdom and Canada. The Company intends to expand the scope of its
operations outside of the United States and expects that international
operations will continue to account for a significant portion of its revenue in
future periods. The results of operations of the Company's U.K. subsidiaries are
translated from pounds sterling to United States dollars. Therefore, the
Company's results of operations are affected by fluctuations in exchange rates
between such currencies.
DEPENDENCE ON MANUFACTURING FACILITY
The Company's manufacturing facility is located in Woodland Hills,
California. Since the Company is dependent on its manufacturing facility, a
disruption of the Company's manufacturing operations could have a material
adverse effect on the Company's business, financial condition and results of
operations. Such disruption could result from various factors including human
error or a natural disaster such as earthquake, fire or flood. The Company does
not maintain business interruption insurance that would reimburse the Company in
the event of an earthquake.
INFLUENCE BY EXISTING STOCKHOLDERS
Upon completion of the Offerings, the Company's existing stockholders,
including Warburg, Pincus and the Company's executive officers, will
beneficially own approximately 80.5% of the outstanding shares of the Company's
voting stock. As a result, existing stockholders will be able to continue to
elect the Company's Board of Directors and take other corporate actions
requiring stockholder approval, as well as dictate the direction and policies of
the Company. Such concentration of ownership also could delay, deter or prevent
a change in control of the Company. In addition, pursuant to a stockholders
agreement, Warburg, Pincus and management have the right to designate five
persons to be appointed or nominated to the Company's Board of Directors. See
"Management--Stockholders Agreement" and "Principal Stockholders."
ABSENCE OF PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offerings, there has been no public market for the Common
Stock. Although the Common Stock has been approved for listing, subject to
notice of issuance, on the New York Stock Exchange ("NYSE"), there can be no
assurance that an active trading market for the Common Stock will develop or be
sustained following the Offerings or that the market price of the Common Stock
will not decline below the initial public offering price. The initial public
offering price will be determined by negotiation between the Company and the
Representatives of the Underwriters based upon several factors and may not be
indicative of future market prices. The price at which the Common Stock will
trade will depend upon a number of factors, some of which are beyond the
Company's control. Such factors include, but are not limited to, the Company's
historical and anticipated operating results, general market and economic
conditions, quarterly fluctuations in the Company's financial and operating
results, announcements by the Company or others and developments affecting the
Company, its products, its clients, the markets in which it competes or the
industry generally. In addition, the stock market has from time to time
experienced extreme price and volume fluctuations. These broad market
fluctuations may adversely affect the market price of the Common Stock. See
"Underwriting."
8
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE; POTENTIAL FOR ADVERSE EFFECT ON STOCK PRICE;
REGISTRATION RIGHTS
Sales of a substantial number of shares of Common Stock in the public market
or the prospect of such sales could adversely affect prevailing market prices
for the Common Stock. Upon completion of the Offerings, the Company will have
outstanding 17,630,000 shares of Common Stock. Of these shares, the 3,500,000
shares of Common Stock to be sold in the Offerings will be freely tradable
without restriction under the Securities Act of 1933, as amended (the
"Securities Act"), except for any such shares which may be acquired by an
"affiliate" of the Company. The Company and certain stockholders, who will own
an aggregate of approximately 14,130,000 shares of Common Stock after the
Offerings, have agreed not to sell or otherwise dispose of any shares of Common
Stock or substantially similar securities for 180 days after the date of this
Prospectus without the prior written consent of Goldman, Sachs & Co. Subject to
such lock-up arrangements, approximately 12,717,000 shares of Common Stock will
be eligible for sale in the public market subject to compliance with the resale
volume limitations and other restrictions of Rule 144 under the Securities Act
and an additional 1,413,000 shares will be eligible for sale in the public
market under Rule 144 under the Securities Act in June 1998. Promptly after the
closing of the Offerings, the Company intends to file a registration statement
under the Securities Act covering the sale of 2,190,150 shares of Common Stock
reserved for issuance under its stock option plan. Upon completion of the
Offerings, there will be outstanding options to purchase a total of 1,766,250
shares of Common Stock. See "Management--Compensation Pursuant to Plans." The
Company has granted certain stockholders registration rights with respect to
approximately 14,130,000 shares of Common Stock. See "Description of Capital
Stock--Registration Rights." The sale of such shares could have a material
adverse effect on the Company's ability to raise capital in the public markets.
See "Shares Eligible for Future Sale."
IMMEDIATE AND SUBSTANTIAL DILUTION TO NEW INVESTORS
Investors purchasing shares of Common Stock in the Offerings will incur
substantial and immediate dilution of $12.62 per share in the net tangible book
value of the Common Stock from the initial public offering price. In addition,
these investors will incur additional dilution upon the exercise of outstanding
stock options. See "Dilution."
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER AND BY-LAW PROVISIONS
The Company's Certificate of Incorporation authorizes the issuance of
Preferred Stock without stockholder approval and upon such terms as the Board of
Directors may determine. The issuance of Preferred Stock could have the effect
of making it more difficult for a third party to acquire, or of discouraging a
third party from acquiring or making a proposal to acquire, a majority of the
outstanding stock of the Company and could adversely affect the prevailing
market price of the Common Stock. The rights of the holders of Common Stock will
be subject to, and may be adversely affected by, the rights of holders of
Preferred Stock that may be issued in the future. The Company has no present
plans to issue any shares of Preferred Stock. See "Description of Capital
Stock--Preferred Stock."
9
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,500,000 shares of
Common Stock offered hereby, based upon an assumed initial public offering price
of $17.00 per share (the mid-point of the range of the initial public offering
prices set forth on the cover page of this Prospectus), are estimated to be
$53.5 million ($61.8 million if the Underwriters' over-allotment option is
exercised in full), after deducting the underwriting discount and estimated
offering expenses. The net proceeds of the Offerings will be used to repay
indebtedness of the Company.
Of the debt to be repaid, (i) approximately $40.6 million is indebtedness
under the Company's senior bank loan which was incurred in the Recapitalization
and bears interest at a floating rate (8.37% per annum as of October 29, 1996)
with a maturity date of March 31, 2004, and (ii) approximately $12.9 million is
indebtedness (including accrued interest) which was incurred in the
Recapitalization and is owed to Warburg, Pincus and Messrs. Scott, Farrand and
Marcketta pursuant to subordinated demand notes which bear interest at 6.83% per
annum. See "The Recapitalization" and "Certain Transactions."
DIVIDEND POLICY
The Company has never paid a cash dividend on its Common Stock and does not
anticipate paying any cash dividends on the Common Stock in the foreseeable
future. The current policy of the Company's Board of Directors is to retain
earnings to finance the operations and expansion of the Company's business. In
addition, the Company's existing credit agreement restricts the Company's
ability to pay dividends to its stockholders. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
10
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1996. The as adjusted capitalization reflects the issuance and
sale of the 3,500,000 shares of Common Stock offered hereby by the Company and
the application of the estimated net proceeds therefrom (assuming an initial
public offering price of $17.00 per share, the mid-point of the range of
offering prices set forth on the cover page of this Prospectus). See "Use of
Proceeds."
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-------------------------
<S> <C> <C>
ACTUAL AS ADJUSTED
---------- -------------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Long-term debt:
Term bank loan.......................................................... $ 91,000 $ 57,335
Revolving credit facility............................................... 7,000 0
Notes to affiliates..................................................... 12,492 0
---------- -------------
Total long-term debt.................................................. 110,492 57,335
Stockholders' equity:
Preferred stock, par value $.01 per share, 2,000,000 shares authorized,
no shares issued and outstanding...................................... -- --
Common stock, par value $.01 per share, 50,000,000 shares authorized,
14,130,000 shares issued and outstanding(1)........................... 141 176
Additional paid-in capital.............................................. 14,259 67,724
Retained earnings....................................................... 9,802 9,802
Foreign currency translation adjustment................................. (44) (44)
---------- -------------
Total stockholders' equity............................................ 24,158 77,658
Total capitalization.................................................. $ 134,650 $ 134,993
---------- -------------
---------- -------------
</TABLE>
- ------------------------
(1) Excludes an aggregate of 2,190,150 shares of Common Stock reserved for
issuance under the Company's stock option plan, including 1,766,250 shares
of Common Stock subject to outstanding options. See
"Management--Compensation Pursuant to Plans."
11
<PAGE>
DILUTION
The net tangible book value of the Company at September 30, 1996 was
$23,633,000 or approximately $1.67 per share of Common Stock. Net tangible book
value per share represents the amount of total tangible assets less total
liabilities, divided by the aggregate number of shares of Common Stock
outstanding as of September 30, 1996. Without taking into account any changes in
the Company's net tangible book value after September 30, 1996, other than to
give effect to the receipt of the net proceeds from the sale of the 3,500,000
shares of Common Stock offered hereby, assuming an initial public offering price
of $17.00 per share (the mid-point of the range of the initial public offering
prices set forth on the cover page of this Prospectus) and after deducting the
underwriting discount and estimated offering expenses to be paid by the Company,
the net tangible book value of the Company at September 30, 1996 would have been
$77,133,000, or $4.38 per share. This represents an immediate increase in net
tangible book value of $2.71 per share of Common Stock to existing stockholders
and an immediate dilution of approximately $12.62 per share to new investors
purchasing shares in the Offerings. The following table illustrates the per
share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share....................... $ 17.00
Net tangible book value before the Offerings........................ $ 1.67
Increase per share attributable to the Offerings.................... 2.71
---------
Net tangible book value per share after the Offerings................. 4.38
---------
Dilution per share to new investors................................... $ 12.62
---------
---------
</TABLE>
The following table sets forth as of September 30, 1996, the number of
shares of Common Stock purchased from the Company, the total consideration paid
to the Company and the average price per share paid by existing stockholders and
by the new investors purchasing shares of Common Stock from the Company in the
Offerings (before deducting the underwriting discount and estimated offering
expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------------- --------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------- ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Existing stockholders........................ 14,130,000 80% $ 13,770,000 19% $ 0.97
New investors................................ 3,500,000 20 59,500,000 81 $ 17.00
------------- --- -------------- --- -------
Total.................................... 17,630,000 100% $ 73,270,000 100%
------------- --- -------------- ---
------------- --- -------------- ---
</TABLE>
The foregoing calculations assume no exercise of the Underwriters'
over-allotment options and exclude shares subject to outstanding options and
shares subject to options that will be issued upon completion of the Offerings.
As of September 30, 1996, there were options outstanding to purchase an
aggregate of 1,766,250 shares at an exercise price of $1.22 per share. To the
extent that outstanding options are exercised in the future, there will be
further dilution to new investors. See "Management-- Compensation Pursuant to
Plans."
12
<PAGE>
THE RECAPITALIZATION
The Company is a holding company that conducts its business through PILP.
Prior to the Recapitalization, certain non-controlling partners owned 70% of the
non-voting Class A and 30% of the voting Class B limited partnership units of
PILP. The non-controlling partners consisted of members of the bank group that
provided PILP's prior credit facility and were not otherwise affiliated with the
Company, PILP or Warburg, Pincus. They acquired their interest in PILP in
connection with PILP's prior credit facility. As described below, as a result of
the Recapitalization the Company owns 100% of the oustanding interests of PILP.
In May 1996, the Company effected the Recapitalization, pursuant to which,
for a total of $126.1 million in cash, the Company acquired all of the equity
interests in PILP it did not previously own and retired all of PILP's
outstanding debt securities. The Recapitalization was financed by (i) borrowings
of $110.0 million under a new credit facility, (ii) funds from working capital
and (iii) loans from Warburg, Pincus and management. The loans consisted of
subordinated demand notes of $11,608,000, $580,400, $165,829 and $82,914 issued
to Warburg, Pincus and Messrs. Scott, Farrand and Marcketta, respectively. In
addition, effective July 1, 1996, Warburg, Pincus contributed substantially all
of the assets of Lee Lighting to the Company as a capital contribution in the
amount of $8.0 million. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" for a
description of the credit facility and "Certain Transactions" for a description
of the terms of the subordinated notes issued to Warburg, Pincus and management.
As a result of the Recapitalization, Warburg, Pincus and management (i) own
90% and 10%, respectively, of the Common Stock of the Company outstanding prior
to the Offerings and (ii) hold $11,608,000 and $829,143, respectively, in
subordinated demand notes of the Company. The Company expects to repay such
notes with the proceeds of the Offerings. See "Use of Proceeds."
13
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected financial data for the seven months ended December
31, 1991 and for the four years ended December 31, 1995 are derived from the
audited consolidated financial statements of the Company. The financial data of
the Company as of September 30, 1996 and for the nine months ended September 30,
1995 and 1996 are derived from unaudited financial statements. The unaudited
financial statements include all adjustments, consisting of normal recurring
accruals, which the Company considers necessary for a fair presentation of the
financial position and the results of operations for these periods. Operating
results for the nine months ended September 30, 1996 are not necessarily
indicative of the results that may be expected for the entire year. The data
should be read in conjunction with the consolidated financial statements,
related notes and other financial information included herein.
<TABLE>
<CAPTION>
NINE
MONTHS
ENDED
SEPTEMBER
SEVEN MONTHS YEAR ENDED DECEMBER 31, 30,
ENDED ------------------------------------------ ---------
DECEMBER 31, 1991 1992 1993 1994 1995(1) 1995
------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Camera rental.................................... $ 30,355 $ 48,511 $ 54,031 $ 61,642 $ 75,083 $ 54,055
Sales and lighting rental........................ 7,544 14,049 12,679 15,458 20,245 15,423
-------- --------- --------- --------- --------- ---------
Total rental revenue and sales................. 37,899 62,560 66,710 77,100 95,328 69,478
Cost of camera rental.............................. 17,369 28,804 28,600 31,293 32,721 23,959
Cost of sales and lighting rental.................. 4,676 9,201 7,832 9,702 11,648 8,659
-------- --------- --------- --------- --------- ---------
Gross margin....................................... 15,854 24,555 30,278 36,105 50,959 36,860
Selling, general and administrative expenses....... 13,782 21,648 18,875 19,210 28,486 21,351
Research and development expenses.................. 1,408 2,000 2,272 2,442 2,986 2,378
-------- --------- --------- --------- --------- ---------
Operating income................................... 664 907 9,131 14,453 19,487 13,131
Net interest expense............................... (3,797) (5,453) (5,229) (5,318) (5,616) (4,373)
Net other income (expense)......................... 728 (1,655) 183 665 415 719
-------- --------- --------- --------- --------- ---------
Income (loss) before non-controlling partners'
interest in PILP and income taxes................ (2,405) (6,201) 4,085 9,800 14,286 9,477
Non-controlling partners' interest in PILP (3)..... (795) (958) (327) (879) (7,348) (3,947)
-------- --------- --------- --------- --------- ---------
Income (loss) before income taxes.................. (3,200) (7,159) 3,758 8,921 6,938 5,530
Income tax (provision) benefit..................... 426 686 (453) (1,843) (1,375) (1,095)
-------- --------- --------- --------- --------- ---------
Net income (loss).................................. $ (2,774) $ (6,473) $ 3,305 $ 7,078 $ 5,563 $ 4,435
-------- --------- --------- --------- --------- ---------
-------- --------- --------- --------- --------- ---------
Net income (loss) per share........................ $ (.18) $ (.42) $ .22 $ .46 $ .36 $ .29
-------- --------- --------- --------- --------- ---------
-------- --------- --------- --------- --------- ---------
Shares used in computation......................... 15,277 15,277 15,277 15,277 15,277 15,277
<CAPTION>
1996(2)
---------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Camera rental.................................... $ 62,814
Sales and lighting rental........................ 22,236
---------
Total rental revenue and sales................. 85,050
Cost of camera rental.............................. 26,980
Cost of sales and lighting rental.................. 13,099
---------
Gross margin....................................... 44,971
Selling, general and administrative expenses....... 21,684
Research and development expenses.................. 3,300
---------
Operating income................................... 19,987
Net interest expense............................... (5,589)
Net other income (expense)......................... 212
---------
Income (loss) before non-controlling partners'
interest in PILP and income taxes................ 14,610
Non-controlling partners' interest in PILP (3)..... (4,500)
---------
Income (loss) before income taxes.................. 10,110
Income tax (provision) benefit..................... (2,012)
---------
Net income (loss).................................. $ 8,098
---------
---------
Net income (loss) per share........................ $ .53
---------
---------
Shares used in computation......................... 15,277
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------
1991 1992 1993 1994 1995 SEPTEMBER 30, 1996
---------- ---------- ---------- ---------- ---------- --------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets..................................... $ 150,990 $ 138,697 $ 140,075 $ 149,707 $ 165,751 $ 164,713
Total current liabilities........................ 13,238 13,017 13,419 18,230 25,162 28,784
Long-term debt................................... 137,000 134,500 131,000 127,000 124,678 110,492
Stockholders' equity (deficiency)................ (5,928) (10,481) (6,706) 922 6,456 24,158
</TABLE>
- ------------------------
(1) Includes operating results of Panavision Canada Corporation, a former agent,
since its acquisition effective January 20, 1995.
(2) Includes operating results of Lee Lighting Limited since its acquisition
effective July 1, 1996.
(3) In the Recapitalization, the Company acquired the non-controlling partners'
interest in PILP effective May 8, 1996. Accordingly, there will be no
further allocation of PILP's income to non-controlling partners.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE
HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO AND
THE OTHER FINANCIAL INFORMATION INCLUDED ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
The Company is a leading designer and manufacturer of high-precision film
camera systems, which it rents to the motion picture and television industries
through its domestic and international owned and operated facilities and agent
network. The Company also rents lighting equipment in the United Kingdom through
Lee Lighting, as well as through two of its owned and operated facilities in
Orlando and Toronto, and manufactures and sells lighting filters and other
color-correction and diffusion filters through Lee Filters.
The Company believes that its future results of operations will be affected
by (i) the number and box-office success of feature film productions in the
North American and international motion picture, television and home video
markets, (ii) the demand for episodic television programs produced on film due
to the increase in the number of cable and network channels, including FOX, WB
and UPN, which require additional original programming, and (iii) the continued
health of the U.S. and U.K. economies, and their effect on spending for
television commercial advertising.
The Company believes there are significant growth opportunities in the North
American and international feature film and commercial markets. Since 1993,
market demand for Panavision's camera systems exceeded the Company's ability to
supply them due to previously limited manufacturing capacity and credit facility
covenants which restricted capital expenditures. In order to address these
constraints, the Company effected its Recapitalization in May 1996, relocated in
June 1996 from its former 75,000 square-foot facility in Tarzana, California to
an upgraded 150,000 square-foot facility in Woodland Hills, California and began
hiring additional manufacturing personnel. The Company estimates that by the end
of 1996, it will have the capacity to manufacture 50% more camera systems
annually than in previous years. The Company is also in the process of hiring
electronic, software and mechanical research and product development personnel
to introduce new rental products more rapidly.
The Company competes in a number of motion picture and television markets
worldwide. In 1995, approximately 65%, 19% and 16% of the Company's pro forma
total revenue was generated from camera rental, lighting rental, and sales and
other revenue, respectively; and 55% and 45% of the Company's pro forma total
revenue was derived from the North American and international markets,
respectively. The chart below illustrates these markets in more detail, based on
estimates derived from the Company's records of its owned and operated
facilities and its estimates of third-party agents' revenue:
<TABLE>
<CAPTION>
PERCENTAGES OF 1995 PRO FORMA TOTAL REVENUE
- ------------------------------------------------------------------------------------------------
NORTH AMERICA INTERNATIONAL TOTAL
--------------------- ----------------- -----
<S> <C> <C> <C>
Camera rental revenue:
Feature films....................................... 22% 9% 31%
Commercials......................................... 9 6 15
Episodic television................................. 13 * 13
Movies of the week.................................. 3 * 3
Other............................................... 3 * 3
-- --
---
Sub-total......................................... 50 15 65
Lighting rental revenue............................... 3 16 19
Sales and other revenue............................... 2 14 16
-- --
---
Total revenue..................................... 55% 45% 100%
-- --
-- --
---
---
</TABLE>
- ------------------------------
* Less than 1%.
15
<PAGE>
In 1995, approximately 77% of the Company's camera rental revenue was
generated in North America. The Company estimates that in 1995 it provided
camera systems to 46% of the feature films produced in North America, which
generated 34% of its camera rental revenue. The television industry is comprised
of commercials, episodic or series programs and movies of the week. The Company
estimates that in 1995 it provided camera systems to 79% of the episodic
programs produced using film in North America, which generated 20% of its camera
rental revenue. The Company also provided camera systems to television
commercial productions in North America, which in 1995 generated 14% of its
camera rental revenue.
The Company also provides camera systems to feature film and television
commercial productions outside of North America primarily in the United Kingdom,
Europe and the Pacific Rim. In 1995, approximately 14% of the Company's camera
rental revenue was generated in the United Kingdom and 9% was generated in all
other territories. The Company estimates that in 1995 it supplied camera systems
to 14% of the feature film productions in the United Kingdom and Europe.
In 1995, North American and international agent camera rental revenue was
$7.5 million, or 10% of camera rental revenue, and $6.5 million, or 9% of camera
rental revenue, respectively. Agents are paid a commission equal to 40% of the
rental revenue generated from their customers. In order to increase its control
over camera systems distribution, in January 1995, the Company acquired
Panavision Canada Corporation ("Panavision Canada"), its Canadian agent, which
operates facilities in Toronto and Vancouver. The Company expects to allocate
the additional camera systems it manufactures primarily to owned and operated
facilities.
In July 1996, the Company acquired Lee Lighting, the largest lighting rental
company in the United Kingdom. In 1995, on a pro forma basis, the Company
estimates that 81% of its lighting rental revenue and 17% of its total revenue
were generated by Lee Lighting. In 1995, on a pro forma basis, approximately 53%
of the Company's sales and other revenue, and 8% of its total revenue, was
generated by Lee Filters, with the remainder of its sales and other revenue
consisting primarily of sales of film stock, consummable lighting products and
Panavision logo merchandise.
Certain of the information contained in this Prospectus under the captions
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business" and summaries thereof regarding the size of the
Company's share of markets in which it participates and information concerning
the definition, size and development of such markets, both domestically and
internationally, are based on estimates prepared by the Company using
information or data derived from various sources. Such information and data and
certain other information under such captions and summaries concerning the
Company's classification of camera rental revenue by market are also based on
assumptions and estimates made by the Company on the basis of its knowledge of
the markets and its business which the Company believes are reasonable.
HISTORICAL RESULTS OF OPERATIONS
The Company is a holding company that owns 100% of the non-voting Class A
and voting Class B limited partnership units of PILP. All business operations of
the Company are conducted within PILP. In May 1996, the Company effected its
Recapitalization, pursuant to which all of PILP's outstanding debt and equity
securities were acquired. Prior to the Recapitalization, the non-controlling
partners owned 70% of the non-voting Class A and 30% of the voting Class B
limited partnership units. However, since the non-controlling partners had a
deficit in their capital accounts at the formation of PILP, such deficit was
allocated entirely to the Company as the general partner of PILP. In addition,
PILP's losses for 1991 and 1992 and distributions made by PILP to various taxing
authorities on behalf of the non-controlling partners were charged to the
Company's capital account. In 1993, 1994 and 1995, as PILP generated earnings
before the non-controlling partners' interest, a portion of their interest in
those earnings was allocated to the Company's capital account to restore the
proportionate amount of the non-controlling
16
<PAGE>
partners' deficits and distributions for taxes previously charged to the
Company's capital account. The significant increase in the non-controlling
partners' interest in PILP from $0.9 million in 1994 to $7.3 million in 1995
reflects the substantial completion of the restoration of the Company's capital
account.
After the Recapitalization, no additional provision for non-controlling
partners' interest in PILP will be made in the Company's statement of
operations.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1995
Camera rental revenue increased $8.7 million, or 16.1%, to $62.8 million for
the nine months ended September 30, 1996 from $54.1 million for the nine months
ended September 30, 1995. The increase resulted primarily from the rental of
newly manufactured camera systems and specialty lenses to supply the increased
demand in the North American and international feature film and commercial
markets as well as the North American episodic television market. Revenue also
increased as a result of a small increase in rental rates.
Sales and lighting rental revenue increased $6.8 million, or 44.2%, to $22.2
million for the nine months ended September 30, 1996 from $15.4 million for the
nine months ended September 30, 1995. This increase was primarily due to the
acquisition of Lee Lighting in July 1996, which resulted in increased sales and
lighting rental revenue of $5.4 million, as well as increased sales of Lee
Filters through the Company's U.S. distribution operation, which contributed
revenue of approximately $1.9 million, partially offset by a decrease of $0.6
million in the North American lighting rental revenue.
Cost of camera rental increased $3.0 million, or 12.5%, to $27.0 million for
the nine months ended September 30, 1996 from $24.0 million for the nine months
ended September 30, 1995. This increase was primarily due to the increase in
maintenance, service and labor costs required to service additional rental
customers. In addition there was a small increase in third-party camera agent
rental commissions and rental asset depreciation.
Cost of sales and lighting rental increased $4.4 million, or 50.6%, to $13.1
million for the nine months ended September 30, 1996 from $8.7 million for the
nine months ended September 30, 1995. This increase was primarily due to the
acquisition of Lee Lighting in July 1996, an increase in the cost of sales
related to the increase in sales of Lee Filters and a small increase in the cost
of sales in the United Kingdom.
Gross margin increased $8.1 million, or 22.0%, to $45.0 million for the nine
months ended September 30, 1996 from $36.9 million for the nine months ended
September 30, 1995. The increase was primarily due to the factors discussed
above.
Selling, general and administrative expenses increased $0.3 million, or
1.4%, to $21.7 million for the nine months ended September 30, 1996 from $21.4
million for the nine months ended September 30, 1995. The 1996 results include a
$1.3 million increase in costs related to the addition of personnel to support
the Company's anticipated revenue growth, costs associated with the June 1996
relocation to the new Woodland Hills facility and a one-time non-cash
compensation charge of $0.6 million for shares of Common Stock issued to certain
members of senior management. Additionally, the acquisition of Lee Lighting
resulted in $0.8 million in selling, general and administrative costs. The 1995
results included non-recurring charges relating to the early lease termination
for the Company's former facility of $2.2 million and the write-down of the
carrying value of certain real property owned by the Company's U.K. rental
operation of $1.4 million.
Research and development expenses increased $0.9 million, or 37.5%, to $3.3
million for the nine months ended September 30, 1996 from $2.4 million for the
nine months ended September 30, 1995. The increase related to additional
personnel costs incurred in connection with the development of a new sync-sound
camera system and a digital video assist device. The Company expects research
and
17
<PAGE>
development costs to continue to increase as the Company hires additional
personnel to develop new specialty lenses and accessory products targeted
primarily to service the feature film and commercial markets.
Operating income increased $6.9 million, or 52.7%, to $20.0 million for the
nine months ended September 30, 1996 from $13.1 million for the nine months
ended September 30, 1995. The increase was primarily due to the factors
discussed above.
Net interest expense increased $1.2 million, or 27.3%, to $5.6 million for
the nine months ended September 30, 1996 from $4.4 million for the nine months
ended September 30, 1995. This increase was the result of additional outstanding
interest-bearing term debt as a result of the Recapitalization.
The effective tax rates for the nine months ended September 30, 1996 and
1995 were 19.9% and 19.8%, respectively, and were lower than the statutory rate
principally due to the reduction in valuation allowance for deferred tax assets.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Camera rental revenue increased $13.5 million, or 21.9%, to $75.1 million
for the year ended December 31, 1995 from $61.6 million for the year ended
December 31, 1994. The increase resulted primarily from the rental of newly
manufactured camera systems and specialty lenses to supply the increased demand
in the North American and United Kingdom feature film and commercial markets as
well as the North American episodic television market. The acquisition of
Panavision Canada in January 1995 resulted in increased camera rental revenue of
$3.7 million during the year. Revenue also increased as a result of a small
increase in rental rates.
Sales and lighting rental revenue increased $4.8 million, or 31.0%, to $20.3
million for the year ended December 31, 1995 from $15.5 million for the year
ended December 31, 1994. The increase was primarily due to an increase in
lighting rental revenue of $3.5 million resulting from the acquisition of
Panavision Canada. The remaining increase was primarily due to a $0.9 million
increase in sales of Lee Filters.
Cost of camera rental increased $1.4 million, or 4.5%, to $32.7 million for
the year ended December 31, 1995 from $31.3 million for the year ended December
31, 1994. The increase is primarily due to additional net operating costs
relating to Panavision Canada.
Cost of sales and lighting rental increased $1.9 million, or 19.6%, to $11.6
million for the year ended December 31, 1995 from $9.7 million for the year
ended December 31, 1994. The increase was primarily due to the $1.8 million in
additional operating costs relating to Panavision Canada and increased cost of
sales in the United Kingdom.
Gross margin increased $14.9 million, or 41.3%, to $51.0 million for the
year ended December 31, 1995 from $36.1 million for the year ended December 31,
1994. The increase was primarily due to the factors discussed above.
Selling, general and administrative expenses increased $9.3 million, or
48.4%, to $28.5 million for the year ended December 31, 1995 from $19.2 million
for the year ended December 31, 1994. The increase was partially due to
non-recurring charges in 1995 including a $1.8 million charge for the early
lease termination for the Company's former facility and a $1.7 million
write-down of the carrying value of certain real property owned by the Company's
U.K. rental operation. Additionally, the acquisition of Panavision Canada
resulted in a $1.7 million increase in selling, general and administrative
expenses. The remaining increase was due to an increase in incentive
compensation costs, the acceleration of the amortization of leasehold
improvements in the Company's former facility and increased marketing costs.
18
<PAGE>
Research and development expenses increased $0.5 million, or 20.0%, to $3.0
million for the year ended December 31, 1995 from $2.5 million for the year
ended December 31, 1994. This increase was due to the addition of staff and
other expenses related to the development of a new camera system, specialty
lenses and accessories.
Operating income increased $5.0 million, or 34.5%, to $19.5 million for the
year ended December 31, 1995 from $14.5 million for the year ended December 31,
1994. The increase was primarily due to the factors discussed above.
Net interest expense increased $0.3 million, or 5.7%, to $5.6 million for
the year ended December 31, 1995 from $5.3 million for the year ended December
31, 1994. The increase was due to interest expense related to Panavision
Canada's credit facility.
The effective tax rates for 1995 and 1994 were 19.8% and 20.7%,
respectively, and were lower than the statutory rate principally due to a change
in the valuation allowance for deferred tax assets and certain other non-taxable
and non-deductible items.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
Camera rental revenue increased $7.6 million, or 14.1%, to $61.6 million for
the year ended December 31, 1994 from $54.0 million for the year ended December
31, 1993. The increase resulted primarily from the rental of newly manufactured
specialty lenses and accessories to supply the increased demand in the North
American and U.K. feature film and commercial markets as well as the North
American episodic television market. Revenue also increased as a result of a
small increase in rental rates.
Sales and lighting rental revenue increased $2.8 million, or 22.0%, to $15.5
million for the year ended December 31, 1994 from $12.7 million for the year
ended December 31, 1993. The increase was primarily due to the increased sales
of Lee Filters and sales of consumable products by the various rental
operations.
Cost of camera rental increased $2.7 million, or 9.4%, to $31.3 million for
the year ended December 31, 1994 from $28.6 million for the year ended December
31, 1993. This increase was primarily due to the increase in maintenance and
service costs required to service additional camera rental customers and
increased rental asset depreciation.
Cost of sales and lighting rental increased $1.9 million, or 24.4%, to $9.7
million for the year ended December 31, 1994 from $7.8 million for the year
ended December 31, 1993. This increase was primarily due to increases in the
cost of sales and lighting rental in the United Kingdom.
Gross margin increased $5.8 million, or 19.1%, to $36.1 million, for the
year ended December 31, 1994 from $30.3 million for the year ended December 31,
1993. This increase was primarily due to the factors discussed above.
Selling, general and administrative expenses increased $0.3 million, or
1.6%, to $19.2 million for the year ended December 31, 1994 from $18.9 million
for the year ended December 31, 1993. This small increase resulted from general
cost increases throughout the Company.
Research and development expenses increased $0.2 million, or 8.7%, to $2.5
million for the year ended December 31, 1994 from $2.3 million for the year
ended December 31, 1993. This increase was primarily due to the development of a
new sync-sound camera system.
Operating income increased $5.3 million, or 57.6%, to $14.5 million for the
year ended December 31, 1994 from $9.2 million for the year ended December 31,
1993. The increase was primarily due to the factors discussed above.
19
<PAGE>
Net interest expense increased $0.1 million, or 1.9%, to $5.3 million for
the year ended December 31, 1994 from $5.2 million for the year ended December
31, 1993. This increase was primarily due to a small increase in the interest
rates on the Company's outstanding debt.
The effective tax rates for 1994 and 1993 were 20.7% and 12.1%,
respectively. The increase in the effective rates for 1994 were primarily due to
federal tax provision which was not fully offset by a reduction in valuation
allowance for deferred tax assets.
PRO FORMA RESULTS OF OPERATIONS
The following pro forma statement of operations information is presented as
if the Recapitalization and the Lee Lighting Acquisition had occurred as of the
beginning of each period presented. The pro forma information is presented for
illustrative purposes only and may not be indicative of the results that would
have occurred if the transactions discussed above had occurred on the dates
indicated or which may be obtained in the future.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
-------------- --------------------
<S> <C> <C> <C>
1995 1995 1996
-------------- --------- ---------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Camera rental........................................................ $ 75,083 $ 54,055 $ 62,814
Lighting rental...................................................... 22,081 16,945 17,260
Sales and other...................................................... 17,913 13,697 15,376
-------------- --------- ---------
Total.............................................................. 115,077 84,697 95,450
Cost of camera rental.................................................. 32,721 23,959 26,980
Cost of lighting rental................................................ 15,550 11,469 11,889
Cost of sales and other................................................ 11,643 8,692 9,331
-------------- --------- ---------
Gross margin........................................................... 55,163 40,577 47,250
Selling, general and administrative expenses........................... 31,427 23,807 23,215
Research and development expenses...................................... 2,986 2,378 3,300
-------------- --------- ---------
Operating income....................................................... 20,750 14,392 20,735
Net interest expense................................................... (9,458) (7,094) (7,109)
Net other income....................................................... 483 755 220
-------------- --------- ---------
Income before income taxes............................................. 11,775 8,053 13,846
Income tax provision................................................... (1,393) (1,056) (2,766)
-------------- --------- ---------
Net income............................................................. $ 10,382 $ 6,997 $ 11,080
-------------- --------- ---------
-------------- --------- ---------
</TABLE>
PRO FORMA NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO PRO FORMA NINE
MONTHS ENDED SEPTEMBER 30, 1995
Camera rental revenue increased $8.7 million, or 16.1%, to $62.8 million for
the nine months ended September 30, 1996 from $54.1 million for the nine months
ended September 30, 1995. The increase resulted primarily from the rental of
newly manufactured camera systems and specialty lenses to supply the increased
demand in the North American and international feature film and commercial
markets as well as the North American episodic television market. Revenue also
increased as a result of a small increase in rental rates.
Lighting rental revenue increased $0.4 million, or 2.4%, to $17.3 million
for the nine months ended September 30, 1996 from $16.9 million for the nine
months ended September 30, 1995. The increase
20
<PAGE>
was primarily due to strong demand in the U.K. feature film and commercial
markets, partially offset by a decrease in the North American lighting rental
revenue of $0.6 million.
Sales and other revenue increased $1.7 million, or 12.4%, to $15.4 million
for the nine months ended September 30, 1996 from $13.7 million for the nine
months ended September 30, 1995. The increase was primarily due to increased
sales of Lee Filters through the Company's U.S. distribution operation.
Cost of camera rental increased $3.0 million, or 12.5%, to $27.0 million for
the nine months ended September 30, 1996 from $24.0 million for the nine months
ended September 30, 1995. This increase was primarily due to the increase in
maintenance, service and labor costs required to service additional rental
customers. In addition, there was a small increase in third-party camera agent
rental commissions and rental asset depreciation.
Cost of lighting rental increased $0.4 million, or 3.5%, to $11.9 million
for the nine months ended September 30, 1996 from $11.5 million for the nine
months ended September 30, 1995. This increase was primarily due to an increase
in the cost of lighting rental at Lee Lighting which related to the increase in
lighting rental revenue.
Cost of sales and other revenue increased $0.6 million, or 6.9%, to $9.3
million for the nine months ended September 30, 1996 from $8.7 million for the
nine months ended September 30, 1995. This increase related to the increase in
sales of Lee Filters and a small increase in cost of sales in the United
Kingdom.
Gross margin increased $6.7 million, or 16.5%, to $47.3 million for the nine
months ended September 30, 1996 from $40.6 million for the nine months ended
September 30, 1995. The increase was primarily due to the factors discussed
above.
Selling, general and administrative expenses decreased $0.6 million, or
2.5%, to $23.2 million for the nine months ended September 30, 1996 from $23.8
million for the nine months ended September 30, 1995. The 1996 results include a
$1.3 million increase in costs related to additional personnel to support the
Company's anticipated revenue growth, costs associated with the June 1996
relocation to new facilities and a one-time non-cash compensation charge of $0.6
million for shares of Common Stock issued to certain members of senior
management. The 1995 results include non-recurring charges relating to the early
lease termination for the Company's former facility of $2.2 million and the
write-down of the carrying value of certain real property owned by the Company's
U.K. rental operation of $1.4 million.
Research and development expenses increased $0.9 million, or 37.5% to $3.3
million for the nine months ended September 30, 1996 from $2.4 million for the
nine months ended September 30, 1995. The increase related to additional
personnel costs incurred in connection with the development of a new sync-sound
camera system and a digital video assist device. The Company expects research
and development costs to continue to increase as the Company hires additional
personnel to develop new specialty lens and accessory products targeted
primarily to service the feature film and commercial markets.
Operating income increased $6.3 million, or 43.8%, to $20.7 million for the
nine months ended September 30, 1996 from $14.4 million for the nine months
ended September 30, 1995. The increase was primarily due to the factors
discussed above.
Interest expense amounts were determined using the assumptions that there
would be $110.0 million in outstanding debt as of the beginning of 1995 and
1996. The interest rates assumed were the rates in effect as of May 8, 1996, the
start of the Company's new credit facility. The same interest expense
calculation was used for each of the pro forma periods presented.
21
<PAGE>
The effective tax rate increased to 20.0% for the nine months ended
September 30, 1996 from 13.1% for the nine months ended September 30, 1995 due
to a change in the mix of North American and international revenue which are
taxed at different effective rates as well as certain non-deductible expenses in
1996 and the reduced impact of changes in valuation reserve for deferred tax
assets.
PRO FORMA YEAR 1995 VS. PRO FORMA YEAR 1994 VS. PRO FORMA YEAR 1993
Camera rental revenue increased $10.2 million, or 15.7%, to $75.1 million
for the year ended December 31, 1995 from $64.9 million for the year ended
December 31, 1994, which was an increase of $7.8 million, or 13.7%, from $57.1
million for the year ended December 31, 1993. The increase in 1995 resulted
primarily from the rental of newly manufactured camera systems and specialty
lenses to supply the increased demand in the North American and U.K. feature
film and commercial markets as well as the North American episodic television
market. The increase in 1994 resulted primarily from the rental of newly
manufactured specialty lenses and accessories to supply the increased demand in
such markets. Revenue also increased in both years as a result of a small
increase in rental prices.
Lighting rental revenue decreased $0.5 million, or 2.2%, to $22.1 million
for the year ended December 31, 1995 from $22.6 million for the year ended
December 31, 1994, which was an increase of $3.6 million, or 18.9%, from $19.0
million for the year ended December 31, 1993. The decrease in 1995 was primarily
due to a decrease in feature film revenue in the United Kingdom. The increase in
1994 was primarily due to increased feature film and commercial demand in the
U.K. and Canadian markets.
Sales and other revenue increased $1.4 million, or 8.5%, to $17.9 million
for the year ended December 31, 1995 from $16.5 million for the year ended
December 31, 1994, which was an increase of $3.0 million, or 22.2%, from $13.5
million for the year ended December 31, 1993. The increase in both years was
primarily due to the increase in sales of Lee Filters and sales of consumable
products by the various rental operations.
Cost of camera rental for 1995 and 1994 was $32.7 million, which was an
increase of $1.5 million, or 4.8%, from $31.2 million for the year ended
December 31, 1993. In 1995, the decrease in camera rental operating costs was
offset by an increase in depreciation of camera rental assets. The increase in
1994 was primarily due to increased camera rental activity in the United
Kingdom.
Cost of lighting rental increased $.6 million, or 4.0%, to $15.6 million for
the year ended December 31, 1995 from $15.0 million for the year ended December
31, 1994, which was an increase of $1.1 million, or 7.9% from $13.9 million for
the year ended December 31, 1993. The increase in both 1995 and 1994 was
primarily due to an increase in the cost of lighting rental in the United
Kingdom. The increase in 1994 was partially offset by a decrease in the cost of
lighting rental in the North American market.
Cost of sales and other revenue increased $0.5 million, or 4.5%, to $11.6
million for the year ended December 31, 1995 from $11.1 million for the year
ended December 31, 1994, which was an increase of $2.0 million, or 22.0% from
$9.1 million for the year ended December 31, 1993. The increase in 1995 was
primarily due to an increase in the cost of sales at Lee Filters in the United
Kingdom. The increase in 1994 was primarily due to an increase in the cost of
sales at Lee Filters and of consumable products in the United Kingdom.
LIQUIDITY AND CAPITAL RESOURCES
The Company has relied primarily upon cash provided by operations to finance
its operations, repay long-term indebtedness and fund capital expenditures
primarily for manufacturing camera rental systems and purchasing other rental
equipment.
In conjunction with the Company's Recapitalization, the Company used
approximately $23.0 million of its cash to repay existing debt, total debt
decreased by approximately $21.7 million and the Company obtained a new credit
facility (the "Credit Facility"), which is comprised of a term loan in the
amount of
22
<PAGE>
$100 million with two $50 million tranches ("Term Loan A" and "Term Loan B") and
a revolving credit facility (the "Revolving Facility") of $20 million.
Borrowings under the Credit Facility at October 29, 1996 were $107.0 million.
Interest is payable at rates equal to a margin, in excess of the prime rate or
LIBOR, which fluctuates directly with the Company's total debt ratio, as defined
in the Credit Facility. The prime rate margin ranges between 0% to 1.25% for the
Term Loan A and the Revolving Facility and between 1.5% to 1.75% for the Term
Loan B. The LIBOR margin ranges between 1.25% to 2.5% for the Term Loan A and
the Revolving Facility and between 2.75% to 3.0% for the Term Loan B. At October
29, 1996, the average interest rate for the borrowings outstanding under the
Credit Facility was approximately 8.37%. Principal repayments under the Credit
Facility are payable quarterly beginning March 1997 through March 2004. The
Company intends to use approximately $40.6 million of the net proceeds from the
Offerings to repay certain amounts outstanding under the Credit Facility. See
"Use of Proceeds." The Company anticipates that its Revolving Facility will be
available for future borrowings. The Company's obligations under the Credit
Facility are secured by substantially all of the Company's assets.
Under the Credit Facility, the Company entered into two interest rate
protection agreements to protect the Company from LIBOR increases. One agreement
covering a notional amount of $45,000,000 expires on June 10, 1997 and protects
the Company from LIBOR increases above 6.44%. The other agreement for a notional
amount of $50,000,000 expires on June 10, 1998 and protects the Company from
LIBOR increases above 7.37%. Since the floor for each of these interest rate
protection agreements is 5.50%, in the event of a LIBOR reduction below this
floor, there would be no benefit to the Company. The Credit Facility also
requires the Company to meet certain financial tests and contains other
restrictive covenants, including certain limitations on the Company's ability to
incur debt, pay dividends, repurchase its equity securities, sell assets and
make investments, acquisitions, dispositions and capital expenditures. The
Credit Facility also requires, upon the occurrence of certain events such as the
sale of assets, the issuance of equity securities, the generation of Excess Cash
Flow (as defined in the Credit Facility) and the incurrence of certain
indebtedness, that a portion of the loans be prepaid. The financial covenants
regarding capital expenditures are significantly less restrictive than those
included in the Company's credit facility prior to the Recapitalization. As a
result of this covenant relief and after repayment of indebtedness with proceeds
of the Offerings, the Company does not believe the covenants will materially
restrict its ability to make capital expenditures and anticipates making
additional capital expenditures to manufacture camera systems at a faster rate
in 1996 than in 1995. In 1996, the Company intends to manufacture 38 camera
systems compared to 24 manufactured in 1995.
As of October 29, 1996, the Company owes approximately $12.0 million and
$0.9 million under subordinated notes payable to Warburg, Pincus and the
Company's senior management, respectively, including accrued interest at a rate
of 6.83% per annum. The Company intends to use approximately $12.9 million of
the net proceeds from the Offerings to repay these notes together with the
interest accrued thereon.
The following table sets forth certain information from the Company's
Consolidated Statement of Cash Flows for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1995 SEPTEMBER 30,1996
------------------- -------------------
(IN THOUSANDS)
<S> <C> <C>
Net cash provided by (used in):
Operating activities............................... $ 34,317 $ 17,645
Investing activities............................... (15,699) (22,483)
Financing activities............................... (9,724) (18,226)
</TABLE>
For the nine months ended September 30, 1996, cash provided by operating
activities was $17.6 million. Net income of $8.1 million, adjusted for
depreciation and amortization of $13.7 million and the non-controlling partners'
interest in PILP of $4.5 million, provided $26.3 million, which was partially
23
<PAGE>
offset by a use of $8.2 million, resulting from the net change in non-cash
working capital items, and miscellaneous non-cash items of $0.5 million. Total
investing activities of $22.5 million were comprised of capital expenditures of
$16.6 million, offset by $1.2 million of proceeds received from the disposition
of certain equipment. The majority of the capital expenditures were used to
manufacture camera rental systems and to purchase other rental equipment, with
approximately $1.0 million incurred to complete the leasehold improvements at
the new facility. The net investing activities also reflect a benefit of $1.0
million for cash on the balance sheet of Lee Lighting which was acquired in July
1996. In addition, $8.1 million was used to acquire the non-controlling
partners' interest in PILP in connection with the Recapitalization. Cash used in
financing activities of $18.2 million was comprised of the reduction in
outstanding borrowings in connection with the Recapitalization and $1.5 million
of distributions to taxing authorities on behalf of the non-controlling partners
in PILP.
For the year ended December 31, 1995, cash provided by operating activities
was $34.3 million. Net income of $5.6 million, adjusted for depreciation and
amortization of $17.5 million, the non-controlling partners' interest in PILP of
$7.4 million and the net change in non-cash working capital items of $3.0
million, provided $33.5 million of the total. Total investing activities of
$15.7 million were comprised of capital expenditures of $19.5 million, offset by
$2.2 million of proceeds received from the disposition of certain equipment.
Approximately $15.5 million of the capital expenditures were used to manufacture
camera rental systems and to purchase other rental equipment and $3.4 million
was incurred for leasehold improvements to renovate the Company's new facility.
The net investing activities also reflect a benefit of $1.6 million for cash on
the balance sheet of Panavision Canada, which was acquired in January 1995.
Financing activities of $9.7 million were comprised of $7.5 million in
repayments of borrowings under the credit facilities existing prior to the
Recapitalization and $2.2 million of distributions to taxing authorities on
behalf of the non-controlling partners in PILP.
The Company intends to use the cash provided by operating activities to make
additional capital expenditures to manufacture camera systems and purchase other
rental equipment. The Company expects to increase capital expenditures from
$19.5 million in 1995 to approximately $25.5 million in 1996 and $31.0 million
in 1997 in order to significantly increase its production of camera systems in
1997 and to provide additional rental and capital equipment for Lee Lighting and
all other Company operations. The Company also intends to increase research and
development expenses incurred in developing new rental products from $3.0
million in 1995 to approximately $3.9 million in 1996 and $4.3 million in 1997.
The Company expects that all research and development expenses and capital
expenditures for 1996 and 1997 will be funded by cash flow from operations.
Additional cash flow provided by operating activities will be used to repay
debt outstanding under the Credit Facility. The Company has commenced
discussions with its lenders to increase its Revolving Facility. The increased
Revolving Facility will be used for general working capital purposes and
potential acquisitions.
The Company believes that its existing working capital together with net
proceeds from the Offerings, borrowings under the Credit Facility and
anticipated cash flow from operating activities will be sufficient to meet its
expected operating and capital spending requirements for at least the next
twelve months.
SEASONALITY
The Company's revenue is subject to small seasonal fluctuations experienced
primarily in the first and second calendar quarters. Feature film and commercial
production activity typically reaches its peak in the third and fourth quarters.
In North America, episodic television programs cease filming in the second
quarter for several months, and typically resume production in August.
24
<PAGE>
IMPACT OF INFLATION
The Company's results of operations and financial condition are presented
based upon historical cost. While it is difficult to accurately measure the
impact of inflation due to the imprecise nature of the estimates required, the
Company believes that the effects of inflation, if any, on its results of
operations and financial condition have been minor.
ACCOUNTING FOR LONG-LIVED ASSETS
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of" (SFAS 121). With the
exception of the impairment loss recognized in 1995 with respect to certain real
property owned by its U.K. rental operation, as discussed above, current and
prior period financial statements have not been affected by the adoption of SFAS
121.
COMPENSATION UNDER STOCK OPTIONS
In connection with the Recapitalization, the Company has granted stock
options to certain members of senior management to acquire 529,875 shares of
Common Stock at $1.22 per share. These options will vest in 1998 or 1999 only if
certain EBITDA and Free Cash Flow targets (as defined) are achieved by the
Company. Accordingly, these options are being treated as variable options and
could result in a significant non-cash compensation charge in 1998 or 1999 if
these performance targets are achieved. The per share compensation charge will
be equal to the difference between the option exercise price of $1.22 and the
quoted market value of the Common Stock in the future when the targets are
achieved.
25
<PAGE>
BUSINESS
OVERVIEW
Panavision is a leading designer and manufacturer of high-precision film
camera systems, comprising cameras, lenses and accessories, for the motion
picture and television industries. The Company's camera systems are not
available for sale and are rented exclusively through its domestic and
international owned and operated facilities and agent network.
Panavision-Registered Trademark- is recognized in the motion picture and
television industries as the preeminent brand name for cinematography equipment.
Since the Company was founded, Panavision has received two OSCARS and 17 Awards
for Scientific and Technical Achievement from the Academy of Motion Picture Arts
and Sciences. Since 1990, two-thirds of the Academy Award nominees for Best
Cinematography, and five of the six cinematographers who have won the OSCAR for
Best Cinematography, used Panavision camera systems.
Panavision camera systems were used to film all of the 1995 top 10 U.S. box
office movies requiring film cameras, including BATMAN FOREVER, APOLLO 13, DIE
HARD WITH A VENGEANCE and ACE VENTURA: WHEN NATURE CALLS. Similarly, many of the
top box office films in 1996, including MISSION: IMPOSSIBLE, INDEPENDENCE DAY,
ERASER, TWISTER, THE ROCK and A TIME TO KILL, were filmed with Panavision camera
systems. In addition to the Company's involvement in the motion picture
industry, a predominant number of U.S. prime time episodic, or "series,"
television programs that are shot on film use Panavision camera systems,
including FRIENDS, SEINFELD, FRASIER and E.R.
The Company believes that its position as an industry leader results from
its broad range of technologically superior and innovative products, its
longstanding collaborative relationships with filmmakers, the breadth of its
inventory of camera equipment and its dedication to customer service. Panavision
is the only supplier of cinematography equipment that manufactures a complete
camera system incorporating its own range of proprietary prime and zoom lenses,
the most critical components of a camera system. The Company continuously
addresses the technical and creative needs of its customers by designing and
manufacturing unique accessories that in many instances have become the industry
standard.
In addition to manufacturing and renting camera systems, the Company also
rents lighting, lighting grip, power generation and related transportation
equipment through Lee Lighting, the largest lighting rental company in the
United Kingdom, as well as through two owned and operated facilities in Orlando
and Toronto. The Company also manufactures and sells lighting filters and other
color-correction and diffusion filters through Lee Filters.
COMPETITIVE STRENGTHS
The Company believes that it is well-positioned to address the needs of
filmmakers throughout the world due to the following competitive strengths:
CONTROL OVER ENTIRE MANUFACTURING AND DISTRIBUTION PROCESS. The Company
manufactures most of its components and products internally and rents its camera
systems directly to customers. This control over the entire process
distinguishes Panavision from its competitors and enables it to protect and
enhance its highly recognized brand name. Through its team of marketing, design,
research and manufacturing personnel, Panavision is the only company to provide
complete systems that integrate fully-compatible cameras, lenses and
accessories. This strategy also enables the Company to (i) rapidly incorporate
technological developments and filmmakers' suggestions into new products, (ii)
maintain product exclusivity and (iii) offer products with greater quality and
higher performance at a competitive price.
REPUTATION FOR QUALITY AND TECHNOLOGICALLY ADVANCED PRODUCTS. The Company
continuously works to provide its customers with the most reliable and
innovative products. This effort has resulted in Panavision's recognition as the
industry leader in the development of high quality, technologically
26
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advanced camera systems. The Company has developed and introduced proprietary
products throughout its history while continuing to upgrade and enhance its
existing product lines as illustrated by its introduction of the Panaflex
sync-sound camera, which won an Academy Award in 1978, and the introduction of
the PRIMO PRIME and PRIMO ZOOM lenses in 1987, which received technical awards
from the Academy of Motion Picture Arts and Sciences in 1990, 1991, 1994 and
1995. Consistent with this tradition, the Company recently introduced the
Panavision/Frazier Lens System and plans to introduce a smaller, lighter and
quieter sync-sound camera in 1997. See "--Products--Research and Product
Development" and "--Camera Systems."
CLOSE RELATIONSHIPS WITH FILMMAKERS. Located near Hollywood, the center of
the U.S. film industry, the Company often develops new product designs in
collaboration with cinematographers, directors and producers to ensure that its
technology serves the needs of its customers. In certain cases, a filmmaker's
association with the Company begins at training and education seminars for film
students that the Company sponsors at its facilities. As a result of these
relationships and its significant research and development activities,
Panavision is better able to continually upgrade its products to meet changing
market demands, thereby reducing obsolescence, achieving better control of
inventory and product availability and providing customers with access to the
latest technological advances. The Company believes that these relationships and
collaborative efforts provide it with a competitive advantage over its
manufacturing competitors, which are located in Munich and Vienna, as well as
over its rental competitors, which do not engage in substantial research and
development activities and must rely instead on third-party suppliers.
RANGE AND DEPTH OF CAMERA EQUIPMENT. The Company has the world's largest
inventory of camera systems with over 800 cameras and 5,000 lenses. It also
offers a broad range of choices, with equipment that is exclusively available
through Panavision and its agents. The Company believes that the range and depth
of its camera inventory provides it with the ability to serve larger, as well as
a greater number of, productions throughout the world than its competitors.
DEDICATION TO CUSTOMER SERVICE. The Company places special emphasis on
customer service. In order to provide filmmakers with a high level of support,
the Company sends marketing representatives and technicians to film production
sites to provide advice or immediate assistance with any equipment needs or
questions. The Company assigns to each filmmaker a sales representative who
possesses particular skills and experience appropriate to that filmmaker's needs
in an attempt to foster a strong working relationship. Many of the Company's
product development, marketing and customer service personnel have been
collaborating with the same filmmakers throughout their careers. See
"--Marketing and Customer Service."
COMPANY STRATEGY
The Company's growth strategy is to manufacture additional camera systems
and value-added proprietary accessories to rent to its existing and new domestic
and international customers. The Company intends to allocate its new camera
equipment and focus its specialized marketing and sales approach specifically to
(i) increase its leading share of the North American feature film market, (ii)
increase its share of the international feature film market with an emphasis on
Europe and (iii) increase its share of the North American and international
commercials markets. The key elements of the Company's strategy are as follows:
INCREASE AVAILABILITY OF EQUIPMENT. Since 1993, the Company's growth has
been inhibited by equipment shortages resulting from limited manufacturing
capacity and capital expenditure constraints imposed by its credit facilities.
With its relocation to a new manufacturing facility, the Recapitalization and
the proceeds from the Offerings, the Company intends to significantly increase
its production of camera systems. The Company believes that this additional
equipment will help it capture a larger share of all markets that it currently
serves, with particular emphasis on the feature film and commercials markets.
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TARGET FEATURE FILM AND COMMERCIAL MARKETS. Increased inventory will allow
the Company to dedicate equipment and marketing efforts toward expanding its
share of the feature film market, both domestically and internationally. The
Company estimates that in 1995, it provided camera systems to 46% of all feature
films in North America which comprised 75% of the major studio feature films and
34% of the independent feature films. The Company estimates that in 1995 it also
supplied camera systems to 14% of all feature films made in the United Kingdom
and Europe. The Company believes that these markets offer significant growth
potential.
Increased inventory also will allow the Company to dedicate equipment and
marketing efforts toward expanding its share of the domestic and international
commercial market. In 1995, the Company provided film camera equipment for the
production of over 1,000 television commercials in the United States and over
500 television commercials internationally. The industry centers for commercial
production are located in New York, London, Paris and Tokyo, where the Company
already has a presence in the rental of film equipment. The Company believes
that, with additional inventory, the commercial market offers substantial
opportunities for the Company to increase its market share.
EXPAND NEW PRODUCT DEVELOPMENT. The Company intends to continue developing
and manufacturing the next generation of technologically superior cameras,
lenses and accessories. In particular, the Company expects to expand its
development of value-added accessories that increase the overall rental price of
the camera package while providing cinematographers and directors with
additional creative tools which are designed to provide a favorable cost/benefit
relationship. Panavision's new Woodland Hills facility has allowed the Company
to hire additional personnel and significantly increase its research and
development of new products in an effort to extend its leadership in technology
and product development and to further strengthen design collaboration with
filmmakers.
CAMERA RENTAL MARKETS
The motion picture and television industries have shown steady growth over
the past several years, and the Company expects the industries to continue to
grow for the foreseeable future. The motion picture industry is comprised of
feature films produced by major studios and independent producers; the
television industry is comprised of commercials, episodic or series programs and
movies of the week ("MOWs").
The Company rents its products through its 10 owned and operated facilities
in the United States, Canada and the United Kingdom, as well as through an agent
network in the United States, Europe, Asia, Australia and Mexico. In 1995,
approximately two-thirds of the Company's camera rental revenue was derived from
productions based in the United States and the remainder was from international
rentals, primarily in the United Kingdom and Europe. The following table depicts
the Company's 1995 camera rental revenue by market, based on estimates derived
from the Company's records of its owned and operated facilities and its
estimates of third-party agents' revenues:
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1995 PRO FORMA REVENUE
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
NORTH % OF TOTAL
AMERICA REVENUES INTERNATIONAL % OF TOTAL REVENUES TOTAL
----------- --------------- ------------- ------------------- ---------
<S> <C> <C> <C> <C> <C>
Camera rental revenue:
Feature films......................... $ 25.2 22% $ 9.9 9% $ 35.1
Commercials........................... 10.6 9 6.2 6 16.8
Episodic television................... 14.5 13 0.4 * 14.9
MOWs.................................. 4.0 3 0.1 * 4.1
Other................................. 3.6 3 0.6 * 4.2
-- --
----- ----- ---------
Sub-total........................... 57.9 50 17.2 15 75.1
Lighting rental revenue................. 4.1 3 18.0 16 22.1
Sales and other revenue................. 1.7 2 16.2 14 17.9
-- --
----- ----- ---------
Total revenue....................... $ 63.7 55% $ 51.4 45% $ 115.1
-- --
-- --
----- ----- ---------
----- ----- ---------
<CAPTION>
% OF TOTAL REVENUES
-------------------
<S> <C>
Camera rental revenue:
Feature films......................... 31%
Commercials........................... 15
Episodic television................... 13
MOWs.................................. 3
Other................................. 3
---
Sub-total........................... 65
Lighting rental revenue................. 19
Sales and other revenue................. 16
---
Total revenue....................... 100%
---
---
</TABLE>
- ------------------------
* Less than 1%.
FEATURE FILMS
The number of major studio feature films produced in North America increased
from approximately 104 in 1992 to approximately 118 in 1995. The number of
independent feature films produced in North America increased from approximately
246 in 1992 to approximately 318 in 1995. The Company estimates that during this
period feature film production activity in the United Kingdom and Europe also
increased, with approximately 500 feature film productions in 1995. Major studio
feature films are typically large-budget productions with camera rental budgets
that require greater depth of product and experienced customer service
personnel. The Company expects that the production of large-budget action films
will continue due in large part to their success in the international theater,
television and home video markets. In 1995, 31% of the Company's total revenue
and 47% of its camera rental revenue were generated from feature films. In
addition, the Company estimates that its camera rental revenue from feature
films has grown 39% since 1992. The Company believes the feature film market,
particularly independent productions, offers significant growth opportunities.
COMMERCIALS
Although commercial shoots generally last for only one to seven days, daily
rental rates for camera systems are equivalent to feature films and represent a
significant part of the camera equipment rental market. Many of the creative
people involved in the filming of commercials seek to distinguish their products
by using innovative techniques requiring technologically advanced equipment--the
ability to achieve a unique "look," which the Company believes can in many cases
only be achieved by using Panavision products. Many feature film directors and
cinematographers began their careers filming television commercials and continue
to be so involved. As such, identification with a brand name product at this
first stage of a filmmaker's professional development often gives rise to
beneficial long-term relationships in the industry. In 1995, approximately 15%
of the Company's total revenue and 22% of its camera rental revenue were
generated from commercials. The Company estimates that its camera rental revenue
from commercials has grown 47% since 1992. The Company believes this market
offers significant opportunities for growth.
EPISODIC TELEVISION
The episodic or series television market in North America is comprised
primarily of dramas, situation comedies and action programs produced on film
which are aired in both prime and non-prime time slots. These programs are
broadcast on the four major television networks as well as on the WB, UPN and
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cable networks. The number of episodic shows produced on film has increased by
approximately 67% since 1992, resulting primarily from the advent of new
broadcast networks and increased original programming on cable networks. Over
the same period, the Company believes that the use of film in episodic
television has increased over videotape because of a number of factors. Film is
an excellent storage or archival medium and may be digitally transferred to
other media, such as the evolving high definition television technologies, with
greater resolution than videotape. The image quality that film offers is very
important to television programs that will be syndicated into many markets. In
contrast, videotape may not be fully compatible with high definition television
and may deteriorate more rapidly over time.
In 1995, approximately 13% of the Company's total revenue and approximately
20% of its camera rental revenue were generated from episodic television. The
Company estimates that it provided camera systems to 79% of the episodic
productions shot on film and that its revenue has grown 38% since 1992. The
Company believes it will continue to make inroads in this market as a result of
new network programming requirements and innovative Panavision products such as
the 3-Perf System, the Pedestal Camera System and a 2,000-foot film magazine.
MOVIES OF THE WEEK
In addition to episodic television, there are also movies of the week shot
for network and cable television. The number of movies of the week productions
in North America has increased from approximately 185 in 1992 to approximately
250 in 1995. However, due to the relatively low budgets associated with these
productions, overall cost is a major factor in the selection of the camera
equipment that is used and, accordingly, the dollar size of this market is
relatively small.
In 1995, approximately 3% of the Company's total revenue and 5% of its
camera rental revenue were generated from movies of the week. The Company
estimates it supplied camera systems to over 55% of movies of the week made in
North America. The Company estimates that its camera rental revenue from movies
of the week has grown 4% since 1992. While the Company will continue to serve
this market, given its size and price sensitivity, the Company expects to focus
on higher-budget productions.
PRODUCTS
RESEARCH AND PRODUCT DEVELOPMENT
The Company is in the process of expanding its research and development
group, which currently comprises approximately 34 mechanical, software,
electronic and optical engineers, draftsmen and machinists. Additionally, the
research and development group has a dedicated machine shop that manufactures
prototype equipment. These internal capabilities enable the Company to develop
proprietary technology in collaboration with filmmakers to address their unique
requirements. Frequently, such collaborations with filmmakers develop into
widely used products such as the Pedestal Camera System, which reduces labor
requirements by combining a film camera with a video pedestal system. Other
examples of such collaboration include an underwater, deep sea camera developed
for the filming of TITANIC, the Panavision/Frazier Lens which allows previously
impossible shots to be made, a system developed for JFK which allow cameras to
be mounted on the hoods and fenders of cars and trucks and digital encoders used
to control pan and tilt motion which facilitated the filming of special effects
in BATMAN FOREVER.
The Company has long been a leader in the research and development of film
camera lenses. Since the first Panavision lens was introduced in 1957, the
Company has introduced many innovative spherical and anamorphic lenses,
including the PRIMO series which won Academy Awards in 1990, 1991, 1994 and
1995. During 1997, the Company expects to complete the development of a new
macro close-focus, wide-angle zoom lens. This new lens is designed to address
the need within the commercial market for a compact lens with the ability to
operate in low light environments and maintain focus at extremely close ranges
(E.G., table-top or other close-up work). In 1997, the Company also plans to
introduce a new
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sync-sound camera which is smaller, lighter and quieter than current Panavision
cameras and incorporates enhanced viewfinding and video monitoring capabilities.
In addition, the Company is in the process of developing a digital video assist
device.
CAMERA SYSTEMS
The Company is the only provider of camera systems with an integrated design
that provides customers with compatible products that are available worldwide.
The Company maintains the largest inventory of motion picture cameras in the
world, with over 800 cameras and 5,000 lenses.
Each camera package is comprised of a number of camera systems, each of
which includes cameras, lenses and accessories. A cinematographer's needs may
include a sync-sound camera, such as the Platinum Panaflex, as well as a
hand-held camera, and a Panastar camera for special effects. Each camera's
rental price includes a variety of accessories such as eyepieces, viewfinders,
cables, brackets and grips. The weekly rental cost of the most popular Panaflex
cameras ranges from approximately $1,000 to $2,000. A number of other
accessories which are considered integral to the camera's operation, such as
magazines, specialized eye-pieces and video-assists, are also available. Rental
prices for these individual accessories range from approximately $100 to $900
per week. Most importantly, each camera system is comprised of a variety of
lenses which will usually include a number of PRIMO PRIME and PRIMO ZOOM lenses.
The rental costs of the PRIMO lenses range from approximately $100 to $1,000 per
week.
CAMERAS. There are two basic types of motion picture cameras--Synchronous,
or "sync-sound," and Mit Out Sound ("MOS"). Sync-sound cameras are used to shoot
pictures while recording dialogue. MOS cameras are used primarily to shoot
high-speed footage and special effects and may also be used as backup cameras in
situations where dialogue is not being recorded. The Company's camera inventory
consists of both sync-sound and MOS cameras with various features and at a range
of prices. While the majority of the Company's sync-sound cameras are 35mm
cameras, the Company also manufactures 16mm cameras, which are used primarily on
episodic television shows, and 65mm cameras, which are used primarily for
special effects and special venue presentations. Panavision has consistently set
industry standards in the design and refinement of cinematography equipment.
The following is a representative listing and description of significant
35mm Panavision cameras:
<TABLE>
<S> <C>
PLATINUM PANAFLEX As the flagship of the Panavision camera line, the
PLATINUM PANAFLEX is used primarily for large-budget
feature films and commercial productions.
GOLDEN PANAFLEX II As the workhorse of the Panavision camera line, the
GOLDEN PANAFLEX II is used across all markets.
GOLDEN PANAFLEX The GOLDEN PANAFLEX is used primarily for episodic
television, movies of the week and low-budget feature
films.
PANASTAR The PANASTAR is a high-speed MOS special effects and
commercial camera.
</TABLE>
The Company's inventory also includes a limited number of non-Panavision
cameras which are used to supplement the Company's product line. Due to its
ability to purchase non-Panavision cameras if there is a business need to do so,
the Company is able to compete with independent renters of cinematography
equipment on the same level and with the same equipment. Its competitors, on the
other hand, do not have a corresponding ability, as Panavision equipment is not
available to rental companies other than the Company's agents.
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LENSES. Panavision develops, designs and manufactures its own prime (fixed
focal length) and zoom lenses, the most critical component affecting picture
quality and an important consideration for the filmmaker. For many years, the
Company specialized in anamorphic lenses, which are used for the wide-screen
movie format. While the Company remains the world's leading supplier of these
lenses, in 1985 a strategic decision was made to design and develop a new series
of prime and zoom lenses specifically for cinematography applications.
Accordingly, the Company created a line of revolutionary spherical lenses for
the non-wide screen format, producing its proprietary PRIMO PRIME and PRIMO ZOOM
lenses. The PRIMO lenses have performance characteristics that exceed the other
lenses available in the marketplace.
The following table describes the most important lenses developed and
manufactured by the Company:
<TABLE>
<S> <C>
PRIMO PRIMES PRIMO PRIME lenses are color-matched, high-contrast and
resolution spherical lenses ranging from 10mm to 150mm.
They are also available in anamorphic lenses.
PRIMO ZOOMS: PRIMO ZOOM lenses have performance equal to the PRIMO
PRIMO 3:1 ZOOM LENS PRIMES, enabling seamless intercutting. Due to the PRIMO
PRIMO 4:1 ZOOM LENS ZOOM lenses' flexibility, they are suitable for virtually
PRIMO 11:1 ZOOM LENS any type of production.
PANAVISION/FRAZIER LENS This new lens system is extremely versatile and enables a
SYSTEM continual image rotation while the camera system remains
stationary in extreme depth of field, allowing previously
impossible camera shots and placements to be made.
</TABLE>
ACCESSORIES. In order to provide its customers with a fully integrated
camera system, the Company frequently introduces new camera accessories and
currently offers an extensive range of products requested by and developed in
conjunction with filmmakers. Certain accessories may reduce overall production
costs by lowering the labor intensiveness of the production process and thereby
decreasing the shooting days. Moreover, an accessory product often achieves such
widespread acceptance among the Company's customers that the Company
incorporates it into the base camera package, thereby increasing the overall
package price.
The following list and descriptions provide a sample of the hundreds of
accessories the Company offers as part of its camera systems and illustrate the
range of accessories available:
<TABLE>
<S> <C>
PANAVISION COLOR VIDEO The PANAVISION COLOR VIDEO ASSIST captures a video image
ASSIST of the scene being filmed, which can be simultaneously
monitored by the director. It comes in a compact package
utilizing the latest technology in video cameras and
processing.
PEDESTAL CAMERA SYSTEM The PEDESTAL CAMERA SYSTEM was developed to shoot multi-
camera television shows enabling a single operator to
control the entire camera system.
FTZSAC FTZSAC, or Focus, T-Stop, Zoom, Speed Aperture Control,
is a digital remote control system.
SUPER PANAHEAD The camera body is mounted to a SUPER PANAHEAD (geared
head), which is used to control the panning and tilt
motion of the camera.
MAGAZINES Magazines are used with every camera system to hold film
and are available in 250, 500, 1,000 and 2,000 foot
sizes.
</TABLE>
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EQUIPMENT INVENTORY MANAGEMENT
The Company developed and uses a proprietary computerized inventory control
and management system to track its camera equipment. Each camera, lens and
accessory is serialized for identification purposes and bar coded to initiate
and expedite the billing process. This system enables the Company to locate its
camera equipment at all times anywhere in the world. Camera equipment
utilization is centrally monitored at the Company's headquarters to determine
(i) which products are in highest demand in various geographic markets and
whether certain equipment should be relocated to increase utilization and
revenue, (ii) whether product shortages that require the production of
additional units exist and (iii) whether current pricing is at the appropriate
level for a particular camera system or an individual value-added product.
The maximum utilization rates of the Company's equipment are affected by
production scheduling requirements of the motion picture and television
industries. Utilization rates are also limited by the need for maintenance and
service, time required by film crews to "prep" their camera systems and shipping
time. The Company's inventory control system helps the Company maximize its
utilization rates in light of these factors in order to satisfy customer
requirements while maximizing revenue.
MANUFACTURING AND ASSEMBLY
The Company manufactures and assembles its products in Woodland Hills,
California. The Company develops and designs all the critical components for its
camera systems, including the camera movement and lens. An entire camera system
consists of hundreds of parts, each carefully produced, assembled and tested.
The manufacturing process takes up to four months and primarily involves the
fabrication and assembly of camera and lens components by over 100 highly
skilled workers, each of whom generally has an area of specialization. Following
the assembly process, each camera system is rigorously tested to achieve the
high standard of performance that customers expect from Panavision.
While the Company manufactures most of the components internally, certain
components and sub-assembly work, including glass grinding, lens element
polishing and die casting, are outsourced to selected suppliers. The Company has
developed long-term relationships with its significant suppliers and believes
that they will continue to supply high-quality products in quantities sufficient
to satisfy its requirements. Since certain components, particularly the lens
element, require long lead times, precise production schedules are critical.
Inventory levels are determined based on input from marketing, operations and
the agent network. The Company maintains a fairly constant production schedule
in order to efficiently utilize its resources and service its customers'
requirements.
MARKETING AND CUSTOMER SERVICE
The principal decisionmakers in the selection of camera packages are
cinematographers, directors and producers, who view their cameras and related
equipment as critical artistic tools. Camera packages typically comprise a very
small percentage of a production budget, ranging on average from approximately
4% for commercials to less than 1% for large-budget action films. Accordingly,
absent budget constraints, the selection of equipment is driven by its
suitability, technological capabilities and reliability, as well as by the
degree to which the manufacturer or renter is able to rapidly service the
technical needs of the filmmaker, both before and during film production.
The Company's skilled sales representatives have established close working
relationships with numerous filmmakers. To cultivate these relationships, the
Company assigns each filmmaker a sales representative who possesses the
experience and skills that match the needs of the filmmaker. Based on
discussions with the filmmaker, the sales representative recommends a camera
package tailored to achieve the filmmaker's desired visual effect and meet the
production budget. In addition, sales representatives provide further advice and
support by visiting film production sites. As a result of providing high-quality
customer service, many of the Company's representatives have been working with
the
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same filmmakers throughout their careers and in some instances the collaborative
effort with a filmmaker has led to new product designs.
After preliminary decisions have been made with respect to the proper camera
systems, the camera equipment will be delivered to a preparation room reserved
for that filmmaker. The filmmaker, together with his own and Panavision's
representatives, may then inspect the equipment as well as test and experiment
with its use at the facility's prep floor, sound stage, filming studio and
screening room.
DISTRIBUTION
Camera packages are rented to the motion picture and television industries
through rental houses owned and operated by the manufacturer as well as by
independent agents. These rental houses serve as a single point of contact for
the cinematographers and often provide services including maintenance and
technical advice. Panavision is the only manufacturer to have a significant
portion of its revenue generated through owned and operated rental houses,
primarily because of the Company's choice not to sell its equipment. The Company
does not currently intend to begin selling its camera systems.
Panavision owns and operates camera rental facilities domestically in
Woodland Hills and Hollywood, California, Orlando, Florida and Wilmington, North
Carolina and internationally, in Toronto and Vancouver, Canada, Dublin, Ireland
and London (two) and Manchester, United Kingdom. The Orlando and Toronto
facilities also provide lighting, lighting grip and power generation equipment.
In addition to its owned and operated facilities, the Company serves its
customers through a network of domestic and international third-party agents who
are responsible for the rental of the Company's equipment in locations that are
not serviced by the owned and operated facilities. Agents pay 60% of their
rental revenue to the Company and retain the other 40%, which is charged as a
commission expense in the Company's statement of operations. The Company uses 11
third-party agents to facilitate the rental of its products, accounting for
approximately 12% of the Company's revenue in 1995. All of the Company's agents
are well-versed in the use of Panavision equipment and are supported by the
Company's technical staff.
The Company's domestic third-party agent network includes agents in Atlanta,
Chicago, Dallas, Miami, New York and San Francisco. In addition, the Company has
an international agent network that includes agents in Canada, Mexico, France,
Italy, Spain, Australia, Hong Kong, Japan and South Africa. The Hong Kong agent
has offices in China, Thailand, Malaysia and the Philippines, while the
Australian agent also maintains an office in New Zealand.
For information as to the Company's operations in different geographical
areas, see Note 9 of Notes to the Consolidated Financial Statements of the
Company.
COMPETITION
The market for high-precision cinematography equipment is highly
competitive, primarily driven by technology, customer service and, to a lesser
extent, price. As a manufacturer of cinematography equipment, the Company's
primary competitors are Arriflex, based in Munich, Germany, and Moviecam, based
in Vienna, Austria. Both of these companies manufacture only cameras and certain
accessories, primarily for sale to rental houses and individuals, who are not
the end users. Because it manufactures lenses, cameras, and a full range of
accessories, has close relationships with filmmakers and has in-house design and
manufacturing capabilities, the Company believes that it is better able to
provide the innovative camera systems demanded by its customers.
As a renter of cinematography equipment, the Company competes with numerous
rental facilities which must purchase their equipment from other manufacturers
and then rent that equipment to their
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customers. While the overall rental business is price competitive and subject to
discounting, the Company has chosen to compete on the basis of its large
inventory base, technologically advanced proprietary products, broad product
line, extensive sales and marketing force and commitment to customer service.
The Company believes that, as the manufacturer, it is able to respond to many
user requests on shorter notice than its rental competitors.
In addition to its existing competitors, the Company may encounter
competition from new competitors, as well as from new types of equipment. There
can be no assurance that the Company will be able to continue to develop,
manufacture and market its products successfully against existing or new
competitors.
LIGHTING RENTAL
The Company rents lighting, lighting grip, transportation and distribution
equipment and mobile generators used in the production of feature films,
television programs and commercials, outside broadcasts and other events from
its operations located in the United Kingdom, Canada and Florida. In addition,
the Company sells consumable products including lighting filters, light bulbs
and gaffer tape, which are used in all types of production. Effective July 1,
1996, the Company owns Lee Lighting, which in 1995 had revenue of approximately
$19.7 million. The Company's other lighting rental operations in Canada and
Florida had combined 1995 revenue of approximately $4.8 million.
LEE LIGHTING
Lee Lighting is the largest lighting rental operation (based on equipment
rental inventory) in the United Kingdom. Lee Lighting purchases lighting
equipment, lighting grip equipment and generators from independent manufacturers
to maintain and build its rental asset base. Lee Lighting currently has the
largest inventory of lampheads, the core element of lighting equipment used by
filmmakers in all areas of the industry, in the United Kingdom. This large
rental asset base and Lee Lighting's experienced management and electricians
allow it to service a number of films which may be shooting concurrently. Lee
Lighting operates lighting rental operations in London, Bristol, Manchester and
Glasgow, which have their own rental inventories. From these four locations, Lee
Lighting is able to service any production in England, Wales or Scotland. In
addition, Lee Lighting maintains a rental base at Shepperton Studios, the second
largest studio complex in the United Kingdom for the production of feature
films.
Lee Lighting also supplies equipment to any U.K.-based production crew which
desires to shoot all or part of a production in Europe, South America or Africa.
Typically, Lee Lighting does not service locally based productions outside of
the United Kingdom, except occasionally in Ireland. Recently, Lee Lighting has
supplied the entire lighting needs of such major feature films as FOUR WEDDINGS
AND A FUNERAL, JUDGE DREDD, ROB ROY, MISSION: IMPOSSIBLE and, scheduled to be
released later in 1996, 101 DALMATIANS, EVITA and THE SAINT.
In addition to providing lighting equipment, Lee Lighting also supplies
power generation and power distribution equipment, which is customized by the
Company's in-house electricians. Industry demand has resulted in smaller
generators capable of producing power more than or comparable to larger models
due to space limitations in many filming locations. Lee Lighting has been very
responsive to this need and recently customized a set of twin 220 kilowatt
generators able to be transported to a film location on a single truck.
COMPETITIVE STRENGTHS. The Company believes Lee Lighting is well-positioned
in the U.K. lighting rental industry because of the following competitive
strengths:
REPUTATION FOR OUTSTANDING SERVICE. Over the last two decades Lee Lighting
has developed a reputation among U.K. producers of feature films, television
programs and commercials for providing outstanding service. Lee Lighting is
the only lighting company in the United Kingdom which
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<PAGE>
supplies its own electricians in connection with the rental of its
equipment. Many of the major U.K. feature film producers regularly use Lee
Lighting's equipment and the services of its skilled gaffers and
electricians. This service force is on call 24 hours a day, seven days a
week and is supplemented by freelance labor when required. This affords Lee
Lighting the competitive advantage of providing customers with a higher
quality and more consistent service, critical to success in capturing
feature film work. Many of Lee Lighting's technicians are considered to be
among the best in the film industry and their services are requested by some
of the world's leading cinematographers.
DEPTH OF INVENTORY. Lee Lighting maintains the largest rental asset base of
lighting equipment, transport, mobile generators and power distribution
equipment in the United Kingdom. This permits Lee Lighting to service as
many as 15 feature films at the same time. The Company believes that its
extensive inventory of equipment provides it with an important competitive
advantage. Its substantial inventory enables Lee Lighting to service
projects with large-scale equipment and personnel requirements, such as
feature films and outside broadcasts, while still maintaining sufficient
capacity to simultaneously service other projects. Lee Lighting believes
that its position as the inventory market leader makes it the only source
for certain large-scale projects. Lee Lighting intends to add to its rental
asset base while actively pursuing opportunities to increase its share in
the U.K. feature film market as well as the television market, including
commercials and television broadcasts.
EXPERIENCED MANAGEMENT. Lee Lighting currently employs senior management
who have developed important contacts in the U.K. motion picture and
television industries over many years. Under this management there is a
sizable field force of gaffers and electricians who work exclusively for Lee
Lighting.
INDUSTRY BACKGROUND AND COMPETITION. Lee Lighting services both the motion
picture and television industries, including studio programs, outside
broadcasts, commercials and made-for-television movies (equivalent to movies of
the week). These markets require a similar range of lighting products and
related support equipment; however, feature films and episodic television
programs generally require larger equipment packages than commercials. Equipment
packages are frequently determined by the producer, director or cinematographer,
who may desire a specific type of image or lighting effect.
Although Lee Lighting is the largest lighting rental company in the United
Kingdom, the rental lighting market is price competitive. Lee Lighting estimates
that it and three other companies comprised a substantial majority of the
aggregate market share in the United Kingdom in 1995; the remainder of the
market is shared among many smaller companies.
LEE FILTERS
Lee Filters is a manufacturer of light control media for the motion picture,
television and theater industries. Sales of filters or gels used by lighting
directors to control or correct lighting conditions during productions comprise
80% of Lee Filters' business. The balance consists of photographic filters and
related products. In 1995, Lee Filters' revenue was approximately $10.0 million.
Lee Filters' lighting filters are available in a wide range of colors and
applications. These lighting filters are made either from polyester or
polycarbonate film purchased from U.K. and European petrochemical companies. Lee
Filters' range of light control filters includes tungsten conversion, daylight
conversion, arc correction, fluorescent, diffusion and ultraviolet grades. The
film base is impervious to water, is totally transparent and has a high melting
point, making it ideal for the manufacture of filter systems. Rolls of film are
coated on both sides with specially prepared lacquers which give them exactly
the color or light management properties demanded by the user. The color
formulas are proprietary to Lee Filters and are computer filed to ensure exact
reproduction from one batch to the next.
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Lee Filters also makes still photographic resin and polyester filters and a
camera filter holder system for amateur stills photographers, and produces
bellows for still camera manufacturers.
Lighting filter distribution is handled primarily through a network of third
party dealers who have been selected because of their specific knowledge of the
filters market in their respective countries. Approximately 60% of Lee Filters'
sales are in the United Kingdom and Europe. In the United Kingdom, Lee Filters
sells on a direct basis to end users and rental houses as well as to
distributors and dealers. In Europe, Lee Filters has distributors in France,
Germany, Italy, Spain, Benelux, Portugal, Scandinavia and Switzerland.
Approximately 25% of Lee Filters' sales are generated in North America where
it has established distribution operations in Burbank, California and Teterboro,
New Jersey to service U.S. dealers. A third party distributor has been
established in Toronto to serve the Canadian market. The remaining 15% of sales
are generated primarily in Japan, Hong Kong, Singapore and Australia.
COMPETITIVE STRENGTHS
WIDE RANGE OF FILTER TYPES AND COLORS. Lee Filters believes it manufactures
more types of filters and a wider range of colors than its competitors and is
the only company which does not sell on a private label basis to others. Lee
Filters does not resell filters made by other manufacturers, thereby enabling it
to maintain better quality control.
LARGE INVENTORY. Lee Filters maintains a sizable inventory of filters in
three locations in order to provide same-day service to production companies.
This is especially important in servicing feature films while on location.
Quality and availability of product are the principal reasons Lee Filters is a
preeminent supplier to the U.K., European and U.S. feature film industry.
Lee Filters intends to expand its position in lighting filters for the film,
television and theater markets by improving its distribution and dealer network,
particularly in North and South America and in the Far East. In addition, it
plans to increase its product offerings on a selective basis to the stills
photography market in the United Kingdom and the United States.
COMPETITION
Lee Filters has one principal competitor and several smaller competitors.
Some of these competitors are contract processors or coaters who supply the end
user through other distributors, and some are sales companies which usually
purchase and resell filters. Its principal competitor offers a full range of
filters, some of which are made in-house and some of which are purchased.
INTELLECTUAL PROPERTY
The Company owns or otherwise has rights to patents and trademarks used in
conjunction with the manufacture and rental of its products, including
Panavision-Registered Trademark-, PRIMO ZOOM-Registered Trademark-,
Panaflex-Registered Trademark-, Panahead-Registered Trademark-,
3-Perf-Registered Trademark- and Panastar-Registered Trademark-. Proprietary
protection for the Company's products and know-how is important to the Company's
business. Accordingly, the Company's policy is to prosecute and enforce its
patents and proprietary technology. The Company intends to continue to file
patent applications to protect technology, inventions and improvements that are
considered important to the development of its business. In addition, the
Company relies upon trade secrets, know-how, continuing technological innovation
and licensing opportunities to develop and maintain its competitive position. To
the Company's knowledge, there are no claims or suits threatened, pending or
contemplated against it for infringement of any patents or trademarks.
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PROPERTIES
The Company's headquarters is located at its 150,000 square-foot facility in
Woodland Hills. In addition, the Company operates rental facilities in Woodland
Hills and Hollywood, California, Orlando, Florida and Wilmington, North
Carolina. The Company is in the process of expanding its Hollywood facility,
which it expects to complete by the end of 1996. To service its international
markets, the Company operates rental facilities in Toronto and Vancouver,
Canada, Dublin, Ireland and London (two) and Manchester, England. Lee Lighting
operates rental facilities in London, Bristol and Manchester, England and
Glasgow, Scotland. Lee Filters' manufacturing facility is located in Andover,
England. All of the Company's facilities are leased, with the exception of two
of the Company's greater London facilities and its facility in Glasgow, which
are owned.
ENVIRONMENTAL MATTERS
The Company's manufacturing operations are subject to foreign, federal,
state and local environmental laws and the Company has made, and will continue
to make, expenditures to comply with those laws. In addition, environmental laws
can impose liability on present and former real property owners or operators,
without regard to fault or legality of the original actions, for the cost of
cleaning up or removing contamination caused by hazardous or toxic substances.
The Company expects to spend approximately $2.0 million at its Andover, England
facility during 1997 and 1998 to meet anticipated air emissions requirements in
the United Kingdom. Although no other material capital or operating expenditures
relating to environmental controls or other environmental matters are currently
anticipated, there can be no assurance that the Company will not be required to
make material expenditures in the future relating to environmental matters.
EMPLOYEES
As of September 30, 1996, the Company had a total of approximately 782
full-time employees, consisting of 357 employees based in the United States, 61
employees based in Canada, 356 employees based in the United Kingdom and eight
employees based in France. The Company is not a party to any collective
bargaining agreements. The Company believes that its relationships with its
employees are good.
LITIGATION
The Company is not engaged in any legal proceedings other than ordinary
routine litigation incidental to its business.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the
executive officers and directors of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------- --- -------------------------------------------
<S> <C> <C>
William C. Scott........................... 62 Chairman of the Board of Directors and
Chief Executive Officer
John S. Farrand............................ 52 President, Chief Operating Officer and
Director
Jeffrey J. Marcketta....................... 41 Executive Vice President, Chief Financial
Officer and Treasurer
Christopher M.R. Phillips.................. 36 Controller and Secretary
Sidney Lapidus............................. 59 Director
Martin D. Payson........................... 60 Director*
Joanne R. Wenig............................ 41 Director
</TABLE>
- ------------------------
*Mr. Payson is not yet a director but has agreed to become a director upon
completion of the Offerings.
WILLIAM C. SCOTT has been the Chairman and Chief Executive Officer of the
Company since 1988. From 1972 until 1987, Mr. Scott was President and Chief
Operating Officer of Western Pacific Industries Inc., a company listed on the
NYSE. Prior to 1972, Mr. Scott was a Group Vice President of Cordura Corporation
(a business information company) for three years, a Vice President of Booz Allen
& Hamilton Inc. (management consulting firm) for five years and an
owner/operator of several small businesses for eight years.
JOHN S. FARRAND has been the President and Chief Operating Officer of the
Company since 1985. From 1980 to 1985, Mr. Farrand was employed by Warner
Communications Inc. in several senior executive positions. He was President of
their Atari Coin-Operated Games Division and subsequently was appointed
President and Chief Operating Officer of Atari Holdings, Inc. Prior to 1980, Mr.
Farrand spent 14 years with Music Hire Group Limited, a U.K. company
specializing in coin-operated music systems (juke boxes), and since 1973 served
as Managing Director. Mr. Farrand is a member of the Academy of Motion Picture
Arts and Sciences, a member of the Society of Motion Picture and Television
Engineers and an associate member of the American Society of Cinematographers.
JEFFREY J. MARCKETTA has been Executive Vice President and Chief Financial
Officer of the Company since 1993 and Treasurer since 1996. From 1991 to 1993,
Mr. Marcketta served as the President of Panavision Europe Limited, a wholly
owned subsidiary of the Company, and was responsible for the general management
of the Company's European operations. From 1989 until 1991, he was Vice
President of Corporate Development, assisting the Chief Executive Officer in the
restructuring and rationalization of the Company's business operations. Prior to
joining the Company in 1989, he worked for Ernst & Young LLP for almost ten
years, the last three of which were spent in the Mergers and Acquisitions
Consulting Group of the New York office.
CHRISTOPHER M.R. PHILLIPS has served as Controller of the Company since 1993
and Secretary since 1996. Mr. Phillips was the controller for the domestic
operations of the Company from 1989 to 1993 and the assistant controller for the
domestic operations of the Company from 1986 to 1989.
SIDNEY LAPIDUS has been a director of the Company since 1990. Mr. Lapidus
has been employed since 1967 by E.M. Warburg, Pincus & Co., Inc., a private
investment firm, where he has served as a Managing Director since 1982. He is
also a director of Renaissance Communications Corp., Pacific Greystone
Corporation, Caribiner International, Inc. and a number of privately held
companies.
MARTIN D. PAYSON will serve as a director of the Company upon completion of
the Offerings. Mr. Payson has been active in investment and philanthropic
activities since December 1992. From January
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1990 to December 1992, he was Vice Chairman of the Board of Directors of Time
Warner, Inc., and from 1970 to December 1990, he was an executive officer of
Warner Communications Inc. Mr. Payson is a director of Ithaca Holdings, Inc.,
Meridian Sports, Inc. and Renaissance Communications Corp.
JOANNE R. WENIG has served as a director of the Company since 1990. Ms.
Wenig has been employed since 1986 by E.M. Warburg, Pincus & Co., Inc., a
private investment firm, where she has served as a Managing Director since 1991.
She is also a director of Renaissance Communications Corp. and a number of
privately held companies.
The Company expects to appoint one additional independent director.
Each director serves until the expiration of his or her term and thereafter
until his or her successor is duly elected and qualified. Pursuant to a
stockholders agreement, Warburg, Pincus and management have the right to
designate five persons to be appointed or nominated to the Company's Board of
Directors. See "--Stockholders Agreement." Executive officers of the Company are
elected annually by the Board of Directors and serve at its discretion or until
their successors are duly elected and qualified.
OTHER KEY EMPLOYEES
The following individuals are key employees within the Company's Woodland
Hills division. A brief description of their responsibilities is provided below.
PHILIP RADIN has been Executive Vice President Marketing for the Woodland
Hills division of the Company since 1989. Mr. Radin joined Panavision as a
trainee in 1975. During his first five years with the Company, he was
responsible for instructing film crews on the use and benefits of Panavision
products. In 1980, he became the manager of the camera rental department and in
1986 became a Vice President Marketing.
ROBERT HARVEY has served as Vice President Sales for the Woodland Hills
division of the Company since he joined Panavision in 1985. He has managed the
expansion into new markets, including independent feature films, television
movies and syndicated projects for television. From 1979 through 1985, Mr.
Harvey worked as Director of Sales for the Atari Coin-Operated Games Division.
Mr. Harvey is a member of the Screen Actors Guild and has served on numerous
industry boards and steering committees.
LARRY HEZZELWOOD has been Vice President Marketing & Operations for the
Woodland Hills division of the Company since 1991. He joined Panavision in 1975
where he worked in Panavision's camera rental department for five years before
moving to Paramount Pictures Corporation to manage its camera department. In
1985, Mr. Hezzelwood became a freelance assistant cameraman. In 1989 Mr.
Hezzelwood returned to Panavision, and he assumed his current position of Vice
President Marketing and Operations in 1991.
IAIN NEIL has served as Senior Vice President Optics for the Woodland Hills
division of the Company since he joined Panavision in 1986 after spending two
years with Hughes ELCAN Optical Technologies in Toronto and eight years at Barr
& Stroud Limited in Scotland as head of optical design. Mr. Neil holds over 150
existing worldwide patents and is the recipient of six awards for lenses and
optical systems from the Academy of Motion Picture Arts and Sciences. He is
currently a member of the International Society for Optical Engineering, the
Optical Society of America, the American Society of Cinematographers and the
Academy of Motion Picture Arts and Sciences.
COMMITTEES OF THE BOARD OF DIRECTORS
After the completion of the Offerings, the Board of Directors of the Company
will have three standing committees: the Audit Committee, the Compensation
Committee and the Stock Option Committee.
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<PAGE>
The Audit Committee will have general responsibility for supervision of
financial controls, as well as for accounting and audit activities of the
Company. The Audit Committee will annually review the qualifications of the
Company's independent certified public accountants, make recommendations to the
Board of Directors as to their selection and review the planning, fees and
results of their audit. The Audit Committee will consist solely of certain
independent directors as and when elected. The Compensation Committee will make
recommendations regarding the compensation and benefit polices and procedures of
the Company. The Stock Option Committee will determine grants under the
Company's stock option plan. See "--Compensation Pursuant to Plans."
DIRECTORS' ANNUAL COMPENSATION
During 1995, members of the Board of Directors received no directors' fees.
The Company is obligated to reimburse its Board members for all reasonable
expenses incurred in connection with their attendance at directors' meetings.
Following the Offerings, independent directors will receive an annual fee of
$20,000 and a meeting fee of $1,000 for each committee meeting held separately.
All directors will be reimbursed for out-of-pocket expenses. Under the Stock
Option Plan, the Company may, from time to time and in the sole discretion of
the Board of Directors, grant options to directors.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table sets forth information
regarding the compensation of the Company's Chief Executive Officer and its
other executive officers for the fiscal year 1995:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------
<S> <C> <C> <C> <C>
OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION(2)
- ---------------------------------------------------------- --------- ----------- ------------- -----------------
William C. Scott.......................................... 1995 $ 600,000 $ 1,172,000 $ 6,930
Chairman of the Board of
Directors and Chief
Executive Officer
John S. Farrand........................................... 1995 400,000 785,000 6,930
President and Chief
Operating Officer
Jeffrey J. Marcketta...................................... 1995 218,769 314,000 6,930
Executive Vice President
and Chief Financial Officer
Christopher M.R. Phillips................................. 1995 88,077 45,000 4,842
Controller
</TABLE>
- ------------------------
(1) Paid pursuant to the Company's Executive Incentive Compensation Plan. See
"--Compensation Pursuant to Plans--Executive Incentive Compensation Plan."
(2) Consists of matching contributions by the Company under its 401(k) plan.
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<PAGE>
COMPENSATION PURSUANT TO PLANS
STOCK OPTION PLAN
In connection with the Recapitalization, the Board of Directors adopted and
the stockholders approved the Company's stock option plan (the "Stock Option
Plan"). The Stock Option Plan is open to participation by directors, officers,
consultants, other key employees of the Company or of its subsidiaries and
certain other key persons who the Stock Option Committee determines shall
receive options under the Stock Option Plan, except members of the Stock Option
Committee.
The Stock Option Plan authorizes (i) the grant of options to purchase Common
Stock intended to qualify as incentive stock options ("Incentive Options"), as
defined in Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code") and (ii) the grant of options that do not so qualify ("Non-Statutory
Options"). The number of shares of Common Stock reserved for issuance under the
Stock Option Plan is 2,190,150 shares. As of October 29, 1996, options to
purchase an aggregate of 1,766,250 shares having an average exercise price of
$1.22 per share were outstanding under the Stock Option Plan. In connection with
the Recapitalization, Messrs. Scott, Farrand, Marcketta and Phillips received
options to purchase 576,681, 726,812, 224,314 and 19,076 shares, respectively,
at an exercise price of $1.22 per share. No stock options were granted in 1995.
No options have been exercised under the Stock Option Plan, and options to
purchase 423,900 shares were available for grant under the Stock Option Plan.
The Stock Option Plan expires in 2006.
The exercisability of options granted to the Company's executive officers is
subject to vesting conditions, which may be accelerated upon satisfaction of
certain performance conditions as described below. Options for 1,236,375 shares
will vest at the end of eight years from the date of grant. Of these options,
options for 353,250 shares will vest upon the completion of the Offerings and
options for up to 300,263, 300,263 and 282,600 shares will vest if the Company
achieves EBITDA (as defined) of $42.6 million, $50.4 million and $55.2 million,
respectively, or Free Cash Flow (as defined) of $27.3 million, $30.7 million and
$34.0 million, respectively, during its years ending December 31, 1996, 1997 and
1998, respectively. Additional options for 529,875 shares will vest only if the
Company achieves EBITDA (as defined) of $62.0 million in its year ending
December 31, 1998 or the lower amount of $65.0 million or a 10% increase of its
actual 1998 EBITDA in its year ending December 31, 1999. See Note 7 of Notes to
Consolidated Financial Statements.
The Stock Option Plan is administered by a Stock Option Committee appointed
by the Board of Directors of the Company. The Stock Option Committee has the
sole authority, in its absolute discretion: (i) to determine which of the
eligible employees of the Company and its subsidiaries shall be granted options,
(ii) to authorize the granting of both Incentive Options and Non-Statutory
Options, (iii) to determine the times when options shall be granted and the
number of shares to be optioned, (iv) to determine the option price of the
shares subject to each option, which price shall be not less than the fair
market value of the Common Stock at the time the option was granted, (v) to
determine the time or times when each option becomes exercisable, the duration
of the exercise period and any other restrictions on the exercise of options
issued under the Stock Option Plan, (vi) to prescribe the form or forms of the
option agreements under the Stock Option Plan, (vii) to adopt, amend and rescind
such rules and regulations as, in its opinion, may be advisable in the
administration of the Stock Option Plan and (viii) to construe and interpret the
Stock Option Plan, the rules and regulations and the option agreements under the
Stock Option Plan and to make all other determinations deemed necessary or
advisable for the administration of the Stock Option Plan. All decisions,
determinations and interpretations of the Stock Option Committee are final and
binding on all optionees.
Incentive Options may be granted to officers and other key employees of the
Company or its subsidiaries. Non-Statutory Options may be granted to directors,
consultants, or other key persons.
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<PAGE>
No option may be exercised after the date ten years from the date of grant
of such option (five years in the case of Incentive Options of individuals
holding more than ten percent of the total combined voting power of all classes
of stock of the Company or of any parent or subsidiary thereof
("greater-than-ten-percent-stockholders")) (the "Termination Date"). The
exercise price for Incentive Options may not be less than 110% of fair market
value of the Common Stock on the date of grant in the case of a greater-
than-ten-percent-stockholder. The aggregate fair market value (determined as of
the time the option is granted) of the Common Stock with respect to which any
Incentive Options may be exercisable for the first time by the optionee in any
calendar year (under the Stock Option Plan or any other stock option plan of the
Company or any parent or subsidiary thereof) shall not exceed $100,000.
Options are non-transferable except by will or the laws of descent and
distribution. Generally, options granted under the Stock Option Plan terminate
upon the earliest of: (i) the expiration date of the option, (ii) the date of
voluntary termination of the optionee's employment by the optionee, (iii) the
date of termination of the optionee's employment by the Company for cause, (iv)
three months after the date of termination of the optionee's employment by the
Company without cause, (v) one year after the cessation of the optionee's
employment by reason of a disability within the meaning of Section 22(e)(3) of
the Code and (vi) one year after the death of an optionee prior to the
Termination Date and while employed by the Company or a subsidiary thereof or
while entitled to exercise an option pursuant to (v) above (such option shall be
exercisable by the person to whom the optionee's rights under the option pass by
will or the applicable laws of descent and distribution). If an option may be
exercised during any period after the termination of an optionee's employment
with the Company, such option may be exercised only to the extent that the
optionee was entitled to exercise such option at the time of such termination.
EXECUTIVE INCENTIVE COMPENSATION PLAN
The Company maintains an Executive Incentive Compensation Plan in which the
Chairman and Chief Executive Officer is eligible to participate, as well as
other employees selected by the Chief Executive Officer. The plan allows
participants to earn bonuses up to a stated percentage of their base salary. The
bonuses are paid in part based on the Company's achievement of operating
results, and in part based on achievement of individual goals established for
the participant. The Company presently intends to continue the bonus plan for
1996 and future years.
EMPLOYMENT AGREEMENT OF WILLIAM C. SCOTT
Pursuant to an employment agreement with the Company, William C. Scott
agreed to serve as Chairman of the Board of Directors and Chief Executive
Officer of the Company for an annual salary of $800,000, subject to annual
increases as determined by the Company. The employment agreement provides that
Mr. Scott shall be granted bonuses pursuant to the Executive Incentive
Compensation Plan and Non-Statutory Options pursuant to the terms of the Stock
Option Plan. The employment agreement expires on June 11, 1999. The Company may
terminate the employment agreement for cause. In the event of Mr. Scott's
voluntary termination (except during the six-month period commencing six months
after a change of control) or termination for cause by the Company, the Company
shall pay Mr. Scott only an amount equal to his base salary and all previously
unreimbursed expenses. Upon a voluntary termination by Mr. Scott during such
six-month period commencing six months after a change of control through the
date of termination. Mr. Scott is entitled to the greater of (x) $1,600,000 or
(y) twice his annual base salary, and all accrued but previously unpaid salary,
bonuses and unreimbursed expenses through the date of termination. Upon a
termination of Mr. Scott by death or disability, the Company shall make a lump
sum payment equal to the greater of $800,000 or Mr. Scott's base salary
currently then in effect, as well as all accrued but previously unpaid salary,
bonuses and unreimbursed expenses through the date of termination.
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<PAGE>
The employment agreement contains a covenant prohibiting the improper
disclosure and use of the Company's confidential information. In addition, the
employment agreement contains a covenant prohibiting Mr. Scott from directly or
indirectly competing with Company. This covenant expires two years following Mr.
Scott's voluntary termination.
STOCKHOLDERS AGREEMENT
Under a stockholders agreement (the "Stockholders Agreement") among the
Company and its existing stockholders, the parties have agreed to cause the
Board of Directors of the Company to include (i) three persons designated by
Warburg, Pincus, (ii) William C. Scott or, if he is not an employee of the
Company or is otherwise unavailable, one person designated by the holders of a
majority of the shares of Common Stock held by management who are then employed
by the Company and (iii) John S. Farrand or, if he is not an employee of the
Company or is otherwise unavailable, one person designated by the holders of a
majority of the shares of Common Stock held by management who are then employed
by the Company. The Stockholders Agreement imposes certain restrictions on the
transfer of shares of Common Stock by the management stockholders prior to the
second anniversary of the Offerings. The Stockholders Agreement also provides
such stockholders with certain registration rights. See "Description of Capital
Stock--Registration Rights."
The Stockholders Agreement terminates on the date which Warburg, Pincus and
its affiliates beneficially own less than 5% of the outstanding shares of Common
Stock of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company did not have a compensation committee during 1995. Officers'
compensation was determined by the Board of Directors.
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<PAGE>
CERTAIN TRANSACTIONS
In May 1996, the Company effected the Recapitalization, pursuant to which it
acquired all of the equity interests in PILP it did not previously own and
retired all of PILP's outstanding debt securities for a total of $126.1 million
in cash. As part of the Recapitalization:
(i) Warburg, Pincus and Messrs. Scott, Farrand and Marcketta
contributed $11,608,000, $580,400, $165,829 and $82,914, respectively, to
the Company for subordinated demand notes which bear interest at a rate of
6.83% per annum and rank pari passu with each other. The notes to Messrs.
Scott, Farrand and Marcketta were issued on May 8, 1996. The notes to
Warburg, Pincus were issued on May 8, July 16 and July 31, 1996;
(ii) Mr. Scott exchanged his interests in PILP for 989,100 shares of
Common Stock;
(iii) Messrs. Farrand and Marcketta were issued 282,600 and 141,300
shares of Common Stock, respectively; and
(iv) the Company, Warburg, Pincus and Messrs. Scott, Farrand and
Marcketta entered into the Stockholders Agreement. For terms of the
Stockholders Agreement, see "Management--Stockholders Agreement" and
"Description of Capital Stock--Registration Rights."
Effective July 1, 1996, Warburg, Pincus acquired substantially all of the
assets of Lee Lighting for approximately $8.0 million and contributed those
assets to the Company. The purchase price equalled the book value of the
acquired assets.
Mr. Farrand, an executive officer of the Company, is the obligor in respect
of a promissory demand note issued to the Company in January 1987. The principal
amount of and accrued interest on this note were $540,000 and $76,000,
respectively, as of September 30, 1996. The note accrues interest at a rate of
7.04% per annum, and, as of September 30, 1996, no payments of principal had
been paid. Mr. Farrand may pre-pay the note at any time. This note was
originally issued in connection with Mr. Farrand's purchase of a residence and
is secured by a mortgage thereon.
Certain executive management services have been provided by the Company to
Lee International, Inc. ("LII"), an indirect, wholly owned subsidiary of
Warburg, Pincus. The amount received by the Company from LII was $996,000,
$854,000 and $687,000 for the years ended December 31, 1993, 1994 and 1995 and
$489,000 and $510,000 for the nine months ended September 30, 1995 and 1996,
respectively. The amounts received have been offset against selling, general and
administrative expenses in the Company's consolidated statement of income. The
agreement with LII expired on September 30, 1996.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with regard to the
beneficial ownership of the Common Stock as of October 29, 1996 and as adjusted
to reflect the sale of the shares of Common Stock offered hereby, by (i) each
person known by the Company to own beneficially more than 5% of the outstanding
shares of Common Stock, (ii) each director and executive officer and (iii) all
directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED(1)(2)
--------------------------
<S> <C> <C> <C>
NUMBER OF SHARES BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) OFFERINGS OFFERINGS(3)
- ------------------------------------------------------------- --------------------- ----------- -------------
Warburg, Pincus Capital Company, L.P.(4)..................... 12,717,000 90.0% 72.1%
466 Lexington Avenue
New York, New York 10017
William C. Scott............................................. 989,100 7.0 6.2
Panavision Inc.
140 East 45th Street
New York, New York 10017
John S. Farrand.............................................. 282,600 2.0 2.4
Jeffrey J. Marcketta......................................... 141,300 1.0 1.0
Christopher M.R. Phillips.................................... -- * *
Sidney Lapidus(5)............................................ 12,717,000 90.0 72.1
Joanne R. Wenig(5)........................................... 12,717,000 90.0 72.1
All directors and executive officers
as a group (6 persons)..................................... 14,130,000 100.0 80.5
</TABLE>
- ------------------------
* Less than 1%.
(1) Except as otherwise indicated, the persons in this 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 and subject to the information contained in the footnotes to this
table.
(2) Based upon 14,130,000 shares of Common Stock outstanding prior to the
Offerings and 17,630,000 shares of Common Stock outstanding after the
Offerings. Shares not outstanding but deemed beneficially owned by virtue of
the right of a person or group to acquire them within 60 days are treated as
outstanding only for purposes of determining the number of and percent owned
by such person or group.
(3) Amounts shown for each stockholder include all shares of Common Stock
subject to stock options granted to Messrs. Scott, Farrand, Marcketta and
Phillips exercisable within 60 days. Not included are additional shares of
Common Stock subject to options granted to Messrs. Scott, Farrand, Marcketta
and Phillips that are not exercisable within 60 days.
(4) The sole general partner of Warburg, Pincus Capital Company, L.P. is E.M.
Warburg, Pincus & Co., Inc. a New York general partnership ("WP"). Lionel I.
Pincus is the managing partner of WP and may be deemed to control it.
(5) All of the shares indicated as owned by Mr. Lapidus and Ms. Wenig are owned
directly by Warburg, Pincus and are included because of their affiliation
with Warburg, Pincus. Mr. Lapidus and Ms. Wenig disclaim "beneficial
ownership" of these shares within the meaning of Rule 13d-3 under the
Securities Exchange Act of 1934. The address of Mr. Lapidus and Ms. Wenig is
c/o Warburg, Pincus Capital Company, L.P., 466 Lexington Avenue, New York,
NY 10017.
46
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description of the capital stock of the Company and certain
provisions of the Company's Restated Certificate of Incorporation (the
"Certificate") and By-laws (the "By-laws") is a summary and is qualified in its
entirety by the provisions of the Certificate and By-laws, copies of which have
been filed as exhibits to the Registration Statement of which this Prospectus is
a part.
Upon completion of the Offerings, the authorized capital stock of the
Company will consist of (i) 50,000,000 shares of Common Stock, par value $.01
per share, of which 17,630,000 shares will be outstanding and (ii) 2,000,000
shares of Preferred Stock, par value $.01 per share ("Preferred Stock"), of
which no shares will be outstanding.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share in all matters to
be voted on by the stockholders of the Company and do not have cumulative voting
rights. Accordingly, holders of a majority of the outstanding shares of Common
Stock entitled to vote in any election of directors may elect all of the
directors standing for election. Subject to preferences that may be applicable
to any Preferred Stock outstanding at the time, 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 therefor. In
the event of a liquidation, dissolution or winding up of the Company, holders of
Common Stock are entitled to share ratably in all assets remaining after payment
of the Company's liabilities and the liquidation preference, if any, of any
outstanding Preferred Stock. Holders of shares of Common Stock have no
preemptive, subscription, redemption or conversion rights. There are no
redemption or sinking fund provisions applicable to the Common Stock. All of the
outstanding shares of Common Stock are, and the shares offered by the Company in
the Offerings will be, when issued and paid for, fully paid and non-assessable.
The rights, preferences and privileges of holders of Common Stock are subject
to, and may be adversely affected by, the rights of the holders of shares of any
series of Preferred Stock which the Company may designate and issue in the
future.
PREFERRED STOCK
The Board of Directors is authorized to issue Preferred Stock without
stockholder approval and upon such terms as the Board of Directors may
determine. This amendment could have the effect of making it more difficult for
a third party to acquire, or of discouraging a third party from acquiring or
making a proposal to acquire, a majority of the outstanding stock of the
Company. The rights of the holders of Common Stock will be subject to, and may
be adversely affected by, the rights of holders of Preferred Stock that may be
issued in the future. The Company has no present plans to issue any shares of
Preferred Stock. See "Risk Factors--Anti-Takeover Effect of Certain Charter and
By-Law Provisions."
REGISTRATION RIGHTS
Under the Stockholders Agreement, the Company granted certain rights with
respect to the registration of an aggregate of 14,130,000 shares of Common Stock
(together with other shares of Common Stock that may be acquired by such
stockholders, "Registrable Shares") to the stockholders thereunder. At any time
after the completion of the Offerings (subject to the "lock-up" provisions
described herein under the heading "Underwriting"), Warburg, Pincus is entitled
to request that the Company file a registration statement under the Securities
Act covering the sale of some or all of the Registrable Shares held by Warburg,
Pincus, subject to certain conditions. The Company is required to effect no more
than two such registrations. Messrs. Scott, Farrand and Marcketta, pursuant to
the Stockholders Agreement, may request inclusion in such registration and shall
have the right to include such shares in the registration, subject to certain
conditions, including that the underwriter of any such offering shall have the
right, subject to certain conditions, to limit the number of Registrable Shares
included in the
47
<PAGE>
registration. In addition, commencing two years after the closing of the
Offerings, and at any time thereafter, the parties to the Stockholders Agreement
have certain rights to include their shares whenever the Company proposes to
file a registration statement.
LIMITATIONS ON DIRECTORS' LIABILITY
The Certificate and By-laws limit the liability of directors and officers to
the maximum extent permitted by Delaware law. Delaware law provides that
directors of a corporation will not be personally liable for monetary damages
for breach of their fiduciary duties as directors, including gross negligence,
except liability for (i) breach of the directors' and officers' duty of loyalty,
(ii) acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of the law, (iii) the unlawful payment of a dividend or
unlawful stock purchase or redemption and (iv) any transaction from which the
director or officer derives an improper personal benefit. Delaware law does not
permit a corporation to eliminate a director's or an officer's duty of care, and
this provision of the Company's Certificate has no effect on the availability of
equitable remedies, such as injunction or rescission, based upon a director's
breach of the duty of care.
These provisions will not limit liability under state or federal securities
laws. The Company believes that these provisions will assist the Company in
attracting and retaining qualified individuals to serve as directors.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law ("Section 203"). Under Section 203, certain "business
combinations" between a Delaware corporation whose stock generally is publicly
traded or held of record by more than 2,000 stockholders and an "interested
stockholder" are prohibited for a three-year period following the date that such
a stockholder became an interested stockholder, unless (i) the corporation has
elected in its original certificate of incorporation not to be governed by
Section 203 (the Company did not make such an election), (ii) the business
combination was approved by the Board of Directors of the corporation before the
other party to the business combination became an interested stockholder, (iii)
upon consummation of the transaction that made it an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the corporation
outstanding at the commencement of the transaction (excluding voting stock owned
by directors who are also officers or held in employee benefit plans in which
the employees do not have a confidential right to tender or vote stock held by
the plan) or (iv) the business combination was approved by the Board of
Directors of the corporation and ratified by two-thirds of the voting stock
which the interested stockholder did not own. The three-year prohibition also
does not apply to certain business combinations proposed by an interested
stockholder following the announcement or notification of certain extraordinary
transactions involving the corporation and a person who had not been an
interested stockholder during the previous three years or who became an
interested stockholder with the approval of the majority of the corporation's
directors. The term "business combination" is defined generally to include
mergers or consolidations between a Delaware corporation and an "interested
stockholder," transactions with an "interested stockholder" involving the assets
or stock of the corporation or its majority-owned subsidiaries and transactions
which increase an interested stockholder's percentage ownership of stock. The
term "interested stockholder" is defined generally as a stockholder who,
together with affiliates and associates, owns (or, within three years prior, did
own) 15% or more of a Delaware corporation's voting stock. Section 203 could
prohibit or delay a merger, takeover or other change in control of the Company
and therefore could discourage attempts to acquire the Company.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar of the Common Stock is ChaseMellon
Shareholder Services, L.L.C.
48
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offerings there has been no market for the shares of the Common
Stock. The Company can make no predictions as to the effect, if any, that sales
of shares or the availability of shares for sale will have on the market price
prevailing from time to time. Nevertheless, sales of significant amounts of the
Common Stock in the public market, or the perception that such sales may occur,
could adversely affect prevailing market prices. See "Risk Factors--Shares
Eligible for Future Sale; Potential for Adverse Effect on Stock Price;
Registration Rights."
Upon completion of the Offerings, the Company expects to have 17,630,000
shares of Common Stock outstanding, assuming no exercise of the Underwriters'
over-allotment option. Of these shares, the 3,500,000 shares of Common Stock
sold in the Offerings will be freely tradeable without restriction under the
Securities Act, except for any such shares which may be acquired by an
"affiliate" of the Company (an "Affiliate") as that term is defined in Rule 144
under the Securities Act, which shares will be subject to the resale limitations
of Rule 144.
An aggregate of approximately 14,130,000 shares of Common Stock held by
existing stockholders upon completion of the Offerings will be "restricted
securities" (as that phrase is defined in Rule 144) and may not be resold in the
absence of registration under the Securities Act or pursuant to exemptions from
such registration, including among others, the exemption provided by Rule 144
under the Securities Act. Except as described below, approximately 12,717,000
shares will be eligible for sale in the public market under Rule 144, subject to
the volume limitations and other restrictions described below, and an additional
1,413,000 shares will be eligible for sale under Rule 144 in June 1998.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, if a period of at least two years has elapsed since
the later of the date the "restricted securities" were acquired from the Company
and the date they were acquired from an Affiliate, then the holder of such
restricted securities (including an Affiliate) is entitled to sell a number of
shares within any three-month period that does not exceed the greater of 1% of
the then outstanding shares of the Common Stock (17,630,000 shares immediately
after the Offerings) or the average weekly reported volume of trading of the
Common Stock on the NYSE during the four calendar weeks preceding such sale. The
holder may only sell such shares through unsolicited brokers' transactions.
Sales under Rule 144 are also subject to certain requirements pertaining to the
manner of such sales, notices of such sales and the availability of current
public information concerning the Company. Affiliates may sell shares not
constituting restricted shares in accordance with the foregoing volume
limitations and other requirements but without regard to the two-year holding
period. Under Rule 144(k), if a period of at least three years has elapsed
between the later of the date restricted securities were acquired from the
Company and the date they were acquired from an Affiliate, as applicable, a
holder of such restricted securities who is not an Affiliate at the time of the
sale and has not been an Affiliate for at least three months prior to the sale
would be entitled to sell the shares immediately without regard to the volume
limitations and other conditions described above.
The Commission has proposed certain amendments to Rule 144 that would reduce
by one year the holding periods required for shares subject to Rule 144 to
become eligible for resale in the public market. No assurance can be given
concerning whether or when the proposal will be adopted by the Commission.
Any employee of the Company who purchased his or her shares of Common Stock
pursuant to a written compensation plan or contract may be entitled to rely on
the resale provisions of Rule 701 under the Securities Act, which permits
nonaffiliates to sell their Rule 701 shares without having to comply with the
current public information, holding period, volume limitation or notice
provision of Rule 144 and permits affiliates to sell their Rule 701 shares
without having to comply with Rule 144's holding period restrictions.
49
<PAGE>
The Company intends to file as soon as practicable after the closing of this
offering a registration statement on Form S-8 under the Securities Act to
register approximately 2,190,150 shares of Common Stock reserved for issuance
under the Stock Option Plan, including, in some cases, shares for which an
exemption under Rule 144 or Rule 701 would also be available, thus permitting
the resale of shares issued under the Stock Option Plan by non-affiliates in the
public market without restriction under the Securities Act. Such registration
statement is expected to become effective immediately upon filing, whereupon
shares registered thereunder will become eligible for sale in the public market,
subject to vesting and, in certain cases, subject to the lock-up agreements
described below. At the date of this Prospectus, options to purchase an
aggregate of 1,766,250 shares of Common Stock are outstanding under the Stock
Option Plan.
Notwithstanding the foregoing, in connection with the Offerings, the Company
has agreed during the period beginning from the date of this Prospectus and
continuing to and including the date 180 days after the date of this Prospectus,
not to offer, sell, contract to sell or otherwise dispose of any securities of
the Company (other than pursuant to employee stock option plans existing, or on
the conversion or exchange of convertible or exchangeable securities
outstanding, on the date of this Prospectus) which are substantially similar to
the shares of Common Stock or which are convertible or exchangeable into
securities which are substantially similar to the shares of Common Stock,
without the prior written consent of Goldman, Sachs & Co., except for the shares
of Common Stock offered in connection with the Offerings. The Company's
executive officers and directors and Warburg, Pincus, who will hold in the
aggregate 14,130,000 shares of Common Stock following this offering, have agreed
not to offer, sell, contract to sell or otherwise dispose of any shares of
Common Stock or other securities of Panavision Inc. that are substantially
similar to the shares of Common Stock (including but not limited to any
securities that are convertible into or exchangeable for, or that represent the
right to receive, shares of Common Stock or any such substantially similar
securities) for a period of 180 days after the date of this Prospectus without
the prior written consent of Goldman, Sachs & Co.
The holders of approximately 14,130,000 shares are entitled to certain
registration rights with respect to their shares. See "Description of Capital
Stock--Registration Rights."
50
<PAGE>
LEGAL MATTERS
Certain legal matters with respect to the validity of the Common Stock
offered hereby will be passed upon for the Company by Willkie Farr & Gallagher,
New York, New York. Certain legal matters relating to the Offerings will be
passed upon for the Underwriters by Davis Polk & Wardwell, New York, New York.
EXPERTS
The consolidated financial statements of Panavision Inc. at December 31,
1994 and 1995, and for each of the three years in the period ended December 31,
1995, appearing in this Prospectus and Registration Statement have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing. The
financial statements of Lee Lighting Limited at December 31, 1995 and for the
year then ended, appearing in this Prospectus and Registration Statement have
been audited by Ernst & Young, independent auditors, as set forth in their
report thereon appearing elsewhere herein, and are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
51
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PANAVISION INC.
<TABLE>
<CAPTION>
PRO FORMA
<S> <C>
Unaudited Pro Forma Condensed Consolidated Financial Statements...................... F-2
Unaudited Pro Forma Condensed Consolidated Statement of Income for the Nine Months
Ended September 30, 1996........................................................... F-3
Unaudited Pro Forma Condensed Consolidated Statement of Income for the Nine Months
Ended September 30, 1995........................................................... F-4
Unaudited Pro Forma Condensed Consolidated Statement of Income for the Year Ended
December 31, 1995.................................................................. F-5
HISTORICAL
Report of Independent Auditors....................................................... F-6
Consolidated Statements of Income.................................................... F-7
Consolidated Balance Sheets.......................................................... F-8
Consolidated Statements of Stockholders' Equity...................................... F-9
Consolidated Statements of Cash Flows................................................ F-10
Notes to Consolidated Financial Statements........................................... F-11
LEE LIGHTING LIMITED
Report of Independent Auditors....................................................... F-24
Group Profit and Loss Account........................................................ F-25
Group Balance Sheet.................................................................. F-26
Group Statement of Cash Flows........................................................ F-27
Notes to the Accounts................................................................ F-28
</TABLE>
F-1
<PAGE>
PANAVISION INC.
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
As more fully described in the notes to the Panavision Inc. historical
consolidated financial statements, the Company effected a recapitalization
transaction (the Recapitalization) in May 1996, and the Company's parent
acquired and contributed to the capital of the Company, substantially all of the
assets of Lee Lighting Limited (Lee Lighting) effective July 1, 1996 (the Lee
Lighting Acquisition). The Lee Lighting Acquisition has been recorded under the
purchase method of accounting, and accordingly, Lee Lighting's operating results
have been included in the Company's financial statements from the acquisition
date (July 1, 1996).
The following unaudited pro forma condensed consolidated statements of
income for the nine months ended September 30, 1996 and 1995 and for the year
ended December 31, 1995 have been prepared to illustrate the effects of the
Recapitalization and of the Lee Lighting Acquisition, as if they had occurred at
the beginning of each period presented. The pro forma adjustments and the
assumptions on which they are based are described in the accompanying notes.
The amounts for Lee Lighting included in the accompanying unaudited pro
forma condensed consolidated financial statements are based on Lee Lighting's
historical financial statements included elsewhere in this Registration
Statement and have been converted into US dollars at the appropriate exchange
rates (after adjustment for minor differences between the UK and the US
generally accepted accounting principles, as more fully described in Note 18 to
Lee Lighting's financial statements). The purchase price equaled Lee Lighting's
carrying value of the acquired assets and assumed liabilities and has been
recorded by the Company as an additional capital contribution from the parent.
The Company is of the opinion that the carrying value of the net assets acquired
approximates their fair market value and therefore no additional purchase price
allocation adjustments are considered necessary.
These unaudited pro forma condensed consolidated financial statements are
presented for illustrative purposes only and may not be indicative of the
results that would have occurred if the above transactions had occurred on the
dates indicated or which may be obtained in the future. The unaudited pro forma
condensed consolidated financial statements, including the Notes thereto, should
be read in conjunction with the historical consolidated financial statements of
Panavision Inc. and Lee Lighting, which are included elsewhere in this
Prospectus.
F-2
<PAGE>
PANAVISION INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA ADJUSTMENTS
------------------------ --------------------------------
<S> <C> <C> <C> <C> <C>
PANAVISION LEE LEE LIGHTING PRO FORMA
INC. LIGHTING(1) ACQUISITION RECAPITALIZATION ADJUSTED
----------- ----------- ------------- ----------------- -----------
Camera rental.................. $ 62,814 $ $ $ $ 62,814
Lighting rental................ 7,598 9,662 17,260
Sales and other................ 14,638 738 15,376
----------- ----------- ------------- ------- -----------
Total rental revenue and
sales........................ 85,050 10,400 95,450
Cost of camera rental.......... 26,980 -- 26,980
Cost of lighting rental........ 4,564 7,325 11,889
Cost of sales and other........ 8,535 796 9,331
----------- ----------- ------------- ------- -----------
Gross margin................... 44,971 2,279 47,250
Selling, general and
administrative expenses...... 21,684 1,391 140(2) 23,215
Research and development
expenses..................... 3,300 -- 3,300
----------- ----------- ------------- ------- -----------
Operating income............... 19,987 888 (140) 20,735
Interest income................ 638 9 (425)(3) 222
Interest expense............... (6,227) (2,784) 2,784(4) (1,104)(5) (7,331)
Foreign exchange loss.......... (101) -- (101)
Other, net..................... 313 8 321
----------- ----------- ------------- ------- -----------
Income before non-controlling
partners' interest in PILP
and income taxes............. 14,610 (1,879) 2,784 (1,669) 13,846
Non-controlling partners'
interest in PILP............. (4,500) -- 4,500(6) --
----------- ----------- ------------- ------- -----------
Income before income taxes..... 10,110 (1,879) 2,784 2,831 13,846
Income tax provision........... (2,012) -- (300)(7) (454)(7) (2,766)
----------- ----------- ------------- ------- -----------
Net income (loss).............. $ 8,098 $ (1,879) $ 2,484 $ 2,377 $ 11,080
----------- ----------- ------------- ------- -----------
----------- ----------- ------------- ------- -----------
Net income per common share.... $ .53 $ .73
----------- -----------
----------- -----------
Shares used in computation..... 15,277 15,277
</TABLE>
- ------------------------
(1) Represents Lee Lighting's operating results for the six months ended June
30, 1996. Operating results of Lee Lighting have been included with the
Company's historical operating results under the Panavision Inc. historical
column since the effective date of the acquisition (July 1, 1996).
(2) To reflect amortization of deferred financing costs incurred in connection
with the Recapitalization.
(3) To reflect lower interest income earned due to the use of cash in the
Recapitalization.
(4) To reflect the elimination of Lee Lighting's historical interest expense as
the underlying borrowing was not assumed by the Company.
(5) To reflect higher interest expense due to additional borrowings required for
the Recapitalization. The pro forma interest expense is computed as follows:
<TABLE>
<S> <C>
Credit Facility:
$50 million at 8.4375%..................................................... $ 4,219
$60 million at 7.9375%..................................................... 4,763
Notes to Affiliates:
$11.6 million at 6.83%..................................................... 792
---------
9,774
Represents nine months of the year........................................... 75%
---------
Pro forma interest expense................................................... $ 7,331
---------
---------
</TABLE>
(6) To reflect the elimination of non-controlling partners' interest in PILP.
(7) To adjust the pro forma tax provision to reflect the tax effect of the pro
forma adjustments including the recognition of tax benefits which had
previously been allocated to the non-controlling partners in PILP.
F-3
<PAGE>
PANAVISION INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA ADJUSTMENTS
------------------------ --------------------------------
<S> <C> <C> <C> <C> <C>
PANAVISION LEE LEE LIGHTING PRO FORMA
INC. LIGHTING ACQUISITION RECAPITALIZATION ADJUSTED
----------- ----------- ------------- ----------------- -----------
Camera rental.................... $ 54,055 $ $ $ $ 54,055
Lighting rental.................. 3,210 13,735 16,945
Sales and other.................. 12,213 1,484 13,697
----------- ----------- ------------- ------- -----------
Total rental revenue and sales... 69,478 15,219 84,697
Cost of camera rental............ 23,959 -- 23,959
Cost of lighting rental.......... 1,270 10,199 11,469
Cost of sales and other.......... 7,389 1,303 8,692
----------- ----------- ------------- ------- -----------
Gross margin..................... 36,860 3,717 40,577
Selling, general and
administrative expenses........ 21,351 2,141 315(1) 23,807
Research and development
expenses....................... 2,378 -- 2,378
----------- ----------- ------------- ------- -----------
Operating income................. 13,131 1,576 (315) 14,392
Interest income.................. 1,144 34 (941)(2) 237
Interest expense................. (5,517) (4,066) 4,066(3) (1,814)(4) (7,331)
Foreign exchange gain............ 408 -- 408
Other, net....................... 311 36 347
----------- ----------- ------------- ------- -----------
Income before non-controlling
partners' interest in PILP and
income taxes................... 9,477 (2,420) 4,066 (3,070) 8,053
Non-controlling partners'
interest in PILP............... (3,947) -- 3,947(5) --
----------- ----------- ------------- ------- -----------
Income before income taxes....... 5,530 (2,420) 4,066 877 8,053
Income tax provision............. (1,095) -- (543)(6) 582(6) (1,056)
----------- ----------- ------------- ------- -----------
Net income (loss)................ $ 4,435 $ (2,420) $ 3,523 $ 1,459 $ 6,997
----------- ----------- ------------- ------- -----------
----------- ----------- ------------- ------- -----------
Net income per common share...... $ .29 $ .46
----------- -----------
----------- -----------
Shares used in computation....... 15,277 15,277
</TABLE>
- ------------------------
(1) To reflect amortization of deferred financing costs incurred in connection
with the Recapitalization.
(2) To reflect lower interest income earned due to the use of cash in the
Recapitalization.
(3) To reflect the elimination of Lee Lighting's historical interest expense as
the underlying borrowing was not assumed by the Company.
(4) To reflect higher interest expense due to additional borrowings required for
the Recapitalization. The pro forma interest expense is computed as follows:
<TABLE>
<S> <C>
Credit Facility:
$50 million at 8.4375%..................................................... $ 4,219
$60 million at 7.9375%..................................................... 4,763
Notes to Affiliates:
$11.6 million at 6.83%..................................................... 792
---------
9,774
Represents nine months of the year........................................... 75%
---------
Pro forma interest expense................................................... $ 7,331
---------
---------
</TABLE>
(5) To reflect the elimination of non-controlling partners' interest in PILP.
(6) To adjust the pro forma tax provision to reflect the tax effect of the pro
forma adjustments including the recognition of tax benefits which had
previously been allocated to the non-controlling partners in PILP.
F-4
<PAGE>
PANAVISION INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA ADJUSTMENTS
------------------------ --------------------------------
<S> <C> <C> <C> <C> <C>
PANAVISION LEE LEE LIGHTING PRO FORMA
INC. LIGHTING ACQUISITION RECAPITALIZATION ADJUSTED
----------- ----------- ------------- ----------------- -----------
Camera rental........................... $ 75,083 $ $ $ $ 75,083
Lighting rental......................... 4,121 17,960 22,081
Sales and other......................... 16,124 1,789 17,913
----------- ----------- ------------- ------- -----------
Total rental revenue and sales.......... 95,328 19,749 115,077
Cost of camera rental................... 32,721 -- 32,721
Cost of lighting rental................. 1,687 13,863 15,550
Cost of sales and other................. 9,961 1,682 11,643
----------- ----------- ------------- ------- -----------
Gross margin............................ 50,959 4,204 55,163
Selling, general and administrative
expenses.............................. 28,486 2,521 420(1) 31,427
Research and development expenses....... 2,986 -- 2,986
----------- ----------- ------------- ------- -----------
Operating income........................ 19,487 1,683 (420) 20,750
Interest income......................... 1,597 46 (1,327)(2) 316
Interest expense........................ (7,213) (5,396) 5,396(3) (2,561)(4) (9,774)
Foreign exchange loss................... (32) -- (32)
Other, net.............................. 447 68 515
----------- ----------- ------------- ------- -----------
Income before non-controlling partners'
interest in PILP and income taxes..... 14,286 (3,599) 5,396 (4,308) 11,775
Non-controlling partners' interest in
PILP.................................. (7,348) -- 7,348(5) --
----------- ----------- ------------- ------- -----------
Income before income taxes.............. 6,938 (3,599) 5,396 3,040 11,775
Income tax provision.................... (1,375) -- (593)(6) 575(6) (1,393)
----------- ----------- ------------- ------- -----------
Net income (loss)....................... $ 5,563 $ (3,599) $ 4,803 $ 3,615 $ 10,382
----------- ----------- ------------- ------- -----------
----------- ----------- ------------- ------- -----------
Net income per common share............. $ .36 $ .68
----------- -----------
----------- -----------
Shares used in computation.............. 15,277 15,277
</TABLE>
- ------------------------
(1) To reflect amortization of deferred financing costs incurred in connection
with the Recapitalization.
(2) To reflect lower interest income earned due to the use of cash in the
Recapitalization.
(3) To reflect the elimination of Lee Lighting's historical interest expense as
the underlying borrowing was not assumed by the Company.
(4) To reflect higher interest expense due to additional borrowings required for
the Recapitalization. The pro forma interest expense is computed as follows:
<TABLE>
<S> <C>
Credit Facility:
$50 million at 8.4375%..................................................... $ 4,219
$60 million at 7.9375%..................................................... 4,763
Notes to Affiliates:
$11.6 million at 6.83%..................................................... 792
---------
Pro forma interest expense................................................... $ 9,774
---------
---------
</TABLE>
(5) To reflect the elimination of non-controlling partners' interest in PILP.
(6) To adjust the pro forma tax provision to reflect the tax effect of the pro
forma adjustments including the recognition of tax benefits which had
previously been allocated to the non-controlling partners in PILP.
F-5
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Panavision Inc.
We have audited the accompanying consolidated balance sheets of Panavision
Inc. as of December 31, 1994 and 1995, and the related consolidated statements
of income, stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Panavision Inc.
at December 31, 1994 and 1995, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended December 31,
1995, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Los Angeles, California
March 4, 1996, except for Note 13, as
to which the date is November , 1996
The foregoing report is in the format that will be signed upon the
effectiveness of the 1,413:1 stock split as described in Note 13 of the notes to
the consolidated financial statements.
ERNST & YOUNG LLP
Los Angeles, California
October 29, 1996
F-6
<PAGE>
PANAVISION INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Camera rental............................... $ 54,031 $ 61,642 $ 75,083 $ 54,055 $ 62,814
Sales and lighting rental................... 12,679 15,458 20,245 15,423 22,236
--------- --------- --------- --------- ---------
Total rental revenue and sales.............. 66,710 77,100 95,328 69,478 85,050
Cost of camera rental....................... 28,600 31,293 32,721 23,959 26,980
Cost of sales and lighting rental........... 7,832 9,702 11,648 8,659 13,099
--------- --------- --------- --------- ---------
Gross margin................................ 30,278 36,105 50,959 36,860 44,971
Selling, general and administrative
expenses.................................. 18,875 19,210 28,486 21,351 21,684
Research and development expenses........... 2,272 2,442 2,986 2,378 3,300
--------- --------- --------- --------- ---------
Operating income............................ 9,131 14,453 19,487 13,131 19,987
Interest income............................. 487 725 1,597 1,144 638
Interest expense............................ (5,716) (6,043) (7,213) (5,517) (6,227)
Foreign exchange gain (loss)................ (723) 597 (32) 408 (101)
Other, net.................................. 906 68 447 311 313
--------- --------- --------- --------- ---------
Income before non-controlling partners'
interest in PILP and income taxes......... 4,085 9,800 14,286 9,477 14,610
Non-controlling partners' interest in
PILP...................................... (327) (879) (7,348) (3,947) (4,500)
--------- --------- --------- --------- ---------
Income before income taxes.................. 3,758 8,921 6,938 5,530 10,110
Income tax provision........................ (453) (1,843) (1,375) (1,095) (2,012)
--------- --------- --------- --------- ---------
Net income.................................. $ 3,305 $ 7,078 $ 5,563 $ 4,435 $ 8,098
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income per common share................. $ .22 $ .46 $ .36 $ .29 $ .53
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Shares used in computation.................. 15,277 15,277 15,277 15,277 15,277
</TABLE>
See accompanying notes.
F-7
<PAGE>
PANAVISION INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1994 1995 1996
--------- --------- --------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents........................... $ 22,734 $ 31,685 $ 8,643
Accounts receivable (net of allowance of $1,772 in
1994, $2,043 in 1995 and $2,294 in September of
1996)............................................. 11,036 13,480 18,653
Inventories......................................... 2,955 4,379 5,271
Prepaid expenses and other current assets........... 1,546 1,621 1,820
--------- --------- --------------
Total current assets.............................. 38,271 51,165 34,387
Property, plant and equipment, net.................... 108,197 111,801 123,254
Deferred income tax assets............................ -- -- 1,347
Other................................................. 3,239 2,785 5,725
--------- --------- --------------
Total assets...................................... $ 149,707 $ 165,751 $ 164,713
--------- --------- --------------
--------- --------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................... $ 4,278 $ 9,339 $ 5,191
Accrued liabilities................................. 9,558 11,042 14,059
Current maturities of long-term debt................ 4,000 4,274 9,000
Other current liabilities........................... 394 507 534
--------- --------- --------------
Total current liabilities......................... 18,230 25,162 28,784
Notes payable to affiliates........................... 7,920 7,263 12,492
Long-term debt........................................ 119,080 117,415 98,000
Deferred income tax liabilities....................... 1,788 2,409 --
Other liabilities..................................... 1,767 1,897 1,279
Non-controlling partners' interest in PILP............ -- 5,149 --
Commitments and Contingencies
Stockholders' equity:
Preferred stock, $.01 par value; 2,000 shares
authorized; no shares issued and outstanding...... -- -- --
Common stock, $.01 par value; 50,000 shares
authorized; 13,706 shares issued and outstanding
at December 31, 1994 and 1995, and 14,130 shares
issued and outstanding at September 30, 1996...... 137 137 141
Additional paid-in capital.......................... 4,863 4,863 14,259
Retained earnings (accumulated deficit)............. (3,859) 1,704 9,802
Foreign currency translation adjustment............. (219) (248) (44)
--------- --------- --------------
Total stockholders' equity........................ 922 6,456 24,158
--------- --------- --------------
Total liabilities and stockholders' equity........ $ 149,707 $ 165,751 $ 164,713
--------- --------- --------------
--------- --------- --------------
</TABLE>
See accompanying notes.
F-8
<PAGE>
PANAVISION INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK CUMULATIVE
---------------------------- RETAINED FOREIGN
SHARES ISSUED ADDITIONAL EARNINGS CURRENCY STOCKHOLDERS'
AND PAID-IN (ACCUMULATED TRANSLATION EQUITY
OUTSTANDING AMOUNT CAPITAL DEFICIT) ADJUSTMENT (DEFICIENCY)
--------------- ----------- ----------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1992.................... 13,706 $ 137 $ 4,863 $ (14,242) $ (1,239) $ (10,481)
Net income................ -- -- -- 3,305 -- 3,305
Foreign currency
translation
adjustment.............. -- -- -- -- 470 470
------- ----------- ----------- -------------- ------------- --------------
Balance at December 31,
1993.................... 13,706 137 4,863 (10,937) (769) (6,706)
Net income................ -- -- -- 7,078 -- 7,078
Foreign currency
translation
adjustment.............. -- -- -- -- 550 550
------- ----------- ----------- -------------- ------------- --------------
Balance at December 31,
1994.................... 13,706 137 4,863 (3,859) (219) 922
Net income................ -- -- -- 5,563 -- 5,563
Foreign currency
translation
adjustment.............. -- -- -- -- (29) (29)
------- ----------- ----------- -------------- ------------- --------------
Balance at December 31,
1995.................... 13,706 137 4,863 1,704 (248) 6,456
Net income (UNAUDITED).... -- -- -- 8,098 -- 8,098
Compensation recorded in
connection with shares
issued to officers
(UNAUDITED)............. 424 4 626 -- -- 630
Contribution of Lee
Lighting assets
(UNAUDITED)............. -- -- 8,000 -- -- 8,000
Contribution from parent
(UNAUDITED)............. -- -- 770 -- -- 770
Foreign currency
translation adjustment
(UNAUDITED)............. -- -- -- -- 204 204
------- ----------- ----------- -------------- ------------- --------------
Balance at September 30,
1996 (UNAUDITED)........ 14,130 $ 141 $ 14,259 $ 9,802 $ (44) $ 24,158
------- ----------- ----------- -------------- ------------- --------------
------- ----------- ----------- -------------- ------------- --------------
</TABLE>
See accompanying notes.
F-9
<PAGE>
PANAVISION INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31,
SEPTEMBER 30,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
<CAPTION>
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income...................................... $ 3,305 $ 7,078 $ 5,563 $ 4,435 $ 8,098
Adjustments to derive net cash provided by
operating activities:
Depreciation and amortization................. 14,596 15,031 17,479 12,765 13,739
Deferred interest............................. 396 (44) (264) (198) (88)
Deferred income taxes......................... 233 1,241 620 (44) (186)
(Gain) loss on sale of property and
equipment................................... (475) (647) 597 490 (840)
Non-controlling partners' interest in PILP.... 327 879 7,348 3,947 4,500
Stock compensation expense.................... -- -- -- -- 630
Changes in operating assets and liabilities:
Accounts receivable......................... 1,240 (2,286) (1,498) (1,228) (5,173)
Inventories................................. 1 (318) (1,138) (687) (236)
Prepaid expenses and other current assets... (488) 909 17 (50) 399
Accounts payable............................ 254 947 3,629 (1,257) (4,981)
Accrued liabilities......................... (954) 3,355 1,484 2,915 1,099
Other, net.................................... 869 234 480 58 684
--------- --------- --------- --------- ---------
Net cash provided by operating activities....... 19,304 26,379 34,317 21,146 17,645
INVESTING ACTIVITIES
Acquisition of non-controlling partners'
interest in PILP.............................. -- -- -- -- (8,126)
Capital expenditures............................ (12,678) (16,251) (19,454) (11,060) (16,641)
Proceeds from dispositions of equipment......... 1,234 1,252 2,139 1,762 1,258
Cash acquired in Panavision Canada Corp.
acquisition................................... -- -- 1,616 1,616 --
Cash acquired in Lee Lighting acquisition....... -- -- -- -- 1,026
Other........................................... -- (450) -- -- --
--------- --------- --------- --------- ---------
Net cash used in investing activities........... (11,444) (15,449) (15,699) (7,682) (22,483)
FINANCING ACTIVITIES
Deferred financing costs........................ -- -- -- -- (2,814)
Distributions to non-controlling partners in
PILP.......................................... (327) (879) (2,199) (3,182) (1,523)
Borrowings under notes payable.................. -- -- -- -- 110,000
Repayments of notes payable..................... (2,500) (3,500) (7,525) (2,901) (129,166)
Deferred offering costs......................... -- -- -- -- (452)
Contribution from parent........................ -- -- -- -- 770
Notes payable to affiliates..................... -- -- -- -- 4,959
--------- --------- --------- --------- ---------
Net cash used in financing activities........... (2,827) (4,379) (9,724) (6,083) (18,226)
Effect of exchange rate changes on cash......... (54) 65 57 94 22
--------- --------- --------- --------- ---------
Net increase (decrease) in cash and cash
equivalents................................... 4,979 6,616 8,951 7,475 (23,042)
Cash and cash equivalents at beginning of
period........................................ 11,139 16,118 22,734 22,734 31,685
--------- --------- --------- --------- ---------
Cash and cash equivalents at end of period...... $ 16,118 $ 22,734 $ 31,685 $ 30,209 $ 8,643
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid during the period................. $ 5,372 $ 5,892 $ 7,490 $ 5,650 $ 4,748
Income taxes paid during the period............. $ 304 $ 565 $ 1,075 $ 1,158 $ 2,457
</TABLE>
See accompanying notes.
F-10
<PAGE>
PANAVISION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE PERIOD ENDED SEPTEMBER 30, 1995 AND SUBSEQUENT
TO DECEMBER 31, 1995 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Panavision Inc. (formerly WP/GP, Inc.) (Panavision or the Company), a
majority owned subsidiary of Warburg, Pincus Capital Company L.P. (Warburg,
Pincus), commenced operations effective June 1, 1991. Prior to the May 1996
recapitalization transaction described below, Panavision owned 100% of the
general partnership interests, 30% of the non-voting Class A limited partnership
interests and 70% of the voting Class B limited partnership interests in
Panavision International, L.P. (PILP), a Delaware limited partnership. PILP was
formed effective June 1, 1991 to own and operate the camera rental and lighting
filters business previously owned by Lee International Inc. (LII), an affiliated
company. This transaction was recorded on a historical cost basis. All of the
Company's operations are conducted through PILP and its subsidiaries.
The consolidated financial statements include the accounts of Panavision,
PILP and PILP's majority owned subsidiaries. All significant intercompany
amounts and transactions have been eliminated.
Panavision is a leading designer and manufacturer of high-precision motion
picture camera systems, including lenses and accessories, for use in the motion
picture and television industries. The Company rents its products through its
owned and operated facilities in the United States, Canada, United Kingdom and a
worldwide agent network. In addition to manufacturing and renting camera
systems, the Company also sells lighting filters under the Lee Filters name.
RECAPITALIZATION
In May 1996, the Company effected a recapitalization (the Recapitalization),
pursuant to which it acquired all of PILP's limited partnership units it did not
previously own and retired all of PILP's outstanding debt securities, for a
total of $126.1 million in cash. As part of the Recapitalization, Warburg,
Pincus and management contributed to the Company $12.5 million in the form of
subordinated debt, and the Company borrowed $110 million through a credit
arrangement (See Note 6). The balance of the funds required came from the
Company's cash on hand. As a result of the Recapitalization, the Company owns
all of the general and limited partnership units in PILP.
NON-CONTROLLING PARTNERS' INTEREST IN PILP
The non-controlling partners' interest in PILP represents 70% of the
non-voting Class A limited partnership units and the 30% of the voting Class B
limited partnership units which Panavision did not own prior to the
Recapitalization. The PILP partnership agreement included provisions for the
allocation of the partnership earnings and losses between Panavision and the
non-controlling partners. However, since the non-controlling partners had a
deficit in the partnership capital accounts as of the inception of PILP, such
deficit was allocated to Panavision, as were PILP's losses for 1991 and 1992.
Certain other distributions made by PILP in each year for tax payments, have all
been charged against Panavision's interest in PILP and as a reduction of income
in the accompanying financial statements. Accordingly, as required under
generally accepted accounting principles, the non-controlling partners' share of
PILP's income for 1993, 1994 and 1995 has been reduced to the extent of such
deficit, losses and distributions. As previously described, in connection with
the Recapitalization, Panavision has acquired the non-controlling partners'
equity in PILP.
F-11
<PAGE>
PANAVISION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
TRANSLATION OF FOREIGN CURRENCIES
The functional currency for the Company's foreign subsidiaries is the local
currency. All assets and liabilities denominated in foreign functional
currencies are translated into U.S. dollars at rates of exchange in effect at
the balance sheet date. Income statement items are translated at the average
rate of exchange prevailing during the period. Translation gains and losses are
recorded as a separate component of stockholders' equity. Gains and losses
resulting from transactions in other than functional currencies are reflected in
net income.
CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with
original maturity dates of three months or less and investments in money market
funds to be cash equivalents. The carrying amount reported in the balance sheet
for cash and cash equivalents approximates fair value.
INVENTORIES
Inventories are valued at the lower of cost or market value and are
determined principally under the first-in, first-out method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, including rental equipment, are stated at
cost. Maintenance and repairs are charged to expense as incurred. Additions,
improvements and replacements that extend asset life are capitalized.
Depreciation is provided on a straight-line basis over the estimated useful
lives of the assets. Leasehold improvements are amortized over the shorter of
the useful life of the related asset or the remaining lease term. Cost and
accumulated depreciation applicable to assets retired or otherwise disposed of
are eliminated from the accounts, and any gain or loss on such disposition is
reflected in income.
Depreciation is provided principally over the following useful lives:
<TABLE>
<S> <C>
Buildings and improvements..................................... 10-30 years
Rental assets.................................................. 5-15 years
Machinery and equipment........................................ 5-10 years
Furniture and fixtures......................................... 5-10 years
</TABLE>
INTANGIBLE ASSETS
Intangible assets, consisting primarily of trade names and patents, are
amortized on a straight-line basis over their estimated economic lives ranging
from 5 to 10 years. Amortization expense amounted to $682,000, $694,000 and
$629,000 for the years ended December 31, 1993, 1994 and 1995, respectively, and
$526,000 and $201,000 for the nine month periods ended September 30, 1995 and
1996, respectively. At December 31, 1994 and 1995, and September 30, 1996,
accumulated amortization amounted to $4,373,000, $5,002,000 and $5,203,000,
respectively.
F-12
<PAGE>
PANAVISION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
Income taxes are accounted for using the liability method in accordance with
Statement of Financial Accounting Standard No. 109, "Accounting for Income
Taxes" (Note 5). Under this method, deferred tax liabilities and assets are
recognized for the expected future tax consequences of temporary differences
between the carrying amounts and the tax bases of assets and liabilities.
CONCENTRATION OF CREDIT RISK
Most of the Company's customers are in the entertainment industry. The
Company performs ongoing credit evaluations of its customers and maintains
allowances for potential credit losses. The Company does not generally require
collateral. Actual losses and allowances have been within management's
expectations.
REVENUE RECOGNITION
Rental revenue is recognized over the related equipment rental period. Sales
revenue is recognized upon shipment. Returns and allowances, which have not been
significant, are provided for in the period of sale.
ACCOUNTING FOR LONG-LIVED ASSETS
Prior to the adoption of the Statement of Financial Accounting Standard No.
121. "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of" (SFAS 121), the Company recorded an impairment loss of
$1.7 million during the year ended December 31, 1995 with respect to certain
real property owned by its U.K. rental operation. This amount was previously
estimated to be $1.4 million and therefore the impairment loss recognized during
the nine months ended September 30, 1995 was $1.4 million. Effective January 1,
1996, the Company has adopted SFAS 121. Long-lived assets, such as buildings,
equipment and identifiable intangibles, are reviewed for impairment whenever
events or changes in circumstances indicate that the net book value of these
assets may not be recoverable. With the exception of the impairment loss
recognized during 1995 as described above, current and prior period financial
statements have not been affected by the adoption of SFAS 121.
EARNINGS PER SHARE
Earnings per share is computed using the average number of common stock
outstanding. Additionally, pursuant to the Securities and Exchange Commission
Staff Accounting Bulletins, all common and common equivalent shares issued by
the Company at an exercise price below the assumed initial public offering price
during the twelve-month period prior to the offering have been included in the
calculation as if they were outstanding for all periods presented (using the
treasury stock method at an assumed initial public offering price of $17.00 per
share for stock options). Variable options for 529,875 shares which vest only if
certain EBITDA targets (as defined) are achieved in 1998 or 1999 have been
excluded from the computation because their inclusion would be antidilutive.
STOCK-BASED BENEFITS
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123), must be adopted no later than January 1,
1996. SFAS 123 requires that stock awards
F-13
<PAGE>
PANAVISION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
granted subsequent to January 1, 1995 be recognized as compensation expense
based on their fair value at the date of grant. Alternatively, a company may use
APB 25, "Accounting for Stock Issued to Employees," and disclose the pro forma
income amount which would have resulted from recognizing such awards at their
fair value. The Company will continue to account for stock-based compensation
expense under APB 25 and make the required pro forma disclosures for
compensation.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements at September
30, 1996 and for the nine month periods ended September 30, 1995 and September
30, 1996 have been prepared on the same basis as the audited consolidated
financial statements and, in the opinion of management, include all adjustments
(consisting only of normal and recurring accruals) necessary to present fairly
the consolidated financial information set forth therein, in accordance with
generally accepted accounting principles. The results of operations for the nine
month period ended September 30, 1996 are not necessarily indicative of the
results to be expected for the entire fiscal year.
USE OF ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from such estimates.
2. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1994 1995 1996
--------- --------- --------------
<S> <C> <C> <C>
(UNAUDITED)
Land.................................. $ 783 $ 777 $ 783
Buildings and improvements............ 8,850 6,944 8,175
Rental assets......................... 169,319 185,986 207,939
Machinery and equipment............... 7,737 8,350 10,481
Furniture and fixtures................ 2,562 2,704 3,408
Construction-in-progress.............. -- 3,390 --
Other................................. 720 791 809
--------- --------- --------------
189,971 208,942 231,595
Less accumulated depreciation and
amortization........................ 81,774 97,141 108,341
--------- --------- --------------
$ 108,197 $ 111,801 $ 123,254
--------- --------- --------------
--------- --------- --------------
</TABLE>
Construction-in-progress represents assets constructed in conjunction with
the Company's relocation of its primary operating facilities in June 1996.
F-14
<PAGE>
PANAVISION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1994 1995 1996
--------- --------- ---------------
<S> <C> <C> <C>
(UNAUDITED)
Finished goods............................. $ 1,111 $ 1,853 $ 2,471
Work-in-process............................ 71 61 105
Component parts............................ 892 1,236 1,229
Supplies................................... 881 1,229 1,466
--------- --------- -------
$ 2,955 $ 4,379 $ 5,271
--------- --------- -------
--------- --------- -------
</TABLE>
4. ACCRUED LIABILITIES
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1994 1995 1996
--------- --------- ---------------
<S> <C> <C> <C>
(UNAUDITED)
Interest payable......................... $ 727 $ 675 $ 2,275
Professional fees........................ 916 809 745
Taxes other than income taxes............ 280 330 1,766
Payroll and related costs................ 3,106 5,058 4,587
Customer deposits........................ 97 64 723
Accrued marketing and other.............. 4,432 4,106 3,963
--------- --------- ---------------
$ 9,558 $ 11,042 $ 14,059
--------- --------- ---------------
--------- --------- ---------------
</TABLE>
F-15
<PAGE>
PANAVISION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. INCOME TAXES
The provision for income taxes includes the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------- NINE MONTHS ENDED
1993 1994 1995 SEPTEMBER 30, 1996
--------- --------- --------- ---------------------
<S> <C> <C> <C> <C>
(UNAUDITED)
Current provision:
Federal.............................. $ 114 $ 300 $ 515 $ 1,500
State................................ 47 107 154 500
Foreign.............................. 59 195 86 198
--------- --------- --------- -------
Total current provision................ 220 602 755 2,198
--------- --------- --------- -------
Deferred provision (benefit):
Federal.............................. (114) 711 537 (272)
State................................ 434 195 83 86
Foreign.............................. (87) 335 -- --
--------- --------- --------- -------
Total deferred provision............... 233 1,241 620 (186)
--------- --------- --------- -------
$ 453 $ 1,843 $ 1,375 $ 2,012
--------- --------- --------- -------
--------- --------- --------- -------
</TABLE>
A reconciliation from the provision for income taxes based on the federal
statutory rate of 35% to the actual rate follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------- NINE MONTHS ENDED
1993 1994 1995 SEPTEMBER 30, 1996
--------- --------- --------- ---------------------
<S> <C> <C> <C> <C>
(UNAUDITED)
Statutory rate applied to income before
income taxes......................... 35.0% 35.0% 35.0% 35.0%
State income taxes, net of federal
income tax benefit................... 7.2 5.1 2.2 3.7
Reduction of valuation allowance....... (34.8) (29.5) (3.7) (21.9 )
Non-deductible (non-taxable)
differences in allocation of earnings
to non-controlling partners.......... 3.0 3.4 (14.9) --
Other non-deductible expenses.......... 2.6 5.8 1.2 3.1
Other, net............................. (0.9) 0.9 -- --
--------- --------- --------- -------
12.1% 20.7% 19.8% 19.9%
--------- --------- --------- -------
--------- --------- --------- -------
</TABLE>
Deferred income taxes reflect the net tax effects of net operating loss
carryforwards and temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the amounts used for income
tax purposes. Significant components of the Company's deferred tax
F-16
<PAGE>
PANAVISION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. INCOME TAXES (CONTINUED)
assets and liabilities as of December 31, 1994, 1995 and September 30, 1996 are
as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1994 1995 1996
--------- --------- ---------------
<S> <C> <C> <C>
(UNAUDITED)
Deferred tax assets:
Domestic net operating loss carryforwards...... $ 1,987 $ 1,169 $ 3,735
Foreign net operating loss carryforwards....... 3,720 3,464 2,322
Tax credit carryforwards (primarily alternative
minimum tax credits)......................... 1,090 1,830 10,228
Expense accruals............................... 853 1,613 1,526
Other.......................................... -- 76 66
State income taxes............................. 78 115 --
--------- --------- ---------------
Total deferred tax assets........................ 7,728 8,267 17,877
Valuation allowance.............................. (4,727) (4,471) (10,112)
--------- --------- ---------------
Net deferred tax assets.......................... 3,001 3,796 7,765
Deferred tax liabilities:
Fixed assets................................... (2,175) (3,067) (6,085)
Differences in allocations of income to non-
controlling partners......................... (2,614) (3,138) --
State income taxes............................. -- -- (333)
--------- --------- ---------------
Total deferred tax liabilities................... (4,789) (6,205) (6,418)
--------- --------- ---------------
Net deferred tax (liabilities) assets............ $ (1,788) $ (2,409) $ 1,347
--------- --------- ---------------
--------- --------- ---------------
</TABLE>
The net decrease in the valuation allowance for deferred tax assets during
the years ended December 31, 1994 and 1995 was $2,638,000 and $256,000,
respectively. The change primarily relates to the realization of net operating
loss carryforwards and management's judgment that certain deferred assets had
become realizable.
At December 31, 1995, the Company had operating loss carryforwards available
to reduce future federal income of $3,170,000 which expire from 2006 to 2009.
At December 31, 1995, the Company had alternative minimum tax (AMT) credit
carryforwards of $1,444,000, which may be used indefinitely, and foreign tax
credit (FTC) carryforwards of $317,000 which expire in 1996 to 2000.
In connection with the Recapitalization, additional federal net operating
loss carryforwards of $11,343,000, which expire from 2006 to 2009, AMT credit
carryforwards of $3,444,000, which may be used indefinitely, and FTC
carryforwards of $956,000, which expire from 1996 to 2000, became available to
the Company. All such tax attributes are subject to annual limitations under
Internal Revenue Code (the Code) Section 382.
The Company has assessed the realizability of all of its tax attributes,
including those which became available as a result of the Recapitalization, and
has accordingly adjusted the valuation allowance as of
F-17
<PAGE>
PANAVISION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. INCOME TAXES (CONTINUED)
September 30, 1996. The Company's assessment took into account the limitations
on the deductibility of tax attributes under Section 382 and the alternative
minimum tax provisions of the Code, as well as the uncertainty of realizing
taxable income in certain foreign jurisdictions.
Additional deferred tax assets in the amount of $3,572,000 (net of related
valuation allowance) were recognized in connection with the Recapitalization.
It is the Company's policy to not provide U.S. federal income taxes on
undistributed earnings of foreign subsidiaries, as such earnings, if any, are
intended to be permanently reinvested in those operations. As of September 30,
1996, there are no accumulated foreign earnings. The Company's pretax income
(loss) from foreign operations for 1993, 1994 and 1995 and the nine months ended
September 30, 1996 were ($2,122,000), $1,106,000, $2,719,000 and $3,461,000,
respectively.
6. LONG-TERM DEBT
As part of the Company's Recapitalization, as described in Note 1, effective
May 1996, all of the Company's then outstanding notes to banks were repaid for a
total of $126.1 million in cash. Such notes had average effective interest rates
ranging from 0% to 8% and original scheduled maturity dates ranging from June
1999 through June 2001.
In conjunction with the Recapitalization, the Company obtained a credit
agreement (the Credit Agreement) which provides for a term loan in the amount of
$100 million (Term Loan A and Term Loan B for $50 million each) and a revolving
credit loan (Revolving Loan) of up to $20 million. Borrowings under the Credit
Agreement at September 30, 1996 were $107 million. Interest is payable at rates
equal to a margin in excess of the prime rate or LIBOR. The amount of this
margin fluctuates directly with the Company's "total debt ratio", as defined.
The prime rate margin ranges are from 0% to 1.25% for Term Loan A and the
Revolving Loan and from 1.50% to 1.75% for Term Loan B. LIBOR margin ranges are
from 1.25% to 2.5% for Term Loan A and the Revolving Loan and 2.75% to 3.00% for
Term Loan B. Principal repayments under the Credit Agreement are payable
quarterly beginning March 1997 through March 2004. At September 30, 1996, the
interest rate under the Credit Agreement was 8.5%. The Company believes the
carrying value of its amounts payable under the Credit Agreement approximate
fair value based upon current yields for debt issues of similar quality and
terms.
The following sets forth the aggregate principal maturities of the Company's
debt during the twelve month periods ending September 30 (in thousands):
<TABLE>
<S> <C>
1997.......................................................... $ 9,000
1998.......................................................... 8,000
1999.......................................................... 9,000
2000.......................................................... 10,000
2001.......................................................... 11,000
Thereafter.................................................... 60,000
------------
$ 107,000
------------
------------
</TABLE>
The Company's obligations under the Credit Agreement are secured by
substantially all of the Company's assets. The Credit Agreement requires that
the Company meet certain financial tests and contains other restrictive
covenants including certain limitations on the Company's ability to incur debt,
F-18
<PAGE>
PANAVISION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. LONG-TERM DEBT (CONTINUED)
pay dividends and make capital expenditures and requires the Company to maintain
certain total debt and interest coverage ratio levels. At September 30, 1996,
the Company was in compliance with the tests and covenants under the Credit
Agreement.
Under the Credit Agreement, the Company entered into two interest rate
protection agreements to guard the Company from LIBOR increases. One agreement
covering a notional amount of $45,000,000 expires on June 10, 1997 and protects
the Company from LIBOR increases above 6.44%. The other agreement for a notional
amount of $50,000,000 expires on June 10, 1998 and protects the Company from
LIBOR increases above 7.37%. Since the floor for each of these interest rate
protection agreements is 5.50%, in the event of a LIBOR reduction below this
floor, there would be no benefit to the Company.
Notes payable to affiliates consist of amounts due to Warburg, Pincus and
the Company's senior management and bear interest at 6.83%. The notes are due on
demand; however, the noteholders have indicated that they do not intend to
demand payment prior to December 31, 1997. It is the Company's intent to repay
these notes in full upon the successful completion of the Company's proposed
initial public offering of common stock.
7. STOCKHOLDERS' EQUITY
COMMON STOCK
In May 1996, the Board of Directors declared a 90:1 stock split of the
Company's common stock. All applicable share and per share amounts have been
adjusted for this stock split.
STOCK OPTION PLAN
In connection with the Recapitalization, the Board of Directors adopted a
stock option plan (the Plan) which is open to participation by directors,
officers, consultants, other key employees of the Company or of its subsidiaries
and certain other key persons. The Plan provides for the issuance of incentive
and nonqualified stock options under the Code. An aggregate of 2,190,150 shares
of common stock are reserved for issuance under the Plan. No options have been
exercised under the Plan as of September 30, 1996. The options may be granted
for a term of up to ten years, five years in the case of incentive options. If
an incentive stock option is granted to an individual owning more than 10% of
the total combined voting power of all stock, the exercise price of the option
may not be less than 110% of the fair market value of the underlying shares on
the date of grant and the term of the option may not exceed five years.
The Plan provides that the aggregate fair market value (determined as of the
time the option is granted) of the common stock with respect to which incentive
stock options are exercisable for the first time by an optionee during any
calendar year shall not exceed $100,000.
In connection with the Recapitalization, certain members of management were
granted nonqualified options for an aggregate of 1,766,250 shares of common
stock exercisable at $1.22 per share.
Options for 1,236,375 shares will vest at the end of eight years from the
date of grant and could vest sooner if certain performance targets are met as
described below:
- Options for 353,250 shares will vest if the Company successfully completes
an initial public offering of its common stock by May 31, 1997.
F-19
<PAGE>
PANAVISION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. STOCKHOLDERS' EQUITY (CONTINUED)
- Options for up to 300,263 shares, 300,263 shares, and 282,600 shares will
vest if the Company achieves EBITDA (as defined) of $42.6 million, $50.4
million and $55.2 million, respectively, or Free Cash Flow (as defined) of
$27.3 million, $30.7 million and $34.0 milion, respectively, during its
years ending December 31, 1996, 1997 and 1998, respectively.
The exercise price of these options was less than the deemed fair market
value of the Company's common stock on the date of grant and accordingly the
Company will record an aggregate non-cash compensation charge of $280,000 which
will be amortized over the vesting period. Compensation expense of $15,000 was
recorded during the nine months ended September 30, 1996.
Options for 529,875 shares will only vest if the Company achieves EBITDA (as
defined) of $62 million in its year ending December 31, 1998 or the lower amount
of $65 million or a 10% increase of its actual 1998 EBITDA in its year ending
December 31, 1999. These options are being accounted for as variable options,
and the Company will record additional non-cash compensation charges in 1998 or
1999 if the achievement of these performance targets becomes probable. The per
share compensation charge will be equal to the difference between the option
exercise price of $1.22 and the quoted market value of the Common Stock in the
future when the targets are achieved.
In connection with the Recapitalization (see Note 1), the Company issued
423,900 shares of common stock to certain members of management. The Company has
recorded compensation expense in the amount of $615,000 during the nine months
ended September 30, 1996. The compensation expense represents the Company's best
estimate of the fair market value of the stock as of the date of issuance, based
in part on value attributed to the equity securities of PILP which were acquired
in the Recapitalization, in an arms-length transaction.
8. EMPLOYEE BENEFIT PLANS
The Company sponsors a defined contribution 401(k) plan covering a majority
of its domestic employees. Eligible employees may contribute from 1% to 16% of
their base compensation. The Company makes matching contributions equal to 75%
of employee before-tax contributions from 1% to 6%. For the years ended December
31, 1993, 1994 and 1995 and the nine months ended September 30, 1995 and 1996,
the Company contributed $225,000, $453,000, $503,000, $365,000 and $430,000
respectively, to the Plan.
In addition, the Company sponsors a defined contribution retirement plan,
which covers certain foreign employees. Participating employees contribute from
5% to 15% of their base compensation. The Company contributes 13.4% of base
compensation for participating employees regardless of their level of
contribution. For the years ended December 31, 1993, 1994 and 1995 and the
nine-months ended September 30, 1995 and 1996, the Company expensed $112,000,
$136,000, $189,000, $176,000 and $277,000, respectively, representing the
Company's contributions.
F-20
<PAGE>
PANAVISION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. GEOGRAPHICAL INFORMATION
Information as to the Company's operations in different geographical areas
is as follows (in thousands):
<TABLE>
<CAPTION>
UNITED UNITED
STATES KINGDOM OTHER(1) ELIMINATIONS TOTAL
--------- ----------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1993
Revenue............................ $ 52,022 $ 14,747 $ 2,432 $ (2,491) $ 66,710
Operating income (loss)............ 10,694 1,159 (588) (2,134) 9,131
Identifiable assets................ 129,523 19,889 1,303 (10,640) 140,075
DECEMBER 31, 1994
Revenue............................ 58,389 20,523 2,180 (3,992) 77,100
Operating income (loss)............ 14,350 3,724 (20) (3,601) 14,453
Identifiable assets................ 137,845 23,868 1,093 (13,099) 149,707
DECEMBER 31, 1995
Revenue............................ 68,102 23,004 14,227 (10,005) 95,328
Operating income................... 17,996 3,492 5,877 (7,878) 19,487
Identifiable assets................ 145,300 17,708 10,420 (7,677) 165,751
</TABLE>
- ------------------------
(1) The 1995 amounts are principally comprised of Panavision Canada, which was
acquired in January 1995.
10. COMMITMENTS AND CONTINGENCIES
The Company leases real estate, equipment, and vehicles under noncancelable
operating leases. Future minimum payments under noncancelable operating leases
with initial or remaining terms of one year or more are presented below (in
thousands):
<TABLE>
<S> <C>
1996....................................................... $ 2,920
1997....................................................... 1,112
1998....................................................... 1,508
1999....................................................... 1,414
2000....................................................... 1,407
Thereafter................................................. 19,864
---------------
$ 28,225
---------------
---------------
</TABLE>
In June 1995, the Company entered into a 16-year lease for its principal
operating facility in Woodland Hills, California; the Company relocated to this
facility during June 1996. The above table reflects the Company's commitment for
the entire 16-year lease term. In connection with this new lease, the Company
negotiated a settlement for its existing leases covering its prior operating
facility and recorded a $1,800,000 liability representing the cost of the
settlement. The liability was paid in January 1996.
During the years ended December 31, 1993, 1994 and 1995, rental expense
under operating leases was $1,789,000, $1,811,000 and $2,274,000, respectively,
and $1,863,000 and $2,214,000 for the nine months ended September 30, 1995 and
1996, respectively.
F-21
<PAGE>
PANAVISION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company and its subsidiaries are defendants in actions for matters
arising out of normal business operations. The Company does not believe that any
such proceedings currently pending will have a materially adverse effect on its
consolidated financial position or results of operations.
11. RELATED PARTY TRANSACTIONS
In accordance with an agreement, certain executive management services have
been provided by the Company to LII. The amount received by the Company from LII
was $996,000, $854,000 and $687,000 for the years ended December 31, 1993, 1994
and 1995, respectively, and $489,000 and $510,000 for the nine-month periods
ended September 30, 1995 and 1996, respectively. The amounts received have been
offset against selling, general and administrative expenses in the accompanying
consolidated statements of income. The agreement with LII expired on September
30, 1996.
Included in other assets at December 31, 1994 and 1995 is a loan receivable
of $450,000, which bears interest at 9%, from Pany Rental, Inc. (dba Panavision
New York), an agent in which the Company acquired a one-third interest during
1994.
The Company also has a note due from an officer in the amount of $540,000
plus accrued interest of $76,000 as of September 30, 1996 which is included as a
component of other assets. This amount, which is due upon demand, is secured by
real property and bears interest at 7.04% per annum.
12. BUSINESS COMBINATIONS
On January 20, 1995, the Company completed its acquisition of all of the
outstanding stock of Panavision Canada Corporation (Panavision Canada), a former
agent, for $177,000. The assignment of the purchase price among identifiable
tangible and intangible assets was based on analysis of fair values of those
assets. The fair values of the identifiable tangible and intangible assets
acquired, net of liabilities assumed, exceeded the purchase price, and
accordingly the values of fixed assets were reduced on a PRO RATA basis. This
business combination has been accounted for using the purchase method.
Therefore, the operating results of Panavision Canada are included in the
consolidated financial statements from January 20, 1995. Unaudited revenue, net
income, and net income per share for the Company in 1994 would have increased by
$7,535,000, $1,608,000 and $.11 respectively, on a pro forma basis if Panavision
Canada had been acquired at the beginning of that year.
Effective July 1, 1996, the Company's parent acquired substantially all of
the assets of Lee Lighting Limited (Lee Lighting) and contributed them to
Panavision. The purchase price of the acquisition, $8 million, approximates the
net book value of the assets acquired. Lee Lighting rents lighting equipment,
mobile generators and distribution equipment and sells lighting consumables for
the production of feature films, television programs and other filmed
entertainment. Lee Lighting had revenue of approximately $19,700,000 and
$10,400,000 for the year ended December 31, 1995 and the six months ended June
30, 1996, respectively.
The acquisition of Lee Lighting has been recorded under the purchase method
of accounting and its operating results have been included in the Company's
consolidated financial statements since the
F-22
<PAGE>
PANAVISION INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. BUSINESS COMBINATIONS (CONTINUED)
acquisition date of July 1, 1996. The purchase price has been allocated to the
following net assets acquired based on their respective fair market values (in
thousands):
<TABLE>
<S> <C>
Cash and equivalents............................................... $ 1,026
Inventories........................................................ 656
Prepaids and other................................................. 598
Property and equipment............................................. 8,671
Accounts payable and accrued liabilities........................... (2,951)
---------
$ 8,000
---------
---------
</TABLE>
Unaudited revenue, net income, and net income per share for the Company
would have increased by $19,749,000, $1,204,000 and $.08, respectively for 1995
and $10,400,000, $605,000 and $.04, respectively, for the nine months ended
September 30, 1996, on a pro forma basis if the Lee Lighting acquisition had
been made as of January 1, 1995. This unaudited pro forma information is
presented for illustrative purposes only and may not be indicative of the
results that would have occurred or which may be obtained in the future.
13. SUBSEQUENT EVENT
On November [ ], 1996, the Company's Board of Directors authorized the
filing of a registration statement with the Securities and Exchange Commission,
relating to an initial public offering of 3,500,000 shares of the Company's
unissued common stock at an expected offering price ranging from $16.00 to
$18.00. The Board also authorized 2,000,000 shares of preferred stock, approved
an increase in the authorized shares of common stock to 50,000,000 shares and
declared a 1,413:1 stock split of the common stock. All applicable shares and
per share amounts have been adjusted for this stock split.
F-23
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Directors
Lee Lighting Limited
We have audited the accompanying balance sheet of Lee Lighting Limited as of
December 31, 1995 and the related profit and loss account and statement of cash
flows for the year then ended. These financial statements are the responsibility
of the Company's directors. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with United Kingdom auditing standards
which do not differ in any significant respect from United States generally
accepted auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurances about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Lee Lighting Limited as of
December 31, 1995 and the results of its operations and its cash flows for the
year then ended in conformity with accounting principles generally accepted in
the United Kingdom which differ in certain respects from those followed in the
United States (see note 18 of the notes to the financial statements).
ERNST & YOUNG
Chartered Accountants
Registered Auditor
London, United Kingdom
5 September 1996
F-24
<PAGE>
LEE LIGHTING LIMITED
GROUP PROFIT AND LOSS ACCOUNT
(IN THOUSANDS OF BRITISH POUNDS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
--------------- ----------------------------
1995 1995 1996
--------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Turnover.......................................... 12,516 5,927 6,746
Cost of sales..................................... (9,869) (4,726) (5,284)
------- ------ ------
Gross profit...................................... 2,647 1,201 1,462
Selling, general and administration expenses...... (1,601) (802) (905)
------- ------ ------
1,046 399 557
Other operating income............................ 38 19 5
------- ------ ------
Operating profit.................................. 1,084 418 562
Interest income................................... 29 13 6
Interest expense.................................. (3,420) (1,710) (1,806)
------- ------ ------
Loss on ordinary activities before taxation....... (2,307) (1,279) (1,238)
Tax on loss on ordinary activities................ 69 -- 112
------- ------ ------
Loss attributable to the members of the parent
undertaking..................................... (2,238) (1,279) (1,126)
------- ------ ------
------- ------ ------
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
</TABLE>
There are no recognised gains or losses other than the loss attributable to
the shareholders of the company of L2,238 in the year ended December 1995.
See accompanying notes.
F-25
<PAGE>
LEE LIGHTING LIMITED
GROUP BALANCE SHEET
(IN THOUSANDS OF BRITISH POUNDS)
<TABLE>
<CAPTION>
DECEMBER 31,
1995
--------------- JUNE 30,
1996
-------------
(UNAUDITED)
<S> <C> <C>
FIXED ASSETS
Tangible assets............................................... 5,346 5,587
------- -------------
CURRENT ASSETS
Stock......................................................... 405 423
Debtors....................................................... 1,495 1,910
Cash at bank and in hand...................................... 413 661
Prepayments and other current assets.......................... 233 385
------- -------------
2,546 3,379
CREDITORS: amounts falling due within one year................ (39,455) (41,767)
------- -------------
NET CURRENT LIABILITIES....................................... (36,909) (38,388)
------- -------------
TOTAL ASSETS LESS CURRENT LIABILITIES......................... (31,563) (32,801)
------- -------------
CREDITORS: amounts falling due after more than one year....... (90) (90)
PROVISIONS FOR LIABILITIES AND CHARGES
Deferred taxation............................................. (112) --
------- -------------
(202) (90)
------- -------------
(31,765) (32,891)
------- -------------
------- -------------
CAPITAL AND RESERVES
Called up share capital....................................... 568 568
Merger reserve................................................ 1,133 1,133
Revaluation reserve........................................... 185 166
Profit and loss account....................................... (33,651) (34,758)
------- -------------
(31,765) (32,891)
------- -------------
------- -------------
</TABLE>
See accompanying notes.
F-26
<PAGE>
LEE LIGHTING LIMITED
GROUP STATEMENT OF CASH FLOWS
(IN THOUSANDS OF BRITISH POUNDS)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
----------------- ----------------------------------------
1995 1995 1996
----------------- ------------------- -------------------
(UNAUDITED)
<S> <C> <C> <C>
NET CASH INFLOW FROM OPERATING ACTIVITIES.... 2,052 1,131 978
------ ----- ---
RETURNS FROM INVESTMENTS AND SERVICING OF
FINANCE
Interest received.......................... 29 13 6
Interest paid.............................. (1,500) (500) --
------ ----- ---
NET CASH OUTFLOW FROM RETURNS ON INVESTMENTS
AND SERVICING OF FINANCE................... (1,471) (487) 6
------ ----- ---
TAXATION
Corporation tax............................ -- -- --
------ ----- ---
INVESTING ACTIVITIES
Payments to acquire tangible fixed
assets..................................... (939) (601) (746)
Receipts from sales of tangible fixed
assets..................................... 46 32 10
------ ----- ---
NET CASH OUTFLOW FROM INVESTING ACTIVITIES... (893) (569) (736)
------ ----- ---
NET CASH (OUT)/INFLOW BEFORE FINANCING
ACTIVITIES................................. (312) 75 248
------ ----- ---
NET CASH INFLOW FROM FINANCING ACTIVITIES.... -- -- --
------ ----- ---
(DECREASE)/INCREASE IN CASH AND CASH
EQUIVALENTS................................ (312) 75 248
------ ----- ---
------ ----- ---
RECONCILIATION OF OPERATING PROFIT TO NET
CASH INFLOW FROM OPERATING ACTIVITIES
Operating profit........................... 1,084 418 562
Depreciation charge........................ 961 452 493
(Profit)/loss on sale of tangible fixed
assets..................................... (16) (14) 2
Balance of unfunded pension obligation..... (5) (5) --
Decrease/(increase) in debtors............. 48 (183) (572)
Increase in creditors...................... 37 538 511
(Increase)/decrease in stock............... (57) (75) (18)
------ ----- ---
NET CASH INFLOW FROM OPERATING ACTIVITIES.... 2,052 1,131 978
------ ----- ---
------ ----- ---
</TABLE>
See accompanying notes.
F-27
<PAGE>
LEE LIGHTING LIMITED
NOTES TO THE ACCOUNTS
(INFORMATION FOR THE PERIOD ENDED JUNE 30, 1995 AND
SUBSEQUENT TO DECEMBER 31, 1995 IS UNAUDITED)
1. ACCOUNTING POLICIES
ACCOUNTING CONVENTION
The accounts are prepared under the historical cost convention as modified
to include the revaluation of rental assets and in accordance with applicable
accounting standards.
BASIS OF CONSOLIDATION
The group accounts consolidate Lee Lighting Limited (the Company) and all
its subsidiary undertakings drawn up to 31 December each year.
DEPRECIATION
Depreciation is provided on all tangible fixed assets at rates calculated to
write off the cost or valuation, less estimated residual value, of each asset
over its useful economic life, as follows:
<TABLE>
<S> <C>
Leasehold buildings.................. 10 years
Motor vehicles....................... 20% on written down value
Furniture, fixtures and equipment.... 15% on written down value
Computer equipment................... 3 years
Rental assets........................ 15-20% on written down value
</TABLE>
STOCKS
Stocks are stated at the lower of cost and net realisable value.
DEFERRED TAXATION
Deferred taxation is provided on the liability method on all timing
differences which are expected to reverse in the future calculated at the rate
at which it is estimated that tax will be payable.
FOREIGN CURRENCIES
Transactions in foreign currencies are recorded at the rate ruling at the
date of the transaction.
Monetary assets and liabilities denominated in foreign currency are
retranslated at the rate of exchange ruling at the balance sheet date.
All differences are taken to the profit and loss account.
LEASING AND HIRE PURCHASE CONSULTANTS
Assets obtained under finance leases and hire purchase contracts are
capitalized in the balance sheet and are depreciated over their useful lives.
The interest element of the rental obligations is charged to the profit and
loss account over the period of the lease and represents a constant proportion
of the balance of capital repayments outstanding.
F-28
<PAGE>
LEE LIGHTING LIMITED
NOTES TO THE ACCOUNTS
1. ACCOUNTING POLICIES (CONTINUED)
Rentals paid under operating leases are charged to income on a straight line
basis over the lease term.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements at June 30,
1996 and for the six month periods ended June 30, 1995 and June 30, 1996 have
been prepared on the same basis as the audited financial statements and, in the
opinion of management, include all adjustments (consisting only of normal and
recurring accruals) necessary to present fairly the financial information set
forth therein, in accordance with accounting principles generally accepted in
the United Kingdom which differ in certain respects from those followed in the
United States (see note 18). The results of operations for the six month period
ended June 30, 1996 are not necessarily indicative of the results to be expected
for the entire fiscal year.
2. TURNOVER
Turnover, which is stated net of value added tax, represents amounts
invoiced to third parties in respect of the provision of services and equipment
to the film, television and allied industries. An analysis of turnover by
geographical market is given below (in thousands of British pounds):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
-----------------
<S> <C>
UK......................................................................... 12,019
All other.................................................................. 497
-------
12,516
-------
-------
</TABLE>
3. OPERATING PROFIT
This is stated after charging/(crediting) (in thousands of British pounds):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
-------------------
<S> <C>
Auditors' remuneration--audit services..................................... 32
Depreciation of owned fixed assets......................................... 1,034
Profit on disposals of fixed assets........................................ (16)
Operating lease rentals--land and buildings................................ 413
-----
-----
</TABLE>
4. DIRECTORS' REMUNERATION
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
-----------------
<S> <C>
Other emoluments, including pension contributions (in thousands of British
pounds)................................................................... 170
-------
-------
</TABLE>
F-29
<PAGE>
LEE LIGHTING LIMITED
NOTES TO THE ACCOUNTS
4. DIRECTORS' REMUNERATION (CONTINUED)
The emoluments of the chairman, excluding pension contributions, were Lnil.
The emoluments of the highest paid director, excluding pension contributions,
were L93,000. Directors' emoluments excluding pension contributions fell within
the following ranges:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
-----------------
<S> <C>
NO.
Lnil - L5,000.............................................................. 3
L75,001 - L80,000.......................................................... 1
L90,001 - L95,000.......................................................... 1
</TABLE>
5. STAFF COSTS
Staff costs were as follows (in thousands of British pounds):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
-----------------
<S> <C>
Wages and salaries......................................................... 6,021
Social security costs...................................................... 618
Other pension costs........................................................ 150
-------
6,789
-------
-------
</TABLE>
The Company contributes to a number of defined contribution pension schemes
on behalf of its employees. The assets of the schemes are held separately from
those of the Company in independently administered funds. The pension cost
charge represents contributions payable by the Company to the funds and amounted
to L150,000.
The average weekly number of employees during the year was made up as
follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
-----------------
<S> <C>
Electricians and generator operators....................................... 103
Maintenance and support.................................................... 49
Selling and distribution................................................... 2
Administration............................................................. 28
-------
182
-------
-------
</TABLE>
6. INTEREST EXPENSE
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
-----------------
<S> <C>
Loan from parent undertaking (in thousands of British pounds).............. 3,420
-------
-------
</TABLE>
7. TAX ON LOSS ON ORDINARY ACTIVITIES
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
-----------------
<S> <C>
Based on the loss for the year:
Deferred taxation (in thousands of British pounds)......................... (69)
-------
-------
</TABLE>
F-30
<PAGE>
LEE LIGHTING LIMITED
NOTES TO THE ACCOUNTS
8. TANGIBLE FIXED ASSETS
The analysis of tangible fixed assets is as follows (in thousands of British
pounds):
<TABLE>
<CAPTION>
LEASEHOLD, FURNITURE,
LAND AND MOTOR FIXTURES AND
BUILDINGS VEHICLES EQUIPMENT RENTAL ASSETS TOTAL
----------- ----------- --------------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Cost or valuation:
At January 1, 1995................................ 1,213 151 879 10,682 12,925
Additions......................................... -- 76 -- 864 940
Disposals......................................... -- (56) -- (111) (167)
----- --- --- ------------- ---------
At December 31, 1995.............................. 1,213 171 879 11,435 13,698
----- --- --- ------------- ---------
Depreciation:
At January 1, 1995................................ 637 38 749 6,105 7,529
Charge for the year............................... 120 30 26 784 960
Disposals......................................... -- (41) -- (96) (137)
----- --- --- ------------- ---------
At December 31, 1995.............................. 757 27 775 6,793 8,352
----- --- --- ------------- ---------
Net book value
At January 1, 1995................................ 576 113 130 4,577 5,396
----- --- --- ------------- ---------
----- --- --- ------------- ---------
At December 31, 1995.............................. 456 144 104 4,642 5,346
----- --- --- ------------- ---------
----- --- --- ------------- ---------
</TABLE>
Certain lighting rental equipment was revalued at 31 December 1987 by the
directors, based on depreciated replacement cost. The figures disclosed above
for rental assets included the following amounts in respect of revalued lighting
rental equipment (in thousands of British pounds):
<TABLE>
<CAPTION>
HISTORICAL
COST VALUATION
----------- -----------
<S> <C> <C>
Cost or valuation:
At January 1, 1995...................................................................... 7,756 5,209
----- -----
At December 31, 1995.................................................................... 7,598 5,098
----- -----
Accumulated depreciation:
At January 1, 1995...................................................................... 6,311 3,539
----- -----
At December 31, 1995.................................................................... 6,394 3,709
----- -----
Charge for the year..................................................................... 211 250
----- -----
</TABLE>
9. STOCKS
<TABLE>
<CAPTION>
DECEMBER 31,
1995 JUNE 30, 1996
--------------- ---------------
<S> <C> <C>
(UNAUDITED)
Materials and consumables (in thousands of British pounds)......................... 405 423
--- ---
--- ---
</TABLE>
F-31
<PAGE>
LEE LIGHTING LIMITED
NOTES TO THE ACCOUNTS
10. CREDITORS
Amounts falling due within one year were as follows (in thousands of British
pounds):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
------------- -----------
<S> <C> <C>
(UNAUDITED)
Trade creditors................................................ 300 537
Other taxes and social security costs......................... 476 785
Accrued income taxes.......................................... 120 120
Other creditors............................................... 13 24
Accruals...................................................... 501 450
Amounts owed to parent undertakings........................... 1,196 1,196
Amounts owed to other group undertakings...................... 730 730
Loan from parent undertaking.................................. 36,119 37,925
------------- -----------
39,455 41,767
------------- -----------
------------- -----------
</TABLE>
The loan from the parent undertaking is a loan note of L21,396,095 together
with deferred interest thereon of L14,723,268. The loan is secured on the assets
of the Company and its subsidiaries.
The principal terms are as follows:
1. Interest is charageable at 10% per year on the outstanding principal
and deferred interest.
2. The prinicpal is repayable on June 30, 1996 together with any
deferred interest. However since the audited balance sheet date the
repayment date for prinicpal and deferred interest has been extended to June
30, 1997.
3. Interest may be deferred to the extent that, in the opinion of the
directors, the Company has insufficient resources to make any interest
payments. Any interest so deferred is subject to interest commencing at the
start of the financial year following that in which the deferral was made.
The principal and interest on this loan note become payable immediately in
the event of a default which may arise, inter alia, by failure to pay any amount
due under the agreement or by failure to pay other debts as they fall due.
While no discussions have taken place regarding the renewal of the loan
facility beyond June 30, 1997 the directors are confident that agreement could
be reached to provide adequate facilities for the Company to continue trading
for the foreseeable future, although as detailed in note 17, the intention of
the directors is to place the Company into liquidation following the transfer of
the business and certain trading assets as of July 1, 1996.
If adequate facilities are not available, the going concern basis, upon
which these financial statements are prepared, may not be appropriate and
adjustments would have to be made to reduce the value of assets to their
recoverable amount, to provide for any further liabilities that might arise and
to reclassify fixed assets as current assets and long-term liabilities as
current liabilities.
Amounts falling due after one year was comprised of a provision for unfunded
pension obligations of L90,000.
F-32
<PAGE>
LEE LIGHTING LIMITED
NOTES TO THE ACCOUNTS
11. OBLIGATIONS UNDER OPERATING LEASES
The annnual commitments under non-cancellable operating leases are as
follows (in thousands of British pounds):
<TABLE>
<CAPTION>
DECEMBER 31, 1995
---------------------
<S> <C>
Operating leases which expire:
In one year................................................................ 230
Within the second to fifth years........................................... 183
---
413
---
---
</TABLE>
12. DEFERRED TAXATION
Deferred taxation provided in the accounts and the amounts not provided are
as follows (in thousands of British pounds):
<TABLE>
<CAPTION>
PROVIDED NOT PROVIDED
DECEMBER 31, DECEMBER 31,
1995 1995
--------------- -------------
<S> <C> <C>
Accelerated capital allowances................................... 187 --
Accrued interest................................................. -- (4,859)
Other timing differences......................................... (30) --
Losses........................................................... (45) --
--- ------
112 (4,859)
--- ------
--- ------
</TABLE>
13. SHARE CAPITAL
Share capital allotted, called up, authorised and fully paid consisted of
600,000 ordinary shares of L1 each.
14. RECONCILIATION OF SHAREHOLDERS' FUNDS AND MOVEMENTS ON RESERVES
The reconciliation is as follows (in thousands of British pounds):
<TABLE>
<CAPTION>
PROFIT AND
SHARE MERGER REVALUATION LOSS
CAPITAL RESERVE RESERVE ACCOUNT TOTAL
----------- ----------- --------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995................................ 568 1,133 224 (31,452) (29,527)
Loss for the year......................................... -- -- -- (2,238) (2,238)
Release of revaluation reserve............................ -- -- (39) 39 --
--- ----- --- ----------- ---------
Balance at December 31, 1995.............................. 568 1,133 185 (33,651) (31,765)
Loss for the period (unaudited)........................... -- -- -- (1,126) (1,126)
Release of revaluation reserve (unaudited)................ -- -- (19) 19 --
--- ----- --- ----------- ---------
Balance at June 30, 1996 (unaudited)...................... 568 1,133 166 (34,758) (32,891)
--- ----- --- ----------- ---------
--- ----- --- ----------- ---------
</TABLE>
F-33
<PAGE>
LEE LIGHTING LIMITED
NOTES TO THE ACCOUNTS
15. CASH FLOW STATEMENT
(a) Analysis of changes in cash and cash equivalents during the year (in
thousands of British pounds):
<TABLE>
<CAPTION>
1995
-------------
<S> <C>
Balance at 1 January............................................................ 725
Net cash (outflow).............................................................. (312)
-------------
413
-------------
-------------
</TABLE>
(b) Analysis of cash and short term deposits as shown in the balance sheet:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
-------------
<S> <C>
Cash at bank and in hand (in thousands of British pounds):...................... 413
-------------
-------------
</TABLE>
(c) Analysis of changes in financing during the year - parent undertaking
loan (note 10) (in thousands of British pounds):
<TABLE>
<S> <C>
Balance as of 1 January 1995.................................... 34,199
Interest paid................................................... (1,500)
Interest charge................................................. 3,420
-----------
Balance as of 31 December 1995.................................. 36,119
-----------
-----------
</TABLE>
16. CAPITAL COMMITMENTS
Amounts contracted for but not provided in the financial statements amounted
to L69,520.
F-34
<PAGE>
LEE LIGHTING LIMITED
NOTES TO THE ACCOUNTS
17. EVENTS SINCE THE BALANCE SHEET DATE
With effect from July 1, 1996, the business and substantially all trading
assets of the Company were sold at net book value and it is planned to place the
Company into liquidation.
18. DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED
KINGDOM AND THE UNITED STATES
The financial statements are prepared under accounting principles generally
accepted in the United Kingdom (UK GAAP) which differ in certain respects from
United States generally accepted principles (US GAAP). Differences estimated to
have a significant effect on net income and shareholders' equity are set out
below.
REVALUATION OF RENTAL ASSETS
Certain rental assets were revalued in 1987 on the basis of their value to
the business and they are included in these financial statements at that value
less subsequent depreciation. Under US GAAP, such revaluations would not be
reflected in the financial statements. Rental assets would be included at
historical cost under US GAAP with depreciation computed on such cost.
DEFERRED TAXATION
Provision is made for deferred taxation using the liability method on all
material timing differences to the extent that it is probable that the
liabilities will crystallise in the foreseeable future. Under US GAAP, as set
out in Statements of Financial Accounting Standards No. 109 "Accounting for
Income Taxes", deferred taxation is generally provided on a full liability basis
on all temporary differences. However, as the unprovided UK GAAP amount
represents a deferred taxation asset which is not anticipated to be realised in
the foreseeable future, there would be no significant impact on net income or
shareholders' equity from the adoption of a US GAAP treatment.
F-35
<PAGE>
LEE LIGHTING LIMITED
NOTES TO THE ACCOUNTS
18. DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED
KINGDOM AND THE UNITED STATES (CONTINUED)
The following is a summary of the effect of the above differences on the
reported amounts (in thousands of British pounds):
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1995 JUNE 30, 1996
----------------- -------------
<S> <C> <C>
(UNAUDITED)
NET INCOME
Loss for the period............................................................. (2,238) (1,126)
ADJUSTMENTS
Depreciation adjustment as a result of revaluation.............................. 39 19
Adjustment on disposal of revalued asset........................................ 5 --
------- -------------
Net income as adjusted to accord with US GAAP................................... (2,194) (1,107)
------- -------------
------- -------------
SHAREHOLDERS' EQUITY
Shareholders' equity as reported................................................ (31,765) (32,891)
ADJUSTMENTS
Revaluation reserve............................................................. (185) (166)
------- -------------
Shareholders' equity as adjusted to accord with US GAAP......................... (31,950) (33,057)
------- -------------
------- -------------
</TABLE>
STATEMENTS OF CASH FLOWS
The statements of cash flows prepared in accordance with UK GAAP present
substantially the same information as that required under US GAAP. UK and US
GAAP differ, however, with regard to the classification of items within the
statements and as regards the definition of cash and cash equivalents.
Under UK GAAP, cash flows are presented separately for operating activities,
returns on investments and servicing of finance, taxation, investing activities
and financing activities. US GAAP, however, requires only three categories of
cash flow activity to be reported: operating, investing and financing. Cash
flows from taxation and returns on investments and servicing of finance shown
under UK GAAP would be included as operating activities under US GAAP.
Under US GAAP, cash and cash equivalents would not include bank overdrafts
and borrowings with initial maturities of less than three months.
F-36
<PAGE>
LEE LIGHTING LIMITED
NOTES TO THE ACCOUNTS
18. DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED
KINGDOM AND THE UNITED STATES (CONTINUED)
The categories of cash flow activity under US GAAP can be summarized as
follows (in thousands of British pounds):
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1995 JUNE 30, 1996
------------------- ---------------
<S> <C> <C>
(UNAUDITED)
Cash inflow from operating activities........................................... 581 984
Cash outflow on investing activities............................................ (893) (736)
Cash inflow from financing activities........................................... -- --
--- ---
(Decrease)/increase in cash and cash equivalents................................ (312) 248
Cash and cash equivalents at January 1.......................................... 725 413
--- ---
Cash and cash equivalents at December 31/June 30................................ 413 661
--- ---
--- ---
</TABLE>
F-37
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the U.S. Underwriting Agreement, the
Company has agreed to sell to each of the U.S. Underwriters named below, and
each of such U.S. Underwriters, for whom Goldman, Sachs & Co., Schroder Wertheim
& Co. Incorporated and Cowen & Company are acting as representatives
(collectively, the "Representatives"), has severally agreed to purchase from the
Company, the respective number of shares of Common Stock set forth opposite its
name below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
COMMON
UNDERWRITER STOCK
- ----------------------------------------------------------------------- -----------
<S> <C>
Goldman, Sachs & Co....................................................
Schroder Wertheim & Co. Incorporated...................................
Cowen & Company........................................................
-----------
Total.............................................................. 2,800,000
-----------
-----------
</TABLE>
Under the terms and conditions of the U.S. Underwriting Agreement, the U.S.
Underwriters are committed to take and pay for all of the shares offered hereby,
if any are taken.
The U.S. Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus and in part to certain securities dealers at such
price less a concession of $ per share. The U.S. Underwriters may allow,
and such dealers may reallow, a concession not in excess of $ per share
to certain brokers and dealers. After the shares of Common Stock are released
for sale to the public, the offering price and other selling terms may from time
to time be varied by the Representatives.
The Company has entered into an underwriting agreement (the "International
Underwriting Agreement") with the underwriters of the International Offering
(the "International Underwriters") providing for the concurrent offer and sale
of 700,000 shares of Common Stock in an international offering outside the
United States. The offering price and aggregate underwriting discounts and
commissions per share for the two Offerings are identical. The closing of the
U.S. Offering made hereby is a condition to the closing of the International
Offering, and vice versa. The representatives of the International Underwriters
are Goldman Sachs International, J. Henry Schroder & Co. Limited and Cowen &
Company.
Pursuant to an Agreement between the U.S. and International Underwriting
Syndicates (the "Agreement Between") relating to the two Offerings, each of the
U.S. Underwriters named herein has agreed that, as a part of the distribution of
the shares offered hereby and subject to certain exceptions, it will offer, sell
or deliver the shares of Common Stock, directly or indirectly, only in the
United States of America (including the States and the District of Columbia),
its territories, its possessions and other areas subject to its jurisdiction
(the "United States") and to U.S. persons, which term shall mean, for purposes
of this paragraph: (a) any individual who is a resident of the United States or
(b) any corporation, partnership or other entity organized in or under the laws
of the United States or any political subdivision thereof and whose office most
directly involved with the purchase is located in the United States. Each of the
International Underwriters has agreed pursuant to the Agreement Between that, as
a part of the distribution of the shares offered as part of the International
Offering and subject to certain exceptions, it will (i) not, directly or
indirectly, offer, sell or deliver shares of Common Stock (a) in the United
States or to any U.S. persons or (b) to any person who it believes intends to
reoffer, resell or deliver the shares in the United States or to any U.S.
persons and (ii) cause any dealer to whom it may sell such shares at any
concession to agree to observe a similar restriction.
U-1
<PAGE>
Pursuant to the Agreement Between, sales may be made between the U.S.
Underwriters and the International Underwriters of such number of shares of
Common Stock as may be mutually agreed. The price of any shares so sold shall be
the initial public offering price, less an amount not greater than the selling
concession.
The Company has granted the U.S. Underwriters an option exercisable for 30
days after the date of this Prospectus to purchase up to an aggregate of 420,000
additional shares of Common Stock solely to cover over-allotments, if any. If
the U.S. Underwriters exercise their over-allotment option, the U.S.
Underwriters have severally agreed, subject to certain conditions, to purchase
approximately the same percentage thereof that the number of shares to be
purchased by each of them, as shown in the foregoing table, bears to the
2,800,000 shares of Common Stock offered hereby. The Company has granted the
International Underwriters a similar option to purchase up to an aggregate of
105,000 additional shares of Common Stock.
The Company has agreed during the period beginning from the date of this
Prospectus and continuing to and including the date 180 days after the date of
this Prospectus, not to offer, sell, contract to sell or otherwise dispose of
any securities of the Company (other than pursuant to employee stock option
plans existing, or on the conversion or exchange of convertible or exchangeable
securities outstanding, on the date of this Prospectus) which are substantially
similar to the shares of Common Stock or which are convertible or exchangeable
into securities which are substantially similar to the shares of Common Stock,
without the prior written consent of Goldman, Sachs & Co., except for the shares
of Common Stock offered in connection with the Offerings. The Company's
executive officers and directors and Warburg, Pincus, who will hold in the
aggregate 14,130,000 shares of Common Stock following this offering, have agreed
not to offer, sell, contract to sell or otherwise dispose of any shares of
Common Stock or other securities of Panavision Inc. that are substantially
similar to the shares of Common Stock (including but not limited to any
securities that are convertible into or exchangeable for, or that represent the
right to receive, shares of Common Stock or any such substantially similar
securities) for a period of 180 days after the date of this Prospectus without
the prior written consent of Goldman, Sachs & Co. See "Shares Eligible for
Future Sale."
Since the partial repayment of the Credit Facility will cause a substantial
portion of the proceeds from the Offerings to be paid to affiliates of members
of the National Association of Securities Dealers, Inc. (the "NASD") which
members may participate in the U.S. Offering, the U.S. Offering is being
conducted in accordance with the requirements of Rule 2710(c)(8) of the NASD
Conduct Rules. The initial public offering price can be no higher than that
recommended by a "qualified independent underwriter" meeting certain standards.
Accordingly, Goldman, Sachs & Co. will serve in such role and will receive
compensation from the Company in the amount of $10,000 for serving in such
capacity. In connection with the U.S. Offering, Goldman, Sachs & Co. in its role
as qualified independent underwriter has performed due diligence investigations
and reviewed and participated in the preparation of this Prospectus and the
Registration Statement of which this Prospectus forms a part.
The representatives of the U.S. Underwriters and the International
Underwriters have informed the Company that they do not expect sales to accounts
over which the U.S. Underwriters and the International Underwriters exercise
discretionary authority to exceed five percent of the total number of shares of
Common Stock offered by them.
Prior to the Offerings, there has been no public market for the Common
Stock. The initial public offering price will be negotiated among the Company
and the representatives of the U.S. Underwriters and the International
Underwriters. Among the factors to be considered in determining the initial
public offering price of the Common Stock, in addition to prevailing market
conditions, are the Company's historical performance, estimates of the business
potential and earnings prospects of the Company, an assessment of the Company's
management and the consideration of the above factors in relation to the market
valuation of companies in related businesses.
U-2
<PAGE>
The Common Stock has been approved for listing on the NYSE under the symbol
"PVI," subject to notice of issuance. In order to meet one of the requirements
for listing the Common Stock on the NYSE, the U.S. Underwriters have undertaken
to sell lots of 100 or more shares to a minimum of 2,000 beneficial holders.
The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act.
This Prospectus may be used by underwriters and dealers in connection with
offers and sales of the Common Stock, including shares initially sold in the
International Offering, to persons located in the United States.
U-3
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Additional Information....................... 2
Prospectus Summary........................... 3
Risk Factors................................. 7
Use of Proceeds.............................. 10
Dividend Policy.............................. 10
Capitalization............................... 11
Dilution..................................... 12
The Recapitalization......................... 13
Selected Consolidated Financial Data......... 14
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................. 15
Business..................................... 26
Management................................... 39
Certain Transactions......................... 45
Principal Stockholders....................... 46
Description of Capital Stock................. 47
Shares Eligible for Future Sale.............. 49
Legal Matters................................ 51
Experts...................................... 51
Index to Consolidated Financial Statements... F-1
Underwriting................................. U-1
</TABLE>
THROUGH AND INCLUDING , 1996 (THE 25TH DAY 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.
3,500,000 SHARES
PANAVISION INC.
COMMON STOCK
(PAR VALUE $0.01 PER SHARE)
----------------
[LOGO]
----------------
GOLDMAN, SACHS & CO.
SCHRODER WERTHEIM & CO.
COWEN & COMPANY
REPRESENTATIVES OF THE UNDERWRITERS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered which will be paid
solely by the Company. All amounts shown are estimates, except the SEC
registration fee, the NASD filing fee and the NYSE listing fee:
<TABLE>
<CAPTION>
AMOUNT
-------------
<S> <C>
SEC registration fee........................................................... $ 24,840
NASD filing fee................................................................ 7,745
NYSE listing fee............................................................... 77,400
Transfer agent and registrar fees and expenses................................. 5,000
Printing and engraving expenses................................................ 375,000
Legal fees and expenses........................................................ 550,000
Accounting fees and expenses................................................... 400,000
Blue Sky fees and expenses..................................................... 5,000
Miscellaneous expenses......................................................... 355,015
-------------
Total.................................................................. $ 1,800,000
-------------
-------------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Restated Certificate of Incorporation (the "Restated
Certificate") provides that the Company shall indemnify each person who is or
was a director, officer or employee of the Company to the fullest extent
permitted under Section 145 of the Delaware General Corporation Law. Section 145
of the Delaware General Corporation Law empowers a Delaware corporation to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of such corporation) by reason of the fact that such person is or was
a director, officer, employee or agent of such corporation, or is or was serving
at the request of such corporation as a director, officer, employee or agent of
another corporation or enterprise. A corporation may indemnify such person
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. A corporation may, in
advance of the final disposition of any civil, criminal, administrative or
investigative action, suit or proceeding, pay the expenses (including attorneys'
fees) incurred by any officer or director in defending such action, provided
that the director or officer undertakes to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by the
corporation.
A Delaware corporation may indemnify officers and directors in an action by
or in the right of the corporation to procure a judgment in its favor under the
same conditions, except that no indemnification is permitted without judicial
approval if the officer or director is adjudged to be liable to the corporation.
Where an officer or director is successful on the merits or otherwise in the
defense of any action referred to above, the corporation must indemnify him
against the expenses (including attorneys' fees) which he actually and
reasonably incurred in connection therewith. The indemnification provided is not
deemed to be exclusive of any other rights to which an officer or director may
be entitled under any corporation's bylaw, agreement, vote or otherwise.
II-1
<PAGE>
The Restated Certificate provides that a director of the Company will not be
personally liable to the Company or its stockholders for monetary damages for
breach of fiduciary duty as a director, except for liability (i) for any breach
of the director's duty of loyalty to the Company or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, which concerns unlawful payments of dividends, stock purchases
or redemption, or (iv) for any transaction from which the director derived an
improper personal benefit.
While the Restated Certificate provides directors with protection from
awards for monetary damages for breaches of their duty of care, it does not
eliminate such duty. Accordingly, the Restated Certificate will have no effect
on the availability of equitable remedies such as an injunction or rescission
based on a director's breach of his or her duty of care. The provisions of the
Restated Certificate described above apply to an officer of the Company only if
he or she is a director of the Company and is acting in his or her capacity as
director, and do not apply to officers of the Company who are not directors.
Reference is made to the Employment Agreement of William C. Scott (Exhibit
10.4) which provides for indemnification of Mr. Scott in his capacity as Chief
Executive Officer of the Company.
Reference is made to the U.S. Underwriting Agreement (Exhibit 1) which
provides for indemnification of the Company, its directors, officers and
controlling persons.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following information is furnished with regard to all securities sold by
the Company within the past three years which were not registered under the
Securities Act.
On May 8, 1996, Messrs. Farrand and Marcketta received 282,600 and 141,300
shares, respectively, of the Company's common stock (after giving effect to a
1,413 :1 stock split of the Company's Common Stock to be effected prior to the
closing of the Offerings) for its par value. On June 12, 1996, Mr. Scott
exchanged his interest in PILP for 989,100 shares of the Company's Common Stock
representing his proportionate interest in PILP.
The sales described in this Item 15 were made in reliance upon the exemption
from registration set forth in Section 4(2) of the Securities Act relating to
sales by an issuer not involving any public offering. The foregoing transactions
did not involve a distribution or public offering. No underwriters were engaged
in connection with the foregoing issuances of securities and no commissions or
discounts were paid.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- -----------------------------------------------------------------------------------------------------
<C> <S>
1 Form of U.S. Underwriting Agreement
3.1 Restated Certificate of Incorporation
3.2 Restated By-Laws
4 Specimen of the Company's Common Stock certificate
5.1 Opinion of Willkie Farr & Gallagher as to the legality of the Common Stock**
10.1 Amended and Restated Stockholders Agreement, dated as of June 12, 1996.
10.2 Restated and Amended Credit Agreement, dated September 10, 1996, among Panavision International,
L.P., the subsidiary guarantors and the lenders listed therein, and the Chase Manhattan Bank, as
Administrative Agent.*
10.3 1996 Stock Option Plan
10.4 Employment Agreement, dated as of June 12, 1996, between the Company and
William C. Scott*
10.5 Lease, dated June 13, 1995, between the Company and Trizec Warner Inc.
10.6 Executive Incentive Compensation Plan
11 Computations of Per Share Earnings
21 Subsidiaries
23.1 Consent of Willkie Farr & Gallagher (included in their opinion filed as Exhibit 5.1)**
23.2 Consent of Ernst & Young LLP
23.3 Consent of Ernst & Young
24 Power of Attorney (included on the signature page of this Registration Statement)*
27 Financial Data Schedule
99.1 Consent of Martin D. Payson to be named as a director of the Company
</TABLE>
- ------------------------
* Previously filed.
** To be filed by amendment.
(b) FINANCIAL STATEMENT SCHEDULES
Schedule II--Valuation and Qualifying Accounts.
ITEM 17. UNDERTAKINGS
(1) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the underwriting agreements
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
II-3
<PAGE>
(2) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to its Restated Certificate of Incorporation, By-laws, the
United States Underwriting Agreement, International Underwriting Agreement or
otherwise, the Registrant has been advised that, in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(3) The Registrant hereby undertakes that:
(a) 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 Securities Act shall be deemed to be part of the Registration
Statement as of the time it was declared effective.
(b) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new Registration Statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized in New York, New York
on October 31, 1996.
PANAVISION INC.
By: /s/ WILLIAM C. SCOTT
------------------------------------------
Name: William C. Scott
Title: CHIEF EXECUTIVE OFFICER AND
CHAIRMAN OF THE BOARD OF DIRECTORS
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
Chief Executive Officer and
/s/ WILLIAM C. SCOTT Chairman of the Board of
- ------------------------------ Directors (Principal October 31, 1996
William C. Scott Executive Officer)
/s/ JOHN S. FARRAND President and Director
- ------------------------------ October 31, 1996
John S. Farrand
/s/ JEFFREY J. MARCKETTA Chief Financial Officer
- ------------------------------ (Principal Financial October 31, 1996
Jeffrey J. Marcketta Officer)
* Controller
- ------------------------------ October 31, 1996
Christopher M.R. Phillips
* Director
- ------------------------------ October 31, 1996
Sidney Lapidus
* Director
- ------------------------------ October 31, 1996
Joanne R. Wenig
*By: /s/ WILLIAM C. SCOTT
- ------------------------------
Attorney-in-fact
II-5
<PAGE>
REPORT OF INDEPENDENT AUDITORS
We have audited the consolidated financial statements of Panavision Inc. as
of December 31, 1994 and 1995, and for each of the three years in the period
ended December 31, 1995, and have issued our report thereon dated March 4, 1996,
except Note 13, as to which the date is November , 1996, included elsewhere in
this Registration Statement. Our audits also included the financial statement
schedule listed in Item 16(b) of this Registration Statement. This schedule is
the responsibility of the Company's management. Our responsibility is to express
an opinion on this schedule based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
ERNST & YOUNG LLP
Los Angeles, California
November , 1996
The foregoing report is in the format that will be signed upon the
effectiveness of the 1,413:1 stock split as described in Note 13 of the notes to
the consolidated financial statements.
ERNST & YOUNG LLP
Los Angeles, California
October 29, 1996
II-6
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BEGINNING BALANCE AMOUNTS RESERVED BALANCES WRITTEN OFF ENDING BALANCE
------------------- --------------------- ----------------------- ----------------
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts
December 31, 1993............... $ 1,567 $ 326 $ 296 $ 1,597
December 31, 1994............... $ 1,597 $ 663 $ 488 $ 1,772
December 31, 1995............... $ 1,772 $ 829 $ 558 $ 2,043
</TABLE>
II-7
<PAGE>
PANAVISION INC.
Common Stock
(par value $.01 per share)
-----------------
UNDERWRITING AGREEMENT
(U.S. VERSION)
------------------------------
__________ , 1996
Goldman, Sachs & Co.,
Schroder Wertheim & Co. Incorporated,
Cowen & Company,
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman, Sachs & Co.,
85 Broad Street,
New York, New York 10004.
Ladies and Gentlemen:
Panavision Inc., a Delaware corporation (the "Company"), proposes, subject
to the terms and conditions stated herein, to issue and sell to the Underwriters
named in Schedule I hereto (the "Underwriters") an aggregate of ........ shares
(the "Firm Shares") and, at the election the Underwriters, up to .........
additional shares (the "Optional Shares") of Common Stock (par value $.01 per
share) ("Stock") of the Company (the Firm Shares and the Optional Shares that
the Underwriters elect to purchase pursuant to Section 2 hereof being
collectively called the "Shares").
It is understood and agreed to by all parties that the Company is
concurrently entering into an agreement (the "International Underwriting
Agreement") providing for the sale by the Company of up to a total of ........
shares of Stock (the "International Shares") including the overallotment option
thereunder, through arrangements with certain underwriters outside the United
States (the "International Underwriters"), for whom Goldman Sachs International,
J. Henry Schroder & Co. Limited and Cowen & Company are acting as lead managers.
Anything herein or therein to the contrary notwithstanding, the respective
closings under this Agreement and the International Agreement are hereby
expressly made conditional on one another. The Underwriters hereunder and the
International Underwriters are simultaneously entering into an Agreement between
U.S. and International Underwriting Syndicates (the "Agreement between
Syndicates") which provides, among other things, for the transfer of shares of
Stock between the two syndicates. Two forms of prospectus are to be used in
connection with the offering and sale of shares of Stock contemplated by the
foregoing, one relating to the Shares hereunder and the other relating to the
International Shares. The latter form of prospectus will be identical to the
former except for certain substitute pages. Except as used in Sections 2, 4, 5,
11 and 13 herein,
<PAGE>
and except as the context may otherwise require, references hereinafter to the
Shares shall include all the shares of Stock which may be sold pursuant to
either this Agreement or the International Underwriting Agreement, and
references herein to any prospectus whether in preliminary or final form, and
whether as amended or supplemented, shall include both the U.S. and the
international versions thereof.
1. The Company represents and warrants to, and agrees with, each of the
Underwriters that:
(a) A registration statement on Form S-1 (File No. 333-12
235) (the
"Initial Registration Statement") in respect of the Shares has been filed
with the Securities and Exchange Commission (the "Commission"); the Initial
Registration Statement and any post-effective amendment thereto, each in
the form heretofore delivered to you, and, excluding exhibits thereto, to
you for each of the other Underwriters, have been declared effective by the
Commission in such form; other than a registration statement, if any,
increasing the size of the offering (a "Rule 462(b) Registration
Statement"), filed pursuant to Rule 462(b) under the Securities Act of
1933, as amended (the "Act"), which became effective upon filing, no other
document with respect to the Initial Registration Statement other than each
pre-effective amendment thereto has heretofore been filed with the
Commission; and no stop order suspending the effectiveness of the Initial
Registration Statement, any post-effective amendment thereto or the Rule
462(b) Registration Statement, if any, has been issued and no proceeding
for that purpose has been initiated or threatened by the Commission (any
preliminary prospectus included in the Initial Registration Statement and
any amendment thereto or filed with the Commission pursuant to Rule 424(a)
of the rules and regulations of the Commission under the Act is hereinafter
called a "Preliminary Prospectus"; the various parts of the Initial
Registration Statement and the Rule 462(b) Registration Statement, if any,
including all exhibits thereto and including the information contained in
the form of final prospectus filed with the Commission pursuant to Rule
424(b) under the Act in accordance with Section 5(a) hereof and deemed by
virtue of Rule 430A under the Act to be part of the Initial Registration
Statement at the time it was declared effective or such part of the Rule
462(b) Registration Statement, if any, became or hereafter becomes
effective, each as amended at the time such part of the registration
statement became effective, are hereinafter collectively called the
"Registration Statement"; and such final prospectus, in the form first
filed pursuant to Rule 424(b) under the Act, is hereinafter called the
"Prospectus");
(b) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary
Prospectus, at the time of filing thereof, conformed in all material
respects to the requirements of the Act and the rules and regulations of
the Commission thereunder, and did not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; PROVIDED,
HOWEVER, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by an Underwriter through
Goldman, Sachs & Co. expressly for use therein;
2
<PAGE>
(c) The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will conform, in all material respects to the requirements of
the Act and the rules and regulations of the Commission thereunder and do
not and will not, as of the applicable effective date as to the
Registration Statement and any amendment thereto and as of the applicable
filing date as of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading; PROVIDED, HOWEVER, that this representation and warranty
shall not apply to any statements or omissions made in reliance upon and in
conformity with information furnished in writing to the Company by an
Underwriter through Goldman, Sachs & Co. expressly for use therein;
(d) Neither the Company nor any of its subsidiaries has sustained
since the date of the latest audited financial statements included in the
Prospectus any material loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by insurance, or
from any labor dispute or court or governmental action, order or decree,
otherwise than as set forth or contemplated in the Prospectus; and, since
the respective dates as of which information is given in the Registration
Statement and the Prospectus, there has not been any change in the capital
stock, short-term debt or long-term debt of the Company or any of its
subsidiaries or any material adverse change, or any development involving a
prospective material adverse change, in or affecting the general affairs,
management, financial position, stockholders' equity or results of
operations of the Company and its subsidiaries, otherwise than as set forth
or contemplated in the Prospectus;
(e) The Company and its subsidiaries have good and marketable title
in fee simple to all real property and good and marketable title to all
personal property owned by them, in each case free and clear of all liens,
encumbrances and defects except such as are described in the Prospectus or
such as do not materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by the
Company and its subsidiaries; and any real property and buildings held
under lease by the Company and its subsidiaries are held by them under
valid, subsisting and enforceable leases with such exceptions as do not
materially adversely affect the use made and proposed to be made of such
property and buildings by the Company and its subsidiaries;
(f) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Delaware,
with power and authority (corporate and other) to own its properties and
conduct its business as described in the Prospectus, and has been duly
qualified as a foreign corporation for the transaction of business and is
in good standing under the laws of each other jurisdiction in which it owns
or leases properties or conducts any business so as to require such
qualification, or is subject to no material liability or disability by
reason of the failure to be so qualified in any such jurisdiction; and each
subsidiary of the Company that is a corporation or partnership that
conducts business or has any material assets or liabilities (each a
"Significant Subsidiary"), in the case of a corporation, has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation and, in the case of a
partnership, has been duly formed and is validly existing as a partnership
in good standing under the laws of its jurisdiction of formation;
3
<PAGE>
(g) The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the Company
have been duly and validly authorized and issued and are fully paid and
non-assessable and conform to the description of the Stock contained in the
Prospectus; all of the issued shares of capital stock of each Significant
Subsidiary of the Company that is a corporation have been duly and validly
authorized and issued, are fully paid and non-assessable and (except for
directors' qualifying shares or as set forth in the Prospectus) are owned
directly or indirectly by the Company, free and clear of all liens,
encumbrances, equities or claims (other than an option for a 15% equity
interest in Panavision Holdings Inc.) and all of the equity interests in
each Significant Subsidiary of the Company that is a partnership have been
duly and validly authorized and issued and are owned directly or indirectly
by the Company, free and clear of all liens, encumbrances, equities or
claims;
(h) The unissued Shares to be issued and sold by the Company to the
Underwriters hereunder and under the International Underwriting Agreement
have been duly and validly authorized and, when issued and delivered
against payment therefor as provided herein and in the International
Underwriting Agreement, will be duly and validly issued and fully paid and
non-assessable and will conform to the description of the Stock contained
in the Prospectus;
(i) The issue and sale of the Shares by the Company hereunder and
under the International Underwriting Agreement and the compliance by the
Company with all of the provisions of this Agreement and the International
Underwriting Agreement and the consummation of the transactions herein and
therein contemplated will not conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute a material
default under, any indenture, mortgage, deed of trust, loan agreement or
other agreement or instrument to which the Company or any of its
subsidiaries is a party or by which the Company or any of its subsidiaries
is bound or to which any of the property or assets of the Company or any of
its subsidiaries is subject, nor will such action result in any violation
of the provisions of the Certificate of Incorporation or By-laws of the
Company or any statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Company or any of
its subsidiaries or any of their properties; and no consent, approval,
authorization, order, registration or qualification of or with any such
court or governmental agency or body is required for the issue and sale of
the Shares or the consummation by the Company of the transactions
contemplated by this Agreement and the International Underwriting
Agreement, except the registration under the Act of the Shares and such
consents, approvals, authorizations, registrations or qualifications as may
be required under state or foreign securities or Blue Sky laws in
connection with the purchase and distribution of the Shares by the
Underwriters and the International Underwriters;
(j) Neither the Company nor any of its subsidiaries is in violation
of its Certificate of Incorporation or By-laws or in default in the
performance or observance of any material obligation, agreement, covenant
or condition contained in any indenture, mortgage, deed of trust, loan
agreement, lease or other agreement or instrument to which it is a party or
by which it or any of its properties may be bound;
4
<PAGE>
(k) The statements set forth in the Prospectus under the caption
"Description of Capital Stock", insofar as they purport to constitute a
summary of the terms of the Stock, under the captions "Risk Factors --
Shares Eligible for Future Sale; Potential for Adverse Effect on Stock
Price; Registration Rights; Anti-Takeover Effect of Certain Charter and
By-Law Provisions", "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources",
"Business -- Environmental Matters", "Shares Eligible for Future Sale",
"Management -- Compensation Pursuant to Plans; -- Employment Agreement of
William C. Scott; -- Stockholders Agreement", "Certain U.S. Federal Tax
Considerations for Non-U.S. Holders of Common Stock", and "Underwriting",
insofar as they purport to describe the provisions of the laws and
documents referred to therein, are accurate, complete and fair in all
material respects;
(l) Other than as set forth or contemplated in the Prospectus, there
are no legal or governmental proceedings pending to which the Company or
any of its subsidiaries is a party or of which any property of the Company
or any of its subsidiaries is the subject which, if determined adversely to
the Company or any of its subsidiaries, would individually or in the
aggregate have a material adverse effect on the consolidated financial
position, stockholders' equity or results of operations of the Company and
its subsidiaries; and, to the best of the Company's knowledge, no such
proceedings are threatened or contemplated by governmental authorities or
threatened by others;
(m) The Company is not and, after giving effect to the offering and
sale of the Shares, will not be an "investment company" as such term is
defined in the Investment Company Act of 1940, as amended (the "Investment
Company Act");
(n) Ernst & Young LLP, who have certified certain financial
statements of the Company and its subsidiaries, are independent public
accountants as required by the Act and the rules and regulations of the
Commission thereunder;
(o) Each of the Company and its subsidiaries owns or possesses
adequate licenses or other rights to use all patents, patent rights,
inventions, trade secrets, technology, know-how, trademarks, service marks,
trade names and copyrights which are necessary to conduct its businesses as
described in the Registration Statement and Prospectus, and the expiration
of any patents, patent rights, trade secrets, trademarks, service marks,
trade names or copyrights would not have a material adverse effect on the
consolidated financial position, stockholders' equity or results of
operations of the Company and its subsidiaries. The Company has not
received any notice of, and has no knowledge of, any infringement of or
conflict with asserted rights of others with respect to, any patents,
patent rights, inventions, trade secrets, technology, know-how, trademarks,
service marks, trade names which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, might have a
material adverse effect;
(p) The Company and its subsidiaries are (i) 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
("Environmental Laws"), (ii) have received all permits, licenses or other
5
<PAGE>
approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are 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, result in a material adverse effect on the consolidated
financial position, stockholders' equity or results of operations of the
Company and its subsidiaries; and
(q) There are no costs and liabilities associated with Environmental
Laws (including without limitation, any capital or operating expenditures
required for clean-up, closure of properties or compliance with
Environmental Laws or any permit, license or approval, any related
constraints on operating activities and any potential liabilities to third
parties) which would not, singly or in the aggregate, have a material
adverse effect on the consolidated financial position, stockholders' equity
or results of operations of the Company and its subsidiaries.
2. Subject to the terms and conditions herein set forth, (a) the Company
agrees to issue and sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Company, at
a purchase price per share of $........................, the number of Firm
Shares set forth opposite the name of such Underwriter in Schedule I hereto and
(b) in the event and to the extent that the Underwriters shall exercise the
election to purchase Optional Shares as provided below, the Company agrees to
issue and sell to each of the Underwriters, and each of the Underwriters agrees,
severally and not jointly, to purchase from the Company, at the purchase price
per share set forth in clause (a) of this Section 2, that portion of the number
of Optional Shares as to which such election shall have been exercised (to be
adjusted by you so as to eliminate fractional shares) determined by multiplying
such number of Optional Shares by a fraction, the numerator of which is the
maximum number of Optional Shares which such Underwriter is entitled to purchase
as set forth opposite the name of such Underwriter in Schedule I hereto and the
denominator of which is the maximum number of Optional Shares that all of the
Underwriters are entitled to purchase hereunder.
The Company hereby grants to the Underwriters the right to purchase at
their election up to ............ Optional Shares, at the purchase price per
share set forth in the paragraph above, for the sole purpose of covering
overallotments in the sale of the Firm Shares. Any such election to purchase
Optional Shares may be exercised only by written notice from you to the Company,
given within a period of 30 calendar days after the date of this Agreement,
setting forth the aggregate number of Optional Shares to be purchased and the
date on which such Optional Shares are to be delivered, as determined by you but
in no event earlier than the First Time of Delivery (as defined in Section 5
hereof) or, unless you and the Company otherwise agree in writing, earlier than
two or later than ten business days after the date of such notice.
3. The Company hereby confirms its engagement of Goldman, Sachs & Co. as,
and Goldman, Sachs & Co. hereby confirms its agreement with the Company to
render services as, a "qualified independent underwriter" within the meaning of
Section 2(b)(15) of Rule 2720 of the National Association of Securities Dealers,
Inc. (the "NASD") with respect to the offering and sale
6
<PAGE>
of the Shares. Goldman, Sachs & Co., in its capacity as qualified independent
underwriter and not otherwise, is referred to herein as the "QIU". As
compensation for the services of the QIU hereunder, the Company agrees to pay
the QIU $10,000 on the First Time of Delivery (as defined below).
4. Upon the authorization by you of the release of the Firm Shares, the
several Underwriters propose to offer the Firm Shares for sale upon the terms
and conditions set forth in the Prospectus.
5. (a) The Shares to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered in such
names as Goldman, Sachs & Co. may request upon at least forty-eight hours' prior
notice to the Company, shall be delivered by or on behalf of the Company to
Goldman, Sachs & Co., for the account of such Underwriter, against payment by or
on behalf of such Underwriter of the purchase price therefor by certified or
official bank check or checks, payable to the order of the Company in Federal
(same day) funds. The Company will cause the certificates representing the
Shares to be made available for checking and packaging at least twenty-four
hours prior to the Time of Delivery (as defined below) with respect thereto at
the office of [THE DEPOSITORY TRUST COMPANY OR ITS DESIGNATED
CUSTODIAN][GOLDMAN, SACHS & CO., 85 BROAD STREET, NEW YORK, NEW YORK 10004] (the
"Designated Office"). The time and date of such delivery and payment shall be,
[WITH RESPECT TO] the Firm Shares, 9:30 a.m., New York City time, on
............., 1996 or such other time and date as Goldman, Sachs & Co. and the
Company may agree upon in writing, and, with respect to the Optional Shares,
9:30 a.m., New York City time, on the date specified by Goldman, Sachs & Co. in
the written notice given by Goldman, Sachs & Co. of the Underwriters' election
to purchase such Optional Shares, or such other time and date as Goldman, Sachs
& Co. and the Company may agree upon in writing. Such time and date for
delivery of the Firm Shares is herein called the "First Time of Delivery", such
time and date for delivery of the Optional Shares, if not the First Time of
Delivery, is herein called the "Second Time of Delivery", and each such time and
date for delivery is herein called a "Time of Delivery".
(b) The documents to be delivered at each Time of Delivery by or on behalf
of the parties hereto pursuant to Section 8 hereof, including the cross receipt
for the Shares and any additional documents requested by the Underwriters
pursuant to Section 8(l) hereof, will be delivered at the offices of Davis Polk
& Wardwell, 450 Lexington Avenue, New York, New York 10017 (the "Closing
Location"), and the Shares will be delivered at the Designated Office, all at
such Time of Delivery. A meeting will be held at the Closing Location at
.......p.m., New York City time, on the New York Business Day next preceding
such Time of Delivery, at which meeting the final drafts of the documents to be
delivered pursuant to the preceding sentence will be available for review by the
parties hereto. For the purposes of this Section 5, "New York Business Day"
shall mean each Monday, Tuesday, Wednesday, Thursday and Friday which is not a
day on which banking institutions in New York are generally authorized or
obligated by law or executive order to close.
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6. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to file
such Prospectus pursuant to Rule 424(b) under the 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 Act; to make no
further amendment or any supplement to the Registration Statement or
Prospectus which shall be disapproved by you promptly after reasonable
notice thereof; to advise you, promptly after it receives notice thereof,
of the time when any amendment to the Registration Statement has been filed
or becomes effective or any supplement to the Prospectus or any amended
Prospectus has been filed and to furnish you with copies thereof; to advise
you, promptly after it receives notice thereof, of the issuance by the
Commission of any stop order or of any order preventing or suspending the
use of any Preliminary Prospectus or prospectus, of the suspension of the
qualification of the Shares for offering or sale in any jurisdiction, of
the initiation or threatening of any proceeding for any such purpose, or of
any request by the Commission for the amending or supplementing of the
Registration Statement or Prospectus or for additional information; and, in
the event of the issuance of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or prospectus or
suspending any such qualification, promptly to use its best efforts to
obtain the withdrawal of such order;
(b) Promptly from time to time to take such action as you may
reasonably request to qualify the Shares for offering and sale under the
securities laws of such jurisdictions as you may request and to comply with
such laws so as to permit the continuance of sales and dealings therein in
such jurisdictions for as long as may be necessary to complete the
distribution of the Shares, provided that in connection therewith the
Company shall not be required to qualify as a foreign corporation or to
file a general consent to service of process in any jurisdiction;
(c) Prior to 10:00 a.m., New York City time, on the New York Business
Day next succeeding the date of this Agreement and from time to time, to
furnish the Underwriters with copies of the Prospectus in New York City in
such quantities as you may reasonably request, and, if the delivery of a
prospectus is required at any time prior to the expiration of nine months
after the time of issue of the Prospectus in connection with the offering
or sale of the Shares and if at such time any event shall have occurred as
a result of which the Prospectus as then amended or supplemented would
include an untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made when such Prospectus
is delivered, not misleading, or, if for any other reason it shall be
necessary during such period to amend or supplement the Prospectus in order
to comply with the Act, to notify you and upon your request to prepare and
furnish without charge to each Underwriter and to any dealer in securities
as many copies as you may from time to time reasonably request of an
amended Prospectus or a supplement to the Prospectus which will correct
such statement or omission or effect such compliance, and in case any
Underwriter is required to deliver a prospectus in connection with sales of
any of the Shares at any time nine months or more after the time of issue
of the Prospectus, upon your request but at the expense of such
Underwriter, to
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prepare and deliver to such Underwriter as many copies as you may request
of an amended or supplemented Prospectus complying with Section 10(a)(3) of
the Act;
(d) To make generally available to its securityholders as soon as
practicable, but in any event not later than eighteen months after the
effective date of the Registration Statement (as defined in Rule 158(c)
under the Act), an earnings statement of the Company and its subsidiaries
(which need not be audited) complying with Section 11(a) of the Act and the
rules and regulations thereunder (including, at the option of the Company,
Rule 158);
(e) During the period beginning from the date hereof and continuing
to and including the date 180 days after the date of the Prospectus, not to
offer, sell, contract to sell or otherwise dispose of, except as provided
hereunder and under the International Underwriting Agreement, any
securities of the Company that are substantially similar to the Shares,
including but not limited to any securities that are convertible into or
exchangeable for, or that represent the right to receive, Stock or any such
substantially similar securities (other than pursuant to employee stock
option plans existing on, or upon the conversion or exchange of convertible
or exchangeable securities outstanding as of, the date of this Agreement),
without prior written consent of Goldman, Sachs & Co.;
(f) To furnish to its stockholders as soon as practicable after the
end of each fiscal year an annual report (including a balance sheet and
statements of income, stockholders' equity and cash flows of the Company
and its consolidated subsidiaries certified by independent public
accountants) and, as soon as practicable after the end of each of the first
three quarters of each fiscal year (beginning with the fiscal quarter
ending after the effective date of the Registration Statement),
consolidated summary financial information of the Company and its
subsidiaries for such quarter in reasonable detail;
(g) During a period of five years from the effective date of the
Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished to stockholders, and to
deliver to you (i) as soon as they are available, copies of any reports and
financial statements furnished to or filed with the Commission or any
national securities exchange on which any class of securities of the
Company is listed; and (ii) such additional information concerning the
business and financial condition of the Company as you may from time to
time reasonably request (such financial statements to be on a consolidated
basis to the extent the accounts of the Company and its subsidiaries are
consolidated in reports furnished to its stockholders generally or to the
Commission);
(h) To use the net proceeds received by it from the sale of the
Shares pursuant to this Agreement and the International Underwriting
Agreement in the manner specified in the Prospectus under the caption "Use
of Proceeds";
(i) To use its best efforts to list, subject to notice of issuance,
the Shares on the New York Stock Exchange (the "Exchange");
(j) To file with the Commission such reports on Form SR as may be
required by Rule 463 under the Act; and
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<PAGE>
(k) If the Company elects to rely upon Rule 462(b), the Company shall
file a Rule 462(b) Registration Statement with the Commission in compliance
with Rule 462(b) by 10:00 p.m., Washington, D.C. time, on the date of this
Agreement, and the Company shall at the time of filing either pay to the
Commission the filing fee for the Rule 462(b) Registration Statement or
give irrevocable instructions for the payment of such fee pursuant to Rule
111(b) under the Act.
7. The Company covenants and agrees with the several Underwriters that
the Company will pay or cause to be paid the following: (i) the fees,
disbursements and expenses of the Company's counsel and accountants in
connection with the registration of the Shares under the Act and all other
expenses in connection with the preparation, printing and filing of the
Registration Statement, any Preliminary Prospectus and the Prospectus and
amendments and supplements thereto and the mailing and delivering of copies
thereof to the Underwriters and dealers; (ii) the cost of printing or producing
any Agreement among Underwriters, this Agreement, the International Underwriting
Agreement, the Agreement between Syndicates, the Selling Agreement, the Blue Sky
Memorandum, closing documents (including compilations thereof) and any other
documents in connection with the offering, purchase, sale and delivery of the
Shares; (iii) all expenses in connection with the qualification of the Shares
for offering and sale under state securities laws as provided in Section 5(b)
hereof, including the fees and disbursements of counsel for the Underwriters in
connection with such qualification and in connection with the Blue Sky survey;
(iv) all fees and expenses in connection with listing the Shares on the
Exchange; (v) the filing fees incident to, and the fees and disbursements of
counsel for the Underwriters in connection with, securing any required review by
the National Association of Securities Dealers, Inc. of the terms of the sale of
the Shares; (vi) the cost of preparing stock certificates; (vii) the cost and
charges of any transfer agent or registrar; and (viii) all other costs and
expenses incident to the performance of its obligations hereunder which are not
otherwise specifically provided for in this Section. It is understood, however,
that, except as provided in this Section, and Sections 9 and 13 hereof, the
Underwriters will pay all of their own costs and expenses, including the fees of
their counsel, stock transfer taxes on resale of any of the Shares by them, and
any advertising expenses connected with any offers they may make.
8. The obligations of the Underwriters hereunder, as to the Shares to be
delivered at each Time of Delivery, shall be subject, in their discretion, to
the condition that all representations and warranties and other statements of
the Company herein are, at and as of such Time of Delivery, true and correct,
the condition that the Company shall have performed all of its obligations
hereunder theretofore to be performed, and the following additional conditions:
(a) The Prospectus shall have been filed with the Commission pursuant
to Rule 424(b) within the applicable time period prescribed for such filing
by the rules and regulations under the Act and in accordance with Section
6(a) hereof; if the Company has elected to rely upon Rule 462(b), the Rule
462(b) Registration Statement shall have become effective by 10:00 p.m.,
Washington, D.C. time, on the date of this Agreement; no stop order
suspending the effectiveness of the Registration Statement or any part
thereof shall have been issued and no proceeding for that purpose shall
have been initiated or threatened by the Commission;
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<PAGE>
and all requests for additional information on the part of the Commission
shall have been complied with to your reasonable satisfaction;
(b) Davis Polk & Wardwell, counsel for the Underwriters, shall have
furnished to you such opinion or opinions (a draft of each such opinion is
attached as Annex II(a) hereto, dated such Time of Delivery, with respect
to the matters covered in paragraphs [(i), (ii), (vi), (ix) and (xi)] and
paragraph following of subsection (c) below as well as such other related
matters as you may reasonably request, and such counsel shall have received
such papers and information as they may reasonably request to enable them
to pass upon such matters;
(c) Willkie Farr & Gallagher, counsel for the Company, shall have
furnished to you their written opinion (a draft of each such opinion is
attached as Annex II(b) hereto), dated such Time of Delivery, in form and
substance satisfactory to you, to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware, with corporate power and authority to own its properties and
conduct its business as described in the Prospectus;
(ii) The Company has an authorized capitalization as set
forth in the Prospectus, and all of the issued shares of capital stock of
the Company (including the Shares being delivered at such Time of Delivery)
have been duly and validly authorized and issued and are fully paid and
nonassessable; and the Shares conform to the description of the Stock
contained in the Prospectus;
(iii) The Company has been duly qualified as a foreign
corporation for the transaction of business and is in good standing under
the laws of each other jurisdiction in which it owns or leases properties
or conducts any business so as to require such qualification, except to the
extent that the failure to be so qualified or be in good standing would not
have a material adverse effect on the Company and its subsidiaries taken as
a whole (such counsel being entitled to rely in respect of the opinion in
this clause upon opinions of local counsel and in respect of matters of
fact upon certificates of officers of the Company, provided that such
counsel shall state that they believe that both you and they are justified
in relying upon such opinions and certificates);
(iv) Each Significant Subsidiary of the Company that is a
corporation incorporated in a state of the United States has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of its jurisdiction of incorporation; and all of the issued
shares of capital stock of each such subsidiary have been duly and validly
authorized and issued, are fully paid and non-assessable, and (except for
directors' qualifying shares or as set forth in the Prospectus) to the best
of such counsel's knowledge after reasonable investigation, are owned
directly or indirectly by the Company, free and clear of all liens,
encumbrances, equities or claims; and each Significant Subsidiary of the
Company that is a partnership formed under the laws of a state of the
United States has been duly formed and is validly existing as a partnership
in good standing under the laws of its jurisdiction of formation; and all
of the equity interests in each such subsidiary have been duly and validly
authorized and issued and, to the best of such counsel's knowledge, are
owned directly or
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indirectly by the Company, free and clear of all liens, encumbrances,
equities or claims; (such counsel being entitled to rely in respect of the
opinion in this clause upon opinions of local counsel and in respect to
matters of fact upon certificates of officers of the Company or its
subsidiaries, provided that such counsel shall state that they believe that
both you and they are justified in relying upon such opinions and
certificates);
(v) To the best of such counsel's knowledge and other than
as set forth in the Prospectus, there are no legal or governmental
proceedings pending to which the Company or any of its subsidiaries is a
party or of which any property of the Company or any of its subsidiaries is
the subject which, if determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate have a material
adverse effect on the consolidated financial position, stockholders' equity
or results of operations of the Company and its subsidiaries; and, to the
best of such counsel's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others;
(vi) This Agreement and the International Underwriting
Agreement have been duly authorized, executed and delivered by the Company;
(vii) The issue and sale of the Shares being delivered at
such Time of Delivery by the Company and the compliance by the Company with
all of the provisions of this Agreement and the International Underwriting
Agreement and the consummation of the transactions herein and therein
contemplated will not conflict with or result in a breach or violation of
any of the material terms or provisions of, or constitute a default under,
any indenture, mortgage, deed of trust, loan agreement or other agreement
or instrument known to such counsel to which the Company or any of its
Significant Subsidiaries that is incorporated or formed under the laws of a
state of the United States is a party or by which the Company or any of
such Significant Subsidiaries is bound or to which any of the material
property or assets of the Company or any of such Significant Subsidiaries
is subject, nor will such action result in any violation of the provisions
of the Certificate of Incorporation or By-laws of the Company or any
statute or any order, rule or regulation known to such counsel of any court
or governmental agency or body having jurisdiction over the Company or any
of such Significant Subsidiaries or any of their material properties;
(viii) No consent, approval, authorization, order,
registration or qualification of or with any such court or governmental
agency or body is required for the issue and sale of the Shares or the
consummation by the Company of the transactions contemplated by this
Agreement and the International Underwriting Agreement, except the
registration under the Act of the Shares, and such consents, approvals,
authorizations, registrations or qualifications as may be required under
state securities or Blue Sky laws in connection with the purchase and
distribution of the Shares by the Underwriters and the International
Underwriters;
(ix) The statements set forth in the Prospectus under the
caption "Description of Capital Stock", insofar as they purport to
constitute a summary of the terms of the Stock, under the captions "Risk
Factors -- Shares Eligible for Future Sale; Potential for Adverse Effect on
Stock Price; Registration Rights; -- Anti-Takeover Effect of Certain
Charter and By-Law Provisions", "Management's Discussion and Analysis of
Financial Condition and
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Results of Operations -- Liquidity and Capital Resources", "Shares Eligible
for Future Sale", "Management -- Compensation Pursuant to Plans; --
Employment Agreement of William C. Scott; -- Stockholders Agreement",
"Certain U.S. Federal Tax Considerations for Non-U.S. Holders of Common
Stock", and under the caption "Underwriting", insofar as they purport to
describe the provisions of the laws and documents referred to therein, are
accurate, complete and fair in all material respects; and under the caption
"Business -- Litigation" fairly describe legal matters or proceedings
referred to therein in all material respects;
(x) The Company is not an "investment company" or an entity
"controlled" by an "investment company", as such terms are defined in the
Investment Company Act; and
(xi) The Registration Statement and the Prospectus and any
further amendments and supplements thereto made by the Company prior to
such Time of Delivery (other than the historical and pro forma financial
statements and information and related notes and schedules therein, as to
which such counsel need express no opinion) comply as to form in all
material respects with the requirements of the Act and the rules and
regulations thereunder, although they do not assume any responsibility for
the accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectus, except to the extent set forth in
the opinion in subsection (ix) of this Section 8(c).
Such counsel shall also state, although they have not
undertaken to investigate or verify independently, and do not pass upon or
assume any responsibility for, the accuracy, completeness or fairness of
the statements contained in the Registration Statement or the Prospectus,
(relying as to materiality to a large extent upon the statements of
officers and other representatives of the Company) no facts have come to
such counsel's attention that would lead them to believe that, as of its
effective date, the Registration Statement or any further amendment thereto
made by the Company prior to such Time of Delivery contained an 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, as of its date, the Prospectus or any further amendment
or supplement thereto made by the Company prior to such Time of Delivery
contained an untrue statement of a material fact or omitted to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading or that, as of
such Time of Delivery, either the Registration Statement or the Prospectus
or any further amendment or supplement thereto made by the Company prior to
such Time of Delivery contains an untrue statement of a material fact or
omits to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading
(it being understood that in each such case such counsel need express no
belief or statement with respect to the historical and pro forma financial
statements and information and related notes and schedules therein); and
they do not know of any amendment to the Registration Statement required to
be filed or of any contracts or other documents of a character required to
be filed as an exhibit to the Registration Statement or required to be
described in the Registration Statement or the Prospectus which are not
filed or described as required.
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In rendering such opinions, such counsel may (A) rely as to matters
involving the application of laws other than the laws of the United States
and the laws of the State of New York and the General Corporation Law and
Revised Uniform Limited Partnership Law of the State of Delaware, to the
extent such counsel deems proper and to the extent specified in such
opinion, if at all, upon an opinion or opinions (reasonably satisfactory to
Underwriters' counsel) of other counsel reasonably acceptable to the
Underwriters' counsel, familiar with the applicable laws and (B) may state
that they express no opinion as to the laws of any jurisdiction outside the
United States.
(d) Berwin & Leighton, counsel for the Company shall have furnished
to you their written opinion (a draft of each such opinion is attached as
Annex II(c) hereto) dated such Time of Delivery, in form and substance
satisfactory to you, with respect to the matters covered in paragraphs
(iv), (v), and (vii) insofar as they relate to Significant Subsidiaries
formed under the laws of the United Kingdom.
(e) Osler, Hoskins & Harcourt, counsel for the Company, shall have
furnished to you their written opinion (a draft of each such opinion is
attached as Annex II(d) hereto), dated such Time of Delivery, in form and
substance satisfactory to you, with respect to the matters covered in
paragraphs (iv), (v), and (vii) in insofar as they relate to Significant
Subsidiaries formed under the laws of Canada.
(f) On the date of the Prospectus at a time prior to the execution of
this Agreement, at 9:30 a.m., New York City time, on the effective date of
any post-effective amendment to the Registration Statement filed subsequent
to the date of this Agreement and also at each Time of Delivery, Ernst &
Young LLP shall have furnished to you a letter or letters, dated the
respective dates of delivery thereof, in form and substance satisfactory to
you, to the effect set forth in Annex I hereto (the executed copy of the
letter delivered prior to the execution of this Agreement is attached as
Annex I(a) hereto and a draft of the form of letter to be delivered on the
effective date of any post-effective amendment to the Registration
Statement and as of each Time of Delivery is attached as Annex I(b)
hereto);
(g)(i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements
included in the Prospectus any loss or interference with its business from
fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action, order
or decree, otherwise than as set forth or contemplated in the Prospectus,
and (ii) since the respective dates as of which information is given in the
Prospectus there shall not have been any change in the capital stock,
short-term debt or long-term debt of the Company or any of its subsidiaries
or any change, or any development involving a prospective change, in or
affecting the general affairs, management, financial position,
stockholders' equity or results of operations of the Company and its
subsidiaries, otherwise than as set forth or contemplated in the
Prospectus, the effect of which, in any such case described in Clause (i)
or (ii), is in the judgment of the Representatives so material and adverse
as to make it impracticable or inadvisable to proceed with the public
offering or the delivery of the Shares being delivered at such Time of
Delivery on the terms and in the manner contemplated in the Prospectus;
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(h) On or after the date hereof there shall not have occurred any of
the following: (i) a suspension or material limitation in trading in
securities generally on the Exchange; (ii) a suspension or material
limitation in trading in the Company's securities on the Exchange; (iii) a
general moratorium on commercial banking activities declared by either
Federal or New York State authorities; or (iv) the outbreak or escalation
of hostilities involving the United States or the declaration by the United
States of a national emergency or war, if the effect of any such event
specified in this Clause (iv) in the judgment of the Representatives makes
it impracticable or inadvisable to proceed with the public offering or the
delivery of the Shares being delivered at such Time of Delivery on the
terms and in the manner contemplated in the Prospectus;
(i) The Shares to be sold at such Time of Delivery shall have been
duly listed, subject to notice of issuance, on the Exchange;
(j) The Company has obtained and delivered to the Underwriters
executed copies of an agreement from each of Warburg, Pincus Capital
Company, L.P. and each director and executive officer of the Company,
substantially to the effect set forth in Subsection 6(e) hereof in form and
substance satisfactory to you;
(k) The Company shall have complied with the provisions of Section
6(c) hereof with respect to the furnishing of prospectuses on the New York
Business Day next succeeding the date of this Agreement; and
(l) The Company shall have furnished or caused to be furnished to you
at such Time of Delivery certificates of officers of the Company
satisfactory to you as to the accuracy of the representations and
warranties of the Company herein at and as of such Time of Delivery, as to
the performance by the Company of all of its obligations hereunder to be
performed at or prior to such Time of Delivery, as to the matters set forth
in subsections (a) and (e) of this Section and as to such other matters as
you may reasonably request.
9. (a) The Company will indemnify and hold harmless each
Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon an untrue
statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus, the Registration Statement or the Prospectus, or
any amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading, and will reimburse each Underwriter for any legal or other
expenses reasonably incurred by such Underwriter in connection with
investigating or defending any such action or claim as such expenses are
incurred; PROVIDED, HOWEVER, that the Company shall not be liable in any
such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in any Preliminary
Prospectus, the Registration Statement or the Prospectus or any such
amendment or supplement in reliance upon and in conformity with written
information
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furnished to the Company by any Underwriter through Goldman, Sachs & Co.
expressly for use therein.
(b) Each Underwriter will indemnify and hold harmless the Company
against any losses, claims, damages or liabilities to which the Company may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon an untrue statement or alleged untrue statement of a material
fact contained in any Preliminary Prospectus, the Registration Statement or
the Prospectus, or any amendment or supplement thereto, or arise out of or
are based upon the 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 in any Preliminary Prospectus, the Registration
Statement or the Prospectus or any such amendment or supplement in reliance
upon and in conformity with written information furnished to the Company by
such Underwriter through Goldman, Sachs & Co. expressly for use therein;
and will reimburse the Company for any legal or other expenses reasonably
incurred by the Company in connection with investigating or defending any
such action or claim as such expenses are incurred.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made
against the indemnifying party under such subsection, notify the
indemnifying party in writing of the commencement thereof; but the omission
so to notify the indemnifying party shall not relieve it from any liability
which it may have to any indemnified party otherwise than under such
subsection. In case any such action 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 therein and, to the extent that it shall wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof,
with counsel satisfactory to such indemnified party (who shall not, except
with the consent of the indemnified party, be counsel to the indemnifying
party), and, after notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof, the indemnifying
party shall not be liable to such indemnified party under such subsection
for any legal expenses of other counsel or any other expenses, in each case
subsequently incurred by such indemnified party, in connection with the
defense thereof other than reasonable costs of investigation. No
indemnifying party shall, without the written consent of the indemnified
party, effect the settlement or compromise of, or consent to the entry of
any judgment with respect to, any pending or threatened action or claim in
respect of which indemnification or contribution may be sought hereunder
(whether or not the indemnified party is an actual or potential party to
such action or claim) unless such settlement, compromise or judgment (i)
includes an unconditional release of the indemnified party from all
liability arising out of such action or claim and (ii) does not include a
statement as to or an admission of fault, culpability or a failure to act,
by or on behalf of any indemnified party.
(d) If the indemnification provided for in this Section 9 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any
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losses, claims, damages or liabilities (or actions in respect thereof)
referred to therein, then each indemnifying party shall contribute to the
amount paid or payable by such indemnified party as a result of such
losses, claims, damages or liabilities (or actions in respect thereof) in
such proportion as is appropriate to reflect the relative benefits received
by the Company on the one hand and the Underwriters on the other from the
offering of the Shares. If, however, the allocation provided by the
immediately preceding sentence is not permitted by applicable law or if the
indemnified party failed to give the notice required under subsection (c)
above, then each indemnifying party shall contribute to such amount paid or
payable by such indemnified party in such proportion as is appropriate to
reflect not only such relative benefits but also the relative fault of the
Company on the one hand and the Underwriters on the other in connection
with the statements or omissions which resulted in such losses, claims,
damages or liabilities (or actions in respect thereof), as well as any
other relevant equitable considerations. The relative benefits received by
the Company on the one hand and the Underwriters on the other shall be
deemed to be in the same proportion as the total net proceeds from the
offering of the Shares purchased under this Agreement (before deducting
expenses) received by the Company bear to the total underwriting discounts
and commissions received by the Underwriters with respect to the Shares
purchased under this Agreement, in each case as set forth in the table on
the cover page of the Prospectus. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company on the one
hand or the Underwriters on the other and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and the Underwriters agree that it
would not be just and equitable if contributions pursuant to this
subsection (d) 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 in this subsection (d). The amount paid
or payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions in respect thereof) referred to above in
this subsection (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection (d), no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at
which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Act) shall be entitled to contribution from any person who was not guilty
of such fraudulent misrepresentation. The Underwriters' obligations in
this subsection (d) to contribute are several in proportion to their
respective underwriting obligations and not joint.
(e) The obligations of the Company under this Section 9 shall be in
addition to any liability which the Company may otherwise have and shall
extend, upon the same terms and conditions, to each person, if any, who
controls any Underwriter within the meaning of the Act; and the obligations
of the Underwriters under this Section 9 shall be in addition to any
liability which the respective Underwriters may otherwise have and shall
extend, upon the
17
<PAGE>
same terms and conditions, to each officer and director of the Company and
to each person, if any, who controls the Company within the meaning of the
Act.
10. (a) The Company will indemnify and hold harmless Goldman, Sachs
& Co., in its capacity as QIU, against any losses, claims, damages or
liabilities, joint or several, to which the QIU may become subject, under
the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon
an untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, the Registration Statement or the
Prospectus, or any amendment or supplement thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse the QIU for any legal or other
expenses reasonably incurred by the QIU in connection with investigating or
defending any such action or claim as such expenses are incurred.
(b) Promptly after receipt by the QIU under subsection (a) above
of notice of the commencement of any action, the QIU shall, if a claim in
respect thereof is to be made against the Company under such subsection,
notify the Company in writing of the commencement thereof; but the omission
so to notify the Company shall not relieve if from any liability which it
may have to the QIU otherwise than under such subsection. In case any such
action shall be brought against the QIU and it shall notify the Company of
the commencement thereof, the Company shall be entitled to participate
therein and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to the QIU (who shall not, except with the consent of
the QIU, be counsel to the Company), and, after notice from the
indemnifying party to the QIU of its election so to assume the defense
thereof, the indemnifying party shall not be liable to the QIU under such
subsection for any legal expenses of other counsel or any other expenses,
in each case subsequently incurred by the QIU, in connection with the
defense thereof other than reasonable costs of investigation. The Company
shall not, without the written consent of the indemnified party, effect the
settlement or compromise of, or consent to the entry of any judgment with
respect to, any pending or threatened action or claim in respect of which
indemnification or contribution may be sought hereunder (whether or not the
QIU is an actual or potential party to such action or claim) unless such
settlement, compromise or judgement (i) includes an unconditional release
of the QIU from all liability arising out of such action or claim and (ii)
does not include a statement as to or an admission of fault, culpability or
a failure to act, by or on behalf of the QIU.
(c) If the indemnification provided for in this Section 10 is
unavailable to or insufficient to hold harmless Goldman, Sachs & Co., in
its capacity as QIU, under subsection (a) above in respect of any losses,
claims, damages or liabilities (or actions in respect thereof) referred to
therein, then the Company shall contribute to the amount paid or payable by
the QIU as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect
the relative benefits received by the Company on the one hand and the QIU
on the other from the offering of the Shares. If, however, the allocation
provided by the immediately preceding sentence is not permitted by
applicable law or if the QIU failed to give the notice required under
subsection (b) above,
18
<PAGE>
then the Company shall contribute to such amount paid or payable by the QIU
in such proportion as is appropriate to reflect not only such relative
benefits but also the relative fault of the Company on the one hand and the
QIU on the other in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities (or actions in
respect thereof), as well as any other relevant equitable considerations.
The relative benefits received by the Company on the one hand and the QIU
on the other shall be deemed to be in the same proportion as the total net
proceeds from the offering (before deducting expenses) received by the
Company, as set forth in the table on the cover page of the Prospectus,
bear to the fee payable to the QIU pursuant to Section 3 hereof. The
relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to
information supplied by the Company on the one hand or the QIU on the other
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company
and the QIU agree that it would not be just and equitable if contributions
pursuant to this subsection (c) were determined by PRO RATA allocation or
by any other method of allocation which does not take account of the
equitable considerations referred to above in this subsection (c). The
amount paid or payable by the QIU as a result of the losses, claims,
damages or liabilities (or actions in respect thereof) referred to above in
this subsection (c) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Act) shall be entitled to contribution from any person who was not guilty
of such fraudulent misrepresentation.
(d) The obligations of the Company under this Section 10 shall
be in addition to any liability which the Company may otherwise have and
shall extend, upon the same terms and conditions, to each person, if any,
who controls the QIU within the meaning of the Act.
11. (a) If any Underwriter shall default in its obligation to
purchase the Shares which it has agreed to purchase hereunder at a Time of
Delivery, you may in your discretion arrange for you or another party or
other parties to purchase such Shares on the terms contained herein. If
within thirty-six hours after such default by any Underwriter you do not
arrange for the purchase of such Shares, then the Company shall be entitled
to a further period of thirty-six hours within which to procure another
party or other parties satisfactory to you to purchase such Shares on such
terms. In the event that, within the respective prescribed periods, you
notify the Company that you have so arranged for the purchase of such
Shares, or the Company notifies you that it has so arranged for the
purchase of such Shares, you or the Company shall have the right to
postpone such Time of Delivery for a period of not more than seven days, in
order to effect whatever changes may thereby be made necessary in the
Registration Statement or the Prospectus, or in any other documents or
arrangements, and the Company agrees to file promptly any amendments to the
Registration Statement or the Prospectus which in your opinion may thereby
be made necessary. The term "Underwriter" as used in this Agreement shall
include any person substituted under this Section with like effect as if
such person had originally been a party to this Agreement with respect to
such Shares.
19
<PAGE>
(b) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the
Company as provided in subsection (a) above, the aggregate number of such
Shares which remains unpurchased does not exceed one-eleventh of the
aggregate number of all the Shares to be purchased at such Time of
Delivery, then the Company shall have the right to require each
non-defaulting Underwriter to purchase the number of Shares which such
Underwriter agreed to purchase hereunder at such Time of Delivery and, in
addition, to require each non-defaulting Underwriter to purchase its pro
rata share (based on the number of Shares which such Underwriter agreed to
purchase hereunder) of the Shares of such defaulting Underwriter or
Underwriters for which such arrangements have not been made; but nothing
herein shall relieve a defaulting Underwriter from liability for its
default.
(c) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the
Company as provided in subsection (a) above, the aggregate number of such
Shares which remains unpurchased exceeds one-eleventh of the aggregate
number of all the Shares to be purchased at such Time of Delivery, or if
the Company shall not exercise the right described in subsection (b) above
to require non-defaulting Underwriters to purchase Shares of a defaulting
Underwriter or Underwriters, then this Agreement (or, with respect to the
Second Time of Delivery, the obligations of the Underwriters to purchase
and of the Company to sell the Optional Shares shall thereupon terminate,
without liability on the part of any non-defaulting Underwriter or the
Company, except for the expenses to be borne by the Company and the
Underwriters as provided in Section 7 hereof and the indemnity and
contribution agreements in Section 9 hereof; but nothing herein shall
relieve a defaulting Underwriter from liability for its default.
12. The respective indemnities, agreements, representations, warranties
and other statements of the Company and the several Underwriters, as set forth
in this Agreement or made by or on behalf of them, respectively, pursuant to
this Agreement, shall remain in full force and effect, regardless of any
investigation (or any statement as to the results thereof) made by or on behalf
of any Underwriter or any controlling person of any Underwriter, or the Company,
or any officer or director or controlling person of the Company, and shall
survive delivery of and payment for the Shares.
13. If this Agreement shall be terminated pursuant to Section 11 hereof,
the Company shall not then be under any liability to any Underwriter except as
provided in Sections 7 and 9 hereof; but, if for any other reason, any Shares
are not delivered by or on behalf of the Company as provided herein, the Company
will reimburse the Underwriters through you for all out-of-pocket expenses
approved in writing by you, including fees and disbursements of counsel,
reasonably incurred by the Underwriters in making preparations for the purchase,
sale and delivery of the Shares not so delivered, but the Company shall then be
under no further liability to any Underwriter in respect of the Shares not so
delivered except as provided in Sections 7 and 9 hereof.
14. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or
20
<PAGE>
agreement on behalf of any Underwriter made or given by you jointly or by
Goldman, Sachs & Co. on behalf of you as the representatives.
15. All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you as the representatives in care of Goldman, Sachs &
Co., 85 Broad Street, New York, New York 10004, Attention: Registration
Department; and if to the Company shall be delivered or sent by mail, telex or
facsimile transmission to the address of the Company set forth in the
Registration Statement, Attention: Secretary; provided, however, that any notice
to an Underwriter pursuant to Section 9(c) hereof shall be delivered or sent by
mail, telex or facsimile transmission to such Underwriter at its address set
forth in its Underwriters' Questionnaire, or telex constituting such
Questionnaire, which address will be supplied to the Company by you upon
request. Any such statements, requests, notices or agreements shall take effect
at the time of receipt thereof.
16. This Agreement shall be binding upon, and inure solely to the benefit
of, the Underwriters, the Company and, to the extent provided in Sections 9 and
12 hereof, the officers and directors of the Company and each person who
controls the Company or any Underwriter, and their respective heirs, executors,
administrators, successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement. No purchaser of any of the
Shares from any Underwriter shall be deemed a successor or assign by reason
merely of such purchase.
17. Time shall be of the essence of this Agreement. As used herein, the
term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
18. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK.
19. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
21
<PAGE>
If the foregoing is in accordance with your understanding, please sign and
return to us 6 counterparts hereof, and upon the acceptance hereof by you, on
behalf of each of the Underwriters, this letter and such acceptance hereof shall
constitute a binding agreement between each of the Underwriters and the Company.
It is understood that your acceptance of this letter on behalf of each of the
Underwriters is pursuant to the authority set forth in a form of Agreement among
Underwriters (U.S. Version), the form of which shall be submitted to the Company
for examination upon request, but without warranty on your part as to the
authority of the signers thereof.
Very truly yours,
PANAVISION INC.
By:
-----------------------
Name:
Title:
Accepted as of the date hereof:
Goldman, Sachs & Co.
Schroder Wertheim & Co. Incorporated
Cowen & Company
By:_______________________
(Goldman, Sachs & Co.)
On behalf of each of the Underwriters
22
<PAGE>
SCHEDULE I
NUMBER OF OPTIONAL
TOTAL NUMBER SHARES TO BE
OF FIRM SHARES PURCHASED IF
TO BE MAXIMUM OPTION
UNDERWRITER PURCHASED EXERCISED
- ----------- --------- ---------
Goldman, Sachs & Co.. . . . . . . . . . . .
Schroder Wertheim & Co. Incorporated. . . .
Cowen & Company . . . . . . . . . . . . . .
--------- ----------
Total. . . . . . . . . . . . . . . . . . 3,500,000
========= ==========
23
<PAGE>
ANNEX I
Pursuant to Section 8(f) of the Underwriting Agreement, the accountants
shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with
respect to the Company and its subsidiaries within the meaning of the Act
and the applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any
supplementary financial information and schedules (and, if applicable,
financial forecasts and/or pro forma financial information) examined by
them and included in the Prospectus or the Registration Statement comply as
to form in all material respects with the applicable accounting
requirements of the Act and the related published rules and regulations
thereunder; and, if applicable, they have made a review in accordance with
standards established by the American Institute of Certified Public
Accountants of the unaudited consolidated interim financial statements,
selected financial data, pro forma financial information, financial
forecasts and/or condensed financial statements derived from audited
financial statements of the Company for the periods specified in such
letter, as indicated in their reports thereon, copies of which have been
furnished to the representatives of the Underwriters (the
"Representatives") and are attached hereto;
(iii) They have made a review in accordance with standards
established by the American Institute of Certified Public Accountants of
the unaudited condensed consolidated statements of income, consolidated
balance sheets and consolidated statements of cash flows included in the
Prospectus as indicated in their reports thereon copies of which are
attached hereto and on the basis of specified procedures including
inquiries of officials of the Company who have responsibility for financial
and accounting matters regarding whether the unaudited condensed
consolidated financial statements referred to in paragraph (vi)(A)(i) below
comply as to form in all material respects with the applicable accounting
requirements of the Act and the related published rules and regulations,
nothing came to their attention that caused them to believe that the
unaudited condensed consolidated financial statements do not comply as to
form in all material respects with the applicable accounting requirements
of the Act and the related published rules and regulations;
(iv) The unaudited selected financial information with respect to
the consolidated results of operations and financial position of the
Company for the seven month period ended December 31, 1991 and the four
most recent fiscal years included in the Prospectus agrees with the
corresponding amounts (after restatements where applicable) in the audited
consolidated financial statements for such periods;
(v) They have compared the information in the Prospectus under
selected captions with the disclosure requirements of Regulation S-K and on
the basis of limited procedures
<PAGE>
specified in such letter nothing came to their attention as a result of the
foregoing procedures that caused them to believe that this information does
not conform in all material respects with the disclosure requirements of
Items 301, 302, 402 and 503(d), respectively, of Regulation S-K;
(vi) On the basis of limited procedures, not constituting an
examination in accordance with generally accepted auditing standards,
consisting of a reading of the unaudited financial statements and other
information referred to below, a reading of the latest available interim
financial statements of the Company and its subsidiaries, inspection of the
minute books of the Company and its subsidiaries since the date of the
latest audited financial statements included in the Prospectus, inquiries
of officials of the Company and its subsidiaries responsible for financial
and accounting matters and such other inquiries and procedures as may be
specified in such letter, nothing came to their attention that caused them
to believe that:
(A) (i) the unaudited consolidated statements of income,
consolidated balance sheets and consolidated statements of cash flows
included in the Prospectus do not comply as to form in all material
respects with the applicable accounting requirements of the Act and the
related published rules and regulations, or (ii) any material modifications
should be made to the unaudited condensed consolidated statements of
income, consolidated balance sheets and consolidated statements of cash
flows included in the Prospectus for them to be in conformity with
generally accepted accounting principles;
(B) any other unaudited income statement data and balance sheet items
included in the Prospectus do not agree with the corresponding items in the
unaudited consolidated financial statements from which such data and items
were derived, and any such unaudited data and items were not determined on
a basis substantially consistent with the basis for the corresponding
amounts in the audited consolidated financial statements included in the
Prospectus;
(C) the unaudited financial statements which were not included in the
Prospectus but from which were derived any unaudited condensed financial
statements referred to in Clause (A) and any unaudited income statement
data and balance sheet items included in the Prospectus and referred to in
Clause (B) were not determined on a basis substantially consistent with the
basis for the audited consolidated financial statements included in the
Prospectus;
(D) any unaudited pro forma consolidated condensed financial
statements included in the Prospectus do not comply as to form in all
material respects with the applicable accounting requirements of the Act
and the published rules and regulations thereunder or the pro forma
adjustments have not been properly applied to the historical amounts in the
compilation of those statements;
(E) as of a specified date not more than five days prior to the date
of such letter, there have been any changes in the consolidated capital
stock (other than issuances of capital stock upon exercise of options and
stock appreciation rights, upon earn-outs of
2
<PAGE>
performance shares and upon conversions of convertible securities, in each
case which were outstanding on the date of the latest financial statements
included in the Prospectus) or any increase in the consolidated long-term
debt of the Company and its subsidiaries, or any decreases in consolidated
net current assets or stockholders' equity or other items specified by the
Representatives, or any increases in any items specified by the
Representatives, in each case as compared with amounts shown in the latest
balance sheet included in the Prospectus, except in each case for changes,
increases or decreases which the Prospectus discloses have occurred or may
occur or which are described in such letter; and
(F) for the period from the date of the latest financial statements
included in the Prospectus to the specified date referred to in Clause (E)
there were any decreases in consolidated net revenues or operating profit
or the total or per share amounts of consolidated net income or other items
specified by the Representatives, or any increases in any items specified
by the Representatives, in each case as compared with the comparable period
of the preceding year and with any other period of corresponding length
specified by the Representatives, except in each case for decreases or
increases which the Prospectus discloses have occurred or may occur or
which are described in such letter; and
(vii) In addition to the examination referred to in their
report(s) included in the Prospectus and the limited procedures, inspection
of minute books, inquiries and other procedures referred to in paragraphs
(iii) and (vi) above, they have carried out certain specified procedures,
not constituting an examination in accordance with generally accepted
auditing standards, with respect to certain amounts, percentages and
financial information specified by the Representatives, which are derived
from the general accounting records of the Company and its subsidiaries,
which appear in the Prospectus, or in Part II of, or in exhibits and
schedules to, the Registration Statement specified by the Representatives,
and have compared certain of such amounts, percentages and financial
information with the accounting records of the Company and its subsidiaries
and have found them to be in agreement.
3
<PAGE>
ANNEX I(A)
[EXECUTED COMFORT LETTER FORM ERNST & YOUNG]
4
<PAGE>
ANNEX I(B)
[FORM OF COMFORT LETTER TO BE DELIVERED ON THE EFFECTIVE DATE
OF ANY POST-EFFECTIVE AMENDMENT]
5
<PAGE>
ANNEX II(A)
[DRAFT OF DAVIS POLK & WARDWELL OPINION]
6
<PAGE>
ANNEX II(B)
[DRAFT OF WILLKIE FARR & GALLAGHER OPINION]
7
<PAGE>
ANNEX II(C)
[DRAFT OF BERWIN & LEIGHTON OPINION]
8
<PAGE>
ANNEX II(D)
[DRAFT OF OSLER, HOSKINS & HARCOURT OPINION]
9
<PAGE>
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
PANAVISION INC.
* * * * * * * *
This Amended and Restated Certificate of Incorporation of
Panavision Inc., formerly known as WP/GP, Inc., restates, integrates and
amends the original Certificate of Incorporation of the corporation which was
filed with the Secretary of State of Delaware on November 21, 1990, as
amended on May 7, 1996 and July 12, 1996, and has been duly adopted pursuant
to Sections 242 and 245 of the General Corporation Law of the State of
Delaware.
SECTION 1. The name of the corporation (the "Corporation") is:
PANAVISION INC.
SECTION 2. The address of its registered office in the State of
Delaware is 1209 Orange Street in the City of Wilmington, County of New
Castle. The name of its registered agent at such address is The Corporation
Trust Company.
SECTION 3. The nature of the business or purpose to be conducted
or promoted by the Corporation is to engage in any lawful act or activity for
which corporations may be organized under the General Corporation Law of the
State of Delaware.
SECTION 4. The total number of shares of stock
which the Corporation shall have authority to issue is 52,000,000 shares,
consisting of 50,000,000 shares of Common Stock, par value $.01 per share
and 2,000,000 shares of Preferred Stock, each of which shall have a par
value of $.01 per share. The number of authorized shares of Common Stock
or Preferred Stock may be increased or decreased by the Board of Directors.
SECTION 5. The shares of Preferred Stock may be issued from time
to time in one or more series of any number of shares, provided that the
aggregate number of shares issued and not cancelled of any and all such
series shall not exceed the total number of shares of Preferred Stock
hereinabove authorized, and with distinctive serial designations, all as
shall hereafter be stated and expressed in the resolution or resolutions
providing for the issuance of such shares of Preferred Stock from time to
time adopted by the Board of Directors pursuant to authority so to do which
is hereby vested in the Board of Directors. Each series of shares of
Preferred Stock may have such voting powers, full or limited, or no voting
powers, and such designations, preferences and relative, participating,
optional or other special rights, and qualifications, limitations or
restrictions thereof, as shall be stated in said resolutions providing for
the issuance of such shares of Preferred Stock.
<PAGE>
SECTION 6. The Common Stock shall be subject to the express
terms of the Preferred Stock and any series thereof. Each share of Common
Stock shall be equal to each other share of Common Stock. The holders of
shares of Common Stock shall be entitled to one vote for each such share upon
all proposals presented to the stockholders on which the holders of Common
Stock are entitled to vote.
SECTION 7. Except as may be provided by law, by this Certificate
of Incorporation or by the resolution or resolutions providing for the
issuance of any class or series of Preferred Stock, the Common Stock shall
have the exclusive right to vote for the election of directors and for all
other purposes, and holders of Preferred Stock shall not be entitled to
receive notice of any meeting of stockholders at which they are not entitled
to vote.
SECTION 8. The Corporation shall be entitled to treat the person
in whose name any share of its stock is registered as the owner thereof for
all purposes and shall not be bound to recognize any equitable or other claim
to, or interest in, such share on the part of any person, whether or not the
Corporation shall have notice thereof, except as expressly provided by
applicable law.
SECTION 9. On the date on which this Amended and Restated
Certificate of Incorporation is filed with the Office of the Secretary of the
State of Delaware, each issued and outstanding share of the Corporation's Common
Stock, par value $.01 per share, shall be exchanged, ipso facto, for 1,413
shares of the new Common Stock, par value $0.01 per share.
SECTION 10. In furtherance and not in limitation of the powers
conferred by statute, the by-laws of the Corporation may be made, altered,
amended or repealed by the stockholders or by a majority of the entire Board
of Directors.
SECTION 11. Whenever a compromise or arrangement is
proposed between this Corporation and its creditors or any class of them
and/or between this Corporation and its stockholders or any class of them,
any court of equitable jurisdiction within the State of Delaware may, on the
application in a summary way of this Corporation or of any creditor or
stockholder thereof or on the application of any receiver or receivers
appointed for this Corporation under the provisions of Section 291 of Title 8
of the Delaware Code or on the application of trustees in dissolution or of
any receiver or receivers appointed for this Corporation under the provisions
of Section 279 of Title 8 of the Delaware Code order a meeting of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as the
2
<PAGE>
case may be, agree to any compromise or arrangement and to any reorganization
of this Corporation as consequence of such compromise or arrangement, the
said compromise or arrangement and the said reorganization shall, if
sanctioned by the court to which the said application has been made, be
binding on all the creditors or class of creditors, and/or on all
stockholders or class of stockholders of this Corporation, as the case may
be, and also on this Corporation.
SECTION 12. Elections of directors need not be by written ballot.
SECTION 13. (a) The Corporation shall indemnify to the fullest
extent permitted under and in accordance with the laws of the State of
Delaware any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative by reason of the fact that
he is or was a director, officer, employee or agent of the Corporation, or is
or was serving at the request of the Corporation as a director, officer,
trustee, employee or agent of or in any other capacity with another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
(b) Expenses incurred in defending a civil or criminal action,
suit or proceeding shall (in the case of any action, suit or proceeding
against a director of the Corporation) or may (in the case of any action,
suit or proceeding against an officer, trustee, employee or agent) be paid by
the Corporation in advance of the final disposition of such action, suit or
proceeding as authorized by the Board of Directors upon receipt of an
undertaking by or on behalf of the indemnified person to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified
by the Corporation as authorized in this Section 13.
(c) The indemnification and other rights set forth in this
Section 13 shall not be exclusive of any provisions with respect thereto in
the by-laws or any other contract or agreement between the Corporation and
any officer, director, employee or agent of the Corporation.
(d) Neither the amendment nor repeal of this Section 13,
subparagraph (a), (b) or (c), nor the adoption of any provision of this
Certificate of Incorporation inconsistent with Section 13, subparagraph (a),
(b) or (c), shall eliminate or reduce the effect of this Section 13,
subparagraphs (a), (b) and
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(c), in respect of any matter occurring before such amendment, repeal or
adoption of an inconsistent provision or in respect of any cause of action,
suit or claim relating to any such matter which would have given rise to a
right of indemnification or right to receive expenses pursuant to this
Section 13, subparagraph (a), (b) or (c), if such provision had not been so
amended or repealed or if a provision inconsistent therewith had not been so
adopted.
(e) No director shall be personally liable to the Corporation or
any stockholder for monetary damages for breach of fiduciary duty as a
director, except for any matter in respect of which such director (A) shall
be liable under Section 174 of the General Corporation Law of the State of
Delaware or any amendment thereto or successor provision thereto, or (B)
shall be liable by reason that, in addition to any and all other requirements
for liability, he:
(i) shall have breached his duty of loyalty
to the Corporation or its stockholders;
(ii) shall not have acted in good faith or, in failing to
act, shall not have acted in good faith;
(iii) shall have acted in a manner involving intentional
misconduct or a knowing violation of law or, in failing to act, shall
have acted in a manner involving intentional misconduct or a knowing
violation of law; or
(iv) shall have derived an improper
personal benefit.
If the General Corporation Law of the State of Delaware is amended
after the date hereof to authorize corporate action further eliminating or
limiting the personal liability of directors, then the liability of a
director of the Corporation shall be eliminated or limited to the fullest
extent permitted by the General Corporation Law of the State of Delaware, as
so amended.
SECTION 14. The Corporation shall have power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of
the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
any liability asserted against him and incurred by him in any such capacity
or arising out of his status as such, whether or not the Corporation would
have the power to indemnify him against such liability under the provisions
of the General Corporation Law of the State of Delaware.
SECTION 15. The Corporation reserves the right to amend this
Amended and Restated Certificate of Incorporation in
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any manner permitted by the General Corporation Law of the State of Delaware,
as amended from time to time, and all rights and powers conferred herein on
stockholders, directors and officers, if any, are subject to this reserved
power.
IN WITNESS WHEREOF, PANAVISION INC. has caused this Amended and
Restated Certificate of Incorporation of the Corporation to be signed by the
undersigned, this ____ day of ____________, 1996.
PANAVISION INC.
By: ____________________
Name:
Title:
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PANAVISION INC.
INCORPORATED UNDER THE LAWS OF
THE STATE OF DELAWARE
AMENDED AND RESTATED BY-LAWS
ARTICLE I
OFFICES
The registered office of the Corporation in Delaware shall be at 1209
Orange Street in the City of Wilmington, County of New Castle, in the State
of Delaware, and The Corporation Trust Company shall be the resident agent of
this Corporation in charge thereof. The Corporation may also have such other
offices at such other places, within or without the State of Delaware, as the
Board of Directors may from time to time designate or the business of the
Corporation may require.
ARTICLE II
STOCKHOLDERS
Section 1. ANNUAL MEETING: The annual meeting of stockholders for
the election of directors and the transaction of any other business shall be
held on the second Monday of May in each year, or as soon after such date as
may be practicable, in such city and state and at such time and place as may
be designated by the Board of Directors, and set forth in the notice of
meeting. If said day be a legal holiday, said meeting shall be held on the
next succeeding business day. At the annual meeting any business may be
transacted and any corporate action may be taken, whether stated in the
notice of meeting or not, except as otherwise expressly provided by statute
or the Certificate of Incorporation.
Section 2. SPECIAL MEETINGS: Special meetings of the stockholders
for any purpose may be called at any time by the Board of Directors or by the
Chairman of the Board of Directors, and shall be called by the Chairman of the
Board of Directors at the request of the holders of a majority of the
outstanding shares of capital stock entitled to vote. Special meetings shall be
held at such place or places within or without the State of Delaware as shall
from time to time be designated by the Board of Directors and stated in the
notice of such meeting. At a special meeting no business shall be transacted
and no corporate action shall be taken other than that stated in the notice of
the meeting.
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Section 3. NOTICE OF MEETINGS: Written notice of the time and place
of any stockholders meeting, whether annual or special, shall be given to each
stockholder entitled to vote thereat, by personal delivery or by mailing the
same to him at his address as the same appears upon the records of the
Corporation at least ten (10) days but not more than sixty (60) days before the
day of the meeting. Notice of any adjourned meeting need not be given except by
announcement at the meeting so adjourned, unless otherwise ordered in connection
with such adjournment. Such further notice, if any, shall be given as may be
required by law.
Section 4. QUORUM: Any number of stockholders, together holding at
least a majority of the capital stock of the Corporation issued and outstanding
and entitled to vote, who shall be present in person or represented by proxy at
any meeting duly called, shall constitute a quorum for the transaction of all
business, except as otherwise provided by law, by the Certificate of
Incorporation or by these By-laws.
Section 5. ADJOURNMENT OF MEETINGS: If less than a quorum shall
attend at the time for which a meeting shall have been called, the meeting may
adjourn from time to time by a majority vote of the stockholders present or
represented by proxy and entitled to vote without notice other than by
announcement at the meeting until a quorum shall attend. Any meeting at which a
quorum is present may also be adjourned in like manner and for such time or upon
such call as may be determined by a majority vote of the stockholders present or
represented by proxy and entitled to vote. At any adjourned meeting at which a
quorum shall be present, any business may be transacted and any corporate action
may be taken which might have been transacted at the meeting as originally
called.
Section 6. VOTING LIST: The Secretary shall prepare and make, at
least ten days before every election of directors, a complete list of the
stockholders entitled to vote, arranged in alphabetical order and showing the
address of each stockholder and the number of shares of each stockholder. Such
list shall be open at the place where the election is to be held for said ten
days, to the examination of any stockholder, and shall be produced and kept at
the time and place of election during the whole time thereof, and subject to the
inspection of any stockholder who may be present.
Section 7. VOTING: Each stockholder entitled to vote at any
meeting may vote either in person or by proxy, but no proxy shall be voted on
or after three years from its date, unless said proxy provides for a longer
period. Each stockholder entitled to vote shall at every meeting of the
stockholders be entitled to one vote for each share of stock registered in
his name on the record of stockholders. At all meetings of stockholders all
matters, except as otherwise provided by statute, shall be determined by the
affirmative vote of the
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majority of shares present in person or by proxy and entitled to vote on the
subject matter. Voting at meetings of stockholders need not be by written
ballot.
Section 8. RECORD DATE OF STOCKHOLDERS: The Board of Directors is
authorized to fix in advance a date not exceeding sixty days nor less than ten
days preceding the date of any meeting of stockholders, or the date for the
payment of any dividend, or the date for the allotment of rights, or the date
when any change or conversion or exchange of capital stock shall go into effect,
or a date in connection with obtaining the consent of stockholders for any
purposes, as a record date for the determination of the stockholders entitled to
notice of, and to vote at, any such meeting, and any adjournment thereof, or
entitled to receive payment of any such dividend, or to any such allotment of
rights, or to exercise the rights in respect of any such change, conversion or
exchange of capital stock, or to give such consent, and, in such case, such
stockholders and only such stockholders as shall be stockholders of record on
the date so fixed shall be entitled to such notice of, and to vote at, such
meeting, and any adjournment thereof, or to receive payment of such dividend, or
to receive such allotment of rights, or to exercise such rights, or to give such
consent, as the case may be, notwithstanding any transfer of any stock on the
books of the Corporation, after such record date fixed as aforesaid.
Section 9. ACTION WITHOUT MEETING: Any action required or permitted
to be taken at any annual or special meeting of stockholders may be taken
without a meeting, without prior notice and without a vote, if a consent or
consents in writing, setting forth the action so taken, shall be signed by the
holders of outstanding stock 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 and shall be
delivered to the Corporation by delivery to its registered office in the State
of Delaware, its principal place of business, or an officer or agent of the
Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the Corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders who have not
consented in writing.
Section 10. CONDUCT OF MEETINGS: The Chairman of the Board of
Directors or, in his absence the President, or any Vice-President designated by
the Chairman of the Board, shall preside at all regular or special meetings of
stockholders. To the maximum extent permitted by law, such presiding person
shall have the power to set procedural rules, including but not limited to rules
respecting the time allotted to stockholders to speak, governing all aspects of
the conduct of such meetings.
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ARTICLE III
DIRECTORS
Section 1. NUMBER AND QUALIFICATIONS: The Board of Directors shall
consist initially of at least five directors, or such other number as may be
fixed from time to time by resolution of the Board. The directors need not
be stockholders of the Corporation.
Section 2. ELECTION OF DIRECTORS: The directors shall be elected by
the stockholders at the annual meeting of stockholders. The first Board of
Directors shall hold office until the first annual meeting of stockholders after
the date hereof.
Section 3. DURATION OF OFFICE: The directors chosen at any annual
meeting shall, except as hereinafter provided, hold office until the next annual
election and until their successors are elected and qualify.
Section 4. REMOVAL AND RESIGNATION OF DIRECTORS: Any director may be
removed from the Board of Directors, with or without cause, by the holders of a
majority of the shares of capital stock entitled to vote, either by written
consent or consents or at any special meeting of the stockholders called for
that purpose, and the office of such director shall forthwith become vacant.
Any director may resign at any time. Such resignation shall take
effect at the time specified therein, and if no time be specified, at the time
of its receipt by the President or Secretary. The acceptance of a resignation
shall not be necessary to make it effective, unless so specified therein.
Section 5. FILLING OF VACANCIES: Any vacancy among the directors,
occurring from any cause whatsoever, may be filled by a majority of the
remaining directors, though less than a quorum, PROVIDED HOWEVER, that the
stockholders removing any director may at the same meeting fill the vacancy
caused by such removal, and PROVIDED FURTHER, that if the directors fail to fill
any such vacancy, the stockholders may at any special meeting called for that
purpose fill such vacancy. In case of any increase in the number of directors,
the additional directors may be elected by the directors in office before such
increase.
Any person elected to fill a vacancy shall hold office, subject to the
right of removal as hereinbefore provided, until the next annual election and
until his successor is elected and qualifies.
Section 6. REGULAR MEETINGS: The Board of Directors shall hold an
annual meeting for the purpose of organization and the transaction of any
business immediately after the annual meeting of the stockholders, provided a
quorum of directors is
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present. Other regular meetings may be held at such times as may be
determined from time to time by resolution of the Board of Directors.
Section 7. SPECIAL MEETINGS: Special meetings of the Board of
Directors may be called by the Chairman of the Board of Directors, or by any
two directors.
Section 8. NOTICE AND PLACE OF MEETINGS: Meetings of the Board of
Directors may be held at the principal office of the Corporation, or at such
other place as shall be stated in the notice of such meeting. Notice of any
special meeting, and, except as the Board of Directors may otherwise determine
by resolution, notice of any regular meeting also, shall be mailed to each
director addressed to him at his residence or usual place of business at least
two days before the day on which the meeting is to be held, or if sent to him at
such place by telecopy, facsimile or cable, or delivered personally or by
telephone, not later than the day before the day on which the meeting is to be
held. No notice of the annual meeting of the Board of Directors shall be
required if it is held immediately after the annual meeting of the stockholders
and if a quorum is present.
Section 9. BUSINESS TRANSACTED AT MEETINGS, ETC.: Any business may
be transacted and any corporate action may be taken at any regular or special
meeting of the Board of Directors at which a quorum shall be present, whether
such business or proposed action be stated in the notice of such meeting or not,
unless special notice of such business or proposed action shall be required by
statute.
Section 10. QUORUM: A majority of the Board of Directors at any time
in office shall constitute a quorum. At any meeting at which a quorum is
present, the vote of a majority of the members present shall be the act of the
Board of Directors unless the act of a greater number is specifically required
by law or by the Certificate of Incorporation or these By-laws. The members of
the Board shall act only as the Board and the individual members thereof shall
not have any powers as such.
Section 11. COMPENSATION: The directors shall not receive any stated
salary for their services as directors, but by resolution of the Board of
Directors a fixed fee and expenses of attendance may be allowed for attendance
at each meeting. Nothing herein contained shall preclude any director from
serving the Corporation in any other capacity, as an officer, agent or
otherwise, and receiving compensation therefor.
Section 12. ACTION WITHOUT A MEETING: Any action required or
permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting if all members of the Board or
committee, as the case may be, consent thereto in writing, and the writing or
writings are
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filed with the minutes of the proceedings of the Board or committee.
Section 13. MEETINGS THROUGH USE OF COMMUNICATIONS EQUIPMENT:
Members of the Board of Directors, or any committee designated by the Board of
Directors, shall, except as otherwise provided by law, the Certificate of
Incorporation or these By-laws, have the power to participate in a meeting of
the Board of Directors, or any committee, by means of a conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation shall constitute
presence in person at the meeting.
ARTICLE IV
COMMITTEES
Section 1. EXECUTIVE COMMITTEE: The Board of Directors may, by
resolution passed by a majority of the whole Board, designate one or more of
their number to constitute an Executive Committee to hold office at the
pleasure of the Board, which Committee shall, during the intervals between
meetings of the Board of Directors, have and exercise all of the powers of
the Board of Directors in the management of the business and affairs of the
Corporation, subject only to such restrictions or limitations as the Board of
Directors may from time to time specify, or as limited by the Delaware
General Corporation Law, and shall have power to authorize the seal of the
Corporation to be affixed to all papers which may require it.
Any member of the Executive Committee may be removed at any time, with
or without cause, by a resolution of a majority of the whole Board of Directors.
Any person ceasing to be a director shall IPSO FACTO cease to be a
member of the Executive Committee.
Any vacancy in the Executive Committee occurring from any cause
whatsoever may be filled from among the directors by a resolution of a majority
of the whole Board of Directors.
Section 2. AUDIT COMMITTEE: There shall be an Audit Committee
consisting of at least two members of the Board of Directors. None of the
members of the Audit Committee shall be directly involved in the supervision or
management of the financial affairs of the Corporation or any of its
subsidiaries.
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A. The books, records and accounts of the Corporation may be
audited periodically by independent public accountants. In connection with
the audit process, the Audit Committee shall have the following duties to:
(1) make recommendations about the appointment, retention, and
termination of independent public accountants;
(2) make recommendations about the scope of the audit and audit
procedures;
(3) review for the Board of Directors all recommendations made
by the independent public accountants about accounting methods and matters which
are relevant to the Corporation; and
(4) review with the independent public accountants those aspects
of the following matters which pertain to the Corporation, upon completion of
their audit: (a) the financial statements and any report or opinion proposed to
be rendered in connection therewith; (b) the independent public accountant's
perceptions of the personnel responsible for the Corporation's financial and
accounting matters; (c) the cooperation which the independent public accountants
receive during the course of their audit; (d) the extent which the resources of
the Corporation were or should be utilized to minimize the audit fee; (e) any
significant transactions which were not in the ordinary, routine and regular
course of business of the Corporation; (f) any change in accounting principles,
policies or standards; (g) all significant adjustments proposed by the
independent public accountants; (h) general policies and procedures relating to
internal auditing and financial controls which pertain to the Corporation; and
(i) any recommendations which the independent public accountants may have with
respect to internal financial controls, choice of accounting policies and
principles, or management reporting systems.
B. The Audit Committee shall meet periodically with the staff
responsible for the Corporation's financial and accounting matters to review and
discuss the scope of internal accounting procedures and controls then in effect
and the extent which any recommendations made by the independent public
accountants or any internal auditors have been implemented.
C. The Audit Committee shall direct and supervise any investigation
which it believes is necessary into any matter brought to its attention within
the scope of its duties. The Audit Committee may retain outside consultants in
connection with any such investigation.
D. The Audit Committee shall monitor the business practices of the
Corporation as set forth in the written policies
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of the Corporation, such as compliance with antitrust policies and other
policies, as directed by the Board of Directors.
E. The Audit Committee shall prepare and present to the Board of
Directors a report covering its activities twice yearly at regular board
meetings or more often, when considered necessary, to report a material
irregularity.
Section 3. OTHER COMMITTEES: Other committees, whose members need
not be directors, may be appointed by the Board of Directors or the Executive
Committee, which committees shall hold office for such time and have such powers
and perform such duties as may from time to time be assigned to them by the
Board of Directors or the Executive Committee.
Any member of such a committee may be removed at any time, with or
without cause, by the Board of Directors or the Executive Committee. Any
vacancy in a committee occurring from any cause whatsoever may be filled by the
Board of Directors or the Executive Committee.
Section 4. RESIGNATION: Any member of a committee may resign at any
time. Such resignation shall be made in writing and shall take effect at the
time specified therein, or, if no time be specified, at the time of its receipt
by the President or Secretary. The acceptance of a resignation shall not be
necessary to make it effective unless so specified therein.
Section 5. QUORUM: A majority of the members of a committee shall
constitute a quorum. The act of a majority of the members of a committee
present at any meeting at which a quorum is present shall be the act of such
committee. The members of a committee shall act only as a committee, and the
individual members thereof shall not have any powers as such.
Section 6. RECORD OF PROCEEDINGS, ETC.: Each committee shall keep a
record of its acts and proceedings, and shall report the same to the Board of
Directors when and as required by the Board of Directors.
Section 7. ORGANIZATION, MEETINGS, NOTICES, ETC.: A committee may
hold its meetings at the principal office of the Corporation, or at any other
place which a majority of the committee may at any time agree upon. Each
committee may make such rules as it may deem expedient for the regulation and
carrying on of its meetings and proceedings. Unless otherwise ordered by the
Executive Committee, any notice of a meeting of such committee may be given by
the Secretary of the Corporation or by the chairman of the committee and shall
be sufficiently given if mailed to each member at his residence or usual place
of business at least two days before the day on which the meeting is to be held,
or if sent to him at such place by telegraph, fax or
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cable, or delivered personally or by telephone not later than 24 hours before
the time at which the meeting is to be held.
Section 8. COMPENSATION: The members of any committee shall be
entitled to such compensation as may be allowed them by resolution of the Board
of Directors.
ARTICLE V
OFFICERS
Section 1. NUMBER: The officers of the Corporation shall be a
Chairman of the Board, a President, a Secretary, a Treasurer, and such other
officers as may be appointed in accordance with the provisions of Section 3
of this Article V. Any number of offices may be held by the same person, as
the directors may determine.
Section 2. ELECTION, TERM OF OFFICE AND QUALIFICATIONS: The
officers, except as provided in Section 3 of this Article V, shall be chosen
annually by the Board of Directors. Each such officer shall, except as herein
otherwise provided, hold office until his successor shall have been chosen and
shall qualify. The Chairman of the Board of Directors, if any, shall be a
director of the Corporation, and should he cease to be a director, he shall IPSO
FACTO cease to be such officer.
Section 3. OTHER OFFICERS: Other officers, including one or more
vice-presidents, assistant secretaries or assistant treasurers, may from time to
time be appointed by the Board of Directors, which other officers shall have
such powers and perform such duties as may be assigned to them by the Board of
Directors or the officer or committee appointing them.
Section 4. REMOVAL OF OFFICERS: Any officer of the Corporation may
be removed from office, with or without cause, by a vote of a majority of the
Board of Directors.
Section 5. RESIGNATION: Any officer of the Corporation may resign
at any time. Such resignation shall be in writing and shall take effect at the
time specified therein, and if no time be specified, at the time of its receipt
by the President or Secretary. The acceptance of a resignation shall not be
necessary in order to make it effective, unless so specified therein.
Section 6. FILLING OF VACANCIES: A vacancy in any office shall be
filled by the Board of Directors or by the authority appointing the predecessor
in such office.
Section 7. COMPENSATION: The compensation of the officers shall be
fixed by the Board of Directors, or by any committee upon whom power in that
regard may be conferred by the Board of Directors.
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Section 8. CHAIRMAN OF THE BOARD OF DIRECTORS: The Chairman of the
Board of Directors shall be the Chief Executive Officer of the Corporation and
shall preside, if present, at all meetings of the stockholders and at all
meetings of the Board of Directors. He shall have power to call special
meetings of the stockholders or of the Board of Directors or of the Executive
Committee at any time. He shall have the general direction of the business,
affairs and property of the Corporation, and of its several officers, subject,
however, to the control of the Board of Directors, and in general shall perform
such duties and, subject to the other provisions of those By-Laws, have such
powers incident to the office of the Chairman of the Board of Directors and
Chief Executive Officer and perform such other duties and have such other powers
as from time to time may be assigned to him by the Board of Directors.
Section 9. PRESIDENT: The President shall have such power and
perform such duties as may from time to time be assigned to him by the Board of
Directors, the Chief Executive Officer or prescribed by these By-Laws.
Section 10. VICE-PRESIDENTS: The Vice-Presidents, or any of them,
shall, subject to the direction of the Board of Directors, at the request of the
President or in his absence, or in case of his inability to perform his duties
from any cause, perform the duties of the President, and, when so acting, shall
have all the powers of, and be subject to all restrictions upon, the President.
The Vice-Presidents shall also perform such other duties as may be assigned to
them by the Board of Directors, or prescribed by these By-Laws and the Board of
Directors may determine the order of priority among them.
Section 11. SECRETARY: The Secretary shall perform such duties as
are incident to the office of Secretary, including but not limited to
(a) recording the proceedings of the meetings of the stockholders and directors
in a book kept for that purpose; (b) maintaining the stock ledger and
stockholder voting list; (c) giving proper notice of meetings; (d) attesting to
and signing instruments, stock certificates, and other certificates on behalf of
the corporation; and (e) affixing the corporate seal when proper or as may from
time to time be assigned to him by the Board of Directors, or as are prescribed
by these By-laws.
Section 12. TREASURER: The Treasurer shall perform such duties and
have powers as are usually incident to the office of Treasurer or which may be
assigned to him by the Board of Directors.
ARTICLE VI
CAPITAL STOCK
Section 1. ISSUE OF CERTIFICATES OF STOCK: Certificates of capital stock
shall be in such form as shall be approved by the Board of Directors. They
shall be numbered in
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the order of their issue and shall be signed by the Chairman of the Board of
Directors, the President or one of the Vice-Presidents, and the Secretary or
an Assistant Secretary or the Treasurer or an Assistant Treasurer, and the
seal of the Corporation or a facsimile thereof shall be impressed or affixed
or reproduced thereon, provided, however, that where such certificates are
signed by a transfer agent or an assistant transfer agent or by a transfer
clerk acting on behalf of the Corporation and a registrar, the signature of
any such Chairman of the Board of Directors, President, Vice-President,
Secretary, Assistant Secretary, Treasurer or Assistant Treasurer may be a
facsimile. In case any officer or officers who shall have signed, or whose
facsimile signature or signatures shall have been used on any such
certificate or certificates shall cease to be such officer or officers of the
Corporation, whether because of death, resignation or otherwise, before such
certificate or certificates shall have been delivered by the Corporation,
such certificate or certificates may nevertheless be adopted by the
Corporation and be issued and delivered as though the person or persons who
signed such certificate or certificates, or whose facsimile signature or
signatures shall have been used thereon have not ceased to be such officer or
officers of the Corporation.
Section 2. REGISTRATION AND TRANSFER OF SHARES: The name of each
person owning a share of the capital stock of the Corporation shall be entered
on the books of the Corporation together with the number of shares held by him,
the numbers of the certificates covering such shares and the dates of issue of
such certificates. The shares of stock of the Corporation shall be transferable
on the books of the Corporation by the holders thereof in person, or by their
duly authorized attorneys or legal representatives, on surrender and
cancellation of certificates for a like number of shares, accompanied by an
assignment or power of transfer endorsed thereon or attached thereto, duly
executed, and with such proof of the authenticity of the signature as the
Corporation or its agents may reasonably require. A record shall be made of
each transfer.
The Board of Directors may make other and further rules and
regulations concerning the transfer and registration of certificates for stock
and may appoint a transfer agent or registrar or both and may require all
certificates of stock to bear the signature of either or both.
Section 3. LOST, DESTROYED AND MUTILATED CERTIFICATES: The holder
of any stock of the Corporation shall immediately notify the Corporation of any
loss, theft, destruction or mutilation of the certificates therefor. The
Corporation may issue a new certificate of stock in the place of any certificate
theretofore issued by it alleged to have been lost, stolen or destroyed, and
the Board of Directors may, in its discretion, require the owner of the lost,
stolen or destroyed certificate, or his legal representatives, to give the
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Corporation a bond, in such sum not exceeding double the value of the stock and
with such surety or sureties as they may require, to indemnify it against any
claim that may be made against it by reason of the issue of such new certificate
and against all other liability in the premises, or may remit such owner to such
remedy or remedies as he may have under the laws of the State of Delaware.
ARTICLE VII
DIVIDENDS, SURPLUS, ETC.
Section 1. GENERAL DISCRETION OF DIRECTORS: The Board of Directors
shall have power to fix and vary the amount to be set aside or reserved as
working capital of the Corporation, or as reserves, or for other proper
purposes of the Corporation, and, subject to the requirements of the
Certificate of Incorporation, to determine whether any, if any, part of the
surplus or net profits of the Corporation shall be declared as dividends and
paid to the stockholders, and to fix the date or dates for the payment of
dividends.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
Section 1. FISCAL YEAR: The fiscal year of the Corporation shall
commence on the first day of January and end on the last day of December.
Section 2. BOOKS: The books and records of the Corporation may be
kept (except as otherwise provided by the laws of the State of Delaware) outside
of the State of Delaware and at such place or places as may from time to time be
designated by the Board of Directors.
Section 3. CORPORATE SEAL: The corporate seal shall be in such form
as approved by the Board of Directors and may be altered at their pleasure. The
corporate seal may be used by causing it or a facsimile thereof to be impressed
or affixed or reproduced or otherwise.
Section 4. NOTICES: Except as otherwise expressly provided, any
notice required by these By-laws to be given shall be sufficient if given by
depositing the same in a post office or letter box in a sealed postpaid wrapper
addressed to the person entitled thereto at his address, as the same appears
upon the books of the Corporation, or by telecopy, cable or facsimile the same
to such person at such addresses; and such notice shall be deemed to be given at
the time it is mailed, telegraphed, cabled or faxed.
12
<PAGE>
Section 5. WAIVER OF NOTICE: Any stockholder or director may at any
time, by writing or by telegraph, cable or fax, waive any notice required to be
given under these By-laws, and if any stockholder or director shall be present
at any meeting his presence shall constitute a waiver of such notice.
Section 6. CHECKS, DRAFTS, ETC.: All checks, drafts or other orders
for the payment of money, notes or other evidences of indebtedness issued in the
name of the Corporation, shall be signed by such officer or officers, agent or
agents of the Corporation, and in such manner, as shall from time to time be
designated by resolution of the Board of Directors.
Section 7. DEPOSITS: All funds of the Corporation shall be
deposited from time to time to the credit of the Corporation in such bank or
banks, trust companies or other depositories as the Board of Directors may
select, and, for the purpose of such deposit, checks, drafts, warrants and other
orders for the payment of money which are payable to the order of the
Corporation, may be endorsed for deposit, assigned and delivered by any officer
of the Corporation, or by such agents of the Corporation as the Board of
Directors or the President may authorize for that purpose.
Section 7. VOTING STOCK OF OTHER CORPORATIONS: Except as otherwise
ordered by the Board of Directors or the Executive Committee, the President or
the Treasurer shall have full power and authority on behalf of the Corporation
to attend and to act and to vote at any meeting of the stockholders of any
corporation of which the Corporation is a stockholder and to execute a proxy to
any other person to represent the Corporation at any such meeting, and at any
such meeting the President or the Treasurer or the holder of any such proxy, as
the case may be, shall possess and may exercise any and all rights and powers
incident to ownership of such stock and which, as owner thereof, the Corporation
might have possessed and exercised if present. The Board of Directors or the
Executive Committee may from time to time confer like powers upon any other
person or persons.
Section 8. INDEMNIFICATION OF OFFICERS AND DIRECTORS: The
Corporation shall indemnify any and all of its directors or officers, including
former directors or officers, and any employee, who shall serve as an officer or
director of any corporation at the request of this Corporation, to the fullest
extent permitted under and in accordance with the laws of the State of Delaware.
ARTICLE IX
AMENDMENTS
The Board of Directors shall have the power to make, rescind,
alter, amend and repeal these By-laws, provided, however, that the
stockholders shall have power to rescind, alter, amend or repeal any by-laws
made by the Board of
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Directors, and to enact by-laws which if so expressed shall not be rescinded,
altered, amended or repealed by the Board of Directors. No change of the
time or place for the annual meeting of the stockholders for the election of
directors shall be made except in accordance with the laws of the State of
Delaware.
* * * * *
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<TABLE>
<CAPTION>
[SPECIMEN COMMON STOCK CERTIFICATE] EXHIBIT 4
[FACE OF CERTIFICATE]
<S> <C> <C> <C>
Certificate For ________________Shares From whom transferred Received Certificate No.__________
No. __ Issued to _________________________________________ for _______________________ Shares
__________________________ Dated _____________________________ 19___ this ___ day of ____________, 19__
__________________________ NO. ORIGINAL NO. ORIGINAL NO. OF SHARES __________________________________
Dated ______________ 19___ CERTIFICATES SHARES TRANSFERRED __________________________________
No. __ INCORPORATED UNDER THE LAWS OF
THE STATE OF DELAWARE
Panavision Inc.
TOTAL AUTHORIZED ISSUE
________ COMMON SHARES AT $.01 par value
This Certifies that ________________________________________ is the registered holder of
__________________________________ Shares of the above named Corporation, fully and non-assessable transferable only
on the books of the Corporation by the holder hereof in person or by Attorney upon surrender of his Certificate
properly endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to be signed by its duly authorized officers and
its Corporate Seal to be hereunder affixed
this _______ day of ___________________ A.D. 19____
_________________________ __________________________
Secretary Treasurer President
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
For Value Received, ____________ hereby sell, assign and transfer unto ____________________________________________
___________________________ Shares represented by the within Certificate, and do hereby irrevocably constitute and
appoint ______________________________________ Attorney to transfer the said Shares on the books of the within named
Corporation, with full power of substitution in the premises.
Dated ________________, 19___
In presence of
______________________ ___________________________
</TABLE>
<PAGE>
AMENDED AND RESTATED
STOCKHOLDERS AGREEMENT
Amended and Restated Stockholders Agreement (the "Agreement"), dated
as of October 24, 1996, by and among Panavision Holdings, L.L.C.
("Warburg"), William C. Scott III and certain other management investors
whose names appear on Schedule I hereto (Mr. Scott and such other management
investors are hereinafter referred to collectively as the "Management
Investors," and Warburg and the Management Investors are hereinafter referred
to individually as an "Investor" and collectively as the "Investors"), and
Panavision Inc., a Delaware corporation (the "Company").
R E C I T A L S
WHEREAS, Warburg, the Management Investors and the Company are parties
to a Stockholders Agreement dated as of June 12, 1996 (the "Prior Agreement");
WHEREAS, the parties now desire to amend and restate the Prior Agreement
as provided herein;
WHEREAS, the Investors own shares (the "Shares") of Common Stock, par
value $.01 per share, of the Company (the "Common Stock"); and
WHEREAS, Management Investors have been and may in the future be granted
options to purchase shares of Common Stock pursuant to the terms of the Stock
Option Plan (as defined in Section 2(a) hereof) and related Stock Option
Agreements between each Management Investor and the Company (each, a "Stock
Option Agreement"); and
WHEREAS, the Investors and the Company desire to promote their mutual
interests by agreeing to certain matters relating to the operations of the
Company and the disposition and voting of Shares.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto hereby agree as follows:
1. COVENANTS OF THE PARTIES.
(a) LEGENDS. The certificates evidencing the shares of Common
Stock owned as of the date hereof or hereafter acquired by the Investors or to
be issued upon exercise of options to purchase shares of Common Stock pursuant
to the Stock Option Plan or otherwise will bear the following legend
<PAGE>
reflecting the restrictions on the transfer of such securities contained in
this Agreement:
"The securities evidenced hereby are subject to the terms of that
certain Amended and Restated Stockholders Agreement, dated as of
October 24, 1996, by and among the Company and certain
investors identified therein, including certain restrictions on
transfer. A copy of the Stockholders Agreement has been filed
with the Secretary of the Company and is available upon written
request."
(b) ELECTION OF DIRECTORS. At all times throughout the term of
this Agreement, the Investors and the Company agree that the Company's Board
of Directors (the "Board") shall consist of at least five (5) but not more
than seven (7) members. The Board shall include at least (A) three (3)
designees nominated by Warburg and (B) (i) Mr. Scott or, if he is not an
employee of Panavision International, L.P., or is otherwise unavailable, one
(1) designee nominated by the holders of a majority of the shares of Common
Stock held by the Management Investors who are then employed by the Company
or any of its subsidiaries and (ii) John S. Farrand or, if he is not an
employee of Panavision International, L.P., or is otherwise unavailable, one
(1) designee nominated by the holders of a majority of the shares of Common
Stock held by the Management Investors who are then employed by the Company
or any of its subsidiaries. For purposes of this Section 1(b) and Section
1(c), Management Investors shall include additional holders of Common Stock
who become parties to this Agreement and who are then employed by the Company
or any of its subsidiaries.
(c) REPLACEMENT DIRECTORS. In the event that any director (a
"Withdrawing Director") designated in the manner set forth in Section l(b)
hereof is unable to serve, or once having commenced to serve, is removed or
withdraws from the Board, such Withdrawing Director's replacement (the
"Substitute Director") will be designated by the Investor or parties that
designated the Withdrawing Director. The Company and each of the Investors
agree to take all action within their respective power, including but not
limited to the voting of capital stock of the Company, to cause the election
of such Substitute Director promptly following his or her nomination pursuant
to this Section l(c).
(d) RIGHTS NON-TRANSFERABLE. Except as otherwise expressly
contemplated by this Agreement, the rights of any Investor to designate
directors pursuant to this Section 1 are not transferable, whether by sale of
capital stock or otherwise, to any Person or entity other than an Affiliate
of such Investor.
2. TRANSFER OF STOCK.
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(a) TRANSFER OF SECURITIES. Until the second anniversary of the closing
of an Initial Public Offering, no Management Investor shall Transfer any
Shares other than in accordance with the provisions of this Section 2 and
Section 3 hereof; provided, that prior to such second anniversary, each
Management Investor may Transfer (subject to any lock-up agreements entered
into in connection with any public offering), in the aggregate, up to a
number of Shares equal to the remainder of (x) 20% of the total number
("Total Holdings") of Shares owned by him since the date of this Agreement,
including the Shares (i) owned by him on the date hereof, (ii) acquired by
him pursuant to the Company's Stock Option Plan dated as of June 12, 1996
(the "Stock Option Plan") and (iii) acquired by him pursuant to any
restructuring or similar transaction, minus (y) the number of Shares, if any,
sold or Transferred by such Management Investor pursuant to Section 2(b), 2(e)
or 3 hereof. In addition, Warburg shall not Transfer any shares of capital
stock of the Company other than in accordance with the provisions of this
Section 2 and Section 3(a). Any Transfer or purported Transfer made in
violation of this Section 2 shall be null and void and of no effect.
(b) TAG-ALONG RIGHT. In the event Warburg intends to Transfer any of
its shares of Common Stock prior to the closing of an Initial Public Offering
other than to an Affiliate of Warburg or pursuant to a distribution of such
shares to its or any of its Affiliates' partners, Warburg shall notify each
other Investor, in writing, of such transfer and its terms and conditions.
Within 5 days of the date of such notice, each Investor shall notify Warburg
if it elects to participate in such Transfer. Each Investor that so notifies
Warburg shall have the right to sell, at the same price and on the same terms
as Warburg, an amount of shares equal to the shares of Common Stock the third
party actually proposes to purchase multiplied by a fraction, the numerator
of which shall be the number of shares of Common Stock owned by such Investor
and the denominator of which shall be the aggregate number of shares of
Common Stock owned by Warburg and each Investor exercising its rights under
this Section 2(b). Notwithstanding anything contained in this Section 2(b)
or elsewhere in this Agreement, no Management Investor may Transfer any of
its shares of Common Stock pursuant to this Section 2(b) if and to the extent
that such Transfer would result in a Percentage Imbalance.
(c) DRAG-ALONG RIGHT.
(i) If, prior to the closing of an Initial Public Offering,
Warburg is advised by the prospective managing underwriter of the Initial
Public Offering of the Company that a restructuring of the capitalization of
the Company is advisable in connection with such offering, and if Warburg is
willing to effect such a restructuring, Warburg shall so notify each other
Investor, in writing, specifying the terms and conditions of such
restructuring. Each other Investor, within 5 days of the receipt
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<PAGE>
of such notice (or such longer period of time as Warburg shall designate)
shall take all such actions as shall be required in connection with such
restructuring (without any additional investment by the Management
Investors), upon the same terms and conditions as Warburg, including, without
limitation, the voting of such Investor's shares of Common Stock, the
conversion of one or more classes of Company securities, or the contribution
to the capital of the Company of one or more classes of the Company's equity
securities.
(ii) If at any time and from time to time
after the date of this Agreement and prior to the closing of an Initial
Public Offering, Warburg wishes to Transfer in a bona fide arms' length sale
all of the shares of capital stock of the Company then owned by it to any
Person or Persons who are not Affiliates of Warburg (the "Proposed
Transferee"), Warburg shall have the right (the "Drag-Along Right") to
require each other Investor to sell to the Proposed Transferee all of the
shares of capital stock of the Company then owned by such other Investor on
terms no less favorable than the terms on which the shares of capital stock
then owned by Warburg are being sold. Each Investor agrees to take all steps
necessary to enable it to comply with the provisions of this Section 2(c).
(iii) To exercise a Drag-Along Right, Warburg shall give each
Investor a written notice (a "Drag-Along Notice") containing (A) the name and
address of the Proposed Transferee and (B) the proposed purchase price, terms
of payment and other material terms and conditions of the Proposed
Transferee's offer. Each such Investor shall thereafter be obligated to
deliver for sale at the closing specified in such Drag-Along Notice, the
shares of capital stock subject to such Drag-Along Notice free and clear of
all liens, encumbrances and security interests.
(d) PARTICIPATION IN CERTAIN SECURITIES ISSUANCES AND REPURCHASES.
(i) If at any time prior to the closing of an Initial Public
Offering the Company proposes to issue to Warburg or any of its Affiliates
equity securities of any kind (the term "equity securities" shall include for
purposes of this Section 2(d) any warrants, options or other rights to
acquire equity securities and debt securities convertible into equity
securities), then, as to each Investor, the Company shall:
(a) give written notice setting forth in reasonable detail (1)
the designation and all of the terms and provisions of the securities
proposed to be issued (the "Proposed Securities"), including, where
applicable, the voting powers, preferences and relative participating,
optional or other special rights, and the qualification, limitations or
restrictions thereof and interest rate and maturity; (2) the price and
other terms of the proposed sale of
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<PAGE>
such securities; (3) the amount of such securities proposed to be issued;
and (4) such other information as the Investors may reasonably request in
order to evaluate the proposed issuance; and
(b) offer to issue to each such Investor a portion of the
Proposed Securities equal to a percentage determined by dividing (x) the
number of shares of Common Stock held by such Investor and issuable to such
Investor, assuming conversion in full of any convertible securities or
vested Option Shares, by (y) the total number of shares of Common Stock
then outstanding assuming conversion in full of any convertible securities
and outstanding options, rights or similar securities to the extent then
vested.
Each such Investor must exercise its purchase rights hereunder within
ten (10) days after receipt of such notice from the Company. If all of the
Proposed Securities offered to such Investors are not fully subscribed by
such Investors, the remaining Proposed Securities will be re-offered to the
Investors purchasing their full allotment upon the terms set forth in this
Section 2(d)(i), until all such Proposed Securities are fully subscribed for
or until all such Investors have subscribed for all such Proposed Securities
which they desire to purchase, except that such Investors must exercise their
purchase rights within five (5) days after receipt of all such re-offers. To
the extent that the Company offers two or more securities in units, Investors
must purchase such units as a whole and will not be given the opportunity to
purchase only one of the securities making up such unit.
Upon the expiration of the offering periods described above, the Company
will be free to sell such Proposed Securities that the Investors have not
elected to purchase during the ninety (90) days following such expiration on
terms and conditions no more favorable to the purchasers thereof than those
offered to the Investors. Any Proposed Securities offered or sold by the
Company after such ninety (90) day period must be re-offered to the Investors
pursuant to this Section 2(d).
The election by an Investor not to exercise its subscription rights
under this Section 2(d)(i) in any one instance shall not affect its rights
(other than in respect of a reduction of its percentage holdings) as to any
subsequent proposed issuance.
(ii) If at any time prior to the closing of an Initial Public
Offering the Company proposes a repurchase or redemption of the Company's
equity securities, then each Investor shall have the right to have its equity
securities of the same class repurchased or redeemed, as the case may be, in
an amount equal to a percentage determined by dividing (x) the number of
shares of such equity securities held by such Investor and
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<PAGE>
issuable to such Investor, assuming conversion in full of any convertible
securities or options, by (y) the total number of shares of such equity
securities then outstanding assuming conversion in full of any convertible
securities and outstanding options, rights or similar securities to the
extent then vested.
(e) PERMITTED TRANSFERS. Any Investor may Transfer, without
compliance with the requirements of this Section 2, Shares (i) in the case of
the Management Investors, to immediate family members or the estate of any
such Management Investor (including, without limitation, any Transfer by such
Management Investor to or among any trust, custodial or other similar
accounts or funds in which such Management Investor serves as trustee or
custodian or in a similar fiduciary capacity), as well as any corporation,
partnership or other entity controlled by such Management Investor and/or
immediate family members of such Management Investor, in each case pursuant
to a bona fide gift, and (ii) in the case of Warburg, to any Affiliate;
provided in each instance that such transferee agrees to be bound by the
provisions (including the provisions in this Section 2) of this Agreement as
if such transferee were an original signatory hereto and such transferee
shall be deemed an Investor, as applicable, for purposes of this Agreement.
Notwithstanding anything contained in this Section 2(e) or elsewhere in this
Agreement, no Management Investor may Transfer any of its shares of Common
Stock pursuant to this Section 2(e) if and to the extent that the number of
Shares Transferred by such Management Investor pursuant to this Section 2(e),
when added to the Shares Transferred by such Management Investor pursuant to
Sections 2(a), 2(b) and 3 hereof, would exceed 20% of such Management
Investor's Total Holdings..
(f) TERMINATION OF CERTAIN PROVISIONS. The provisions of
Section 2(b), (c) and (d) shall terminate upon the closing of an Initial
Public Offering .
(g) INJUNCTIVE RELIEF. The Company and the Investors hereby
declare that it is impossible to measure in money the damages which will
accrue to the parties hereto by reason of the failure of any party to perform
any of its obligations set forth in this Section 2. Therefore, the Company
and the Investors shall have the right to specific performance of such
obligations, and if any party hereto shall institute any action or proceeding
to enforce the provisions hereof, each of the Company and the Investors
hereby waives the claim or defense that the party instituting such action or
proceeding has an adequate remedy at law.
3. REGISTRATION RIGHTS.
(a) REQUESTED REGISTRATION
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<PAGE>
(i) At any time after an Initial Public Offering, if
the Company shall at any time receive from Warburg a written request that the
Company effect any registration with respect to all or a part of the
Registrable Shares owned by Warburg, the Company shall:
(A) within five (5) days of receipt of the written
request from Warburg, give written notice of the proposed registration
to all Management Investors holding Registrable Shares (the
"Holders"); and
(B) as soon as practicable, use its diligent best
efforts to effect such registration (including, without limitation,
the execution of an undertaking to file post-effective amendments,
appropriate qualification under applicable blue sky or other state
securities laws and appropriate compliance with applicable regulations
issued under the Act) as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such
Registrable Shares as are specified in such request, together with all
or such portion of the Registrable Shares of any Holder or Holders
joining in such request as are specified in a written request received
by the Company within ten (10) business days after written notice from
the Company is given pursuant to Section 3(a)(i)(A) above; provided,
that the Company shall not be obligated to effect, or take any action
to effect, any such registration pursuant to this Section 3(a):
(x) in any particular jurisdiction in which the
Company would be required to execute a general consent to service
of process in effecting such registration, qualification or
compliance, unless the Company is already subject to service in
such jurisdiction and except as may be required by the Act or
applicable rules or regulations thereunder; or
(y) after the Company has effected two (2) such
registrations pursuant to this Section 3(a) and such
registrations have been declared or ordered effective and the
sales of such Registrable Shares shall have closed.
Notwithstanding anything contained in this Section 3(a)(i) or elsewhere
in this Agreement, no Management Investor may Transfer any of its shares of
Common Stock pursuant to this Section 3(a)(i) if and to the extent that such
Transfer would result in a Percentage Imbalance. The registration rights set
forth in this Section 3(a) shall be assignable, in whole or in
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<PAGE>
part, to any transferee of Common Stock under Section 2(e) only (who shall be
bound by all obligations of this Section 3).
(ii) If Warburg intends to distribute the Registrable Shares
covered by its request by means of a registered underwriting, it shall so advise
the Company as a part of its request made pursuant to Section 3(a).
In such case, any Holder may request inclusion in such registration
conditioned on such Holder's acceptance of the further applicable provisions
of this Section 3. Each Holder that so requests shall have the right to
include in such registration a number of shares equal to the Registrable
Shares owned by such Holder multiplied by a fraction, the numerator of which
shall be the number of shares of Common Stock to be included in such
registration by Warburg and the denominator of which shall be the aggregate
number of shares of Common Stock owned by Warburg; provided, however, that if
pursuant to the remaining provisions of this paragraph any Holder's
participation in a registration is reduced without a pro rata reduction in
Warburg's participation, such Holder's permitted pro rata participation in a
subsequent registration governed by this Section 3(a) shall be
correspondingly increased (subject to the same volume restrictions contained
in such remaining provisions). The Holders whose shares are to be included
in such registration, Warburg and the Company shall enter into an
underwriting agreement in customary form with the representative of the
underwriter or underwriters selected for such underwriting by Warburg and
reasonably acceptable to the Company. Notwithstanding any other provision of
this Section 3(a), if the representative advises the Holders in writing that
marketing factors require a limitation on the number of shares to be
underwritten, the number of shares included in the registration by Warburg
and each Holder shall be reduced on a pro rata basis (based on the number of
shares held by Warburg and each such Holder), by such minimum number of
shares as is necessary to comply with such request; provided, that if such
marketing factors relate primarily to the representative's good faith belief
that the number of shares sold by Holders in their capacity as Management
Investors should be limited, then the number of shares included in the
registration by each such Holder (but not by Warburg) shall be reduced on a
pro rata basis (based on the number of shares held by each such Holder) by
such minimum number of shares as is necessary to comply with such request.
No Registrable Shares excluded from the underwriting by reason of the
underwriter's marketing limitation shall be included in such registration.
If any Holder who has requested inclusion in such registration as provided
above disapproves of the terms of the underwriting, such person may elect to
withdraw therefrom by written notice to the Company, the underwriter and
Warburg. The securities so withdrawn shall also be withdrawn from
registration. If the underwriter has not limited the number of Registrable
Shares or other securities to be underwritten, the Company may include its
securities for its own account in such
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<PAGE>
registration if the representative so agrees and if the number of Registrable
Shares and other securities which would otherwise have been included in such
registration and underwriting will not thereby be limited.
Notwithstanding anything contained in this Section 3(a)(ii) or
elsewhere in this Agreement, no Management Investor may Transfer any of its
shares of Common Stock pursuant to this Section 3(a)(ii) if and to the extent
that such Transfer would result in a Percentage Imbalance.
(iii) Notwithstanding the foregoing, if the Company shall
furnish to Warburg a certificate signed by the Chief Executive Officer of the
Company stating that in the good faith judgment of the Board of Directors of
the Company, it would be seriously detrimental to the Company and its
stockholders for such registration statement to be filed and it is therefore
essential to defer the filing of such registration statement, then the
Company shall have the right to defer such filing for a period of not more
than 120 days after receipt of the request of Warburg; PROVIDED, HOWEVER,
that the Company may not utilize this right more than once in any 12-month
period.
(b) PIGGYBACK REGISTRATION.
(i) Commencing two years after the closing of an Initial
Public Offering, and at any time thereafter and from time to time, whenever
the Company proposes to file a Registration Statement it will, prior to such
filing, give written notice to each Investor of its intention to do so and,
upon the written request of any Investor given within five (5) days after the
Company provides such notice (which request shall state the intended method
of disposition of the Registrable Shares), the Company shall use its good
faith efforts to cause all Registrable Shares which the Company has been
requested by an Investor to register to be registered under the Act to the
extent necessary to permit their sale or other disposition in accordance with
the intended methods of distribution specified in the request of such
Investor; provided that the Company shall have the right to postpone or
withdraw any registration effected pursuant to this Section 3(b) without
obligation to any Investor.
(ii) In connection with any offering under this Section 3(b)
involving an underwriting, the Company shall not be required to include any
Registrable Shares in such underwriting unless the Investor accepts the terms
of the underwriting as agreed upon between the Company and the underwriters
selected by it, and then only in such quantity as will not, in the sole
discretion of the underwriters, jeopardize the success of the offering by the
Company. If in the sole discretion of the managing underwriter or
underwriters the registration of all, or part of, the Registrable Shares
which the Investor has requested to be included would adversely affect such
public offering, then the Company shall be required to include in
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the underwriting only that number of Registrable Shares, if any, which the
managing underwriter believes may be sold without causing such adverse
effect. If the number of Registrable Shares to be included in the
underwriting in accordance with the foregoing is less than the total number
of shares which any Investor has requested to be included, then, except as
described below, such Investor shall participate in the underwriting pro rata
based upon its total ownership of Registrable Shares compared to the total
number of shares held by others for which registration has been requested
pursuant to this Agreement (or in any other proportion as agreed upon by all
holders of the Common Stock entitled to and requesting registration) and if
any Investor would thus be entitled to include more shares than such Investor
requested to be registered, the excess shall be allocated among other
requesting holders pro rata based upon their total ownership of Registrable
Shares.
(c) REGISTRATION PROCEDURES. If and when the Company is required
by the provisions of this Agreement to use its good faith efforts to effect
the registration of any of the Registrable Shares under the Act, the Company
shall:
(i) file with the Commission a Registration Statement with
respect to such Registrable Shares and use its good faith efforts to cause
that Registration Statement to become and remain effective;
(ii) prepare and file with the Commission any amendments and
supplements to the Registration Statement and the prospectus included in the
Registration Statement as may be necessary to keep the Registration Statement
effective for a period of up to 120 days from the effective date;
(iii) furnish to the Investor such reasonable number of copies
of the prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as the Investor may
reasonably request in order to facilitate the public sale or other
disposition of the Registrable Shares owned by the Investor; and
(iv) use its good faith efforts to register or qualify the
Registrable Shares covered by the Registration Statement under the securities
or blue sky laws of such states as the Investors shall reasonably request,
and do any and all other acts and things that may be necessary or desirable
to enable the holders to consummate the public sale or other disposition in
such jurisdictions of the Registrable Shares owned by the Investors;
provided, however, that the Company shall not be required in connection with
this Section 3(c) to qualify as a foreign corporation in any jurisdiction nor
register or qualify the securities in any state which as a condition to such
registration or qualification would impose restrictions or other conditions
on the Company or any of its officers, directors or shareholders (including
with respect to any shares held by such
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<PAGE>
persons or entities) unless such restrictions or other conditions are
approved by the party adversely affected.
If the Company has delivered preliminary or final prospectuses to the
Investors and after having done so the prospectus is amended to comply with the
requirements of the Act, the Company shall promptly notify the Investors and, if
requested, the Investors shall immediately cease making offers of Registrable
Shares and return all undistributed prospectuses to the Company. The Company
shall promptly provide the Investors with revised prospectuses to permit the
Investors to resume making offers of the Registrable Shares.
(d) ALLOCATION OF EXPENSES. The Company will pay all
Registration Expenses of all registrations under this Agreement. For purposes
of this Section 3, the term "Registration Expenses" shall mean all expenses
incurred by the Company in complying with this Section 3, including, without
limitation, all registration and filing fees, exchange listing fees, printing
expenses, fees and disbursements of counsel for the Company, state blue sky fees
and expenses, and the expense of any special audits incident to or required by
any such registration, but excluding underwriting discounts and selling
commissions attributable to the Registrable Shares and the fees and expenses of
any Investor's own counsel and accountants, which shall be borne by such
Investor.
(e) INDEMNIFICATION. In the event of any registration of any of
the Registrable Shares under the Act pursuant to this Agreement, the Company
will indemnify and hold harmless the Investors against any losses, claims,
damages or liabilities, joint or several, to which the Investors may become
subject under the Act, the Exchange Act, state securities laws 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 of any material
fact contained in any Registration Statement under which such Registrable
Shares were registered under the Act, any preliminary prospectus or final
prospectus contained in such Registration Statement, or any amendment or
supplement to such Registration Statement, or arise out of or are based upon
the omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; and the Company will
reimburse the Investors for any legal or any other expenses reasonably
incurred by the Investors in connection with investigating and defending any
such loss, claim, damage, liability or action; provided, however, that the
Company will not be liable to any Investor in any such case to the extent
that any such loss, claim, damage, liability or expense arises out of or is
based upon any untrue statement or omission made in such Registration
Statement, preliminary prospectus or prospectus, or any such amendment or
supplement, in reliance upon and in conformity with information furnished to
the Company by or on behalf of such Investor specifically for use in the
preparation thereof, or as a result
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of the failure of any Investor, or any agent of any Investor, to deliver any
amendments and supplements to any Registration Statement and the prospectus
included in any such Registration Statement.
In the event of any registration of any of its Registrable Shares under
the Act pursuant to this Agreement, each Investor will indemnify and hold
harmless the Company, each of its directors and officers and each person, if
any, who controls the Company within the meaning of the Act or the Exchange
Act, against any losses, claims, damages or liabilities, joint or several, to
which the Company, such directors and officers, or controlling person may
become subject under the Act, Exchange Act, state securities laws 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 of a
material fact contained in any Registration Statement under which such
Registrable Shares were registered under the Act, any preliminary prospectus
or final prospectus contained in the Registration Statement, or any amendment
or supplement to the Registration Statement, or arise out of or are based
upon any omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, if the statement or
omission was made in reliance upon and in conformity with written information
furnished to the Company by such Investor, or any agent thereof, specifically
for use in connection with the preparation of such Registration Statement,
prospectus, amendment or supplement, and such Investor will reimburse the
Company, each of its directors and officers, and each controlling person,
severally and not jointly, for any legal or other expenses reasonably
incurred by the Company, each director and officer, and each controlling
person in connection with investigating and defending any such loss, claim,
damage, liability or action.
Each party entitled to indemnification under this Section 3(e) (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified
Party has actual knowledge of any claim as to which indemnity may be sought,
and shall permit the Indemnifying Party to assume the defense of any such
claim or any litigation resulting therefrom; provided, that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or
litigation, shall be approved by the Indemnified Party (whose approval shall
not be unreasonably withheld or delayed); and, provided, further, that the
failure of any Indemnified Party to give notice as provided herein shall not
relieve the Indemnifying Party of its obligations under this Section 3,
except when material prejudice to the Indemnifying Part shall have resulted
from the failure to give such notice. The Indemnified Party may participate
in such defense at such party's expense. No Indemnifying Party, in the
defense of any such claim or litigation, shall, except with the consent of
each Indemnified Party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term
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thereof, the giving by the claimant or plaintiff to such Indemnified Party of
a release from all liability in respect of such claim or litigation.
(f) INFORMATION BY INVESTORS. Each Investor shall promptly
furnish to the Company such information regarding such Investor and the
distribution proposed by such Investor as the Company may request in writing
and as shall be required in connection with any registration, qualification
or compliance referred to in this Section 3.
(g) "STAND-OFF" AGREEMENT. Each Investor, if requested by the
Company and/or an underwriter of Common Stock or other securities of the
Company, shall agree not to sell or otherwise transfer or dispose of any
Registrable Shares or other securities of the Company held by such Investor for
the period of time specified by the Company and/or such underwriter, before or
after the effective date of a Registration Statement. Such agreement shall be
in writing in a form satisfactory to the Company and such underwriter. The
Company may impose stop transfer instructions with respect to the Registrable
Shares or other securities subject to the foregoing restriction until the end of
the stand-off period.
4. INFORMATION AS TO COMPANY AND RELATED COVENANTS.
(a) INVESTOR FINANCIAL INFORMATION. From and after the date
hereof, the Company shall deliver to each Investor so long as such Investor
continues to hold at least five percent (5%) of the outstanding shares of Common
Stock (except for the annual reports referred to in (a)(iii) below, which shall
be delivered to each Investor as long as such Investor owns any shares of Common
Stock):
(i) MONTHLY FINANCIAL STATEMENTS. As soon as practicable,
and in any event within 30 days after the close of each month of each fiscal
year of the Company, a consolidated balance sheet, statement of income and
statement of changes in cash flow of the Company and its Subsidiaries as of the
close of such month and the portion of the Company's fiscal year ending on the
last day of such month, all in reasonable detail and prepared in accordance with
U.S. generally accepted accounting principles, consistently applied, subject to
audit and year end adjustments, setting forth in each case in comparative form
the figures for the comparable period of the previous year;
(ii) QUARTERLY STATEMENTS. As soon as practicable, and in
any event within 45 days after the close of each of the first three fiscal
quarters of each fiscal year of the Company, a consolidated balance sheet,
statement of income and statement of changes in cash flow of the Company and its
Subsidiaries as of the close of such quarter and the portion of the Company's
fiscal year ending on the last day of such quarter, all in reasonable detail and
prepared in accordance with U.S.
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generally accepted accounting principles, consistently applied, subject to
audit and year end adjustments, setting forth in each case in comparative
form the figures for the comparable period of the previous year;
(iii) ANNUAL STATEMENTS. As soon as practicable after the end
of each fiscal year of the Company, and in any event within 120 days
thereafter, a copy of the consolidated balance sheet, and consolidated
statements of income, stockholders' equity and changes in cash flow of the
Company and its Subsidiaries for each year, setting forth in each case in
comparative form the figures for the previous fiscal year, all in reasonable
detail and accompanied by an opinion thereon of independent certified public
accountants of recognized national standing selected by the Company, which
opinion shall state that such financial statements fairly present the
financial position and results of operations of the Company and its
Subsidiaries on a consolidated basis and have been prepared in accordance
with U.S. generally accepted accounting principles consistently applied
(except for changes in application in which such accountants concur) and that
the examination of such accountants has been made in accordance with
generally accepted auditing standards, and accordingly included such tests of
the accounting records and such other auditing procedures as were considered
necessary in the circumstances; and
(iv) OTHER REPORTS. Promptly upon their becoming available,
one copy of each financial statement, report, notice or proxy statement sent
by the Company to its stockholders generally, of each financial statement,
report, notice or proxy statement sent by the Company or any of its
Subsidiaries to the Commission or any successor agency, if applicable, of
each regular or periodic report and any registration statement, prospectus or
written communication (other than transmittal letters) in respect thereof
filed by the Company or any of its Subsidiaries with any securities exchange
or the Commission or any successor agency, and of any press release issued by
the Company or any of its Subsidiaries.
(b) INSPECTION. From and after the date hereof, the Company
will permit each Investor, its nominee, assignee or its representative, so long
as such Investor continues to hold at least five percent (5%) of the outstanding
shares of Common Stock, to visit and inspect any of the properties of the
Company, to examine all its books of account, records, reports and other papers
not contractually required of the Company to be confidential or secret, to make
copies and extracts therefrom, and to discuss its affairs, finances and accounts
with its officers, directors, key employees and independent public accountants
or any of them (and by this provision the Company authorizes said accountants to
discuss with each said Investor, its nominee, assignee and representatives the
finances and affairs of the Company and its Subsidiaries), all at such
reasonable times and as often as may be reasonably requested,
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provided that the business of the Company is not unreasonably interfered with.
(c) CONFIDENTIALITY. As to so much of the information and
other material furnished under or in connection with this Agreement (whether
furnished before or after the date hereof) as constitutes or contains
confidential business, financial or other information of the Company or its
Subsidiaries, each Investor covenants for itself and its directors, officers,
partners and stockholders that it will use due care to prevent its respective
officers, directors, employees, counsel, accountants and other authorized
representatives from using or disclosing such information in any manner
materially detrimental to the Company; PROVIDED, HOWEVER, that the Investor
may disclose or deliver any information or other material disclosed to or
received by the Investor should such disclosure or delivery be required by
law or legal process; and provided further, that each Investor understands
and acknowledges that Warburg and/or its Affiliates may invest or otherwise
have an interest in entities that may be, or may be perceived to be,
competitive with the business engaged in by the Company from time to time and
that this clause (c) shall not in any way be construed to restrict any such
investment activities or any management or other similar activities engaged
in by Warburg or any of its Affiliates, partners, employees or
other-representatives on behalf of any such entities, and that the persons
engaged in such management or similar activities may possess such
confidential information concerning the Company and its Subsidiaries.
5. TERMINATION. This Agreement shall terminate on the date on which
Warburg and its Affiliates beneficially own (within the meaning of Rule 13d-3
of the Exchange Act) less than 5% of the outstanding shares of capital stock
of the Company.
6. INTERPRETATION OF THIS AGREEMENT.
(a) TERMS DEFINED. As used in this Agreement, the following
terms have the respective meanings set forth below:
"ACT:" means the Securities Act of 1933, as amended.
"AFFILIATE:" in respect of any Person, means any other Person,
directly or indirectly, controlling, controlled by or under common control
with such Person.
"COMMISSION:" means the Securities and Exchange Commission, or
any other federal agency at the time administering the Act;
"EXCHANGE ACT:" means the Securities Exchange Act of 1934, as
amended.
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"INITIAL PUBLIC OFFERING:" means the initial public offering of
the Common Stock registered under the Act, as a result of which a public
market for the Common Stock is established.
"PERCENTAGE IMBALANCE:" means, in respect of the relevant
Management Investor, that condition where, at the time in question, Warburg
and its permitted transferees under Section 2(e) own, in the aggregate, a
number of shares of Common Stock, expressed as a percentage of the total
number of shares of Common Stock owned by Warburg or such transferees since
the date of this Agreement, such that such percentage exceeds the percentage
that the shares of Common Stock (including shares issuable upon the exercise
of vested Options without duplication) owned by such Management Investor
represents in respect of all such shares so owned (or so deemed owned) by
such Management Investor since the date of this Agreement.
"PERSON:" an individual, partnership, limited liability
company, joint-stock company, corporation, trust or unincorporated
organization, and a government or agency or political subdivision thereof.
"REGISTRATION EXPENSES:" means the expenses described in
Section 3(d).
"REGISTRABLE SHARES:" means (A) shares of Common Stock issued
to the Investors, (B) any additional shares of Common Stock acquired by the
Investors, (C) any shares of Common Stock acquired upon the exercise of
vested Options held by the Investors or to be acquired, pursuant to an
exercise notice (which may be conditioned on the closing of a public
offering), at or prior to the occurrence of the relevant event and (D) any
capital stock of the Company issued as a dividend or other distribution with
respect to, or in exchange for or in replacement of, the shares of Common
Stock referred to in clause (A), (B) or (C) above.
"REGISTRATION STATEMENT:" means a registration statement filed
by the Company with the Commission for a public offering and sale of
securities of the Company (other than any registration statement on Form S-4
or Form S-8, or their successors, or any other form for a limited purpose, or
any registration statement covering only securities proposed to be issued in
exchange for securities or assets of another company or entity).
"SECURITY, SECURITIES:" as defined in Section 2(1) of the Act.
"SUBSIDIARY:" a corporation, partnership or other business entity
of which the Company owns, directly or indirectly, more than fifty percent (50%)
of the Voting Stock.
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"TRANSFER:" any sale, assignment, pledge, hypothecation, or
other disposition or encumbrance.
"VOTING STOCK:" capital stock, partnership interests or other
securities of any class or classes of a corporation, partnership or other
business entity the holders of which are ordinarily, in the absence of
contingencies, entitled to elect a majority of the corporate directors (or
Persons performing similar functions) or otherwise control the operations of
such entity.
(b) ACCOUNTING PRINCIPLES. Where the character or amount of
any asset, liability or item of income or expense is required to be
determined or any consolidation or other accounting computation is required
to be made for the purposes of this Agreement, this shall be done in
accordance with U.S. generally accepted accounting principles at the time in
effect, to the extent applicable, except where such principles are
inconsistent with the explicit requirements of this Agreement.
(c) DIRECTLY OR INDIRECTLY. Where any provision in this
Agreement refers to action to be taken by any Person, or which such Person is
prohibited from taking, such provision shall be applicable whether such
action is taken directly or indirectly by such Person.
(d) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without regard
to its conflict of laws rules.
(e) JURISDICTION AND VENUE. Any suit, action or proceeding
against any party to this Agreement arising out of or relating to this
Agreement or any transaction contemplated hereby may only be brought in any
Federal or State court located in the Borough of Manhattan, The City of New
York, and each party hereto hereby submits to the exclusive jurisdiction of
such courts for the purpose of any such suit, action or proceeding. To the
extent that service of process by mail is permitted by applicable law, each
party irrevocably consents to the service of process in any such suit, action
or proceeding in such courts by the mailing of such process by registered or
certified mail, postage prepaid, at its address for notices provided for
below. Each party irrevocably agrees not to assert any objection which it
may ever have to the laying of venue of any such suit, action or proceeding
in any Federal or State court located in the Borough of Manhattan, the City
of New York, and any claim that any such suit, action or proceeding brought
in any such court has been brought in an inconvenient forum. Each party to
this Agreement agrees not to bring any action, suit or proceeding against any
other party arising out of or relating to this Agreement or any transaction
contemplated hereby except in a Federal or State court in the Borough of
Manhattan, The City of New York.
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(f) SECTION HEADINGS. The headings of the sections and
subsections of this Agreement are inserted for convenience only and shall not be
deemed to constitute a part thereof.
(g) PRONOUNS. Any pronoun used in this Agreement shall be
construed to refer to the appropriate gender, masculine, feminine or neuter.
7. MISCELLANEOUS.
(a) NOTICES.
(i) All communications under this Agreement shall be in
writing and shall be delivered by hand, by fax or mailed by overnight
courier or by registered or certified mail, postage prepaid:
(A) if to any of the Management Investors, at the
address of such Management Investor as set forth on Schedule I
hereto, or at such other address as the Management Investor may
have furnished the Company in writing;
(B) if to Warburg, at 466 Lexington Avenue, New York,
New York 10017, Attention: Joanne R. Wenig, Fax: (212) 878-6167
or at such other address or fax as Warburg may have furnished the
Company in writing; and
(C) if to the Company, at 140 East 45th Street, New
York, New York, marked for the attention of the Chief Executive
Officer of the Company, or at such other address as it may have
furnished in writing to each of the Investors.
(ii) Any notice so addressed shall be deemed to be given; if
delivered by hand, on the date of such delivery by independent courier; if
sent by fax, on the date of receipt; and if mailed by registered or
certified mail, on the third business day after the date of such mailing.
(b) EXPENSES AND TAXES. The Company will pay, and save each
Investor harmless from any and all liabilities (including interest and
penalties) with respect to, or resulting from any delay or failure in paying,
stamp and other taxes (other than income taxes), if any, which may be payable
or determined to be payable on the execution and delivery of this Agreement
or acquisition of its capital stock pursuant to this Agreement.
(c) REPRODUCTION OF DOCUMENTS. This Agreement and all
documents relating thereto, including, without limitation, (i) consents,
waivers and modifications which may
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hereafter be executed, (ii) documents received by each Investor pursuant
hereto and (iii) financial statements, certificates and other information
previously or hereafter furnished to each Investor, may be reproduced by each
Investor by any photographic, photostatic, microfilm, microcard, miniature
photographic or other similar process and each Investor may destroy any
original document so reproduced. All parties hereto agree and stipulate that
any such reproduction shall be admissible in evidence as the original itself
in any judicial or administrative proceeding (whether or not the original is
in existence and whether or not such reproduction was made by each Investor
in the regular course of business) and that any enlargement, facsimile or
further reproduction of such reproduction shall likewise be admissible in
evidence.
(d) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties. Warburg may assign all or any portion of its rights herein to any
purchaser of some or all of the capital stock of the Company purchased by it;
provided, however, that (i) such assignees agree to be bound by the
provisions of Sections 1 and 2 (if and to the extent then in effect) hereof
and (ii) the Company is furnished within a reasonable time of its request,
such information as it shall reasonably request relating to such assignees.
Warburg may assign any of its rights hereunder to any of its Affiliates or to
any partner thereof, and, following any such assignment, any rights
exercisable by "Warburg" hereunder may be exercisable by any Affiliate or
such other person, subject to the provisions hereof and subject further to
the understanding that no such assignment shall in any way diminish the
rights of any Management Investor hereunder.
(e) COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original and all of which
together shall be considered one and the same agreement.
(f) ENTIRE AGREEMENT; AMENDMENT AND WAIVER. This Agreement and
the Stock Option Plan constitute the entire understanding of the parties hereto
and supersede all prior understandings among such parties. This Agreement may
be amended, and the observance of any term of this Agreement may be waived, with
(and only with) the written consent of the Company and Warburg and holders of a
majority of the shares held by those Management Investors whose rights would be
affected by the proposed amendment or waiver.
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IN WITNESS WHEREOF, the parties hereto have executed this
Stockholders Agreement as of the date first above written.
PANAVISION HOLDINGS, L.L.C.
By: /s/ JOANNE R. WENIG
---------------------------
Name: Joanne R. Wenig
Title: Authorized Signatory
PANAVISION INC.
By: /s/ JOANNE R. WENIG
---------------------------
Name: Joanne R. Wenig
Title: Vice President
MANAGEMENT INVESTORS:
/s/ WILLIAM C. SCOTT III
------------------------------
William C. Scott III
/s/ JOHN S. FARRAND
------------------------------
John S. Farrand
/s/ JEFFREY J. MARCKETTA
------------------------------
Jeffrey J. Marcketta
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SCHEDULE I
Management Investors
Name Address
William C. Scott III Panavision International, L.P.
140 East 45th Street
35th Floor
New York, New York 10017
John S. Farrand Panavision International, L.P.
6219 De Soto Avenue
Woodland Hills, California 91367
Jeffrey J. Marcketta Panavision International, L.P.
6219 De Soto Avenue
Woodland Hills, California 91367
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PANAVISION INC.
STOCK OPTION PLAN
ARTICLE I
PURPOSE
This Stock Option Plan (the "Plan") is intended as an incentive and to
encourage stock ownership by officers and certain other key employees of
Panavision Inc. (the "Company") in order to increase their proprietary interest
in the Company's success and to encourage them to remain in the employ of the
Company.
The term "Company," when used in the Plan with reference to
eligibility and employment, shall include the Company, its subsidiaries, and
Panavision International L.P. ("PILP"). The word "subsidiary," when used in the
Plan, shall mean any subsidiary of the Company within the meaning of Section
424(f) of the Internal Revenue Code of 1986, as amended (the "Code").
It is intended that certain options granted under this Plan will
qualify as "incentive stock options" under Section 422 of the Code.
ARTICLE II
ADMINISTRATION
The Plan shall be administered by a Stock Option Committee (the
"Committee") appointed by the Board of Directors of the Company (the "Board")
and shall consist of not less than two members. Subject to the provisions of
the Plan, the Committee shall have sole authority, in its absolute discretion:
(a) to determine which of the eligible employees of the Company shall be granted
options; (b) to authorize the granting of both incentive stock options and
nonqualified options; (c) to determine the times when options shall be granted
and the number of shares to be optioned; (d) to determine the option price of
the shares subject to each option, which price shall be not less than the
minimum specified in ARTICLE V; (e) to determine the time or times when each
option becomes exercisable, the duration of the exercise period and any other
restrictions on the exercise of options issued hereunder; (f) to prescribe the
form or forms of the option agreements under the Plan (which forms shall be
consistent with the terms of the Plan but need not be identical); (g) to adopt,
amend and rescind such rules and regulations as, in its opinion, may be
advisable in the administration of the Plan; and (h) to construe and interpret
the Plan, the rules and regulations and the option agreements under the Plan and
to make all other determinations
<PAGE>
deemed necessary or advisable for the administration of the Plan. All
decisions, determinations and interpretations of the Committee shall be final
and binding on all optionees.
ARTICLE III
STOCK
The stock to be purchased under the Plan shall be shares of authorized
but unissued common stock of the Company, par value $0.01 per share, or
previously issued shares of common stock reacquired by the Company (the
"Stock"). Under the Plan, the total number of shares of Stock which may be
purchased pursuant to options granted hereunder shall not exceed 1,550
(representing 15.5% of the number of shares of Stock issued and outstanding as
of June 12, 1996). Such number of shares shall be adjusted in accordance with
the provisions of ARTICLE X hereof.
The number of shares of Stock available for grant of options under the
Plan shall be decreased by the sum of the number of shares with respect to which
options have been issued and are then outstanding and the number of shares
issued upon exercise of options. In the event that any outstanding option under
the Plan for any reason expires, is terminated or is cancelled prior to the end
of the period during which options may be granted, the shares of Stock called
for by the unexercised portion of such option may again be subject to an option
under the Plan.
ARTICLE IV
ELIGIBILITY OF PARTICIPANTS
Subject to ARTICLE VII, officers and other key employees of the
Company, its subsidiaries and PILP shall be eligible to receive options under
the Plan, provided that incentive stock options may be granted only to employees
of the Company and its subsidiaries. In addition, options which are not
incentive stock options may be granted to directors, consultants or other key
persons who the Committee determines shall receive options under the Plan.
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ARTICLE V
OPTION EXERCISE PRICE
Subject to ARTICLE VII, the exercise price of options granted under
the Plan shall be not less than the fair market value of the Stock at the time
the option was granted. The fair market value shall be deemed for all purposes
of the Plan to be the last sale price reported as having occurred on any
exchange on which the Company's Common Stock may be listed and traded on the
date prior to the date the option is granted, or, if there is no such sale on
that date, then on the last preceding date on which such a sale was reported.
If the Company's Common Stock is not listed on any exchange but the Common Stock
is quoted in the National Market System of the National Association of
Securities Dealers Automated Quotation System on a last sale basis then the fair
market value of the Stock shall be deemed to be the average between the high bid
price and low ask price reported on the date prior to the date the option is
granted, or, if there is no such sale on that date, then on the last preceding
date on which a sale was reported. If the Common Stock is not quoted in the
National Market System of the National Association of Securities Dealers
Automated Quotation System on a last sale basis, then the fair market value of
the Stock shall mean the amount determined by the Committee to be the fair
market value based upon a good faith attempt to value the Stock accurately and
computed in accordance with applicable regulations of the Internal Revenue
Service.
ARTICLE VI
EXERCISE AND TERMS OF OPTIONS
Subject to this ARTICLE VI, the Committee shall determine the dates
after which options may be exercised, in whole or in part. If an option is
exercisable in installments, installments or portions thereof which are
exercisable and not exercised shall remain exercisable.
Any other provision of the Plan to the contrary notwithstanding, but
subject to ARTICLE VII in the case of incentive stock options, no option shall
be exercised after the date ten years from the date of grant of such option (the
"Termination Date"). Unless otherwise determined by the Committee, the
following provisions shall apply upon an optionee's termination of employment
prior to the Termination Date:
(i) If prior to the Termination Date, an optionee shall cease to be
employed by the Company by reason of a disability, as defined in Section
22(e)(3) of the Code, the option shall remain exercisable until the earlier
of the Termination Date or one year after the date of cessation of
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employment, to the extent the option was exercisable at the time of
cessation of employment.
(ii) In the event of the death of an optionee prior to the Termination
Date and while employed by the Company, or while entitled to exercise an
option pursuant to the preceding paragraph or the subsequent paragraph, the
option shall remain exercisable until the earlier of the Termination Date
or one year after the date of death, by the person or person to whom the
optionee's rights under the option pass by will or the applicable laws of
descent and distribution, to the extent the option was exercisable on the
date of death.
(iii) If an optionee voluntarily terminates employment with the
Company for reasons other than death or disability, or if an optionee's
employment with the Company is terminated for Cause, the option shall
remain exercisable until the earlier of the Termination Date or ten days
after the date of such termination, to the extent the option was
exercisable on the date of such termination.
(iv) If the Company terminates an optionee's employment without Cause,
as hereinafter defined, the option shall remain exercisable until the
earlier of the Termination Date or three months after the date of such
termination, to the extent the option was exercisable on the date of such
termination.
For purposes of the Plan, the Company shall have "Cause" to terminate
an optionee's employment if the Company has cause to terminate the optionee's
employment under any existing employment agreement between the optionee and the
Company or, in the absence of an employment agreement between the optionee and
the Company, in accordance with the definition of cause set forth in the
optionee's option agreement.
The Committee may provide, in its discretion, that it shall be a
condition precedent to the exercise of an option that the optionee execute a
written stockholders' agreement in such form as may be designated by the
Committee.
ARTICLE VII
SPECIAL PROVISIONS AVAILABLE
TO INCENTIVE STOCK OPTIONS ONLY
To the extent the aggregate fair market value (determined as of the
time the option is granted) of the Stock with respect to which any options
granted hereunder which are intended to be incentive stock options may be
exercisable for the first time
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by the optionee in any calendar year (under this Plan or any other stock
option plan of the Company or any parent or subsidiary thereof) exceeds
$100,000, such options shall not be considered incentive stock options.
No incentive stock option may be granted to an individual who, at the
time the option is granted, owns directly, or indirectly within the meaning of
Section 424(d) of the Code, stock possessing more than 10 percent of the total
combined voting power of all classes of stock of the Company or of any parent or
subsidiary thereof, unless such option (i) has an option price of at least 110
percent of the fair market value of the Stock on the date of the grant of such
option; and (ii) cannot be exercised more than five years after the date it is
granted.
Each optionee who receives an incentive stock option must agree to
notify the Company in writing immediately after the optionee makes a
disqualifying disposition of any Stock acquired pursuant to the exercise of an
incentive stock option. A disqualifying disposition is any disposition
(including any sale) of such Stock before the later of (a) two years after the
date the optionee was granted the incentive stock option or (b) one year after
the date the optionee acquired Stock by exercising the incentive stock option.
ARTICLE VIII
PAYMENT FOR SHARES
Payment for shares of Stock purchased under an option granted
hereunder shall be made in full upon exercise of the option, by certified or
bank cashier's check payable to the order of the Company or by any other means
specified by the Committee. The Stock purchased shall thereupon be promptly
delivered; provided, however, that the Company may, in its discretion, require
that an optionee pay to the Company, at the time of exercise, such amount as the
Company deems necessary to satisfy its obligation to withhold Federal, state or
local income or other taxes incurred by reason of the exercise or the transfer
of shares thereupon.
ARTICLE IX
NON-TRANSFERABILITY OF OPTION RIGHTS
No option shall be transferable except by will or the laws of descent
and distribution. During the lifetime of the optionee, the option shall be
exercisable only by him.
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ARTICLE X
ADJUSTMENT FOR RECAPITALIZATION, MERGER, ETC.
The aggregate number of shares of Stock which may be purchased
pursuant to options granted hereunder, the number of shares of Stock covered by
each outstanding option and the price per share thereof in each such option
shall be appropriately adjusted for any increase or decrease in the number of
outstanding shares of stock resulting from a stock split or other subdivision or
consolidation of shares of Stock or for other capital adjustments or payments of
stock dividends or distributions or other increases or decreases in the
outstanding shares of Stock without receipt of consideration by the Company.
Any adjustment shall be conclusively determined by the Committee.
In the event of any change in the outstanding shares of Stock by
reason of any recapitalization, merger, consolidation, spin-off, combination or
exchange of shares or other corporate change, or any distributions to common
shareholders other than ordinary cash dividends, the Committee shall make such
substitution or adjustment, if any, as it deems to be equitable, as to the
number or kind of shares of Stock or other securities issued or reserved for
issuance pursuant to the Plan, and the number or kind of shares of Stock or
other securities covered by outstanding options, and the option price thereof.
In instances where another corporation or other business entity is being
acquired by the Company, and the Company has assumed outstanding employee option
grants and/or the obligation to make future or potential grants under a prior
existing plan of the acquired entity, similar adjustments are permitted at the
discretion of the Committee. The Committee shall notify optionees of any
intended sale of all or substantially all of the Company's assets within a
reasonable time prior to such sale.
The foregoing adjustments and the manner of application of the
foregoing provisions shall be determined by the Committee in its sole
discretion. Any such adjustment may provide for the elimination of any
fractional share which might otherwise become subject to an option.
ARTICLE XI
NO OBLIGATION TO EXERCISE OPTION
Granting of an option shall impose no obligation on the recipient to
exercise such option.
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ARTICLE XII
USE OF PROCEEDS
The proceeds received from the sale of Stock pursuant to the Plan
shall be used for general corporate purposes.
ARTICLE XIII
RIGHTS AS A STOCKHOLDER
An optionee shall have no rights as a stockholder with respect to any
share covered by his or her option until such optionee shall have become the
holder of record of such share, and shall not be entitled to any dividends or
distributions or other rights in respect of such share for which the record date
is prior to the date on which he or she shall have become the holder of record
thereof.
Notwithstanding anything herein to the contrary, the Committee, in its
sole discretion, may restrict the transferability of all or any number of shares
issued under the Plan upon the exercise of an option by legending the stock
certificate as it deems appropriate.
ARTICLE XIV
EMPLOYMENT RIGHTS
Nothing in the Plan or in any option granted hereunder shall confer on
any optionee any right to continue in the employ of the Company, or to interfere
in any way with the right of the Company to terminate the optionee's employment
at any time.
ARTICLE XV
COMPLIANCE WITH THE LAW
The Company is relieved from any liability for the nonissuance or
non-transfer, or any delay in issuance or transfer, of any shares of Stock
subject to options under the Plan which results from the inability of the
Company to obtain, or from any delay in obtaining, from any regulatory body
having jurisdiction, all requisite authority to issue or transfer shares of
Stock of the Company if counsel for the Company deems such authority
necessary for the lawful issuance or transfer of any such shares.
Appropriate legends may be placed on the stock certificates evidencing shares
issued upon exercise of options to reflect such transfer restrictions.
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Each option granted under the Plan is subject to the requirement that
if at any time the Committee determines, in its discretion, that the listing,
registration or qualification of shares of Stock issuable upon exercise of
options is required by any securities exchange or under any state or Federal
law, or that the consent or approval of any governmental regulatory body is
necessary or desirable as a condition of, or in connection with, the grant of
options or the issuance of shares of Stock, no options or shares of Stock shall
be issued, in whole or in part, unless such listing, registration,
qualification, consent or approval has been effected or obtained free of any
conditions or with such conditions as are acceptable to the Committee.
ARTICLE XVI
CANCELLATION OF OPTIONS
The Committee, in its discretion, may, with the consent of an
optionee, cancel any outstanding option held by such optionee hereunder.
ARTICLE XVII
EFFECTIVE DATE AND EXPIRATION DATE OF PLAN
The Plan is effective as of June 12, 1996, the date of adoption of the
Plan by the Company's Board of Directors, subject to approval by the
stockholders of the Company in a manner which complies with both Rule 16b-3
under the Securities Exchange Act of 1934 and Section 422(b)(1) of the Code and
the Treasury Regulations thereunder. The expiration date of the Plan, after
which no option may be granted hereunder, shall be June 12, 2006.
ARTICLE XVIII
AMENDMENT OR DISCONTINUANCE OF PLAN
The Board may, without the consent of the Company's stockholders or
optionees under the Plan, at any time terminate the Plan entirely and at any
time or from time to time amend or modify the Plan, provided that no such action
shall adversely affect any option theretofore granted hereunder without the
optionee's consent, and provided further that no such action by the Board,
without approval of the stockholders, may increase the total number of shares of
Stock which may be purchased pursuant to options granted under the Plan, except
as contemplated in ARTICLE X.
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ARTICLE XIX
REPURCHASE OF OPTIONS
In granting options hereunder, the Committee may in its discretion,
and on terms it considers appropriate, include in an option agreement provisions
requiring an optionee, or the executors or administrators of an optionee's
estate, to sell back to the Company such options in the event such optionee's
employment with the Company is terminated.
ARTICLE XX
MISCELLANEOUS
(a) Options shall be evidenced by option agreements (which need not be
identical) in such forms as the Committee may from time to time approve. Such
agreements shall conform to the terms and conditions of the Plan and may provide
that the grant of any option under the Plan and Stock acquired pursuant to the
Plan shall also be subject to such other conditions (whether or not applicable
to the option or Stock received by any other optionee) as the Committee
determines appropriate, including, without limitation, provisions to assist the
optionee in financing the purchase of Stock through the exercise of options,
provisions for the forfeiture of, or restrictions on resale or other disposition
of, shares under the Plan, provisions giving the Company the right to repurchase
shares acquired under the Plan in the event the participant elects to dispose of
such shares, and provisions to comply with Federal and state securities laws and
Federal and state income tax withholding requirements.
(b) If the Committee shall find that any person to whom any amount is
payable under the Plan is unable to care for his affairs because of illness or
accident, or is a minor, or has died, then any payment due to such person or his
estate (unless a prior claim therefor has been made by a duly appointed legal
representative) may, if the Committee so directs the Company, be paid to his
spouse, child, or other relative, an institution maintaining or having custody
of such person, or any other person deemed by the Committee to be a proper
recipient on behalf of such person otherwise entitled to payment. Any such
payment shall be a complete discharge of the liability of the Committee and the
Company therefor.
(c) No member of the Committee shall be personally liable by reason
of any contract or other instrument executed by such member or on his behalf in
his capacity as a member of the Committee nor for any mistake of judgment made
in good faith, and
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the Company shall indemnify and hold harmless each member of the Committee
and each other employee, officer or director of the Company to whom any duty
or power relating to the administration or interpretation of the Plan may be
allocated or delegated, against any cost or expense (including counsel fees)
or liability (including any sum paid in settlement of a claim) arising out of
any act or omission to act in connection with the Plan unless arising out of
such person's own fraud or bad faith; provided, however, that approval of the
Company's Board of Directors shall be required for the payment of any amount
in settlement of a claim against any such person. The foregoing right of
indemnification shall not be exclusive of any other rights of indemnification
to which such persons may be entitled under the Company's Certificate of
Incorporation or By-Laws, as a matter of law, or otherwise, or any power that
the Company may have to indemnify them or hold them harmless.
(d) The Plan shall be governed by and construed in accordance with
the internal laws of the State of Delaware without reference to the principles
of conflicts of law thereof.
(e) No provision of the Plan shall require the Company, for the
purpose of satisfying any obligations under the Plan, to purchase assets or
place any assets in a trust or other entity to which contributions are made or
otherwise to segregate any assets, nor shall the Company maintain separate bank
accounts, books, records or other evidence of the existence of a segregated or
separately maintained or administered fund for such purposes. Optionees shall
have no rights under the Plan other than as unsecured general creditors of the
Company, except that insofar as they may have become entitled to payment of
additional compensation by performance of services, they shall have the same
rights as other employees under general law.
(f) Each member of the Committee and each member of the Company's
Board of Directors shall be fully justified in relying, in acting or failing to
act, and shall not be liable for having so relied, acted or failed to act in
good faith, upon any report made by the independent public accountant of the
Company and upon any other information furnished in connection with the Plan by
any person or persons other than such member.
(g) Except as otherwise specifically provided in the relevant plan
document, no payment under the Plan shall be taken into account in determining
any benefits under any pension, retirement, profit-sharing, group insurance or
other benefit plan of the Company.
(h) The expenses of administering the Plan shall be borne by the
Company.
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(i) Masculine pronouns and other words of masculine gender shall
refer to both men and women.
* * *
As adopted by the Board of Directors of
Panavision Inc. as of June 12, 1996
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NON-QUALIFIED
STOCK OPTION AGREEMENT
UNDER THE
PANAVISION INC.
STOCK OPTION PLAN
THIS AGREEMENT, amended and restated as of this 18th day of October,
1996, by and between Panavision Inc., a Delaware corporation (the "Company"),
and _______________________________ (the "Optionee").
W I T N E S S E T H:
WHEREAS, the Optionee is now employed in a key capacity by one or more
of the Company, a subsidiary of the Company, or Panavision International L.P.
("PILP"), and the Company desires to have him remain in such employment and to
afford him the opportunity to acquire, or enlarge, his ownership of the
Company's common stock, par value $0.01 per share ("Stock"), so that he may have
a direct proprietary interest in the Company's success; and
WHEREAS, the Optionee and the Company entered into a Non-Qualified
Stock Option Agreement as of June 11, 1996 (the "Prior Agreement") and desire to
amend and restate the Prior Agreement in its entirety.
NOW, THEREFORE, in consideration of the covenants and agreements
herein contained, the parties hereto hereby agree as follows:
1. GRANT OF OPTION. Subject to the terms and conditions set forth
herein and in the Company's Stock Option Plan (the "Plan"), the Company hereby
confirms the grant to the Optionee, during the period commencing on the date of
the Prior Agreement and ending ten years from the date thereof (the "Termination
Date"), the right and option (the right to purchase any one share of Stock
hereunder being an "Option") to purchase from the Company, at a price of
$1,732.20 per share, an aggregate of ______ shares of Stock. Capitalized terms
used herein and not otherwise defined shall have the respective meanings
ascribed thereto in the Plan.
2. LIMITATIONS ON EXERCISE OF OPTION.
(a) VESTING. The Options shall vest and thereby become
exercisable under the following circumstances and to the following extent:
(i) If an initial public offering of the shares of the Company
or one of its parents or
<PAGE>
subsidiaries ("IPO") becomes effective before May 31, 1997, 20% of the
Options shall vest on the date of such IPO. If an IPO does not become
effective before May 31, 1997, but Optionee continues to be employed
by the Company on May 1, 2004, 20% of the Options shall vest on May 1,
2004.
(ii) Up to an additional 50% of the Options may vest as provided
in this Section 2(a)(ii).
(A) If either (1) the Company's earnings before dividends,
interest and taxes ("EBDIT"), or (2) the Company's "free cash flow"
("FCF"), in each case as determined by the Committee (and calculated
in accordance with the formula used for purposes of the Company's
Employee Incentive Compensation Plan (the "EICP")), equals or exceeds
the following target levels for 1996, 1997 or 1998, a percentage of
the Options shall become exercisable with respect to each such year,
as specified below.
YEAR EBDIT TARGET* FCF TARGET* %
---- ------------- ----------- ---
1996 $46.2 $27.3 17%
1997 $50.4 $30.7 17%
1998 $55.2 $34.0 16%
* In millions.
(B) In the event that the Company does not achieve either the
EBDIT target or the FCF target for a given year, the percentage of the
Options which could have vested upon attainment of such targets for
such year shall vest if, in a subsequent year (I.E., 1997 or 1998),
the EBDIT target for such subsequent year is achieved.
(C) If (1) the Optionee continues to be employed by the Company
on May 1, 2004, and (2) a Change of Control (as hereinafter defined)
did not occur prior to January 1, 2000, a percentage of the Options
shall vest (in addition to any Options which may vest by reason of
Section 2(a)(i)) equal to the amount (if any) by which (x) 50%,
exceeds (y) that percentage of the Options which previously vested in
accordance with Sections 2(a)(ii)(A) and (B). The Optionee and the
Company agree that the following examples shall illustrate the
intended operation of this Section 2(a)(ii):
E.G. 1. In 1996, the Company does not achieve either the EBDIT or
FCF targets; as a result, no Options vest. In 1997, the Company
achieves the
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FCF target ($30.7m), but not the EBDIT target; as a result, 17% of
the Options vest for 1997. In 1998, the Company achieves both the
EBDIT target ($55.2m) and the FCF target ($34m); as a result, 16%
of the Options vest for 1998, plus an additional 17% for 1996
(I.E., the additional 17% that could have vested in 1996 but did
not). The same vesting would result if the Company achieved only
the EBDIT target for 1998.
E.G. 2. The facts are the same as in E.g. 1, except that for
1998 the Company achieves only the FCF target, and not the EBDIT
target. As a result, 16% of the Options would vest for 1998, but no
additional Options would vest for 1996.
(iii) Up to an additional 30% of the Options shall vest if
either (A) the Company achieves EBDIT of at least $62 million for
1998, or (B) the Company achieves EBDIT for 1999 at least equal to the
lesser of (1) $65 million, or (2) a 10% increase over the actual EBDIT
for 1998.
The Committee shall determine each year's EBDIT and FCF no later
than 75 days following the close of such year.
(b) CHANGE OF CONTROL. Section 2(a) hereof notwithstanding,
upon a "Change of Control" (as defined below) occurring prior to January 1,
2000, all Options which have not previously vested under this Agreement shall
immediately vest. A Change of Control shall be deemed to have occurred if:
(i) Warburg Pincus Capital Company, L.P., either directly or
through one or more affiliated entities ("WP"), ceases to be the
largest single shareholder of the Company; provided that if WP ceases
to be the largest single shareholder of the Company because it has
distributed its stock to its limited partners, then no Change of
Control shall be deemed to occur unless and until (A) a third party
unaffiliated with WP acquires more than 30% of the voting power of the
Company's securities, or (B) there is a successful hostile proxy
contest pursuant to which a majority of the Company's incumbent board
is replaced; or
(ii) there is a merger, consolidation, sale or reorganization of
the Company or PILP and as a result thereof WP is no longer the
largest single holder of equity interests of the surviving entity; or
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(iii) the Company or PILP is liquidated or dissolved.
(c) It shall be a condition precedent to the exercise of the
Options that the Optionee execute a copy of the Stockholders Agreement dated as
of June 12, 1996, by and among the Company, Panavision Holdings, L.L.C., and
certain other investors named therein (the "Stockholders Agreement").
3. TERMINATION OF EMPLOYMENT.
(a) If prior to the Termination Date, the Optionee shall cease to be
employed by the Company by reason of a disability, as defined in any existing
employment agreement between the Optionee and the Company or, in the absence of
an employment agreement, as defined in Section 22(e)(3) of the Internal Revenue
Code of 1986, as amended (the "Code"), the Options shall remain exercisable
until the earlier of the Termination Date or one year after the date of
cessation of employment, to the extent the Options were exercisable at the time
of cessation of employment.
(b) If the Optionee shall cease to be employed by the Company prior
to the Termination Date by reason of death, or the Optionee shall die while
entitled to exercise any of the Options pursuant to paragraph 3(a) or paragraph
3(c), the executor or administrator of the estate of the Optionee or the person
or persons to whom the Options shall have been validly transferred by the
executor or administrator pursuant to will or the laws of descent and
distribution shall have the right, until the earlier of the Termination Date or
one year after the date of death, to exercise the Options to the extent that the
Optionee was entitled to exercise them on the date of death.
(c) If the Optionee voluntarily terminates employment with the
Company for reasons other than Good Reason, as hereinafter defined, or if the
Optionee's employment with the Company is terminated for Cause, as hereinafter
defined, the Options shall remain exercisable until the earlier of the
Termination Date or ten days after the date of such termination, to the extent
the Options were exercisable on the date of such termination.
(d) If the Company terminates the Optionee's employment without
Cause, as hereinafter defined, or if the Optionee voluntarily terminates
employment for Good Reason, as hereinafter defined, and if such termination
occurs prior to May 30, 1997, 100% of the Options (inclusive of all Options
which have previously vested) shall vest as of the date of such termination, and
shall remain exercisable until 90 days after the date of such termination. If
such
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<PAGE>
termination occurs on or after May 30, 1997 and on or before December 31,
1999, 80% of the Options (inclusive of Options which have previously vested by
reason of the provisions of Sections 2(a)(ii) or (iii)) shall vest as of the
date of such termination, and shall remain exercisable until 90 days after the
date of such termination. If such termination occurs after December 31, 1999,
no additional Options shall vest as a result of such termination, and the
Options shall remain exercisable until the earlier of the Termination Date or 90
days after the date of such termination, to the extent the Options were
exercisable on the date of such termination.
(e) For purposes of this Agreement, "Good Reason" shall have the
meaning given such term in any existing employment agreement between the
Optionee and the Company or, in the absence of an employment agreement, shall
mean, without Optionee's consent: (i) a material diminution in Optionee's
responsibilities with respect to the management of the Company; or (ii) a
decrease in Optionee's salary or a significant decrease in Optionee's benefits;
which diminution or decrease is not corrected by the Company within 15 days
after receipt of written notice thereof from Optionee.
(f) For purposes of this Agreement, "Cause" shall have the meaning
given such term in any existing employment agreement between the Optionee and
the Company or, in the absence of an employment agreement, shall mean (i)
indictment of the Optionee for any felony involving dishonesty or moral
turpitude; (ii) embezzlement or misappropriation of funds or property of the
Company or its affiliates by the Optionee; (iii) the willful refusal to obey or
perform lawful written directions of his superiors, after written notice and
reasonable opportunity to cure; (iv) the Optionee's chronic absenteeism after
written notice and reasonable opportunity to be heard; (v) the Optionee's
chronic alcoholism, or other form of substance addiction after written notice
and reasonable opportunity to be heard; or (vi) the Optionee's willful and
material breach of his duties and obligations hereunder, after written notice
and reasonable opportunity to cure. In addition, for purposes of this
Agreement, the Company shall have Cause to terminate Optionee's employment if
the Company, for a period of at least one year, has experienced financial
results at least 40% below the minimum cash flow targets established from time
to time under the EICP, and such results are not due to factors outside of
management's control, including strikes, recessions or other substantial general
economic conditions and force majeure.
(g) Except as otherwise provided in paragraph 3(e) hereof, whether
employment has been terminated for purposes of this Agreement, and the reasons
therefor, shall
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be determined by the Committee, whose determination shall be final, binding
and conclusive.
(h) After the expiration of any exercise period described in any of
paragraphs 3(a), 3(b), 3(c) or 3(d) hereof, the Options shall terminate together
with all of the Optionee's rights hereunder, to the extent not previously
exercised.
4. METHOD OF EXERCISING OPTION.
(a) The Optionee may exercise any or all of the Options by delivering
to the Company a written notice signed by the Optionee stating the number of
Options that the Optionee has elected to exercise at that time and full payment
of the purchase price of the shares to be thereby purchased from the Company.
Payment of the purchase price of the shares may be made (i) by certified or bank
cashier's check payable to the order of the Company, (ii) by surrender or
delivery to the Company of shares of Stock or other property acceptable to the
Committee in its sole discretion, which Stock or other property shall have a
value equal to the purchase price, (iii) after an IPO, by delivery to the
Committee of a copy of irrevocable instructions to a stockbroker to sell the
shares being optioned and to deliver promptly to the Company an amount of sale
or loan proceeds sufficient to pay the purchase price, or (iv) by any additional
means as may be designated by the Committee in its discretion.
(b) At the time of exercise, the Optionee shall pay to the Company
such amount as the Company deems necessary to satisfy its obligation to withhold
Federal, state or local income or other taxes incurred by reason of the exercise
or the transfer of shares thereupon. Payment shall be made in cash or cash
equivalents, or by any additional means acceptable to the Committee.
5. ISSUANCE OF SHARES. As promptly as practical after receipt of
such written notification and full payment of such purchase price and any
required income tax withholding amount, the Company shall issue or transfer to
the Optionee the number of shares with respect to which Options have been so
exercised, and shall deliver to the Optionee a certificate or certificates
therefor, registered in the Optionee's name.
6. COMPANY; OPTIONEE.
(a) The term "Company" as used in Section 3 of this Agreement with
reference to Optionee's employment shall include the Company, its subsidiaries
and PILP. The term "subsidiary" as used in this Agreement shall mean any
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<PAGE>
subsidiary of the Company as defined in Section 424(f) of the Code.
(b) Whenever the word "Optionee" is used in any provision of this
Agreement under circumstances where the provision should logically be construed
to apply to the executors, the administrators, or the person or persons to whom
the Options may be transferred by will or by the laws of descent and
distribution, the word "Optionee" shall be deemed to include such person or
persons.
7. NON-TRANSFERABILITY. The Options are not transferable by the
Optionee otherwise than by will or the laws of descent and distribution and are
exercisable during the Optionee's lifetime only by him. No assignment or
transfer of the Options, or of the rights represented thereby, whether voluntary
or involuntary, by operation of law or otherwise (except by will or the laws of
descent and distribution), shall vest in the assignee or transferee any interest
or right herein whatsoever, but immediately upon such assignment or transfer the
Options shall terminate and become of no further effect.
8. RIGHTS AS STOCKHOLDER. The Optionee or a transferee of the
Options shall have no rights as a stockholder with respect to any share covered
by the Options until he shall have become the holder of record of such share,
and no adjustment shall be made for dividends or distributions or other rights
in respect of such share for which the record date is prior to the date upon
which he shall become the holder or record thereof.
9. RECAPITALIZATIONS, REORGANIZATIONS, ETC.
(a) The existence of the Options shall not affect in any way the
right or power of the Company or its stockholders to make or authorize any or
all adjustments, recapitalizations, reorganizations or other changes in the
Company's capital structure or its business, or any merger or consolidation of
the Company, or any issue of stock or of options, warrants or rights to purchase
stock or of bonds, debentures, preferred or prior preference stocks ahead of or
affecting the Stock or the rights thereof or convertible into or exchangeable
for Stock, or the dissolution or liquidation of the Company, or any sale or
transfer of all or any part of its assets or business, or any other corporate
act or proceeding, whether of a similar character or otherwise.
(b) The shares with respect to which the Options are granted are
shares of Stock of the Company as presently constituted, but if, and whenever,
prior to the delivery by the Company of all of the shares of the Stock with
respect
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<PAGE>
to which the Options are granted, the Company shall effect a subdivision
or consolidation of shares of the Stock outstanding, without receiving
compensation therefor in money, services or property, the number and price of
shares remaining under the Options shall be appropriately adjusted. Such
adjustment shall be made by the Committee, whose determination as to what
adjustment shall be made, and the extent thereof, shall be final, binding and
conclusive. Any such adjustment may provide for the elimination of any
fractional share which might otherwise become subject to the Options.
(c) In the event of any change in the outstanding shares of Stock by
reason of any recapitalization, merger, consolidation, spin-off, combination or
exchange of shares or other corporate change, or any distributions to common
shareholders other than ordinary cash dividends, the Committee shall make such
substitution or adjustment, if any, as it deems to be equitable, as to the
number or kind or shares of Stock or other securities covered by the Options and
the option price thereof. The Committee shall notify the Optionee of any
intended sale of all or substantially all of the Company's assets within a
reasonable time prior to such sale.
(d) Except as herein before expressly provided, the issue by the
Company of shares of stock of any class, or securities convertible into or
exchangeable for shares of stock of any class, for cash or property, or for
labor or services, either upon direct sale or upon the exercise of options,
rights or warrants to subscribe therefor, or to purchase the same, or upon
conversion of shares or obligations of the Company convertible into such shares
or other securities, shall not affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Stock subject to the
Options.
10. COMPLIANCE WITH LAW. Notwithstanding any of the provisions
hereof, the Optionee hereby agrees that he will not exercise the Options, and
that the Company will not be obligated to issue or transfer any shares to the
Optionee hereunder, if the exercise hereof or the issuance or transfer of such
shares shall constitute a violation by the Optionee or the Company of any
provisions of any law or regulation of any governmental authority. Any
determination in this connection by the Committee shall be final, binding and
conclusive. Except as may be required under the Stockholders Agreement, the
Company shall in no event be obliged to register any securities pursuant to the
Securities Act of 1933 (as now in effect or as hereafter amended) or to take any
other affirmative action in order to cause the exercise of the Options or the
issuance or transfer of shares pursuant thereto to comply with any law or
regulation of any governmental authority.
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10. NOTICE. Every notice or other communication relating to this
Agreement shall be in writing, and shall be mailed to or delivered to the party
for whom it is intended at such address as may from time to time be designated
by it in a notice mailed or delivered to the other party as herein provided,
provided that, unless and until some other address be so designated, all notices
or communications by the Optionee to the Company shall be mailed or delivered to
the Company at its principal executive office, and all notices or communications
by the Company to the Optionee may be given to the Optionee personally or may be
mailed to him at the address shown below his signature to this Agreement.
12. NON-QUALIFIED OPTIONS. The Options granted hereunder are not
intended to be incentive stock options within the meaning of Section 422 of the
Code.
13. BINDING EFFECT. Subject to Section 7 hereof, this Agreement
shall be binding upon the heirs, executors, administrators and successors of the
parties hereto.
14. GOVERNING LAW. This Agreement shall be construed and interpreted
in accordance with the laws of the State of Delaware.
15. PLAN. The terms and provisions of the Plan are incorporated
herein by reference. In the event of a conflict or inconsistency between
discretionary terms and provisions of the Plan and the express provisions of
this Agreement, this Agreement shall govern and control. In all other instances
of conflicts or inconsistencies or omissions, the terms and provisions of the
Plan shall govern and control.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
PANAVISION INC.
By:
----------------------------------
Name: William C. Scott
Title: Chief Executive Officer
---------------------------------------
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<PAGE>
PANAVISION
INTERNATIONAL, L.P.
<PAGE>
TABLE OF CONTENTS
ARTICLE 1 - BASIC LEASE PROVISIONS ........................................ 1
ARTICLE 2 - TERM .......................................................... 2
ARTICLE 3 - RENT .......................................................... 3
ARTICLE 4 - PROPERTY TAXES ................................................ 4
ARTICLE 5 - [INTENTIONALLY OMITTED] ....................................... 5
ARTICLE 6 - CAPITAL IMPROVEMENTS .......................................... 5
ARTICLE 7 - SECURITY DEPOSIT .............................................. 6
ARTICLE 8 - USE ........................................................... 6
ARTICLE 9 - [INTENTIONALLY OMITTED] ....................................... 7
ARTICLE 10 - [INTENTIONALLY OMITTED] ...................................... 7
ARTICLE 11 - REPAIRS ...................................................... 7
ARTICLE 12 - CONDITION OF PREMISES ........................................ 8
ARTICLE 13 - ENTRY BY LANDLORD ............................................ 9
ARTICLE 14 - ALTERATIONS ................................................. 10
ARTICLE 15 - HAZARDOUS MATERIALS ......................................... 10
ARTICLE 16 - LIENS ....................................................... 12
ARTICLE 17 - BROKERS ..................................................... 12
ARTICLE 18 - INSURANCE ................................................... 12
ARTICLE 19 - INDEMNIFICATION.............................................. 14
ARTICLE 20 - DAMAGE OR DESTRUCTION ....................................... 15
ARTICLE 21 - EMINENT DOMAIN .............................................. 17
ARTICLE 22 - INTERRUPTION OF USE ......................................... 17
ARTICLE 23 - SUBORDINATION ............................................... 19
ARTICLE 24 - OFFSET STATEMENT ............................................ 20
ARTICLE 25 - [INTENTIONALLY OMITTED] ..................................... 20
ARTICLE 26 - ASSIGNMENT AND SUBLETTING ................................... 20
ARTICLE 27 - [INTENTIONALLY OMITTED] ..................................... 21
ARTICLE 28 - FINANCIAL STATEMENTS ........................................ 21
ARTICLE 29 - HOLDING OVER ................................................ 21
ARTICLE 30 - DEFAULTS .................................................... 21
ARTICLE 31 - REMEDIES .................................................... 22
ARTICLE 32 - ATTORNEYS' FEES ............................................. 23
ARTICLE 33 - WAIVER OF JURY TRIAL ........................................ 23
ARTICLE 34 - NOTICES ..................................................... 23
ARTICLE 35 - GENERAL PROVISIONS .......................................... 24
I
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TABLE OF CONTENTS
ARTICLE 36 - IMPROVEMENTS TO THE PREMISES ................................ 26
ARTICLE 37 - OPTION TO TERMINATE WITH REGARD TO LANDLORD'S WORK .......... 28
ARTICLE 38 - APPORTIONMENT OF EXTRAORDINARY EXPENSES ..................... 28
EXHIBIT "A" - LEGAL DESCRIPTION
EXHIBIT "B" - WORK LETTER
EXHIBIT "C" - LIST OF HAZARDOUS MATERIALS REPORTS
EXHIBIT "D" - SPECIFICATIONS FOR CONTAMINATION STUDY
EXHIBIT "E" - EXCLUSIONS FROM PREMISES
II
<PAGE>
LEASE
By this Lease dated June 13, 1995, for reference purposes only,
Landlord hereby leases to Tenant the Premises upon and subject to the following
terms, covenants and conditions:
ARTICLE 1 - BASIC LEASE PROVISIONS
1.1 For purposes of this Lease, these certain provisions are defined as
follows:
(a) Landlord: Trizec Warner Inc., a Delaware corporation.
(b) Tenant: Panavision International L.P., a Delaware
limited partnership.
(c) Premises: The Land and all improvements thereon or
therein, commonly known as 6219 De Soto
Avenue, Woodland Hills, California; including
the Building (defined below), Leasehold
Improvements (defined below), and all other
areas, facilities and equipment on the Land
(including, without limitation: parking
facilities; loading areas; private sidewalks;
landscaped areas; walkways; mechanical,
electrical and telephone vaults; utilities and
related facilities; storage areas; and,
service areas, equipment and facilities.
Notwithstanding the foregoing, the Premises
shall not include any of the items, facilities
or improvements described on Exhibit "E",
attached hereto.
(d) Building: That certain commercial industrial/office
building on the Land consisting of
approximately one hundred fifty-two thousand
four hundred fifty-four rentable square feet
(152,454 RSF), and the Leasehold Improvements
therein and thereon.
(e) Anticipated
Commencement Date: June 1, 1996.
(f) Anticipated Term: One hundred ninety-two (192) months.
(g) Basic Monthly
Rent: Subject to Article 3.6, prior to the end of
the sixtieth (60th) month, Eighty-Four
Thousand Five Hundred Dollars ($84,500.00);
From the sixty-first (61st) month to the end
of the one hundred twentieth (120th) month,
Ninety-Nine Thousand Ninety-Five and 10/100
Dollars ($99,095.10); and
From the one hundred twenty-first (121st)
month to the end of the Term, One Hundred
Fifty-Two Thousand Four Hundred Fifty-Four
Dollars ($152,454.00).
(h) Initial Security
Deposit: Eighty-Four Thousand Five Hundred Dollars
($84,500.00), subject to Article 7.3.
(i) Procuring Broker: Travers Realty Corporation, James N. Travers,
President.
(j) Permitted Uses: Office, light manufacturing, research and
development, storage, shipping and receiving
operations and uses by a motion picture
equipment manufacturer ("Specific Uses") and,
subject to the other provisions of this Lease,
any other uses permitted by law.
1.2 For purposes of this Lease, the "Land" shall be defined as the site
legally described in Exhibit "A" attached hereto.
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1.3 For purposes of this Lease, the "Leasehold Improvements" shall be
defined as all non-structural improvements in and to the Building, including,
without limitation: drywall partitions and other non-structural walls and
partitions within the interior of the Building (whether slab-to-slab,
ceiling-height or a lesser height), and the fixtures, doors, windows,
openings and finishes installed therein or thereon; cabinetry, railings,
paneling, and woodwork; integrated ceiling systems (including grid, panels
and lighting); carpeting and other floor finishes; kitchen facilities
(including sinks, appliances and other fixtures) and all other similar
facilities; all rest rooms (including showers, toilets, basins and other
fixtures); and, the components of the mechanical, heating, ventilation,
air-conditioning, electrical, fire/life safety, plumbing and sewage systems
(collectively "Mechanical Systems") from the common point of distribution
for each such system at the edge of the Building to and throughout the
Building. The Leasehold Improvements shall include all of the foregoing
improvements in or to the Building regardless of whether such improvements
either: existed in the Building prior to Tenant's having entered into this
Lease; were paid for by either Landlord or Tenant (or a prior tenant); were
installed as a condition of this Lease; were installed to comply with the
requirements or directives of a government, quasi-government or regulatory
agency or authority; or, were installed by Tenant as an Alteration.
Notwithstanding anything to the contrary contained in the foregoing,
Leasehold Improvements shall not include any trade fixtures or furnishings
of Tenant.
1.4 Notwithstanding the foregoing, those terms defined in Articles 1.1
through 1.3, above, are subject to modification, revision or alteration by
other terms and conditions of this Lease, addenda, exhibits and other
attachments hereto.
ARTICLE 2 - TERM
2.1 The "Commencement Date" of this Lease shall be defined as that date
which is:
(a) If Tenant elects for a contractor other than Landlord's
Affiliate to perform the Tenant Work, then the earlier of:
(i) The date upon which Tenant first occupies the Premises for
the conduct of business; or
(ii) The Anticipated Commencement Date, extended by one day for
each day of Landlord Delay or Force Majeure Delay (defined
in the Work Letter attached hereto as Exhibit "B") occurring
after execution of this Lease.
(b) If Tenant elects for Landlord's Affiliate to perform the Tenant
Work, then the earlier of:
(i) The date upon which Tenant first occupies the Premises for
the conduct of business; or
(ii) The later of:
(A) The Anticipated Commencement Date; or
(B) The date upon which the Landlord's Work (and Tenant's
Work, if Landlord's Affiliate is Tenant's Contractor)
are substantially complete (or would have been
substantially complete but for Tenant Delay [defined in
the Work Letter]).
The terms "substantially complete", and "substantial completion" as used in
this Lease shall be defined as the availability of the Premises for the use
and occupancy of Tenant in accordance with the Permitted Uses, including the
installation of all Landlord's Work (and Tenant's Work, if Landlord's
Affiliate is Tenant's Contractor) required to be installed by Landlord or
Landlord's Affiliate. Subject to subparagraph (b)(ii)(B), above, the
Premises shall be deemed substantially complete regardless of Tenant's
completion of Tenant's installation of trade fixtures, work stations,
furnishings, and telephone, communication or computer systems.
2.2 The "Initial Term" of this Lease shall commence on the Commencement
Date and continue for the Anticipated Term, plus so many additional days as
are necessary such that the Lease terminates on the last day of a calendar
month (the "Termination Date"), unless sooner terminated as otherwise
provided herein. The "Term" of this Lease shall include the Initial Term
and any other period of Tenant's occupancy resulting either from Tenant's
holding over with Landlord's consent (pursuant to Article 29.2), or from
Tenant's exercise of an express option to renew, re-lease or extend the Term,
or other express agreement to extend the Term, all made in accordance with
this Lease (or a modification or addendum thereto made in accordance with
this Lease). Unless expressly stated to the contrary herein, any and all
references herein to "months" during the Term shall be deemed to refer to
full calendar months of the Term, beginning on the Commencement Date (if the
Commencement Date is the first day of a calendar month) or the first day of
the first full calendar month after the Commencement Date (if the
Commencement Date is not the first day of a calendar month).
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2.3 Landlord shall notify Tenant of the Commencement Date by means of a
Notice of Lease Term ("NLT"). If Tenant agrees with the Commencement Date
set forth in the NLT, then Tenant shall acknowledge the same by executing
and returning the NLT to Landlord within seven (7) days after receipt of the
NLT; otherwise, Tenant shall notify Landlord of Tenant's objection to the
Commencement Date, setting forth a reasonable basis therefor, within such
seven (7) day period. If Tenant fails to either timely object to the
Commencement Date or specify a reasonable basis therefor, then the
Commencement Date as specified in the NLT shall be deemed conclusive as between
Landlord and Tenant.
ARTICLE 3 - RENT
3.1 The first installment of Basic Monthly Rent is due on or before the
execution of this Lease. Subject to Article 3.6, all other installments of
Basic Monthly Rent are payable in advance on the first day of each calendar
month following the Commencement Date. Except as provided in Article 29, if
the Commencement Date is not the first day of the calendar month or the
Termination Date is not the last day of the calendar month, then Basic
Monthly Rent for the month in which the Commencement Date or Termination
Date occurs shall be prorated based upon a thirty (30) day month. If the
Commencement Date is not the first day of the calendar month, the
overpayment of Basic Monthly Rent for the period from the Commencement Date
to the first day of the first calendar month following the Commencement Date
resulting from such proration shall be credited to Basic Monthly Rent next
due. All amounts due under this Lease or relating to Tenant's occupancy are
deemed to be rent, receivable as such, and subject to all remedies of
Landlord for nonpayment of rent. Tenant's obligation to pay all rent owing
under this Lease shall survive Tenant's relinquishment of possession to
Landlord, or the expiration or early termination of this Lease.
3.2 Tenant agrees that Tenant's late payment of any sum due under this
Lease will cause Landlord to incur costs not contemplated hereunder, the
exact amount of which is impracticable or extremely difficult to fix;
therefore, if:
(a) All or any portion of any installment of Basic Monthly Rent or
monthly installment of Property Taxes or Insurance Costs (if any
are due monthly pursuant to Article 3.5) is not received by
Landlord by the fifth (5th) day of the month for which it is due,
(b) All or any portion of any Property Taxes or Insurance Costs not
payable monthly pursuant to Article 3.5, are not received by
Landlord when due pursuant to Articles 4 and 18, respectively, or
(c) All or any portion of any other item of rent ("Additional Rent")
is not received by Landlord within thirty (30) days after receipt
of Landlord's written demand for payment,
then Tenant shall pay to Landlord, within ten (10) days after Tenant's receipt
of written demand therefor, a "Late Charge" of five percent (5%) of the overdue
amount. Landlord and Tenant agree that the Late Charge represents a fair and
reasonable estimate of costs that Landlord will incur by reason of any such
late payment by Tenant. Landlord's acceptance of a Late Charge shall not
constitute a waiver of Tenant's default with respect to the overdue amount,
or prevent Landlord from exercising any of the other rights and remedies
available to Landlord under this Lease or pursuant to law. No interest
shall accrue pursuant to Article 35.11 on any amount for which a Late Charge
has been timely paid; otherwise, the Late Charge shall be in addition to,
and not in lieu of, any interest which may accrue pursuant to Article 35.11
of this Lease.
3.3 All amounts due Landlord shall be paid by Tenant without deduction or
offset (except as otherwise provided in this Lease), in lawful money of the
United States of America, which shall be legal tender at the time of payment.
Payments shall be made at the office of Landlord specified in Article 34, or to
such other person or at such other place as Landlord notifies Tenant. Landlord
may require Tenant to replace any business or personal check rejected or
returned by Tenant's bank with a certified check.
3.4 Without waiving any of Landlord's rights under Article 30 and
notwithstanding the provisions of Article 3.2, once, only, in each twelve (12)
consecutive calendar month period during the Term of the Lease Tenant shall be
entitled to a waiver of the Late Charge to be imposed hereunder, provided
payment of the overdue amount is made within three (3) business days after
receipt of written notice of such delinquency from Landlord. Such notice shall
be given by Landlord to Tenant on or after the fifth (5th) of the month with
respect to a delinquency in payment of Basic Monthly Rent (or Total Monthly
Rent, as applicable); and such notice shall be given by Landlord to Tenant
after the date due (as specified in Articles 3.2 and 4) with respect to any
item of Additional Rent and all or any portion of any Property Taxes or
Insurance Costs not payable monthly pursuant to Article 3.5.
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3.5 If Tenant's business or personal check is returned (not due to the
fault of the bank) two (2) times in any twelve (12) consecutive calendar
month period, or a total of ten (10) times during the entire Term, then a
"Credit Risk" will be deemed to exist. In the event of a Credit Risk,
Landlord may require by notice to Tenant that:
(a) All future amounts due Landlord be paid by certified check;
and/or
(b) All Property Taxes and Insurance Costs be paid in advance, in
monthly installments, as follows:
(i) Landlord shall provide Tenant with Landlord's reasonable
estimate of Property Taxes and Insurance Costs for the
respective assessment year and policy year ("Applicable
Period").
(ii) Tenant shall pay to Landlord estimated Property Taxes and
Insurance Costs in equal monthly installments on the
first day of each month. If the estimated Property Taxes
and Insurance Costs for the Applicable Period is not
determined until after the beginning of the Applicable
Period, then Tenant shall continue to pay the monthly
installments for the prior Applicable Period, if any, and
shall retroactively pay any underpayment of estimated
installments payable for the period from the beginning of
the Applicable Period until the estimate was provided.
(iii) As soon as practical after the end of the Applicable
Period, Landlord shall determine the Property Taxes
and/or Insurance Costs actually incurred in the
Applicable Period. If Tenant has underpaid its Property
Taxes or Insurance Costs for the Applicable Period,
then Tenant shall pay to Landlord the full amount of such
deficiency as Additional Rent. If Tenant has overpaid its
Property Taxes or Insurance Costs for the Applicable
Period, then Landlord shall refund the overpayment to
Tenant within thirty (30) days of determination.
3.6 As consideration for Tenant's performance of all obligations to be
performed by Tenant under the Lease, Landlord hereby conditionally excuses
Tenant from the payment of the Basic Monthly Rent for the second (2nd) through
fifteenth (15th) months of the Term; however, Tenant shall remain obligated for
any Property Taxes and Insurance Costs which may accrue during said period in
accordance with Articles 4 and 18 of this Lease, respectively. Should
Tenant at any time prior to the end of the sixtieth (60th) month of this
Lease be in material monetary default under the Lease, fail to cure such
default within the period prescribed, and this Lease is terminated as a
result of said default, then Five Hundred Seven Thousand Dollars ($507,000.00)
of the Basic Monthly Rent so conditionally excused shall become immediately
due and payable by Tenant to Landlord. If, at the end of the sixtieth (60th)
month of this Lease, Tenant is not in material monetary default hereunder, then
Landlord shall waive any repayment of Basic Monthly Rent so conditionally
excused.
ARTICLE 4 - PROPERTY TAXES
4.1 Tenant shall pay to Landlord aggregate annual "Property Taxes"
(defined below), in the manner set forth in Article 4.3. Property Taxes for
any assessment period in which the Commencement Date or Termination Date
occurs shall be prorated based upon the actual number of days in such assessment
period.
4.2 "Property Taxes" is defined for purposes of this Lease as: all
costs and expenses for real property taxes, or any other assessments upon
Landlord's legal or equitable interest in the Premises (including, without
limitation, leasehold taxes or other taxes or assessments levied in lieu
thereof or in addition thereto), whether imposed by a government authority
or agency, or by a special assessment district; any taxes resulting from a
reassessment of the Premises occasioned by any cause whatsoever, including,
without limitation, any reassessment resulting from the determination by a
court that any law, regulation, statute, or constitutional provision
purporting to limit tax increases is invalid in whole or in part; any tax on
or measured with respect to the area of the Premises or rent payable
hereunder; any user fees or charges assessed against the Premises for any
government services which were provided without cost prior to the imposition
of Proposition 13; and, any assessment, tax, fee, charge or levy upon the
Premises for any transportation plan, fund or system within the general
geographic area of the Premises. Notwithstanding the foregoing, the
definition of "Property Taxes" excludes any income, franchise, capital stock,
estate or inheritance taxes (excepting any tax or portion thereof on or
measured with respect to the area of the Premises or rent payable hereunder
from the rental of space in the Premises).
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4.3 Landlord shall provide Tenant with a copy of the applicable tax
assessment, invoice or bill received from the assessor, together with
Landlord's invoice for the same. Subject to Article 3.5, Property Taxes
shall be payable by Tenant to Landlord as Additional Rent the later of:
(a) Thirty (30) days after presentation to Tenant of a copy of the
applicable tax assessment, invoice or bill received from the
assessor, together with Landlord's invoice for the same; or
(b) Ten (10) business days before payment of such taxes to the
assessing government entity becomes delinquent (or if the
Termination Date occurs during the assessment period, ten [10]
business days prior to the Termination Date).
4.4 Tenant shall directly pay the taxing authority any tax levied against
the personal property or trade fixtures of Tenant in or about the Premises.
4.5 Tenant shall have the right to contest the amount or validity, in
whole or in part, of any Property Taxes or personal property taxes due
hereunder by appropriate proceedings diligently conducted in good faith,
only after paying such tax or posting such other security that Landlord may
reasonably require in order to protect the Premises against loss or
forfeiture. Upon the termination of any such proceedings, Tenant shall pay
the amount of the tax or part of the tax as finally determined (subject to
the provisions of Article 4.1), the payment of which may have been deferred
during the prosecution of the proceedings, together with any costs, fees,
interest, penalties or other related liabilities. Landlord will not be
required to join in any contest or proceedings unless the provisions of any
law or regulations then in effect require that the proceedings be brought by
or in the name of Landlord, in which case Landlord will join in the
proceedings or permit them to be brought in Landlord's name, cooperate with
Tenant in such contest or proceedings and provide Tenant with copies of
relevant information in Landlord's possession; however, Landlord will not be
subjected to any liability for the payment of any costs or expenses in
connection with any contest or proceedings, and Tenant will indemnify
Landlord against and save Landlord harmless from any such costs and expenses.
4.6 Notwithstanding anything to the contrary contained in Article 4, if
any interest in the Building, Common Areas or land is sold, transferred or
conveyed after execution of this Lease and prior to the Termination Date,
then Tenant shall not be responsible for increases in Property Taxes caused
by such sale, transfer or conveyance; however, if Tenant holds over in the
Premises beyond the Termination Date, the amounts owed Landlord during such
period of holding over shall be calculated without regard to the foregoing
limitation.
ARTICLE 5 [INTENTIONALLY OMITTED]
ARTICLE 6 - CAPITAL IMPROVEMENTS
6.1 "Capital Improvements" is defined for purposes of this Lease as any
permanent improvements or betterments which increase the value of the Premises,
or which substantially prolong the useful life of the Premises, and which are
required by directive of a government, quasi-government or regulatory agency or
authority (excepting those items defined as Landlord's Work in the Work Letter
attached hereto). Capital Improvements, however, shall exclude any
improvements, modifications or additions to the Premises which constitute
Landlord's Work (as defined in the Work Letter), or which are required as a
result of Landlord's breach of Landlord's warranties set forth in Paragraph 7
of the Work Letter.
6.2 Tenant shall, at Tenant's sole cost and expense, perform all
Capital Improvements which are required in connection with, or as a result
of:
(a) Tenant's Work or any Alterations, or
(b) Tenant's particular use or occupancy of the Premises (as opposed
to occupancy of Premises for general office and warehouse uses)
(collectively "Tenant's Special Capital Improvements"). All Capital
Improvements other than Tenant's Special Capital Improvements
("Extraordinary Capital Improvements), shall be performed by Landlord at the
expense of Landlord, Tenant or both in accordance with Article 38.
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ARTICLE 7 - SECURITY DEPOSIT
7.1 On or before execution of this Lease, Tenant shall deposit with
Landlord the Initial Security Deposit. The Initial Security Deposit,
Closing Security Deposit, interest or earnings thereon, and any other sums
deposited with Landlord pursuant to this Article 7 (collectively "Security
Deposit") shall be held by Landlord as security for the faithful performance
by Tenant of all of the terms, covenants and conditions of this Lease to be
kept or performed by Tenant. Except as provided to the contrary in
Articles 7.3 and 7.4, Landlord shall not be required to segregate the
Security Deposit from its general funds, refund any Security Deposit, or pay
Tenant any interest thereon.
7.2 If Tenant defaults on any obligation hereunder, Landlord may (but
shall not be required to) use, apply or retain all or any part of the
Security Deposit for the payment of rent or any other sum in default, or to
compensate Landlord for any loss or damage to which Landlord is entitled
under law as a result of Tenant's default. Tenant shall, upon demand,
restore any Security Deposit so used, applied or retained to the amount held
by Landlord immediately prior thereto.
7.3 If at the end of the thirty-eighth (38th) month of the Term Tenant
is not in default of any material provision of this Lease to be performed by
Tenant, then, within ten (10) business days thereafter, Landlord shall pay
to Tenant any portion of Tenant's Initial Security Deposit which has not
been so used applied or retained, plus interest thereon at the rate for five
(5) year "Savings CD Yields Offered Through Leading Brokers-Broker Average"
as published in the Wall Street Journal on the first business day after the
execution of this Lease and delivery of the Initial Security Deposit to
Landlord.
7.4 On or before beginning of the one hundred sixty-ninth (169th) month,
Tenant shall deposit with Landlord the "Closing Security Deposit" in the
amount of Fifty Thousand Dollars ($50,000.00). If, at the end of the Term,
Tenant is not in default of any material provision of this Lease to be
performed by Tenant, then, within thirty (30) days of the later of end of
the Term or the delivery of possession of the Premises to Landlord, Landlord
shall pay to Tenant any Closing Security Deposit which has not been so used,
applied or retained, plus interest thereon at the rate for two (2) year
"Savings CD Yields Offered Through Leading Brokers-Broker Average" as
published in the Wall Street Journal on the first business day after the
delivery of the Closing Security Deposit to Landlord.
7.5 Tenant waives application of the provisions of California Civil Code
section 1950.7 (or any similar law now or hereafter in effect) to the extent
contrary to the provisions herein.
7.6 If Landlord transfers, assigns or conveys its interest in the
Premises, then Landlord shall be discharged from any liability for the
return of Tenant's Security Deposit, provided Landlord transfers all
Security Deposit which has not been used, applied or retained to Landlord's
successor in interest, and Landlord's successor in interest assumes in writing
Landlord's obligations under this Lease.
7.7 If, at the time for determining the rate of interest payable on
Tenant's Initial Security Deposit or Closing Security Deposit pursuant to
Article 7.3 or 7.4, above, the Wall Street Journal is no longer published or
no longer publishes the information described in those articles, then the
applicable rate shall be based upon information contained in any reliable
publication that publishes that information on the first business day after
the execution of this Lease and delivery of the Initial Security Deposit to
Landlord, or delivery of the Closing Security Deposit to Landlord, as the
case may be, selected by Landlord and approved by Tenant, which approval
shall not be unreasonably withheld.
ARTICLE 8 - USE
8.1 Tenant agrees that the Permitted Uses is a material provision of
this Lease. Tenant shall use the Premises solely for the Permitted Uses and
shall not use or permit the Premises to be used for any other purpose
without the prior written consent of Landlord. Any consent by Landlord to a
change of use by Tenant shall not be deemed a waiver of Landlord's right to
withhold its consent to any subsequent proposed change of use.
8.2 "Compliance Requirements" is defined as all improvements,
modifications or additions to the Premises, or actions taken in connection
with the Premises, required to comply with any certificates, rules,
directives, orders and regulations of any public authority (including Federal,
State, County and Municipal authorities), or any rules, orders, regulations
and requirements of any insurance fire rating bureau or any other organization
performing a similar function. Compliance Requirements, however, shall
exclude any improvements, modifications or additions to the Premises which
constitute Landlord's Work (as defined in the Work Letter), or which are
required as a result of Landlord's breach of Landlord's warranties set forth
in Paragraph 7 of the Work Letter.
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8.3 Tenant shall, at Tenant's sole cost and expense, perform all
Compliance Requirements required in connection with, or as a result of,
either:
(a) Tenant's Work or any Alterations, or
(b) Tenant's particular use or occupancy of the Premises (as opposed
to occupancy of Premises for general office and warehouse uses)
(collectively "Tenant's Compliance Requirements"). All Compliance Requirements
other than Tenant's Compliance Requirements ("Extraordinary Compliance
Requirements") shall be performed by Landlord at the expense of Landlord,
Tenant or both in accordance with Article 38.
8.4 Tenant shall not do or permit to be done anything which will
invalidate any insurance policy covering the Premises, subject to Tenant's
right to conduct the Specific Uses at the Premises. Tenant shall, upon
Landlord's demand, reimburse Landlord for any additional insurance premium
which may be incurred due to Tenant's failure to comply with this Lease.
8.5 Subject to Tenant's right to conduct the Specific Uses at the
Premises, Tenant shall not do or permit to be done anything which will
constitute a nuisance, or obstruct, injure, annoy or interfere with the
rights of the public, or owners or occupants of adjacent properties. The
Premises shall not be used for any lodging or unlawful purpose. Tenant
shall not commit waste. Tenant shall not use or occupy the Premises in
violation of any law, certificate of occupancy, or covenant, condition or
restriction and shall discontinue the violating use upon Landlord's demand;
however, notwithstanding the foregoing, Landlord hereby represents that, to
the best of Landlord's knowledge, the Premises may be used for the Specific
Uses (as existing at the time of execution of this Lease and as represented
by Tenant to Landlord) without violation of any law, certificate of occupancy,
or covenant condition or restriction affecting the Premises.
ARTICLE 9 [INTENTIONALLY OMITTED]
ARTICLE 10 [INTENTIONALLY OMITTED]
ARTICLE 11 - REPAIRS
11.1 Subject to Articles 6, 8, 11.2, 11.3, 11.4, 20, 21, and 38, and
Landlord's obligation to perform Landlord's Work in accordance with the Work
Letter, Tenant shall, at Tenant's sole cost and expense, keep in good
condition, and repair and maintain, each and every part of the Premises,
whether structural or non-structural, and whether such portion of the
Premises requiring repairs (or the means of repairing the same) are
reasonably or readily accessible to Tenant, and whether the need for such
repairs occurs as a result of Tenant's use, any prior use, the elements of
nature or the age of such portion of the Premises. Tenant shall, at
Tenant's sole cost and expense, procure and maintain contracts (with copies
to Landlord) in customary form and substance for and with contractors
specializing and experienced in the inspection, maintenance and service of the
following equipment and improvements:
(a) Heating, ventilation and air conditioning equipment;
(b) Elevator equipment (if any is installed by Tenant);
(c) Fire sprinkler and/or standpipe and hose or other automatic fire
extinguishing systems (including alarm and/or smoke detection);
(d) Landscaping and irrigation systems;
(e) Composite roof; and,
(f) Roof drain maintenance.
Notwithstanding the foregoing, Tenant may satisfy Tenant's obligations under
subparagraph (d), above, by employing an individual experienced in repairing
and maintaining landscaping and irrigation systems, and may satisfy Tenant's
obligations under subparagraph (e) (subject to Landlord's obligations
pursuant to Article 11.4, below) by maintaining an open purchase order with
a company experienced in repairing and maintaining composite roofs, and may
satisfy Tenant's obligations under subparagraph (f) by performing periodic
maintenance on the roof drains as is reasonable and customary on like
buildings and roof drain systems. Tenant waives any benefit of any statute
now or hereafter in effect which affords Tenant the right to make repairs at
the expense of Landlord, or to terminate this Lease by reason of any needed
repairs.
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11.2 Except as provided to the contrary in Articles 6, 8, 11.3, 11.4, 20,
21, 36, and 38, it is intended by the parties hereto that Landlord shall
have no obligation, in any manner whatsoever, to repair and maintain the
Premises, all of which obligations are intended to be that of the Tenant
pursuant to Article 11.1, above. Notwithstanding the foregoing, if any
such maintenance or repair is caused in part or in whole by the negligence
or willful misconduct of Landlord (its agents, servants, employees, licensees
or invitees), then Landlord shall directly reimburse Tenant the reasonable
cost for such maintenance and repairs, to the extent that the same exceeds
the proceeds received by Tenant from any policy of insurance maintained by
either Tenant or Landlord (each insuring party to use due diligence to
obtain such proceeds from its respective insurers).
11.3 "Extraordinary Repairs" is defined as any and all structural
repairs to the structural portions of the Premises (excepting the composite
roof supported by the roof support system, and the HVAC system), including,
without limitation, the foundation, slab, load bearing columns, load bearing
walls and roof support system, which are reasonably required due to either:
(a) Defects in the same (in other than Quake Work, which is governed
by the warranties set forth in the Work Letter), or
(b) Any other cause other than ordinary wear and tear, or damage or
destruction (which is governed by the provisions of Article 20).
Extraordinary Repairs, however, shall exclude any improvements,
modifications or additions to the Premises which either: constitute
Landlord's Work (as defined in the Work Letter); are required as a result of
Landlord's breach of Landlord's warranties set forth in Paragraph 7 of the
Work Letter; are required in connection with, or as a result of, Tenant's
Work or any Alterations; are required in connection with, or as a result of,
Tenant's particular use or occupancy of the Premises (as opposed to
occupancy of Premises for general office and warehouse uses); or, are
required as a result of the negligence or willful misconduct of Landlord
(its agents, servants, employees, licensees or invitees). Notwithstanding
anything to the contrary contained in Articles 11.1 and 11.2, Extraordinary
Repairs shall be made by Landlord at the expense of Landlord, Tenant or both
in accordance with Article 38.
11.4 In addition to the Roof Work Landlord is required to make pursuant to
the Work Letter, Landlord shall, at Landlord's sole cost and expense, repair
and maintain the composite roof of the Building so as to keep the composite
roof of the Building in good repair and free of leaks for a period of five
(5) years after the Commencement Date; provided, however, that Landlord
shall not be responsible for any repairs or maintenance of the composite
roof of the Building to the extent that any such maintenance or repair to
such composite roof is necessitated in part or in whole by either the
negligence or willful misconduct of Tenant (its agents, servants, employees,
licensees or invitees), damage caused to the composite roof in the
performance of Tenant's Work, or damage to the composite roof resulting from
the negligent or faulty installation of Tenant's Work.
ARTICLE 12 - CONDITION OF PREMISES
12.1 Subject to Landlord's Affiliate's obligations to perform Landlord's
Work (and Tenant's Work, if Landlord's Affiliate is Tenant's Contractor) in
accordance with the Work Letter, and subject to Landlord's other obligations
under this Lease, by taking possession of the Premises Tenant accepts the
Premises as being in good order, condition and repair, and otherwise as is,
where is and with all faults. Except as may be expressly set forth in this
Lease, Tenant acknowledges that neither Landlord, nor any employee, agent or
contractor of Landlord has made any representation or warranty concerning the
Premises, or the suitability of any portion thereof for the conduct of Tenant's
business.
12.2 Upon the expiration of the Term or earlier termination of this Lease,
Tenant shall relinquish possession of the Premises to Landlord in the following
condition:
(a) Inclusive of all Leasehold Improvements and Alterations, unless
Landlord has either:
(i) Permitted removal of the same in writing;
(ii) Pursuant to Article 14.1, required removal of an Alteration
as a condition of making such Alteration; or,
(iii) Pursuant to the Work Letter, required removal of an item of
Tenant's Work as a condition of performing such Tenant's
Work; and
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(b) In the same condition as received after completion of Landlord's Work,
ordinary wear and tear excepted (which shall not include any damage or
deterioration that would have been prevented by good maintenance
practice or by Tenant's having performed all of Tenant's obligations
under this Lease), free of all trash and rubbish, and in broom clean
condition, excepting:
(i) As provided to the contrary in subparagraph (a) of this Article;
(ii) Any deficiency in the Premises caused by damage or destruction
to the Premises (pursuant to Article 20) which is not repaired
or restored either:
(A) As a result of Tenant's exercise of Tenant's right to
terminate this Lease pursuant to Article 22; or
(B) Because Landlord is unable to restore the Premises to
substantially the same condition as existing prior thereto.
(iii) Any deficiency in the Premises resulting from a Taking (pursuant
to Article 21) in which:
(A) The Premises is not restored as a result of Tenant's
termination of this Lease pursuant to either Article 21 or
22; or
(B) Landlord is unable to restore the Premises to substantially
the same condition as existing prior to such Taking.
(iv) Any deficiency in the Premises caused by the failure to make or
perform Extraordinary Capital Improvements (pursuant to
Article 6) as a result of the termination of this Lease by
either Landlord or Tenant pursuant to Article 38.
(v) Any deficiency in the Premises caused by the failure to comply
with Extraordinary Compliance Requirements (pursuant to
Article 8) as a result of the termination of this Lease by
either Landlord or Tenant pursuant to Article 38.
(vi) Any deficiency in the Premises caused by the failure to make or
perform Extraordinary Repairs (pursuant to Article 11) as a
result of the termination of this Lease by either Landlord or
Tenant pursuant to Article 38.
(vii) Any deficiency in the Premises caused by the failure to repair
or restore an Uninsured Loss (pursuant to Article 20) as a
result of the termination of this Lease by either Landlord or
Tenant pursuant to Article 38.
12.3 Landlord may dispose of any personal property remaining in the
Premises in accordance with California Civil Code section 1980, et seq. (or any
similar law now or hereafter in effect), and shall be entitled to recover all
costs and expenses provided therein, including Landlord's reasonable attorneys'
fees and costs.
ARTICLE 13 - ENTRY BY LANDLORD
13.1 Provided Landlord uses commercially reasonable efforts to minimize
interference with Tenant's business and advises Tenant an appropriate period in
advance of same, Landlord shall have the right to enter the Premises to inspect
the Premises, show the Premises to prospective purchasers, show the Premises to
prospective tenants (in the last two [2] years of the Term, only), and make
alterations, improvements or repairs required of Landlord under this Lease
(including construction required by the character of the work).
Notwithstanding the foregoing, Tenant may reasonably delay Landlord's entry
for such purposes up to twenty-four (24) hours by promptly advising Landlord
of the need for such delay if Landlord has not advised Tenant of Landlord's
prospective entry at least twenty-four (24) hours in advance, and such entry
will materially adversely affect Tenant's business operations at the Premises.
13.2 Notwithstanding the provisions of Article 13.1, Landlord shall be
entitled to enter the Premises without advising Tenant in advance or making
the required effort to minimize interference with Tenant's business to
respond to an "Emergency". An "Emergency" shall be any circumstance which
Landlord reasonably believes will (a) materially threaten or endanger the
Premises, (b) materially threaten or endanger the health or property of
Landlord, occupants of the Premises, or the general public, or (c) result in
a material liability or loss to Landlord.
13.3 Tenant shall provide Landlord at all times with reasonable means to
access all portions of the Premises, excepting Tenant's secured areas, vaults
and safes to which Landlord shall not have access.
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13.4 Except as expressly provided elsewhere in this Lease, there shall
be no abatement of rent and no liability of Landlord by reason of any injury
to, or interference with Tenant's business arising from any entry performed
by Landlord in compliance with the terms of this Lease, and any such entry
shall not constitute an eviction, or a forcible or unlawful entry or
detainer of the Premises.
ARTICLE 14 - ALTERATIONS
14.1 All alterations, additions, decorations or improvements made by or on
behalf of Tenant in or to the Premises other than Landlord's Work and Tenant's
Work ("Alterations"), shall require Landlord's prior written consent.
Notwithstanding the foregoing, Alterations shall not require Landlord's prior
written consent if such Alterations, in each case, either:
(a) Do not affect the exterior appearance of the Building, or the
base Building structural (including, without limitation,
foundation, slab, bearing walls, columns, roof supports and
roof), mechanical, electrical, plumbing, fire/life safety,
heating or air conditioning components and systems and cost less
than Two Hundred Fifty Thousand Dollars ($250,000), or
(b) Solely consist of repairs, replacement and maintenance of wall
and floor finishes or coverings, regardless of cost.
Tenant shall give Landlord ten (10) days' prior written notice of Tenant's
desire to make Alterations. Landlord may impose any reasonable condition upon
issuing Landlord's consent (including, without limitation: requiring Tenant to
remove Alterations at the end of the Term and restore the Premises to the
condition prior to Alterations having been made, ordinary wear and tear
excepted; obtaining the consent of any mortgagee, encumbrancer, lender or
ground lessee; providing Landlord with working drawings, specifications, and
estimated costs; providing Landlord with verification of all required
permits or approvals; and, obtaining a lien and completion bond). Tenant
shall reimburse Landlord for all reasonable out-of-pocket third-party costs
incurred by Landlord in connection with the review of proposed Alterations
or inspection of completed Alterations by Landlord's architect, engineer or
other consultant.
14.2 Tenant shall use licensed, qualified contractors and subcontractors,
reasonably acceptable to Landlord, which shall carry course of construction,
products liability, completed operations, worker's compensation and public
liability insurance in amounts reasonably satisfactory to Landlord, naming
Landlord as an additional insured. Alterations shall be performed in full
compliance with all laws, rules and/or directives of any government or
regulatory agency or authority.
14.3 Landlord may require Tenant to immediately remove any Alterations
not made in accordance with this Article, and restore the Premises to the
condition existing immediately prior to the Alterations' having been made
(ordinary wear and tear excepted).
14.4 If Tenant either fails to immediately remove Alterations not made
in accordance with this Article after Landlord's demand, or fails at the end
of the Term to remove Alterations which Landlord required to be removed as a
condition of issuing Landlord's consent to the making of such Alterations,
then Landlord may perform such removal and restore the Premises to the
condition immediately prior to the Alterations having been made (ordinary
wear and tear excepted), all at Tenant's sole cost and expense, plus a
supervision fee payable to Landlord in the amount of ten percent (10%) of
the cost of such work; provided, however, that if Landlord, Landlord's
Affiliate or any other affiliate of Landlord provides such performance and
supervision, any combination of overhead and profit to Landlord, Landlord's
Affiliate any other affiliate of Landlord and/or any other outside general
contractor plus the supervision fee to Landlord shall not exceed ten percent
(10%) of the cost of such work.
ARTICLE 15 - HAZARDOUS MATERIALS
15.1 Neither Landlord nor Tenant shall create, bring into nor store in the
Premises any "Hazardous Materials" (defined in Article 15.2) excepting ordinary
quantities of substances commonly used in connection with performance of such
party's duties under this Lease, or in conjunction with the Specific Uses.
Landlord and Tenant shall each comply with all laws, regulations,
recommendations and orders promulgated by any government, quasi-government or
regulatory agency or authority, or the manufacturer of Hazardous Materials with
regard to its maintenance of records, and its handling, storage and disposal of
Hazardous Materials. Upon the other party's request, each party shall supply
the other party with a copy of any record or certificates required to be
maintained by such party concerning Hazardous Materials.
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15.2 As used herein, the term "Hazardous Materials" is defined as any
material or substance which is:
(a) Defined or listed as a "hazardous waste", "extremely hazardous
waste", "hazardous substance", "hazardous material", "pollutant",
"contaminant" under any federal, state or local law, statute,
rule, regulation, order or interpretation (collectively, "Law");
(b) Petroleum or any petroleum derivative;
(c) A flammable explosive;
(d) A radioactive material;
(e) A polychlorinated biphenyl; or
(f) Asbestos, an asbestos derivative, or an asbestos containing
material.
15.3 Landlord hereby represents, warrants and agrees that:
(a) Tenant shall, both prior to execution of this Lease and during
the Term be provided access to any records of Landlord concerning
the existence of any known or suspected release, discharge,
emission, installation, remediation, presence or disposal of any
Hazardous Material at, in, on, about, under or within the
Premises (including air, soil, ground water, and improvements) to
date. Attached hereto as Exhibit "C" is a list of reports
reflecting Landlord's knowledge (as of execution of this Lease)
of Hazardous Materials in or about the Premises. In addition,
Landlord shall, prior to Tenant's taking occupancy of the
Premises (but not more than thirty [30] days prior to such
occupancy) have performed a study in accordance with the
specifications attached hereto as Exhibit "D" in order to
evaluate the extent of any contamination of the soil and ground
water then existing at the Premises. Tenant shall be provided
with a copy of such survey promptly upon Landlord's receipt of
the same.
(b) As to any Hazardous Material disclosed in connection with
subparagraph (a), or discovered at, in, on, about, under or
within the Premises after the execution of this Lease (or with
respect to any governmental investigation of the same),
remediation of which is required by Law, Landlord shall promptly
commence and diligently prosecute to completion (in a manner
which shall reasonably protect and preserve [and, where possible,
avoid interruption of or disturbance to] the full use and
enjoyment by Tenant of the Premises and the health and safety of
visitors to and occupants of the Building) a remediation plan or
plans with respect thereto approved by all appropriate
governmental agencies and which is in compliance with all Laws.
Notwithstanding the foregoing, Landlord shall have no duty to remediate any
Hazardous Material brought onto, released or discharged at, in, on, about,
under or within the Premises by Tenant.
15.4 Landlord shall indemnify, defend, protect and hold Tenant and its
partners, officers, affiliates, employees, contractors, agents and
representatives harmless from any and all claims, actions, administrative
proceedings, judgments, damages, punitive damages, penalties, fines, costs,
expenses, liabilities, obligations, interest or losses, including, attorneys',
consultants', and experts' fees (collectively "Claims"), that arise directly or
indirectly from or in connection with the actual or alleged release, discharge,
emission, installation, remediation, presence or disposal of any Hazardous
Material in or into the air, soil, surface or groundwater at, in, on, about,
under or within the Premises, or any portion thereof, prior to, during or
following the Term; provided, however, that the foregoing indemnity shall not
apply to any Claims to the extent that such Claims arise directly or indirectly
from or in connection with a Tenant Release (as defined below).
15.5 Tenant shall indemnify, defend, protect and hold Landlord and its
partners, officers, affiliates, employees, contractors, agents and
representatives harmless from any and all Claims that arise directly or
indirectly from or in connection with the actual or alleged release,
discharge, emission, installation, remediation, presence or disposal of any
Hazardous Material in or into the air, soil, surface or groundwater at, in,
on, about, under or within the Premises, or any portion thereof, to the
extent that the same relate to Hazardous Materials brought onto, released,
emitted, installed, remediated, disposed or discharged by Tenant in or into
the air, soil, surface or groundwater at, in, on, about, under or within the
Premises, or any portion thereof (a "Tenant Release").
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15.6 Notwithstanding anything to the contrary contained in this Article
15, in the event any Claims are brought or made against Tenant, Landlord
shall defend Tenant at Landlord's sole cost or expense pursuant to Article 15.4
(regardless of whether Landlord has made a demand that Tenant defend Landlord
pursuant to Article 15.5 and regardless of whether Landlord has asserted that,
by reason of the proviso at the end of Article 15.4, Landlord has no obligation
to defend Tenant because such Claims arose directly or indirectly from or in
connection with a Tenant Release) up to and until Landlord has obtained a
determination from the court (which Landlord may seek concurrently with any
Claims brought against Tenant) that Landlord is not obligated to defend Tenant
against such Claims. Any defense to be provided Tenant hereunder may be
provided by a single counsel reasonably satisfactory to both Landlord and
Tenant; however, if such counsel's duties in representing Tenant would be in
conflict with such counsel's duties in representing Landlord, then Landlord
shall provide Tenant with separate counsel reasonably satisfactory to Tenant.
In the event that it is determined by the court that Landlord is not obligated
to defend Tenant pursuant to Article 15.4, then Tenant shall upon such
determination promptly reimburse Landlord for any attorneys' fees and costs
incurred by Landlord in providing such defense, with interest thereon from date
such expenses were incurred at the rate set forth in Article 35.11. Nothing
herein shall be deemed a waiver of either party's rights pursuant to
Article 32.
ARTICLE 16 - LIENS
16.1 Tenant shall keep the Premises free from any liens resulting from
personal property taxes payable by Tenant pursuant to Article 4, or work
performed, materials furnished or obligations incurred by, or on behalf of
Tenant. Tenant shall promptly cause the Premises to be released from any such
lien by bond or otherwise. If Tenant fails to promptly cause the Premises to
be released from any such lien after Landlord's demand, then Landlord may
cause the Premises to be released from such lien and charge Tenant as
Additional Rent all costs and expenses reasonably incurred by Landlord to do
so, including reasonable attorneys' fees and costs.
ARTICLE 17 - BROKERS
17.1 Landlord shall pay Procuring Broker a commission in accordance with
a separate agreement between Landlord and Procuring Broker.
17.2 Tenant warrants that no broker, agent, finder, person or entity,
other than Procuring Broker, was instrumental in negotiating or consummating
this Lease, or might be entitled to a commission or compensation in
connection with the execution of this Lease. Tenant shall indemnify and
hold Landlord harmless from any claim, damages, costs and expenses,
including reasonable attorneys' fees and costs, resulting from any claim
that may be asserted against Landlord by any such broker, agent, finder,
person or entity other than Procuring Broker which Tenant does not disclose
to Landlord in writing prior to entering into this Lease, or who claims a
right to compensation through Tenant.
17.3 Landlord warrants that no broker, agent, finder, person or entity,
other than Procuring Broker, was instrumental in negotiating or consummating
this Lease, or might be entitled to a commission or compensation in
connection with the execution of this Lease. Landlord shall indemnify and
hold Tenant harmless from any claim, damages, costs and expenses, including
reasonable attorneys' fees and costs, resulting from any claim that may be
asserted against Tenant by any such broker, agent, finder, person or entity
which Landlord does not disclose to Tenant in writing prior to entering into
this Lease, or who claims a right to compensation through Landlord.
ARTICLE 18 - INSURANCE
18.1 Throughout the Term, Landlord shall provide, maintain and keep in
force:
(a) Commercial general liability insurance for personal injury,
bodily injury (including death), and property damage in such
amounts as Landlord from time to time determines is reasonable
and sufficient;
(b) All risk insurance covering the full replacement cost of the
Building and all fixed improvements therein, except those
fixtures, furnishings, Leasehold Improvements (defined in
Article 1.3), equipment and other property which Tenant is
required to insure pursuant to Article 18.2,
subparagraphs (b), (c), (d) and (e);
(c) Insurance for loss of rental income or insurable gross profits
covering such perils set forth in subparagraph (b) in such
amounts as Landlord prudently elects to maintain;
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(d) Boiler and machinery insurance for any such components of the
Building which do not constitute Leasehold Improvements or
Alterations in such amounts as Landlord prudently elects to
maintain; and
(e) Such other insurance (including earthquake or other differences
in condition, and loss of income resulting therefrom) as Landlord
elects, in its sole discretion, to obtain, provided that such
insurance is generally available at a commercially reasonable
price, such insurance is generally maintained by owners of
similar buildings in the area in which the Building is located,
and such insurance does not duplicate any of the insurance
required to be maintained by Tenant pursuant to Article 18.2
(contingency coverage in the event that Tenant does not obtain
required insurance shall not be considered duplication of
coverage hereunder).
Each policy of insurance provided or maintained by Landlord hereunder may
contain such deductibles, uninsured gaps, exclusions or such other terms and
conditions as Landlord prudently determines to be commercially reasonable and
sufficient, provided such terms are generally available at a commercially
reasonable price in the area in which the Building is located; however, the
Tenant shall not be responsible for any increase in the Insurance Costs
(defined below) that result from Landlord maintaining a deductible of less
than Five Thousand Dollars ($5,000.00) for each policy under subparagraphs
(b), (c), or (d), above, and a deductible of less than five percent (5%) of
the value of the full replacement cost of the Building (and one years' loss
of income thereon) for any policy insuring against loss from earthquakes
Landlord may elect to maintain under subparagraph (e). All insurance
maintained (or required to be maintained) hereunder by Landlord, including
insurance Landlord elects to obtain covering earthquake or other differences
in condition (pursuant to Article 18.1[e]), but excepting Landlord's
liability coverage set forth in Article 18.1(a), shall be maintained at
Tenant's sole cost and expense ("Insurance Costs").
18.2 During the performance of Tenant's Work (pursuant to the Work Letter)
and throughout the Term, Tenant shall, at Tenant's sole cost and expense,
provide, maintain and keep in force:
(a) Commercial general liability insurance for personal and bodily
injury, including death and property damage, with respect to
Tenant's use and occupancy of the Premises, and the business
carried on by Tenant therein, with limits of not less than Two
Million Dollars ($2,000,000.00) for any one accident or
occurrence, with Landlord named as an additional insured and
containing cross-liability and severability of interests clauses;
(b) All risk insurance covering the full replacement cost of the
Leasehold Improvements and Tenant's trade fixtures, furnishings,
equipment, inventory, and stock-in-trade, with Landlord named as
an additional insured to the extent of the Leasehold
Improvements;
(c) Insurance covering the Leasehold Improvements and Tenant's trade
fixtures, furnishings, equipment, inventory, and stock-in-trade
against loss or damage due to differences in conditions
(including flood and earthquake), with Landlord named as an
additional insured to the extent of the Leasehold Improvements;
(d) Insurance for loss of income or insurable gross profits covering
such perils set forth in subparagraph (b) in such amounts as
Tenant prudently determines is commercially reasonable and
sufficient, with Landlord named as an additional insured to the
extent of interruption resulting from a loss resulting from
damage or destruction of the Leasehold Improvements;
(e) Insurance for loss of income or insurable gross profits covering
such perils set forth in subparagraph (c) in such amounts as
Tenant prudently determines is commercially reasonable and
sufficient, with Landlord named as an additional insured to the
extent of interruption resulting from a loss resulting from
damage or destruction of the Leasehold Improvements;
(f) Boiler and machinery insurance for any such components of the
Leasehold Improvements or Alterations in such amounts as Tenant
prudently elects to maintain; and
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(g) Any insurance which may be required pursuant to any local, state or
federal government law, statute or regulation (including, without
limitation, workers' compensation insurance).
Notwithstanding the foregoing, Tenant shall only be required to obtain
insurance coverage for earthquake or other differences in condition (as
required pursuant to subparagraphs (c) and (e), above) if Landlord has
elected to maintain, and only so long as Landlord maintains, the insurance
coverage for earthquake or other differences in condition pursuant to
Article 18.1(e); furthermore, Tenant may elect to self-insure the coverage
required pursuant to subparagraphs (c), (d), (e), and (f) above, however,
Tenant's election to self-insure such coverage shall not impair the waivers
of subrogation and recovery set forth in Article 18.4, below.
Notwithstanding the above, Landlord may reasonably and prudently increase
the liability limits set forth in subparagraph (a), herein, provided that
such increased liability limits are generally available at a commercially
reasonable price in the area in which the Building is located, and are
generally required to be maintained by tenants of similar buildings in the area
in which the Building is located.
18.3 Each party shall provide the other, on or before the Commencement Date
and throughout the Term with copies of such policies, certificates or other
proof necessary to verify that the required insurance coverage has been
obtained, is in full force and effect and that the premiums have been paid
thereon. All policies of the insuring party shall contain an undertaking by
the insurer to notify the non-insuring party (and any mortgagees or ground
lessors, if Landlord so designates and provides the addresses of such
mortgagees or ground lessors to Tenant) in writing not less than thirty (30)
days prior to any material change, reduction, cancellation or other
termination of coverage required hereunder. Replacement policies or
certificates shall be furnished by the insuring party to the non-insuring
party not less than thirty (30) days prior to the expiration of any such
policy or policies. The non-insuring party's failure to request evidence of
coverage shall not constitute a waiver of any of such party's rights
hereunder or the obligation of the insuring party to so insure.
18.4 Insurance provided and maintained by either party pursuant to
Article 18.1, subparagraphs (b), (c), (d) and (e), and Article 18.2,
subparagraphs (b), (c), (d), (e) and (f) shall include a clause or
endorsement whereby the insurer waives its right of subrogation against the
other party; and Landlord and Tenant each waive any rights of recovery
against the other for injury or loss due to hazards required to be covered
by insurance which is required to contain such a waiver of subrogation, to
the extent of the injury or loss required to be covered thereby.
18.5 Landlord shall provide Tenant with a copy of the applicable invoice
or bill from the insurance carrier, together with any invoice presented to
Tenant for payment of the Insurance Costs (or if coverage is provided on a
blanket form, with a reasonably detailed calculation of the Insurance Costs
applicable to the Premises). Subject to Article 3.5, Insurance Costs
applicable to any policy period shall be payable by Tenant to Landlord as
Additional Rent the later of:
(a) Thirty (30) days after presentation of the applicable invoice or
bill (or if coverage is provided on a blanket form, with a
reasonably detailed calculation of the Insurance Costs applicable
to the Premises), together with Landlord's invoice to Tenant for
same; or
(b) Ten (10) business days before Landlord is required to pay such
Insurance Costs to the insurer (or if the Termination Date occurs
during the policy period, ten [10] business days prior to the
Termination Date).
ARTICLE 19 - INDEMNIFICATION
19.1 Subject to the waivers of subrogation and liability set forth in
Article 18.4, and the indemnities set forth in Article 15, Tenant shall
indemnify and hold Landlord harmless from and against any and all liability,
loss, claims, demands, damages or expenses, including attorneys' fees, whether
for personal injury, theft, property damage or otherwise, due to or arising
from:
(a) Any accident, act or omission (whether or not related to Tenant's
use of the Premises or conduct of business therein) occurring in,
or originating or emanating from the Premises during the Term,
except as may be caused by the negligence or willful misconduct,
or breach or non-performance described in Article 19.2,
subparagraph (a) or (b), or by any other act or omission of
Landlord, its servants, employees, agents, contractors, invitees,
concessionaires or licensees, or those over whom Landlord is
legally obligated, but has negligently failed, to exercise
control;
(b) The negligence or willful misconduct of Tenant, its servants,
employees, agents, contractors, invitees, concessionaires or
licensees, or those over whom Tenant is legally obligated, but
has negligently failed, to exercise control; or
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(c) Tenant's breach or non-performance of any provision of this
Lease.
If any action or proceeding is brought against Landlord by reason of any such
claim, Tenant, upon notice from the Landlord, shall defend the same at Tenant's
expense by counsel reasonably satisfactory to Landlord.
19.2 Subject to the waivers of subrogation and liability set forth in
Article 18.4, and the indemnities set forth in Article 15, Landlord shall
indemnify and hold Tenant harmless from and against any and all liability,
loss, claims, demands, damages or expenses, including attorneys' fees, whether
for personal injury, theft, property damage or otherwise, due to or arising
from:
(a) The negligence or willful misconduct of Landlord, its servants,
employees, agents, contractors, invitees, concessionaires or
licensees, or those over whom Landlord is legally obligated, but has
negligently failed, to exercise control; or
(b) Landlord's breach or non-performance of any provision of this Lease.
If any action or proceeding is brought against Tenant by reason of any such
claim, then Landlord, upon notice from Tenant, shall defend the same at
Landlord's expense by counsel reasonably satisfactory to Tenant.
ARTICLE 20 - DAMAGE OR DESTRUCTION
20.1 If any portion of the Premises reasonably necessary for either
Tenant's access to or from the Premises, or Tenant's use or occupancy of the
Premises, is damaged or destroyed by any cause, then Tenant shall promptly
notify Landlord of the same, and Landlord and Tenant shall proceed as follows:
(a) Within thirty (30) days after the event of damage or destruction,
Landlord shall assess the damage, estimate the cost of repairs,
and promptly thereafter notify Tenant of the same (however, if
more than thirty [30] days are reasonably required to perform the
foregoing, then Landlord shall not be in default hereunder if
Landlord commences such assessment, estimation and determination
within said thirty [30] day period, diligently prosecutes the
same to completion, and promptly thereafter notifies Tenant of
the same).
(b) If this Lease is not terminated in accordance with Article 38,
this Lease shall remain in full force and effect (subject to
Article 22), and Landlord shall diligently proceed with the
repair or restoration of such damage or destruction and
diligently prosecute the same to completion at Landlord's sole
cost and expense, subject to the provisions of this Article 20
and Article 38. Notwithstanding the foregoing, Landlord may elect
to have Tenant perform any repairs or restoration at Tenant's
sole cost and expense, subject to the provisions of this
Article 20 and Article 38, where the cost thereof is not
reasonably expected to exceed Ten Thousand Dollars ($10,000.00),
provided that Landlord assigns to Tenant any insurance proceeds
receivable by Landlord for the same or, if applicable, pays to
Tenant any contribution required to be made by Landlord pursuant
to Article 38; however, if the cost thereof exceeds Ten Thousand
Dollars ($10,000.00), then Landlord shall pay all excess costs
(subject to recovery of the same from insurance proceeds and any
contribution required to be made by Tenant pursuant to
Article 38).
(c) If this Lease is not terminated in accordance with Article 38,
the repairs and restoration required to be performed by Landlord
or Tenant pursuant to subparagraph (b) of this Article 20.1 shall
restore the Premises to substantially the same condition as prior
to the occurrence of such damage or destruction, shall be made in
accordance with plans and specifications approved by Landlord,
Tenant and governing agencies, and shall be performed in a good
and workmanlike manner in compliance with all applicable laws.
(d) If the Leasehold Improvements are damaged or destroyed, this
Lease is not terminated in accordance with Article 38, and the
loss is covered (or required to be covered or self-insured) by
the insurance required to be maintained by Tenant pursuant to
Article 18.2, subparagraphs (b), (c) or (f), then Tenant shall
assign to Landlord its right to receive the benefits under such
insurance for the repair and restoration of the Leasehold
Improvements (if any) and, upon Landlord's demand, deposit with
Landlord the cost of repairs or restoration of the Leasehold
Improvements to the extent not covered by any such insurance, or
if insured, the amount of the deductible under such policy.
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(e) If any portion of the Premises other than the Leasehold
Improvements is damaged or destroyed, this Lease is not
terminated in accordance with Article 38, and the loss is covered
(or required to be covered) under the insurance required to be
maintained by Landlord pursuant to Article 18.1, subparagraphs
(b), (d) or (e), then Tenant shall, upon Landlord's demand,
deposit with Landlord the lesser of:
(i) The cost of repairs or restoration of such portion of the
Premises, or
(ii) The deductible under any such policy covering the occurrence
of damage or destruction to the Leasehold Improvements, not
to exceed the greater of:
(A) The deductible maintained by Tenant on Tenant's policy
obtained pursuant to Article 18.2(b) (regardless of
whether the loss is actually covered by Tenant's policy
obtained pursuant to Article 18.2[b]), or
(B) Ten Thousand Dollars ($10,000.00);
and, any amounts in excess of the amount Tenant is required to
contribute in accordance with this subparagraph (e) which are not
covered by insurance maintained by either Landlord or Tenant
shall be deemed an "Uninsured Loss" and the payment by Landlord
and Tenant of such amounts shall be subject to the provisions of
Article 38.
(f) If this Lease is not terminated in accordance with Article 38,
and the loss is covered under the insurance maintained by
Landlord pursuant to Article 18.1, subparagraph (e), then any
deductible on such policy shall be deemed an "Uninsured Loss" and
the payment by Landlord and Tenant of such amount shall be
subject to the provisions of Article 38.
(g) If this Lease is not terminated in accordance with Article 38,
and the loss is uninsured (and was not required to be insured or
self-insured by either Landlord or Tenant), then the cost of the
repairs and restoration of the Premises not otherwise covered by
any policy of insurance maintained by either Landlord or Tenant
shall be deemed an "Uninsured Loss" and the payment by Landlord
and Tenant of such amount shall be subject to the provisions of
Article 38.
20.2 If Tenant elects to terminate this Lease pursuant to Articles 22 or
38, then Tenant shall assign to Landlord any applicable insurance proceeds
receivable by Tenant, not to exceed the lesser of:
(a) The cost of repairing the damage or destruction to the Leasehold
Improvements;
(b) The unamortized cost of the Leasehold Improvements on the
effective date of termination (assuming the cost of the Leasehold
Improvements in the Premises at the inception of the Lease was
amortized over the Initial Term, with interest at the rate set
forth in Article 35.11, in equal monthly installments). The cost
of the Leasehold Improvements for purposes of this subparagraph
shall consist of the cost of the Tenant's Work, plus the full
replacement cost as of the Commencement Date of any Leasehold
Improvements existing in the Premises prior to Tenant's Work
which Tenant elects not to remove in the course of performing
Tenant's Work, less any costs which Tenant incurs to repair or
refurbish such existing Leasehold Improvements; or
(c) The full replacement cost of the Leasehold Improvements.
20.3 Tenant hereby waives the application of California Civil Code sections
1932(2) and 1933(4), to the extent contrary to the provisions of Articles 20
and 22 of this Lease.
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ARTICLE 21 - EMINENT DOMAIN
21.1 If all or any portion of the Premises is taken for any public or
quasi-public purpose by any lawful power or authority by exercise of the right
of appropriation, condemnation or eminent domain, or sold in lieu of such
taking (a "Taking"), then:
(a) If such Taking substantially adversely affects Tenant's access to
or from, or use and occupancy of the Premises, then Tenant may,
by notice to Landlord, terminate this Lease effective on the
earlier of the date of delivery of possession, or sale of the
Premises (or portion thereof) to said authority; however, if this
Lease is not so terminated, then Landlord shall (at Landlord's
initial cost and expense) restore the remaining Premises to
substantially the same condition that the remaining Premises were
in prior to such Taking, and Tenant's Basic Monthly Rent,
Property Taxes and Insurance Costs shall be abated to the extent
provided in Article 22.
(b) If such Taking does not substantially adversely affect Tenant's
access to or from, or use and occupancy of the Premises, then
Tenant may not terminate this Lease (which shall remain in full
force and effect) and Landlord shall (at Landlord's initial cost
and expense) restore the remaining Premises to substantially the
same condition that the remaining Premises were in prior to such
Taking, and Tenant's Basic Monthly Rent, Property Taxes and
Insurance Costs shall be abated to the extent provided in
Article 22.
21.2 Tenant shall not assert any claim for the Taking of any interest in
this Lease or the Premises and Landlord shall be entitled to receive the entire
amount of any award without deduction or offset for any estate or interest of
Tenant; however, Tenant shall be entitled to receive out of such award the
value of Tenant's unexpired leasehold interest under this Lease to the
extent that, at the time of such Taking, the present value of the fair
market rental value of the Premises for the remainder of the Term exceeds
the present value of Tenant's obligations to Landlord under this Lease for
the remainder of the Term. In connection with the foregoing, Tenant shall
be bound by any determination of fair market rental value of the Premises
which forms the basis for the award to Landlord for Landlord's interest in
the Premises; and, with respect to any action for inverse condemnation,
Landlord shall notify Tenant of Landlord's prosecution of the same and
Tenant shall either then join in such inverse condemnation action or be
precluded from participating in any award to Landlord resulting from such
action.
21.3 Nothing in this Article 21 shall be deemed to restrict Tenant from
making any claim against the condemning agency for the unamortized costs of
any Tenant's Work or Alterations made by Tenant, Tenant's relocation expenses,
and, damages to Tenant's personal property, trade fixtures and goodwill;
however, any such award to Tenant pursuant to this Article 21.3 shall not
serve to reduce Landlord's award pursuant to Article 21.2.
21.4 Tenant hereby waives the application of California Code of Civil
Procedure section 1265.130 (or any similar law now or hereafter in effect) to
the extent contrary to the provisions of this Article 21.
ARTICLE 22 - INTERRUPTION OF USE
22.1 If either Tenant's access to or from, or use and occupancy of, the
Premises is substantially adversely affected as a result of either:
(a) An event of damage or destruction as described in Article 20
(excepting only damage or destruction caused by the gross
negligence or willful misconduct of Tenant),
(b) A Taking (as defined in Article 21),
(c) Remediation of Hazardous Materials required pursuant to
Article 15.3, or
(d) Any act or omission of Landlord, its servants, employees, agents,
contractors, invitees, concessionaires or licensees, or those over
whom Landlord is legally obligated, but has negligently failed, to
exercise control;
then, such event shall constitute an "Interruption" hereunder.
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22.2 If an Interruption occurs and continues for a period of at least five
(5) consecutive business days (the "Waiting Period"), then Tenant's Basic
Monthly Rent, Property Taxes and Insurance Costs shall be abated from the sixth
(6th) business day until use of the Premises is no longer so substantially and
adversely affected and reasonable access to and from the Premises exists (the
"Interruption Period"), provided, however, that:
(a) With respect to an Interruption of Tenant's access to or from, or
use and occupancy of, the Building, Basic Monthly Rent,
Property Taxes and Insurance Costs shall only be abated for
such time during the Interruption Period that Tenant is prevented
from using (and does not actually use) the Building (or a portion
thereof) as a result of the Interruption, in the proportion that
the area of the portion of the Building that Tenant is prevented
from using (and does not actually use) bears to the total
rentable area of the Building; however, if any remaining portion
of the Building is not sufficient to allow Tenant to effectively
conduct Tenant's business therein (and Tenant does not actually
conduct business from such remaining portion) then Tenant's Basic
Monthly Rent, Property Taxes and Insurance Costs for such
remaining unusable portion of the Building shall be likewise
abated.
(b) With respect to an Interruption of Tenant's access to or
from, or use and occupancy of, those portions of the Premises
not constituting the Building, Basic Monthly Rent, Property Taxes
and Insurance Costs shall only be abated to the extent of the
reasonable rental value of that portion of the Premises
(excepting the Building) subject to the Interruption, considering
the use to which such portion of the Premises was put prior to
the Interruption, plus such other reasonable direct out-of-pocket
costs that Tenant incurs to continue reasonable access to or
from, or use or occupancy of the Building, such abatement not to
exceed the Basic Monthly Rent, Property Taxes and Insurance Costs
that would have been payable hereunder by Tenant; provided,
however, that if such Interruption substantially adversely
affects Tenant's access to or from, or use or occupancy of, the
Building, then subparagraph (a) of this Article 22.2
shall additionally apply (the total abatement under this
subparagraph (a) and this subparagraph to not exceed to exceed
the Basic Monthly Rent, Property Taxes and Insurance Costs that
would have been payable hereunder by Tenant). For example, if an
Interruption occurs that prevents Tenant's access to or from the
surface parking areas, but does not prevent Tenant's
reasonable access to or from, or use or occupancy of the
Building, and Tenant obtains substitute parking off-site and
provides employees with a shuttle service during such
Interruption, then Tenant shall be entitled to abatement of Basic
Monthly Rent, Property Taxes and Insurance Costs to the extent of
the reasonable rental value of the parking area that is a portion
of the Premises, plus the costs of obtaining the substitute
parking to the extent that such costs exceed the reasonable
rental value of the parking area that is a portion of the
Premises, plus the reasonable costs of operating the shuttle
service, all of which shall not exceed the Basic Monthly Rent,
Property Taxes and Insurance Costs for the Premises during such
period of Interruption.
(c) If the Interruption Period occurs during the period in which
Basic Monthly Rent is excused pursuant to Article 3.6
("Overlap Period"), then Tenant shall be entitled to an
additional rent credit (applicable to the rent next due and
payable) equal to the Basic Monthly Rent that would have been
abated during the Overlap Period but was not abated because the
Basic Monthly Rent that would have been payable during the
Overlap Period was excused.
(d) No abatement of Total Monthly Rent, Property Taxes or Insurance
Costs hereunder shall be afforded Tenant to the extent that
Tenant's reoccupancy is delayed as a result of Tenant's
negligence, willful misconduct or breach of this Lease.
(e) No abatement of Total Monthly Rent shall be afforded Tenant
hereunder for any period in which there is damage solely to
the Leasehold Improvements.
(f) Landlord's obligations hereunder shall not be limited to the
proceeds of Landlord's insurance or by any election by Landlord
to self-insure or not insure any loss; however, nothing contained
herein shall be deemed to obligate Landlord to provide abatement
of rent during the Waiting Period.
22.3 Landlord shall notify Tenant of Landlord's reasonable estimate of the
Interruption Period (the "Interruption Period Estimate") as soon as reasonably
practicable or as otherwise required under this Lease, and will promptly advise
Tenant of any revisions in the Interruption Period Estimate.
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22.4 If the Interruption Period Estimate exceeds one hundred fifty (150)
days, then Tenant may, within thirty (30) days after receipt of Landlord's
estimate, elect to terminate the Lease upon not less than thirty (30) nor more
than ninety (90) days' prior written notice (the "First Termination Notice
Period"). Notwithstanding the foregoing, this Lease shall not be terminated if
Landlord notifies Tenant within ten (10) days after receipt of Tenant's notice
of termination that Landlord will be taking such additional action within the
First Termination Notice Period which will result in the restoration of
Tenant's reasonable access to and from, and use of the Premises within said
one hundred fifty (150) day period (in which case the Interruption Period
Estimate shall be revised to be no greater than one hundred fifty [150] days).
Notwithstanding the foregoing, the one hundred fifty (150) day period set
forth in this Article 22.4 shall be extended to the extent that the
restoration of the Premises or Tenant's reoccupancy is delayed as a result
of Tenant's negligence, willful misconduct or breach of this Lease. If
Tenant fails to exercise Tenant's right to terminate this Lease provided in
this Article 22.4, then Tenant shall be deemed to have accepted the
Interruption Period Estimate, subject to Tenant's rights pursuant to
Article 22.5.
22.5 If, despite Landlord's reasonable estimate and diligent efforts,
Landlord is unable to restore Tenant's reasonable access to and from, and use
of the Premises within the greater of the Interruption Period Estimate or
one hundred fifty (150) days, then Tenant may elect to terminate the Lease
upon not less than thirty (30) nor more than ninety (90) days' prior written
notice (the "Second Termination Notice Period"). Notwithstanding the
foregoing, this Lease shall not be terminated if Landlord notifies Tenant
within ten (10) days after receipt of Tenant's notice of termination that
Landlord will be taking such additional action within the Second Termination
Notice Period to restore Tenant's reasonable access to and from, and use of
the Premises within the Second Termination Notice Period, and Landlord
thereafter actually restores Tenant's reasonable access to and from, and use
of the Premises within the Second Termination Notice Period.
Notwithstanding the foregoing, the periods set forth in this Article 22.5
shall be extended to the extent that the restoration of the Premises or
Tenant's reoccupancy is delayed as a result of Tenant's negligence, willful
misconduct or breach of this Lease.
ARTICLE 23 - SUBORDINATION
23.1 Subject to Articles 23.3 and 23.4, without the necessity of the
execution and delivery of any further instruments on the part of Tenant to
effectuate such subordination, this Lease shall at all times be subject and
subordinate to any liens of any mortgages or deeds of trust, or ground or
underlying leases which now exist or may hereafter be executed or placed
effecting the Premises, or upon Landlord's interest or estate therein. If any
ground lease or underlying lease is terminated for any reason, or any mortgage,
deed of trust or lien is foreclosed, or the Premises is conveyed in lieu of
foreclosure, then Tenant shall attorn to and become the tenant of Landlord's
successor in interest and Tenant's right to possession of the Premises shall
not be disturbed, provided Tenant is not in default and continues to perform
and observe all of the terms, conditions and covenants of this Lease.
23.2 Subject to Articles 23.3 and 23.4, Tenant shall execute and deliver
any instrument which may be reasonably requested by any such ground lessor,
lender, mortgagee, lienholder or encumbrancer evidencing such subordination,
and the failure or refusal to do so within ten (10) days after receipt of
Landlord's written request shall constitute a default of this Lease.
23.3 Notwithstanding any provisions of this Lease to the contrary,
Landlord shall provide Tenant with commercially reasonable nondisturbance
agreements in favor of Tenant from any ground lessors, mortgage holders or
lien holders (each, a "Superior Mortgagee") in existence as of the execution
of this Lease, in a form reasonably acceptable to Tenant. Said
nondisturbance agreements shall be in recordable form and may be recorded at
Tenant's election and expense. In the event Landlord fails to provide such
commercially reasonable nondisturbance agreements on or before September 1,
1995, then Tenant shall have the right to terminate this Lease upon thirty
(30) days' prior written notice to Landlord. If Landlord provides Tenant
with the applicable nondisturbance agreements within said thirty (30) day
period, then this Lease shall not be terminated and shall continue in full
force and effect.
23.4 Notwithstanding any provisions of this Lease to the contrary,
Landlord agrees to provide Tenant with a commercially reasonable
nondisturbance agreement (providing that Tenant's right to possession of the
Premises shall not be disturbed if Tenant is not in default and continues to
perform and observe all of the terms, conditions and covenants of this
Lease) in favor of Tenant from any Superior Mortgagee(s) of Landlord who
come into existence after execution of this Lease and prior to the
expiration of the Term of the Lease in consideration of, and as a condition
precedent to, Tenant's agreement to be bound by the remaining provisions of
this Article 23.
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ARTICLE 24 - OFFSET STATEMENT
24.1 Tenant shall, within fifteen (15) business days after receipt of
Landlord's written request, execute, acknowledge and deliver to Landlord a
statement in writing setting forth Tenant's certification of the following:
that this Lease is unmodified (or, if modified, the nature of such
modification); the extent to which rental or other charges have been prepaid;
and that Landlord, to Tenant's knowledge, has not failed to cure any default of
Landlord of this Lease (or specifying such uncured defaults, if any are
claimed). Tenant acknowledges that such statement may be relied upon by a
prospective purchaser or encumbrancer of all or any portion of the Premises.
24.2 Landlord shall, within fifteen (15) business days after receipt of
Tenant's written request, execute, acknowledge and deliver to Tenant a
statement in writing setting forth Landlord's certification of the following:
that this Lease is unmodified (or, if modified, the nature of such
modification); the extent to which rental or other charges have been prepaid;
and that Tenant, to Landlord's knowledge, has not failed to cure any
default of Tenant of this Lease (or specifying such uncured defaults, if any
are claimed). Landlord acknowledges that such statement may be relied upon
by a prospective Tenant's Affiliate (defined in Article 26.5, below), lender
or purchaser of Tenant.
ARTICLE 25 [INTENTIONALLY OMITTED]
ARTICLE 26 - ASSIGNMENT AND SUBLETTING
26.1 Tenant shall not Assign this Lease without the prior written consent
of Landlord, which shall not be unreasonably withheld, conditioned or delayed.
"Assign" or "Assignment" is defined to include: an assignment of the Lease; a
sublease of all or any part of the Premises; any permitted occupancy or conduct
of business in any or all of the Premises by anyone other than Tenant; Tenant's
pledging, sale, transfer, hypothecation or encumbrance of the Lease; Tenant's
change in business status or organization; Tenant's dissolution, merger,
consolidation or other reorganization; Tenant's sale or other transfer of a
controlling interest in Tenant; and, the sale of fifty-one percent (51%) or
more of the assets of Tenant. "Assignee" is defined to include: an assignee,
subtenant, or any other person or entity which may claim a right to possession
of the Premises by or through Tenant.
26.2 Tenant shall give Landlord thirty (30) days' prior written notice
of any proposed Assignment, including the proposed Assignee's name and
address, the proposed terms, the proposed use, the proposed Assignee's
financial statements, bank and credit references, and such additional
information as Landlord may reasonably require.
26.3 Landlord shall, within such thirty (30) day period following
receipt of Tenant's notice pursuant to Article 26.2, notify Tenant that
Landlord either grants or denies its consent for Tenant to proceed to Assign
on the terms and conditions contained in Tenant's notice. If Landlord fails
to timely deny consent within such thirty (30) day period, then Landlord
shall be deemed to have approved the proposed Assignment on the terms and
conditions of the Assignment contained in Tenant's notice, but only to the
extent that the terms and conditions do not conflict with the express terms
and conditions of this Lease (other than Article 26.1).
26.4 Tenant or any subsequent assignor or sublessor shall not be
released from any liability under this Lease as the result of any Assignment.
Tenant shall cause each Assignee to execute an agreement with Landlord
upon a form furnished by Landlord binding Assignee to all the non-monetary
terms of this Lease (excepting rights to extend this Lease or expand the
Premises, unless so granted by Tenant), and as security for Tenant's
obligations under this Lease, Tenant assigns to Landlord the right to
collect all rent resulting from any Assignment in the event of Tenant's
default and apply such rent to the satisfaction of Tenant's obligations
under this Lease. Tenant shall pay a reasonable processing fee to Landlord
for each Assignment, not to exceed Five Hundred Dollars ($500.00).
26.5 Notwithstanding the foregoing, Landlord's prior written consent
shall not be required for any of the following:
(a) An Assignment to "Tenant's Affiliate", defined as:
(i) A corporation or other entity into or with which Tenant is
merged or consolidated or resulting from such merger or
consolidation, or any corporation or other entity which
controls or is controlled by the Tenant or is under common
control or affiliated with the Tenant, or
(ii) Any other entity acquiring substantially all of Tenant's
assets (or substituting similar assets) together with this
Lease, and which continues to occupy the Premises carrying
on substantially the same or a similar business;
(b) An Assignment to Dataproducts Corporation;
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(c) An Assignment for up to twenty thousand rentable square feet
(20,000 RSF) of the Building; or
(d) A transfer of a controlling interest in Tenant which results from
a public offering;
(e) A transfer of a controlling interest in Tenant, Tenant's change
in business status or organization, or Tenant's dissolution or
reorganization after which Tenant or the assignee continues to
occupy the Premises carrying on substantially the same or a
similar business.
However, Tenant shall comply with the provisions of Article 26.2 with
regards to notifying Landlord of the identity of the Assignee and providing
Landlord with the required financial information regarding the same, except
that with respect to a merger or consolidation, such compliance may be
effected promptly after such merger or consolidation.
ARTICLE 27 [INTENTIONALLY OMITTED]
ARTICLE 28 - FINANCIAL STATEMENTS
28.1 If either Tenant is in default of this Lease, a Credit Risk exists, or
Landlord is proposing to convey, finance or refinance Landlord's interest in
the Premises, then Landlord shall have the right to require Tenant to furnish
Landlord with Tenant's most recent annual financial statements prepared by a
Certified Public Accountant according to generally recognized accounting
principles, and Tenant's most recent unaudited quarterly financial statement
showing Tenant's financial condition as of a date not more than ninety (90)
days prior to submission to Landlord.
ARTICLE 29 - HOLDING OVER
29.1 Tenant shall not hold over after the expiration of the Term or
earlier termination of this Lease without the prior written consent of
Landlord (which shall not be subject to Article 35.1). Tenant agrees that
Tenant's failure to surrender possession of the Premises at the end of the
Term can and will cause actual damage to Landlord which is impracticable or
extremely difficult to ascertain (including, without limitation, lost
opportunities to lease the Premises, increase in the cost of improvements,
lost rent and liability for Landlord's inability to deliver timely
possession of the Premises to another tenant). Therefore, if Tenant holds
over after the Term without the prior written consent of Landlord, then
Tenant shall become a Tenant at sufferance only and shall continue to
perform each and every term, condition and covenant of this Lease during any
such period of holding over; except that, in lieu of damages to which
Landlord may be entitled hereunder, Landlord may elect to have Tenant pay
Landlord liquidated damages in an amount equal to one hundred fifty percent
(150%) of the Total Monthly Rent payable by Tenant to Landlord in the last
complete month of the Term, for each month or portion thereof which Tenant
so holds over.
29.2 If Landlord consents to Tenant's holding over after the expiration
of the Term or earlier termination of this Lease, then the tenancy shall
continue from month-to-month upon the same terms, conditions and covenants
contained in this Lease.
29.3 The foregoing provisions of this Article are in addition to any
other rights of Landlord hereunder, or as otherwise provided by law,
including, without limitation, the right to bring an action for unlawful
detainer. Landlord's acceptance of rent after expiration or earlier
termination of this Lease, or during any such period of holding over shall
not be construed as a renewal or extension of this Lease.
ARTICLE 30 - DEFAULTS
30.1 The occurrence of any one or more of the following events shall
constitute a default of this Lease by Tenant:
(a) Without waiving Landlord's right to a Late Charge, Tenant's
failure to pay within ten (10) days after receipt of Landlord's
notice any Basic Monthly Rent, Property Taxes, Insurance Costs,
Additional Rent or any other payment due Landlord under this
Lease; or
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(b) Tenant's failure to observe or perform any covenant or provision
of this Lease that Tenant is required to so observe or perform,
other than those specified in subparagraphs (a) and (b), above,
within thirty (30) days after receipt of notice from Landlord
reasonably specifying the nature of such failure; however, if
more than thirty (30) days are reasonably required to so observe
or perform, then Tenant shall not be in default so long as Tenant
commences observance or performance within said thirty (30) day
period and diligently prosecutes same to completion.
30.2 Any notice of default Landlord is required to give Tenant hereunder
and any notice Landlord may be required to give pursuant to California Code of
Civil Procedure section 1161, et seq. (or any similar law now or hereafter in
effect) may be satisfied by a single notice inclusive of the requirements of
both this Article and statutory law.
30.3 Landlord shall be in default of this Lease if Landlord fails to
observe or perform any covenant or provision of this Lease that Landlord is
required to so observe or perform within thirty (30) days after receipt of
written notice from Tenant to Landlord reasonably specifying the nature of such
failure; however, if more than thirty (30) days are reasonably required to so
observe or perform, then Landlord shall not be in default so long as Landlord
commences observance or performance within said thirty (30) day period and
diligently prosecutes same to completion.
ARTICLE 31 - REMEDIES
31.1 If Tenant is in default of this Lease, then Landlord may avail itself
of any remedies under law, Landlord's election of any particular remedy to be
at Landlord's sole discretion, without obligation under Article 35.1. Landlord
may elect to avail itself of the remedy described in California Civil Code
section 1951.4, in which case this Lease shall continue in full force and
effect after Tenant's breach and abandonment. If Landlord does not elect to
avail itself of the remedy described in California Civil Code section 1951.4
and Tenant either breaches this Lease and abandons the Premises before the end
of the Term, or Tenant's right to possession is terminated by the Landlord
because of a breach of this Lease, then this Lease shall terminate, and
Landlord shall recover from Tenant the following:
(a) The worth at the time of award of the unpaid rent which had been
earned at time of termination;
(b) 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 Tenant
proves could have been reasonably avoided;
(c) 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 Tenant proves could be
reasonably avoided; and
(d) Any other amount necessary to compensate Landlord for all the
detriment proximately caused by Tenant's failure to perform
Tenant's obligations under this Lease, or which in the ordinary
course of things would be likely to result therefrom (including,
without limitation, any costs of obtaining mitigating rental
income, such as excused rent, brokerage commissions, installation
of tenant improvements, parking concessions, lease takeovers,
cash payments, advertising, moving costs or any other cost or
tenant concession related to the re-leasing of the Premises upon
the default of Tenant).
The "worth at the time of award" of the amounts referred to in subparagraphs
(a) and (b), above, shall be computed by allowing interest at the rate
specified in Article 35.11 of this Lease; and the "worth at the time of
award" of the amounts referred to in subparagraph (c), above, 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 (1%).
31.2 Tenant waives any equity of redemption and any right to relief from
forfeiture as provided by California Code of Civil Procedure section 1179 (or
any similar law now or hereafter in effect).
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ARTICLE 32 - ATTORNEYS' FEES
32.1 If either Landlord or Tenant brings suit to interpret or enforce any
provision of this Lease or any rights of either party hereto, then the
prevailing party shall recover from the other party all costs and expenses,
including reasonable attorneys' fees. Notwithstanding the provisions of
California Civil Code section 1717, the term "prevailing party" as used herein
shall include, without limitation, both a party as to whom a lawsuit is
dismissed (with or without prejudice) without the written consent of that party
and, if the lawsuit is one for declaratory relief, that party whose contentions
are substantially upheld as to the interpretations of this Lease. Any
attorneys' fees payable pursuant to this Article may be claimed either as court
costs or in a separate suit.
ARTICLE 33 - WAIVER OF JURY TRIAL
33.1 Landlord and Tenant each hereby waive their respective rights to trial
by jury of any cause of action, claim, counterclaim or cross-complaint in any
action, proceeding and/or hearing brought by either Landlord against Tenant, or
Tenant against Landlord, as to any matter whatsoever arising out of or in any
way connected with this Lease, the relationship of Landlord and Tenant,
Tenant's use or occupancy of the Premises, any claim of injury or damage, or
the enforcement of any remedy under any law, statue, or regulation,
emergency or otherwise, now or hereafter in effect. Notwithstanding the
foregoing, Landlord and Tenant agree that this waiver shall not be effective
where the legal effect of such waiver would be to invalidate in whole or in
part, or to limit or impair in any manner any policy of insurance in force
for the benefit of Landlord or Tenant or to limit or impair any rights,
remedies or coverage afforded thereunder.
ARTICLE 34 - NOTICES
34.1 After Tenant occupies the Premises for the conduct of business, notice
shall be given to Tenant at the Premises. Prior to Tenant's occupying the
Premises for the conduct of business, notice shall be given to Tenant at the
following address:
PANAVISION
18618 Oxnard Street
Tarzana, California 91356
Attention: Mr. Christopher Phillips, Controller
In all instances, additional notice by first class mail, only, shall be given to
Tenant's counsel at:
LOEB AND LOEB
10100 Santa Monica Boulevard, Suite 2200
Los Angeles, California 90067-4164
Attention: Mr. Gerald D. Kleinman
Notice shall be given to Landlord at the following address:
TRIZEC WARNER INC.
c/o Trizec Properties, Inc.
15760 Ventura Boulevard, Suite 500
Encino, California 91436-3095
Attention: Mr. Craig Cahow, Vice President Leasing
Either party may, by written notice to the other, specify a different address
for notice purposes.
34.2 In order to prevent disputes concerning the giving of notice, if any
provision of this Lease (or addenda or amendments thereto) requires "notice" to
be given, for either party to "notify" the other, or otherwise refers to
"notification", then such notice shall be made in writing and be given by
either personal delivery, certified mail or a nationally recognized
overnight courier service, in each case delivery to be evidenced by a signed
receipt therefor. Notice may also be given by facsimile transmission,
provided the party to whom the transmission is addressed acknowledges actual,
legible receipt by executing a copy of the transmission (or a receipt for
same) and returning a copy of same to the sender, by facsimile transmission
or otherwise. Notices shall be deemed effective at the time of delivery, as
confirmed by said signed receipts. If either party fails or refuses to
accept delivery by certified mail or overnight courier service, or refuses
to execute a receipt evidencing delivery, then notice may be given by
first-class mail and shall be deemed effective two (2) business days after
mailing.
34.3 The foregoing methods of giving notice shall not apply to any bills,
invoices, rent statements or statement of any other charges or sums due from
Tenant to Landlord, or any notice required or permitted to be given pursuant to
any law or statute which requires a different method of service.
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ARTICLE 35 - GENERAL PROVISIONS
35.1 REASONABLENESS. Except as may be otherwise specifically provided in
this Lease and all attachments and exhibits hereto (including, without
limitation, the Work Letter), wheresoever and whenever Landlord's or Tenant's
discretion, consent or approval is required under this Lease and all
attachments and exhibits hereto (including, without limitation, the Work
Letter), Landlord and Tenant agree that such discretion will be reasonably
exercised and that such consent or approval will not be unreasonably
withheld or delayed.
35.2 [Intentionally Omitted]
35.3 CONFLICT OF LAWS. This Lease shall be governed by and construed under
the laws of the State of California.
35.4 VENUE. Any lawsuit brought by either party against the other shall be
filed in a court of competent jurisdiction in the County of Los Angeles.
35.5 IDENTIFICATION OF TENANT. The term "Tenant" as used in this Lease
shall mean and include each person or entity that executes this Lease as
Tenant, who shall be jointly and severally liable for the keeping, observing
and performing of all of the terms, covenants, conditions, provisions and
agreements of this Lease to be kept, observed and performed by Tenant.
Notice from or to any single person or entity executing this Lease as Tenant
shall be deemed to be effective notice from or to each and every person or
entity executing this Lease as Tenant, with the same force or effect as if
each such person or entity had so given or received such notice. Any act or
signature by any single person or entity executing this Lease as Tenant
concerning this tenancy or Lease (including, without limitation, any renewal,
extension, expiration, termination or modification of this Lease) shall be
binding upon each person or entity executing this Lease as Tenant with the
same force and effect as if each person or entity had so acted or signed.
Any refund to any single person or entity executing this Lease as Tenant
shall be deemed to be a refund to each person or entity executing this Lease
as Tenant, as if each such refund had been collectively made to all such
persons or entities.
35.6 SUCCESSORS AND ASSIGNS. Except as otherwise provided in this Lease,
each covenant, condition and provision of this Lease shall be binding upon
and shall inure to the benefit of the parties hereto, their respective heirs,
personal representatives, successors and permissible assigns.
35.7 RELINQUISHMENT OF POSSESSION. The voluntary or involuntary
relinquishment of possession of the Premises by Tenant to Landlord, or a
mutual cancellation of this Lease by both Tenant and Landlord, shall at the
option of Landlord operate as an assignment to Landlord of any or all
subleases or subtenancies and no merger shall be effected.
35.8 PERFORMANCE BY TENANT AND LANDLORD. If Tenant is in default of
this Lease pursuant to Article 30.1(b) and Tenant fails to cure such default
within ten (10) days after Tenant's receipt of notice from Landlord setting
forth Landlord's intention to cure such default on Tenant's behalf, then
Landlord may, without waiving or releasing Tenant from any obligation, cure
such default and all costs incurred by Landlord, together with interest
thereon at the rate specified in Article 35.11 of this Lease from the date
of such payment by Landlord, shall be payable by Tenant to Landlord. If
Landlord is in default of this Lease pursuant to Article 30.3 and Landlord
fails to cure such default within ten (10) days after Landlord's receipt of
notice from Tenant setting forth Tenant's intention to cure such default on
Landlord's behalf, then Tenant may, without waiving or releasing Landlord
from any obligation, cure such default and all costs incurred by Tenant,
together with interest thereon at the rate specified in Article 35.11 of
this Lease from the date of such payment by Tenant, shall be payable by
Landlord to Tenant.
35.9 DEFINITION OF LANDLORD. The term "Landlord" as used in this Lease
shall be limited to mean and include only the owner at the time in question
of the fee or leasehold interest under a ground lease of the Land. If
Landlord transfers, assigns or otherwise conveys any such title or leasehold
and if the transferee assumes Landlord's liability under this Lease in
writing, Landlord shall be automatically freed and relieved of all liability
with respect to the performance of any covenants or obligations in this
Lease to be performed from and after the date of such transfer, assignment
or conveyance, except as may be provided in Article 7.3. Landlord will
notify Tenant of such transfer and will, upon receipt of Tenant's written
request, provide Tenant with a copy of any such written assumption of this
Lease by such transferee. Notwithstanding the foregoing, Landlord shall not
be relieved of liability for the performance of Landlord's Work until
Landlord's Work has been completed and possession of the Premises has been
tendered to Tenant for the performance of Tenant's Work.
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35.10 WAIVER. The waiver by either party of any breach of any term,
covenant or condition of this Lease shall neither be deemed a waiver of any
concurrent or subsequent breach of the same or any other term, covenant or
condition of this Lease, nor shall any custom or practice which may develop
between the parties in the administration of the terms hereof be deemed a
waiver of, or in any way affect the right of either party to require strict
performance by the other party. The acceptance of rent or any sum hereunder
by either party shall not be deemed to be a waiver of any breach by the
other party of any term, covenant or condition of this Lease other than the
failure of such other party to pay such rent or sum, regardless of the
party's knowledge of such breach at the time of acceptance.
35.11 INTEREST. Wheresoever required in this Lease, and in lieu of the
legal rate to be used in the computation of any interest owed either party in
any judgment or award of the court, interest shall be charged at a rate equal
to the higher of:
(a) Ten percent (10%) per annum; or
(b) Five percent (5%) per annum, plus the rate established by the
Federal Reserve Bank of San Francisco on advances to member banks
under Sections 13 and 13(a) of the Federal Reserve Act (as now in
effect, or hereafter from time to time amended or, if there is no
such single terminable rate of advances, the closest counterpart
of such rate as shall be designated by the Superintendent of
Banks of the State of California, unless some other person or
agency is delegated such authority by the legislature) which is
prevailing on the twenty-fifth (25th) day of the month preceding
the "Accrual Date".
The "Accrual Date" shall be defined as follows: for purposes of Article 30, as
the initial date of default; and for all other purposes, the date of execution
of this Lease. Tenant hereby agrees that the use of such interest rate herein
shall not be deemed to be interest upon a loan or forbearance of money, for
goods or things in action for use primarily for personal, family or household
purposes within the meaning of the California Constitution, Article 15,
section 1.
35.12 TERMS, HEADINGS AND PRINT. The words "Landlord" and "Tenant" as
used herein shall include the plural as well as the singular. Words used in
any gender include other genders. The article headings are not a part of
this Lease, and such headings and any use of boldface, italics or
underlining are for convenience only, and shall have no effect upon the
construction or interpretation of this Lease.
35.13 TIME. Time is of the essence with respect to the performance of
every provision of this Lease in which time of performance is a factor.
35.14 ENTIRE AGREEMENT. This Lease contains the entire agreement of the
parties hereto with respect to any matter covered or mentioned in this Lease
and no prior agreement or understanding, oral or written, expressed or
implied, pertaining to any such matter shall be effective for any purpose.
No provision of this Lease may be amended or added to except by an agreement
in writing executed by both Landlord and Tenant or their respective
successors in interest. The parties acknowledge that all prior agreements,
representations and negotiations concerning the subject matter of this Lease,
or collateral thereto, are deemed superseded by the execution of this
Lease to the extent they are not incorporated herein and that this agreement
shall be deemed to be integrated.
35.15 SEVERABILITY. Any provision of this Lease which proves to be
invalid, void or illegal shall in no way affect, impair or invalidate any
other provisions hereof, and such other provisions shall remain in full
force and effect.
35.16 RECORDING. Tenant shall not record this Lease without the written
consent of Landlord, but may record a short form memorandum thereof mutually
acceptable to Landlord and Tenant. The obligations of Tenant are subject to
and contingent upon the issuance to Tenant on or before the Commencement Date,
from a title company reasonably acceptable to Landlord and Tenant, a
leasehold policy of title insurance insuring title to the leasehold estate
of Tenant under this Lease vested in Tenant and subject only to the
exceptions (A), (D), (1), (2), (4), (5), (6), (8), (9), (10), (12), and (13)
set forth in that certain preliminary report issued by Continental Lawyers
Title Company dated May 15, 1995, order number 5094319-67.
35.17 PLATS, RIDERS AND CLAUSES. Any addenda, clauses, plats, riders
and provisions executed by both Landlord and Tenant which are inserted in,
endorsed on or affixed to this Lease are a part hereof.
35.18 [Deleted].
35.19 QUIET POSSESSION. Except as otherwise provided in this Lease,
Tenant, upon paying the rents reserved hereunder and observing and
performing all of the covenants, conditions and provisions on Tenant's part
to be observed and performed hereunder, shall have quiet possession of the
Premises for the entire Term.
35.20 CUMULATIVE REMEDIES. No remedy or election hereunder shall be
deemed exclusive and, wherever possible, each remedy shall be cumulative
with all other remedies.
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35.21 EXAMINATION AND DELIVERY OF LEASE. Submission of this instrument
for examination or signature by Tenant does not constitute a reservation of,
or option to Lease and is not effective as a Lease or otherwise, or a
binding legal instrument until execution and delivery by all parties. Prior
to such execution and delivery, this Lease shall neither be legally binding
nor effective.
35.22 CONFIDENTIALITY. Each party agrees to keep the terms of this
Lease confidential and shall not disclose same to any other person not a
party hereto without the prior written consent of the other party; however,
either party may disclose the terms hereof to such party's accountants,
attorneys, managing employees, and others in privity with such party to the
extent reasonably necessary for such party's business purposes. Each party
agrees that a breach of this Article by such party will cause irreparable
injury to the other party and such other party shall be entitled, together
with all other remedies in law or equity available to such party, to
injunctive relief to restrain such breach.
35.23 AGREED FIGURES. All figures set forth in this Lease represent
negotiated sums and percentages and are conclusive as between Landlord and
Tenant.
35.24 JOINT PREPARATION. This Lease shall be deemed to have been prepared
jointly by Tenant and Landlord after arms' length negotiations between
sophisticated parties represented by competent legal counsel and other
representatives, and any uncertainty or ambiguity contained in this Lease, if
any, shall not be interpreted or construed against either party, but shall be
interpreted and construed according to its fair meaning applying the applicable
rules of interpretation and construction of contracts.
35.25 MEASUREMENT OF PREMISES. Landlord has had the Building measured by
Landlord's architect using methods consistent with the American National
Standard Institute Publication ANSI 265.1 -1980 ("BOMA"), and the rentable area
set forth in Article 1.1(d) reflects the results of such measurement. Tenant
may, once only at or about the execution of the Lease or the Commencement Date,
have the Building remeasured at Tenant's sole cost and expense by a licensed
architect using methods consistent with BOMA. If Tenant's measurement of the
Building differs from Landlord's measurement of the Building by more than three
percent (3%), and Landlord's and Tenant's respective architects cannot resolve
such difference within thirty (30) days after submission of Tenant's
measurement to Landlord, then each such architect shall, within fifteen (15)
days after the end of such thirty (30) day period, jointly appoint a third
architect not affiliated with either Tenant or Landlord, and the decision of
any two (2) of the three (3) architects shall be binding upon both Landlord
and Tenant. If Landlord's and Tenant's respective architects cannot agree
on the appointment of a single third architect within such fifteen (15) day
period, then the identity of the third architect shall be determined by
prompt application to the American Arbitration Association. Upon
determination of the rentable area of the Building in accordance herewith,
the Basic Monthly Rent shall be increased or decreased accordingly.
Notwithstanding the foregoing, the Basic Monthly Rent prior to the end of
the sixtieth (60th) month is agreed to be based upon a measurement of one
hundred thirty thousand rentable square feet (130,000 RSF) and, regardless
of any differences in measurement, shall not be subject to adjustment.
ARTICLE 36 - IMPROVEMENTS TO THE PREMISES
36.1 Except for the Landlord's Work to be performed by Landlord or
Landlord's Affiliate in accordance with the Work Letter (attached hereto as
Exhibit "B") and subject to the provisions of Article 38, Tenant shall accept
the Premises in its "as is" condition, and Landlord shall not be required to
make any improvements to the Premises (which Tenant shall accept inclusive of
the existing Leasehold Improvements, including all mars, stains, tears, holes
and other imperfections and defects therein).
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36.2 Landlord shall commence the Quake Work (as defined in Schedule 1
attached to the Work Letter) on or before November 30, 1995 (such date to be
known as the "Quake Work Start Date" and be subject to extension for either any
Force Majeure Delay, Tenant Delay delaying Landlord's commencement of the Quake
Work, or any delay caused by the existing tenant of the Premises taking legal
action against Landlord which prevents Landlord from commencing the Quake
Work), shall diligently proceed with the Quake Work, and shall use its best
commercially reasonable efforts to complete the Quake Work on or before January
31, 1996. If Landlord fails or refuses to commence the Quake Work on or before
the Quake Work Start Date, or diligently proceed with the Quake Work, then upon
five (5) business days' prior written notice to Landlord, Tenant may perform
the Quake Work, provided that legal possession of the Premises has been
obtained by Landlord, or permission has been obtained by either Landlord or
Tenant from such existing tenant permitting Tenant to perform such Quake Work.
If Tenant undertakes to perform the Quake Work in accordance with this
Article 36.2, then Landlord shall reimburse Tenant for Tenant's reasonable
costs in undertaking and performing such Quake Work on a progress payment
basis, within five (5) business days after receipt of Tenant's application for
payment, accompanied by Tenant-approved invoices and appropriate lien
releases from each contractor or subcontractor performing work or supplying
materials upon which the application for reimbursement is based. If Landlord
performs the Quake Work, then Tenant may perform Tenant's Work concurrently
with Landlord's performance of the Quake Work, provided that:
(a) Legal possession of the Premises has been obtained by Landlord,
or permission has been obtained by either Landlord or Tenant from
such existing tenant permitting Tenant to perform Tenant's Work;
(b) Tenant cooperates with Landlord in the scheduling of the Quake
Work and Tenant's Work; and
(c) The concurrent performance of Tenant's Work and the Quake Work
does not materially increase the cost of the Quake Work (or
Tenant agrees to reimburse Landlord for any such increased
costs).
If Tenant's Work cannot be concurrently performed with Landlord's Work due
to an inability to comply with subparagraph (a), then Landlord shall deliver
the Premises to Tenant for the performance of Tenant's Work upon the earlier
of legal possession of the Premises being obtained by Landlord, or
permission being obtained by either Landlord or Tenant from such existing
tenant permitting Tenant to perform Tenant's Work. If Tenant's Work cannot
be concurrently performed with Landlord's Work due to an inability to comply
with either subparagraph (b) or (c), then Landlord shall deliver the
Premises to Tenant for the performance of Tenant's Work upon the completion
of the Quake Work.
36.3 The Roof Work, Parking Lot Work and Painting Work (as defined in
Schedule 1 attached to the Work Letter) shall be substantially completed by
Landlord on or before the completion of the Tenant's Work, but in no case
later than the date upon which any Tenant's Work dependent upon the
completion of such Roof Work or Painting Work is to be performed; however,
Tenant may, at Tenant's election, defer Landlord's performance of the
Parking Lot Work to a later date, but no later than ninety (90) days after
the completion of Tenant's Work. If Tenant so defers the performance of the
Parking Lot Work to a period when Tenant is in occupancy of the Premises,
Tenant shall cooperate with Landlord in the scheduling thereof; however,
Tenant shall reimburse Landlord for any increased costs that Landlord may
reasonably incur to perform such work in phases or on weekends, if Tenant so
requires to prevent inconvenience to Tenant or interruption of Tenant's
business by the performance of the Parking Lot Work.
36.4 If Tenant, as part of Tenant's Work, either replaces existing rooftop
heating, ventilation and air conditioning units ("HVAC Units") with new HVAC
Units and/or installs additional HVAC Units, then the cost of such replacement
or additional HVAC Units, not to exceed Two Hundred Thousand Dollars
($200,000.00), shall be credited by Landlord to Tenant as additional excused
Basic Monthly Rent, beginning the sixteenth (16th) month of the Term. For
example, if Tenant expends Five Hundred Thousand Dollars ($500,000.00) for such
replacement or additional HVAC Units, then Tenant shall be entitled to a credit
against Basic Monthly Rent totaling Two Hundred Thousand Dollars ($200,000.00),
consisting of a credit of Eighty-Four Thousand Five Hundred Dollars
($84,500.00) in the sixteenth (16th) month of the Term, Eighty-Four Thousand
Five Hundred Dollars ($84,500.00) in the seventeenth (17th) month of the
Term, and Thirty-One Thousand Dollars ($31,000.00) in the eighteenth (18th)
month of the Term.
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ARTICLE 37 - OPTION TO TERMINATE WITH REGARD TO LANDLORD'S WORK
37.1 Tenant shall have the right to terminate this Lease upon thirty (30)
days' prior written notice to Landlord if Landlord and Landlord's Affiliate
fails to substantially complete all components of Landlord's Work (as set forth
in Schedule 1 attached to the Work Letter) on or before December 31, 1996, such
date to be extended to the extent that substantial completion of such
Landlord's Work is delayed by any Tenant Delay. Notwithstanding the
foregoing, this Lease shall not be terminated if Landlord completes
Landlord's Work within said thirty (30) day period, such thirty (30) day
period to likewise be extended to the extent that substantial completion of
such work is delayed by any Tenant Delay. Force Majeure Delay shall not be
a justification for any extensions of time under this Article 37.1.
Notwithstanding the foregoing, Tenant shall not have a right to terminate
this Lease in accordance with this Article 37.1 for any failure to complete
Quake Work which Tenant has undertaken to perform and complete in accordance
with Article 36.2, which failure results from Tenant Delay.
ARTICLE 38 - APPORTIONMENT OF EXTRAORDINARY EXPENSES
38.1 In the event that either Landlord or Tenant are reasonably required to
incur costs for Extraordinary Capital Improvements (pursuant to Article 6),
Extraordinary Compliance Requirements (pursuant to Article 8), Extraordinary
Repairs (pursuant to Article 11) or Uninsured Losses (pursuant to Article 20)
(collectively referred to herein as "Extraordinary Expenses"), then Landlord
and Tenant hereby agree to apportion the costs thereof as follows:
(a) With respect to Extraordinary Expenses incurred prior to the end
of the sixtieth (60th) month of the Term:
(i) Landlord shall pay the first Two Million Dollars
($2,000,000.00) of any item of Extraordinary Expenses.
(ii) Tenant shall pay the next Five Hundred Thousand Dollars
($500,000.00) of any item of Extraordinary Expenses, in
excess of the first Two Million Dollars ($2,000,000.00) of
Extraordinary Expenses paid by Landlord.
(iii) If the item of Extraordinary Expenses exceeds Two Million
Five Hundred Thousand Dollars ($2,500,000.00), then
Landlord may either pay such excess amounts or elect to
terminate this Lease upon not less than ninety (90) days
prior written notice to Tenant, such notice to be given
within thirty (30) days after Landlord determines the need
for, or Tenant gives notice to Landlord of the need for,
incurring such Extraordinary Expenses. If Landlord fails
to do either of the foregoing within said thirty (30) day
period, and further fails to do either of the foregoing
within ten (10) days after receipt of written notice from
the Tenant setting forth such failure, then Landlord shall
be deemed to have elected to pay such excess amounts;
however, if at the time Landlord determines the need for,
or Tenant notifies Landlord of the need for, incurring
such Extraordinary Expenses, the cost of the Extraordinary
Expenses cannot be reasonably determined within said
thirty (30) day period, then said thirty (30) day period
shall be extended for such time as is reasonably necessary
to determined such costs, provided that Landlord commences
such determination of costs within said thirty (30) day
period and proceeds with diligence to complete such
determination.
(iv) If Landlord elects to terminate this Lease, then Tenant
may, within sixty (60) days of receipt of Landlord's notice
of termination, notify Landlord that Tenant has elected to
pay such Extraordinary Expenses in excess of Two Million
Five Hundred Thousand Dollars ($2,500,000.00), in which
case this Lease shall not terminate and shall continue in
full force and effect.
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(v) If, after receipt of Landlord's notice of termination,
Tenant does not so elect to pay such Extraordinary
Expenses in excess of Two Million Five Hundred Thousand
Dollars ($2,500,000.00), then Landlord shall either
elect upon not less than thirty (30) days prior notice
to Tenant (such notice to be given within thirty [30]
days from the earlier of the end of the sixty [60] day
period referred to in subparagraph [a][iv] of this
Article 38.1 or the day upon which Tenant gives notice
to Landlord of its intention not to pay such
Extraordinary Expenses in excess of Two Million Five
Hundred Thousand Dollars [$2,500,000.00]) to pay such
excess amounts (in which case the Lease shall not so
terminate) or Landlord shall, within thirty (30) days
after this earlier termination of the Lease, pay to
Tenant the lesser of:
(A) The unamortized costs of Tenant's Work as of the
date of such early termination, assuming that the
cost of such Tenant's Work is fully amortized over
the Term, in equal monthly installments, with
interest as provided in Article 35.11; or
(B) Two Million Dollars ($2,000,000.00).
(b) With respect to Extraordinary Expenses incurred after the end of
the sixtieth (60th) month of the Term:
(i) Subject to subparagraph (iii), below, the Primary Payor
shall pay the Primary Portion of any item of Extraordinary
Expenses.
(ii) Subject to subparagraph (iv), below, the Secondary Payor
shall pay the Secondary Portion of any item of
Extraordinary Expenses.
(iii) If the Primary Payor's obligation under subparagraph (i),
above, exceeds the Primary Cap, then:
(A) The Primary Payor may either pay the excess amount or
elect to terminate this Lease upon not less than ninety
(90) days notice ("Primary Payor's Initial Notice") to
the Secondary Payor, such Primary Payor's Initial
Notice to be given within thirty (30) days after the
Primary Payor determines the need for, or the Secondary
Payor gives notice to the Primary Payor of its
determination of the need for, incurring such
Extraordinary Expenses. If the Primary Payor fails to
do either of the foregoing within said thirty (30) day
period, and further fails to do either of the foregoing
within ten (10) days after receipt of written notice
from the Secondary Payor setting forth such failure,
then the Primary Payor shall be deemed to have elected
to pay such excess amounts; however, if at the time the
Primary Payor determines the need for, or the Secondary
Payor notifies the Primary Payor of the need for,
incurring such Extraordinary Expenses, the cost of the
Extraordinary Expenses cannot be reasonably determined
within said thirty (30) day period, then said thirty
(30) day period shall be extended for such time as is
reasonably necessary to determined such costs, provided
that the Primary Payor commences such determination of
costs within said thirty (30) day period and proceeds
with diligence to complete such determination.
(B) If the Primary Payor elects to so terminate this Lease
pursuant to subparagraph (A), above, then the Secondary
Payor may, within sixty (60) days after receipt of the
Primary Payor's Initial Notice, notify the Primary
Payor that the Secondary Payor has elected to pay such
Extraordinary Expenses in excess of the amount payable
by the Primary Payor pursuant to subparagraph (i), in
which case this Lease shall not terminate and shall
continue in full force and effect; however, if the
Secondary Payor fails to give such notice within such
sixty (60) day period, then the Secondary Payor shall
be deemed to have elected not to pay such excess.
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(C) If the Secondary Payor has within said sixty (60) day period (or
is deemed to have) elected to pay such excess pursuant to
subparagraph (B), above, then the Primary Payor may elect upon
notice to the Secondary Payor (such notice to be given on or
before the earlier of either the expiration of said sixty (60)
day period or thirty [30] days after receipt of the Secondary
Payor's notice that the Secondary Payor has elected not to pay
such excess) to pay such excess, in which case this Lease shall
not so terminate.
(D) If the Primary Payor does not elect within said sixty (60) day
period (or thirty [30] day period, as the case may be) to pay
such excess pursuant to subparagraph (C), above, then this Lease
shall terminate on the date specified in the Primary Payor's
Initial Notice.
(iv) If the Secondary Payor's obligation under subparagraph (ii), above,
exceeds the Secondary Cap, then:
(A) The Secondary Payor may either pay such excess amounts or elect
to terminate this Lease upon not less than ninety (90) days
notice ("Secondary Payor's Initial Notice") to the Primary Payor,
such Secondary Payor's Initial Notice to be given within thirty
(30) days after the Secondary Payor determines the need for, or
the Primary Payor gives notice to the Secondary Payor of its
determination of the need for, incurring such Extraordinary
Expenses. If the Secondary Payor fails to do either of the
foregoing within said thirty (30) day period, and further fails
to do either of the foregoing within ten (10) days after receipt
of written notice from the Primary Payor setting forth such
failure, then the Secondary Payor shall be deemed to have elected
to pay such excess amounts; however, if at the time the Secondary
Payor determines the need for, or the Primary Payor notifies the
Secondary Payor of the need for, incurring such Extraordinary
Expenses, the cost of the Extraordinary Expenses cannot be
reasonably determined within said thirty (30) day period, then
said thirty (30) day period shall be extended for such time as is
reasonably necessary to determined such costs, provided that the
Secondary Payor commences such determination of costs within said
thirty (30) day period and proceeds with diligence to complete
such determination.
(B) If the Secondary Payor elects to so terminate this Lease pursuant
to subparagraph (A), above, then the Primary Payor may, within
sixty (60) days after receipt of the Secondary Payor's Initial
Notice, notify the Secondary Payor that the Primary Payor has
elected to pay such Extraordinary Expenses in excess of the
amount payable by the Secondary Payor pursuant to subparagraph
(ii), in which case this Lease shall not terminate and shall
continue in full force and effect; however, if the Primary Payor
fails to give such notice within such sixty (60) day period, then
the Primary Payor shall be deemed to have elected not to pay such
excess.
(C) If the Primary Payor has within said sixty (60) day period (or is
deemed to have) elected to pay such excess pursuant to
subparagraph (B), above, then the Secondary Payor may elect upon
notice to the Primary Payor (such notice to be given on or before
the earlier of either the expiration of said sixty (60) day
period or thirty [30] days after receipt of the Secondary Payor's
notice that the Secondary Payor has elected not to pay such
excess) to pay such excess, in which case this Lease shall not so
terminate.
(D) If the Secondary Payor does not elect within said sixty (60) day
period (or thirty [30] day period, as the case may be) to pay
such excess pursuant to subparagraph (C), above, then this Lease
shall terminate on the date specified in the Secondary Payor's
Initial Notice.
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(c) In each case where such Extraordinary Expenses may be incurred,
The Primary Payor, Primary Portion, Primary Cap, Secondary Payor,
Secondary Portion and Secondary Cap shall be defined and
determined as follows:
(i) The "Trigger Date" shall be that date upon which the
amount of the Extraordinary Expense is first estimated
or determined by Landlord, in the exercise of
Landlord's reasonable judgment; however, neither party
shall either unduly delay or unduly hasten the
determination of the need for, or the notification of
the other party of such party's determination of the
need for, incurring such Extraordinary Expenses
(considering any time period for compliance which may
be applicable to any such Extraordinary Expenses) in
order to cause a Trigger Date to occur which would
increase the burden of such Extraordinary Expenses on
the other party. Notwithstanding the foregoing, in the
case where such Extraordinary Expenses are required to
comply with the requirement of a governing authority,
nothing herein shall prevent a party from making
application to any governing authority for a waiver,
variance or other dispensation which may delay,
obviate, or diminish such requirement, provided that
such application does not serve to increase the burden
of such Extraordinary Expenses on the other party.
(ii) The "Days Prior" shall be the number of days after the
end of the sixtieth (60th) month of the Term up to and
including the Trigger Date.
(iii) The "Days Remaining" shall be the number of days after
the Trigger Date, up to and including the Termination
Date.
(iv) The "Total Days" shall be the number of days after the
end of the sixtieth (60th) month of the Term up to and
including the Termination Date.
(v) The "Primary Payor" shall be:
(A) If the Days Remaining equal or exceed the Days
Prior, the Tenant; or
(B) If the Days Prior exceed the Days Remaining, the
Landlord.
(vi) The "Secondary Payor" shall be that party who is not
the Primary Payor, as determined immediately above.
(vii) The "Primary Portion" shall be that fraction where the
numerator is the greater of the Days Prior or Days
Remaining, and the denominator is the Total Days.
(viii) The "Secondary Portion" shall be that fraction where
the numerator is the lesser of the Days Prior or Days
Remaining, and the denominator is the Total Days.
(ix) The "Primary Cap" shall be:
(A) If the Trigger Date is a date up to and including
the last day of the one hundred sixty-eighth
(168th) month of the Term, that amount determined
by multiplying the Primary Portion by Two Million
Five Hundred Thousand Dollars ($2,500,000.00); or
(B) If the Trigger Date is a date after the last day
of the one hundred sixty-eighth (168th) month of
the Term, Zero Dollars ($0.00).
(x) The "Secondary Cap" shall be that amount determined by
multiplying the Secondary Portion by Two Million Five
Hundred Thousand Dollars ($2,500,000.00).
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38.2 The identification of certain expenses as Extraordinary Expenses, the
allocation of obligation of payment of Extraordinary Expenses between Landlord
and Tenant, and rights to terminate this Lease by Landlord and Tenant set forth
in this Article 38, have been agreed by Landlord and Tenant to be the basis upon
which certain costs and expenses may be allocated between Landlord and Tenant.
Except as expressly set forth in this Article 38, or otherwise expressly set
forth elsewhere in this Lease, Tenant shall not make a claim against Landlord,
and Landlord shall not in any manner be held liable, for payment of all or any
portion of any costs or expenses related to this Lease on the basis that such
costs and expenses could not have been reasonably foreseen, or would require
curative actions of a substantial nature, regardless of: the term remaining in
the Lease at the time such requirements are imposed; the costs of the curative
actions as compared to the total rent reserved under this Lease for the entire
Term; whether the curative actions are structural or non-structural in nature;
the extent to which Tenant's enjoyment of the Premises will be interfered with
while taking such curative actions; the extent to which either party
contemplated such curative actions; and the extent to which the curative action
might benefit the Tenant during the Term as compared to the benefit to the
Landlord after this Lease terminates.
WHEREUPON, THE PARTIES HERETO HAVE EXECUTED THIS LEASE
ON THE DATES INDICATED
PANAVISION INTERNATIONAL L.P.
Date: June 13, 1995 By: /s/ JEFFREY MARCKETTA
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Title: Executive Vice President
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By:
--------------------------------
Title:
-----------------------------
TRIZEC WARNER INC.
Date: June 13, 1995 By: /s/ CRAIG CAHOW
--------------------------- --------------------------------
Title: Vice President
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By: /s/ ROBERT FORREST
--------------------------------
Title: Senior Vice President
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Initial Here:
Tenant: /s/ JM
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Landlord: /s/ CC
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Page 32 of 32
<PAGE>
EXHIBIT "A"
LEGAL DESCRIPTION
The real property commonly known as 6219 De Soto Avenue, Woodland
Hills, California and more particularly described as:
That real property constituting Lot 1 of Tract 21648, in the City
of Los Angeles, State of California, as per map recorded in Book
773 Pages 49 and 50 of maps, in the Office of the County Recorder
of said County.
<PAGE>
EXHIBIT "B"
WORK LETTER
This Work Letter is attached to and made a part of the Lease executed
concurrently herewith by and between the Landlord and Tenant. Except as
otherwise provided herein, all capitalized terms not otherwise defined herein
shall have the same meaning as provided in the Lease.
1. CONSTRUCTION REPRESENTATIVES
1.1 With respect to matters covered by this Work Letter, Landlord shall be
represented by TriTech Asset Services Group, Inc. ("Landlord's Affiliate").
1.2 With respect to matters covered by this Work Letter, Tenant shall
designate an individual to be Tenant's representative ("Tenant's
Representative").
1.3 All inquiries, requests, instructions, authorizations and other
communications with respect to the matters covered by this Work Letter shall be
made between Landlord's Affiliate and Tenant's Representative; including any
inquiries, requests, instructions or authorizations to any employee, contractor
or agent of the other. Either party may change its respective representative by
giving written notice to the other.
2. LANDLORD'S AND TENANT'S WORK
2.1 Tenant shall acquire the Premises in its "as is" condition, inclusive
of all defects, imperfections, mars, stains, blemishes and flaws in the existing
Leasehold Improvements, and Landlord shall not be required to perform any
improvements or corrections to the Premises, except and unless specifically set
forth in Schedule 1, attached hereto ("Landlord's Work"), and except as
otherwise provided in the Lease. Landlord's Work, shall be performed,
constructed, installed, inspected and supervised by Landlord's Affiliate at
Landlord's sole cost and expense, in a good and workmanlike manner, in
accordance with all applicable laws, statutes, ordinances, building codes,
regulations and requirements of federal, state and local governmental
authorities and agencies having jurisdiction over Landlord's Work, and otherwise
in accordance with the provisions of this Work Letter.
2.2 All work shown on the Final Plans or otherwise required as a condition
of obtaining permits, approvals and certificates from Landlord and governing
authorities necessary for construction of such work and Tenant's use and
occupancy of the Premises, excepting only that specifically set forth as
Landlord's Work (if any), shall be "Tenant's Work". Tenant's Work shall be
performed, constructed, installed, inspected and supervised at Tenant's sole
cost and expense, in a good and workmanlike manner, in accordance with all
applicable laws, statutes, ordinances, building codes, regulations and
requirements of federal, state and local governmental authorities and agencies
having jurisdiction over Tenant's Work, and otherwise in accordance with the
provisions of this Work Letter.
3. DELAYS
3.1 [Deleted].
3.2 "Tenant Delay" is defined as any delay in the performance of
Landlord's Work (or the construction of the Tenant's Work, if Landlord's
Affiliate is Tenant's Contractor) caused by Tenant's (or its employee's,
contractor's or agent's) act or failure to act, including without limitation:
failure to cooperate with Landlord in selection of paint for Painting Work; if
the Landlord's Affiliate is Tenant's Contractor, changes to Space Plans or Final
Plans after receipt of Landlord's approval thereof; if the Landlord's Affiliate
is Tenant's Contractor, specification of a material, finish or installation for
Tenant's Work which is unavailable or requires a lead time substantially
exceeding that of comparable products; if the Landlord's Affiliate is Tenant's
Contractor, failure to cooperate with Landlord or government authorities having
jurisdiction over the construction of the Tenant's Work; and, if Landlord's
Affiliate is Tenant's Contractor, failure to timely make payments to Landlord's
Affiliate for Tenant's Work. Notwithstanding the foregoing, Tenant Delay shall
be excused to the extent caused by or aggravated by Landlord Delay or Force
Majeure Delay.
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3.3 "Landlord Delay" is defined as any delay in the performance of
Tenant's Work caused by Landlord's (or its employee's, contractor's or agent's)
act or failure to act, including without limitation: failure to approve or
disapprove of any item in the form, or with such detail, as may be required
within the time period specified for such approval or disapproval;
misrepresentation of the accuracy of base Building plans furnished to Tenant;
failure to provide access to Tenant or Tenant's Contractor as required herein;
and, failure to cooperate with Tenant or government authorities having
jurisdiction over the construction of the Tenant's Work. Notwithstanding the
foregoing, Landlord Delay shall be excused to the extent caused by or aggravated
by Tenant Delay or Force Majeure Delay. Landlord Delay shall further include
Landlord's or Landlord's Affiliate's failure to complete Landlord's Work on or
before January 31, 1996, for any reason, except to the extent that such failure
to complete Landlord's Work by such date is caused by Tenant Delay.
3.4 "Force Majeure Delay" is defined as any delay in the performance of
Landlord's Work or Tenant's Work resulting from an occurrence beyond the
reasonable control of either Landlord or Tenant (or their respective employees,
contractors or agents), including (without limitation): an act of God or the
elements of nature; fire or other casualty; war, riot, insurrection, or public
disturbance; a black-out or other interruption of utility service from the
provider to the Building; a strike or other labor disturbance (except to the
extent caused by an illegal act of the party claiming excuse for Force Majeure
Delay); changes in government codes or regulations (or the interpretation of
same); the unavailability of government permits or approvals within the time
customarily available; or a general shortage of materials or supplies.
3.5 If a party claims that a delay in the performance of any of its
obligations under this Work Letter is excused by Tenant Delay, Landlord Delay or
Force Majeure Delay (as defined in Paragraphs 3.2, 3.3 or 3.4, above), it shall,
within five (5) business days of its discovery of the cause of such delay,
notify the other party in writing of such claim, the nature of the claimed
delay, and the date upon which the delay is claimed to have commenced; however,
if a party claiming delay notifies the other party of such claim after said five
(5) business day period expires, then delay may only be claimed to have
commenced no earlier than a date five (5) business days prior to the date such
notice is given. Notice of any claimed delay by a party is solely for the
purpose of providing the other party an opportunity to take action to prevent
further delay (if any such action is required or advisable), and the act,
itself, of giving notice of any claimed delay shall not be deemed to establish
that any such delay actually occurred or resulted in a delay in the performance
of such party's duties hereunder.
4. PLANS AND PERMITS
4.1 Tenant shall prepare plans showing the architectural design of the
Premises, including partition layout, location of receptacles, and reflective
ceiling plans ("Space Plans"). Tenant shall submit the Space Plans to Landlord
for review and approval. Landlord shall review and approve or disapprove of the
Space Plans within five (5) business days of receipt. If Landlord disapproves
of any portion of the Space Plans, Landlord shall advise Tenant of the same and
the reason therefor within such five (5) day period, and Tenant shall promptly
use reasonable efforts to revise the Space Plans to eliminate Landlord's
objection and resubmit the same to Landlord for review and approval. Landlord
shall review and approve or disapprove of revised Space Plans within three (3)
business days of receipt. Review, revision and resubmission shall continue
until the Space Plans are fully approved by Landlord. Any revisions or
supplements to the Space Plans after initial approval by Landlord (and before
initial submittal to Landlord of the Final Plans) shall be subject to Landlord's
review and approval or disapproval in the same manner as provided herein with
respect to resubmissions. Notwithstanding anything to the contrary contained
herein, Landlord may only disapprove of the Space Plans to the extent that: the
proposed Tenant's Work will materially adversely affect the exterior appearance
of the Building; or, the proposed Tenant's Work will materially adversely affect
base Building structural (including, without limitation, foundation, slab,
bearing walls, columns, roof supports and roof), mechanical, electrical,
plumbing, fire/life safety, heating or air conditioning components and systems.
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4.2 After the Space Plans are fully approved by Landlord, Tenant shall
prepare complete architectural plans, drawings and specifications, and
engineered mechanical, structural and electrical working drawings in a form and
in such detail as is reasonably necessary to accurately construct the Tenant's
Work ("Final Plans"); including, without limitation, layout, finish and
decorative work (including carpeting and other floor coverings), any proposed
improvement affecting the base Building structural, mechanical, electrical,
intra-Building telephone network cabling, plumbing, fire/life safety, heating,
ventilation and air conditioning systems, and any item which will require
installation of conduit, plumbing or other improvements within Common Areas or
other premises. Landlord shall review and approve or disapprove of the Final
Plans within ten (10) business days of receipt. If Landlord disapproves of any
portion of the Final Plans, Landlord shall advise Tenant of the same and the
reason therefor within such ten (10) day period, and Tenant shall promptly use
reasonable efforts to revise the Final Plans to eliminate Landlord's objection
and resubmit the same to Landlord for review and approval. Landlord shall
review and approve or disapprove of revised Final Plans within three (3)
business days of receipt. Review, revision and resubmission shall continue
until the Final Plans are fully approved by Landlord. Any revisions or
supplements to the Final Plans after initial approval by Landlord shall be
subject to Landlord's review and approval or disapproval in the same manner as
provided herein with respect to resubmissions. Notwithstanding anything to the
contrary contained herein, Landlord may only disapprove of the Final Plans to
the extent that: the proposed Tenant's Work will materially adversely affect
the exterior appearance of the Building; or, the proposed Tenant's Work will
materially adversely affect base Building structural (including, without
limitation, foundation, slab, bearing walls, columns, roof supports and roof),
mechanical, electrical, plumbing, fire/life safety, heating or air conditioning
components and systems.
4.3 Tenant shall not include in the Space Plans or Final Plans any
requirement which will: be incompatible with the design, construction and
equipment of the Building; impair the exterior appearance of the Building; or,
violate any applicable laws, ordinances, regulations or directives of any
governmental authority having jurisdiction over the Premises..
4.4 If permits are required for Tenant's Work, Tenant shall (with
Landlord's cooperation and assistance) secure such permits and approvals as may
be required from any governmental authority having jurisdiction. If any
government authority requires alterations, modifications or supplements to the
Final Plans, Tenant hereby agrees to promptly make such alterations,
modifications or supplements necessary to obtain any required permits, unless
such alterations, modifications or supplements will substantially adversely
affect Tenant's use and occupancy of the Premises for the Specific Uses;
provided, however, that if making such alterations, modifications or supplements
would increase the cost of Tenant's Work to an amount which is in excess of the
amount that Tenant had budgeted therefor, Tenant may, with Landlord's consent
(which shall not be unreasonably withheld or delayed, and otherwise be obtained
in accordance with Paragraph 4.3, above) modify the Final Plans so as to
eliminate the need for such government mandated alterations, modifications or
supplements and/or so as to bring the overall cost of Tenant's Work, including
such government mandated alterations, modifications or supplements within
Tenant's budget.
5. SELECTION OF CONTRACTOR TO PERFORM TENANT'S WORK
5.1 If Tenant submits the approved Final Plans to independent general
contractors for bidding, then Landlord's Affiliate may, but shall not be
required to, also submit a bid for construction of Tenant's Work.
5.2 Tenant shall select a contractor ("Tenant's Contractor" [which may
also be Landlord's Affiliate]) and enter into a written contract with Tenant's
choice of contractor, providing for payment on a progress payment basis, and
otherwise on such terms and conditions as are commercially reasonably and do not
otherwise violate the terms of the Lease and this Work Letter.
6. ACCESS TO PREMISES
6.1 Landlord shall provide Tenant's Contractor and its subcontractors with
reasonable access to the Building, Common Areas and Premises in order that
Tenant's Contractor may perform the Tenant's Work and Tenant may install
Tenant's trade fixtures, furnishings, telephone, communications and computer
systems ("FFE Work") on or before the Anticipated Commencement Date (as such
date may be extended by any Landlord Delay or Force Majeure Delay pursuant to
Article 2.1(a)(ii) of the Lease, and subject to Landlord's ability to deliver
the Premises to Tenant for the performance of Tenant's Work as contemplated in
Article 36.2). Prior to any access to the Premises, Tenant's Contractor and
each of its subcontractors, and any independent contractor of Tenant performing
FFE Work, shall comply with the Insurance Requirements set forth in Schedule 2,
attached hereto.
6.2 If Landlord's Affiliate is not Tenant's Contractor, Landlord, Tenant,
Landlord's Affiliate and Tenant's Contractor, shall cooperate with each other in
the scheduling and performance of Landlord's Work, Tenant's Work and FFE Work,
and shall each take all commercially reasonable steps to avoid Tenant Delay or
Landlord Delay.
Initial Here:
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Landlord:_______ Page 3 of 7
<PAGE>
7. WARRANTIES
7.1 Landlord warrants the performance of Landlord's Work (defined in
Schedule 1) as follows:
(a) Quake Work shall be of good quality and free from defects of any
kind and shall be warranted for the Term;
(b) Roof Work shall be of good quality and free from any defects of
any kind and shall be warranted for a period of five (5) years
from the Commencement Date;
(c) Parking Lot Work and Painting Work shall be of good quality and
free from defects of any kind and shall be warranted for a period
of one (1) year from the Commencement Date; and,
(d) All of Landlord's Work shall be performed in substantial
conformance with the requirements of the plans and/or
specifications referred to in Schedule 1, and otherwise in
accordance with Schedule 1, subject to any alterations,
modifications or supplements as may be required from any
governmental authority having jurisdiction.
7.2 If Landlord's Affiliate is Tenant's Contractor, then Landlord warrants
to Tenant that all materials and equipment furnished under this Work Letter in
connection with the performance of the Tenant's Work will be new (unless
otherwise specified in the Final Plans) and that all Tenant's Work will be of
good quality, free from defects, and in substantial conformance with the
requirements of the Final Plans and this Work Letter, and the Tenant's Work
shall be warranted by Landlord for a period of one (1) year from the
Commencement Date.
7.3 Any Landlord's Work, and Tenant's Work (if Landlord's Affiliate is
Tenant's Contractor), found not to conform to the foregoing requirements within
the applicable period specified above with respect to each item of Landlord's
Work or Tenant's Work (as applicable) will be repaired or replaced, as the case
may be, by Landlord which will also repair or replace any and all other work or
property which may be displaced, damaged or marred in so doing, all without any
expense to Tenant. Notwithstanding the foregoing, nothing herein shall be
deemed to relieve any insurer of either Landlord or Tenant, or Tenant (to the
extent that Tenant elects to self-insure pursuant to Article 18.2), from any
obligation with respect to any work or property which may be displaced, damaged
or marred in connection with such repairs or replacement, and which occurrence
is covered (or required to be covered) by insurance maintained by either
Landlord or Tenant (or self-insured by Tenant).
8. PUNCH-LIST ITEMS
8.1 Landlord shall notify Tenant of completion of each component of
Landlord's Work. With respect to any component of Landlord's Work which may not
be reasonably accessible after the completion of Tenant's Work, within ten (10)
business days thereof, Landlord and Tenant shall meet to conduct a walk-through
of the Premises to inspect such component of Landlord's Work. With respect to
Landlord's Work which will remain reasonably accessible after the completion of
Tenant's Work, within thirty (30) days after the later of the Commencement Date
or the completion of all such Landlord's Work, Landlord and Tenant shall meet to
conduct a walk-through of the Premises to inspect all such Landlord's Work.
Landlord and Tenant shall, at the time of each such walk-through, jointly
prepare a list of any claimed deficiencies in the Landlord's Work (the
"Punchlist"). Within ten (10) business days after preparation of each such
Punchlist (or upon any other mutually agreeable date, considering that Tenant's
Work may be underway), Landlord shall begin corrective work and diligently
prosecute the same to completion. Notwithstanding the foregoing, Landlord shall
not be responsible for correcting any damage caused to the Landlord's Work by
Tenant or its employees, contractors or agents (including Tenant's Contractor,
if other than Landlord's Affiliate) including, without limitation, any damage
caused to the Landlord's Work in connection with the performance of Tenant's
Work or FFE Work and, if Tenant fails to request inclusion of any claimed
deficiency on any such Punchlist as provided herein, then Tenant shall be deemed
to have accepted the Landlord's Work inclusive of such claimed deficiency and
waived any right to corrective work with respect to the same except for latent
defects in such Landlord's Work and Landlord's obligations under the warranties
set forth in Paragraph 7, above.
8.2 If Tenant's Contractor is Landlord's Affiliate, then the same
procedure set forth in paragraph 8.1, above shall be followed with respect to
correction of Punchlist items in Tenant's Work performed by Landlord's
Affiliate.
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SCHEDULE 1 - LANDLORD'S WORK
Landlord's Work shall consist of the following:
(a) Landlord shall repair existing structural earthquake damage to the
Building (including repair of the slab, walls and pilasters) and
perform Division 91 upgrades as required for the entire Building
(including those areas not earthquake damaged), all as set forth on
the following plans ("Quake Work"):
(i) Kariotos & Associates Structural Engineers, Earthquake
Damage Repair at Dataproducts, 6219 De Soto Avenue, Woodland
Hills, California, dated July 18, 1994, Job #94-304,
drawings S-1 through S-4; and
(ii) Kariotos & Associates Structural Engineers, Earthquake
Damage Repair, Dataproducts Corp., 6219 De Soto Avenue,
Woodland Hills, California, dated January 12, 1995, Job
#94-1202, drawings S-1 through S-3.
(b) Landlord shall perform work on the surface parking areas as follows
("Parking Lot Work"):
(i) Remove and stockpile all existing concrete wheelstops;
(ii) Key cut and coldplane all existing asphalt paving adjacent
to existing concrete flowgutters, drive approaches and
concrete slabs, 1,965 linear feet. x 40 inches in width, to
a depth of 1 to 1 1/2 inches below existing elevations;
(iii) Remove all surface vegetation from existing cracks, power
sweep and clean all existing asphalt throughout property,
and apply weed poison to all cracked areas;
(iv) Apply a tack coat of SSIH over all existing asphalt surface
parking areas;
(v) Surface patch low and depressed areas with varying
thickness' of asphalt and bring up to existing grade;
(vi) Resurface 205,380 square feet with a finished 1 inch of
compacted asphaltic concrete paving machine laid;
(vii) Lay out and stripe 462 single line parking stalls, 4
handicap stalls and 30 arrows, including all zones as per
existing layout or as may be required by law; and
(viii) Reinstall all existing concrete wheelstops.
(c) Landlord shall repair the roof of the Building to the extent necessary
to put the roof in good repair and free of leaks, except to the extent
that any such leaks are caused by Tenant's Work ("Roof Work").
(e) Landlord shall repaint the exterior of the Building a mutually
acceptable single color ("Painting Work"), as follows:
(i) For concrete panel surfaces, pressure wash and clean
surfaces to be painted, patch and caulk as necessary, spot
prime, and paint with 100% Acrylic PlastoLife paint;
(ii) For metal surfaces, sand and wire brush all surfaces as
necessary, clean, spot prime and paint using industrial
high-gloss enamel; and
(iii) For wood surfaces, wash and clean surfaces to be painted,
caulk and patch as necessary, prime, and paint with acrylic
stain.
No Painting Work shall be performed on any unpainted stone.
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<PAGE>
SCHEDULE 2 - INSURANCE REQUIREMENTS
The following are the standard types, amounts and forms of insurance
required under the General Subcontract Conditions. The policies of insurance
shall be in such form and shall be issued by such company or companies as may be
satisfactory to Landlord's Affiliate.
WORKER'S COMPENSATION INSURANCE
As required by any applicable law or regulation or statute and to include
coverage for the state in which the project is located and the states in which
any subcontractor is domiciled.
EMPLOYER'S LIABILITY
Minimum limits of liability:
(a) Each accident: $500,000
(b) Disease - policy limit: $500,000
(c) Disease - each employee: $500,000
COMMERCIAL GENERAL LIABILITY INSURANCE
Covering all operations by or on behalf of Subcontractor to include
coverage for:
(a) Premises, operations and mobile equipment;
(b) Products liability and completed operation:
(c) Contractual liability applicable to the Subcontractor's
obligations;
(d) Broad form property damage (including completed operations);
(e) Explosion, collapse, and underground hazards;
(f) Personal injury liability; and
(g) Independent contractors
Minimum limits of liability:
(a) Each occurrence: $1,000,000
(b) General aggregate: $2,000,000
(c) Products liability/completed
operations aggregate: $2,000,000
AUTOMOBILE LIABILITY
Combined Single Limit Policy of $1,000,000 must include comprehensive
forms, owned, hired, non-owned. Separate Limits per person are acceptable
provided the per person and per occurrence limits for bodily injury are each not
less than $1,000,000.
GENERAL REQUIREMENTS
All general liability, automobile liability and excess insurance shall be
written on an "occurrence" basis; "claims-made" insurance is not acceptable.
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Landlord, and any other person or entity as reasonably required by
Landlord, shall be included as additional insureds on the general liability,
automobile liability and any excess policies provided by contractor. This
coverage shall be primary insurance for the additional insureds for losses
relating to work constituting Tenant's Work or for which contractor is otherwise
liable in whole or in part. Any other insurance available to the additional
insureds will be excess only and will not contribute with this insurance.
Prior to commencement of work contractor shall submit to Landlord
certificates of insurance showing the required insurance. Upon request,
contractor shall furnish certified copies of required insurance policies and, if
requested shall furnish updated policies thereafter. Prior to expiration of any
of the insurance policies, contractor shall submit updated certificates of
insurance to Landlord. All certificates shall provide that there will be no
cancellation, material modification or reduction of coverage without reasonable
written notice to Landlord.
Each property insurance policy shall contain a waiver subrogation against
Landlord.
Contractor as used herein includes any and all subcontractors,
sub-subcontractors, etc.
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<PAGE>
EXHIBIT "C"
LIST OF HAZARDOUS MATERIALS REPORTS
1. Preliminary Site Assessment, Dataproducts Facilities, Northeast Corner
Canoga and Erwin and Northwest Corner DeSoto and Erwin, Woodland Hills,
California, for Trizec Properties, Inc., March 1, 1989. Dames & Moore Job
No. 18496-001-042.
2. Limited Site Investigation, Dataproducts Facilities, Woodland Hills,
California, for Trizec Properties, Inc., September 22, 1989. Dames & Moore
Job No. 18496-002-042.
3. Amended Limited Asbestos Assessment for 6219 DeSoto Avenue, for Trizec
Properties, Inc., December 4, 1989. Dames & Moore Job No. 18496-002-042.
4. Phase II Site Investigation, Dataproducts Facility (Site 2), 6219 DeSoto
Avenue, Woodland Hills, California, for Trizec Properties, Inc., June 12,
1990. Dames & Moore Job No. 18496-003-042.
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<PAGE>
EXHIBIT "D"
SPECIFICATIONS FOR CONTAMINATION STUDY
June 9, 1995
Trizec Properties, Inc.
15760 Ventura Boulevard
Suite 500
Encino, California 91436
Attention: Mr. Craig Cahow
Mr. Cahow:
Proposal
Subsurface Soil Investigation
Former Dataproducts Facility
6219 DeSoto Avenue
Woodland Hills, California
For Trizec Properties, Inc.
---------------------------
1.0 INTRODUCTION
Dames & Moore is pleased to submit this proposal to perform a soil
investigation involving a soil vapor survey at the 6219 DeSoto Avenue
property (site or subject property). Previous investigations performed by
Dames & Moore at the property have shown that groundwater beneath the site
has been impacted by volatile organic compounds (VOCs). A soil vapor survey
was performed that indicated the possibility for VOC impacted onsite soils.
However, the survey was limited to an area along the northern boundary of the
property and the results were inconclusive. An upgradient offsite source of
VOCs impacting groundwater was identified. Dataproducts stored chemicals in
an outside area at the northwest corner of the building.
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Trizec Properties, Inc.
June 9, 1995
Page 2
Dames & Moore understands that the purpose of this investigation is to
identify potential areas of concern and the provide information on current
site conditions.
2.0 PURPOSE AND SCOPE OF SERVICES
The purpose of this proposed project is to evaluate soil vapor throughout the
site and in areas where chemicals were known to be stored. This
investigation is intended to evaluate current site conditions. This will be
performed through the use of a soil vapor survey that focuses on former
storage areas and randomly throughout the parking and landscaping areas.
Four of the existing monitoring wells will also be sampled. To accomplish
this objective, Dames & Moore proposes the following scope of services:
- Update the Health and Safety Plan used in the previous field
investigation.
- Mark the vapor probe points within the building, within the former
chemical storage areas, and throughout the parking and landscaped
areas.
- Conduct a utilities clearance survey (Geophysical Survey) to help
locate buried pipelines, electrical lines and other subsurface
obstructions within the areas to be explored. Dames & Moore will also
contact Underground
2
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Trizec Properties, Inc.
June 9, 1995
Page 3
Services Alert (USA) to help establish the approximate location of
subsurface utilities within the area to be explored.
- Install and sample approximately 45 soil vapor probes in the areas
described above. Vapor samples will be collected from an approximate
depth of five feet and will be analyzed for VOCs using modified EPA
Method 8010/8020 by an onsite laboratory immediately after sampling.
If VOCs are detected in the soil vapor a second sample will be
collected at approximately 10 feet and analyzed for VOCs.
- Coring of concrete through the floor of the building, asphalt in the
parking areas. Approximate sample locations are shown on the attached
figure.
- Soil vapor probes will be left in place. The concrete floor and
asphalt surface will be repaired with redi-mix concrete or asphalt
patch as appropriate.
- Purging and sampling of three onsite monitoring wells. Up to three
well volumes will be purged from each well. Each well will then be
sampled with a disposable polyethylene bailer. Groundwater samples
will be analyzed for VOCs using EPA Method 8260.
3
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Trizec Properties, Inc.
June 9, 1995
Page 4
- Prepare a report describing the investigation performed and
summarizing our field observations.
3.0 FIELD PROCEDURES
3.1 HEALTH AND SAFETY
In accordance with OSHA regulations, Dames & Moore will prepare a site
specific Health and Safety Plan. All field personnel will be required to
implement the procedures presented in this updated document while conducting
onsite field work.
3.2 LOCATING SUBSURFACE OBSTRUCTIONS
Prior to conducting any drilling, Underground Service Alert (USA) will be
contacted to assess the location of underground utilities. In addition to
the service provided by USA, Dames & Moore will utilize a geophysical survey
services company to provide additional information regarding underground
pipelines, electrical lines, and other subsurface metallic obstructions
within the immediate area of the proposed borings.
3.2 SOIL GAS INVESTIGATION
Soil gas probes will consist of approximately 3/4" steel tubing equipped with
a drive point. The probes will be driven to a depth of 5 feet bgs using an
electric percussion hammer or by pushing hydraulically. The probes will then
be rotated to open
4
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Trizec Properties, Inc.
June 9, 1995
Page 5
the drive point and allow soil gas to enter the probe. Tubing will be
connected from the top of the probe to a vacuum pump so that soil gas can be
drawn into the probe with the pump. After purging the probes, a soil gas
sample will be collected with a gas tight syringe that will be inserted into
the tubing while the vacuum pump operates. The sample will then be
immediately injected into a gas chromatograph operated as part of an onsite
mobile laboratory. To minimize the potential for cross-contamination between
sampling locations, probes are left in place, dedicated to each location.
Each soil vapor sample will be analyzed onsite using EPA Method 8010/8020.
The subcontractor hired to perform this service will be either Environmental
Support Technologies or Hydro Geo Chem.
3.4 GROUNDWATER SAMPLING
Three onsite wells will be purged of approximately three casing volumes of
groundwater by bailing with a PVC bailer or downhole pump. We propose to
sample wells MW-4, MW-5, and MW-12. During bailing, the water temperature,
conductivity, and pH will be monitored periodically and recorded. The PVC
bailer or downhole pump will be decontaminated between each well by washing
in a phosphate-free detergent and triple rinsing with tap water followed by
distilled water. Once the wells have recharged, they will be sampled using
dedicated bottom-opening, precleaned bailers. Groundwater samples will be
collected and placed into
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Trizec Properties, Inc.
June 9, 1995
Page 6
appropriate containers for analytical testing. For quality control of the
field procedures, a trip blank will be submitted with the samples. Sample
labels will be fixed onto the sides of the containers and will contain the
following information: well number, sample number, depth, collector name,
owner, sample location, date and time of collection. Each labeled container
will be kept cool in an ice chest, and delivered to the analytical laboratory
under proper chain-of-custody procedures. We propose using Centrum
Analytical Laboratories for analysis of the groundwater samples.
Static water level will be measured in each monitoring well using an electric
water level indicator. Measurements will be obtained, recorded, and repeated
until reproducible results are achieved. Water level data will be recorded
to the nearest 0.01 foot. Before and after each use, the measurement device
will be washed in a non-phosphate detergent solution and thoroughly rinsed in
deionized water.
3.5 WASTE DISPOSAL
Purged water from the monitoring wells will be placed in DOT-approved drums
and temporarily stored. We anticipate production of up to three 55-gallon
drums of groundwater. Disposal options will be evaluated following receipt of
analytical results.
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Trizec Properties, Inc.
June 9, 1995
Page 7
4.0 REPORTING
After completion of the site characterization activities described above, a
detailed report will be written evaluating the results of the subsurface
investigation. The report will contain a discussion of the following:
- Modifications to this proposal, if any;
- Investigative methods including drilling, soil sampling, and
analytical procedures;
- Visual site observations, analytical laboratory results, and data
evaluation; and
- Conclusions and recommendations of the study to include the estimated
extent of impacted soils and recommendations for additional
investigations, if necessary.
Also included will be tables of analytical data and various site maps.
Laboratory reports and chain-of-custody forms will be included as appendices.
5.0 SCHEDULE AND ESTIMATED CHARGES
Dames & Moore is prepared to begin this investigation within one week upon
receipt of written authorization to proceed from Trizec
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Trizec Properties, Inc.
June 9, 1995
Page 8
Properties, Inc. It is estimated that the field portion of the services
described above will require up to three days to complete. This anticipated
schedule is partially dependent on the availability of access to the
property. We propose to provide services as outlined in this proposal on a
time and materials basis, not to exceed $15,100. A breakdown of the estimated
costs is presented in Table 1. Costs for this project are based on Dames &
Moore's Standard Schedule of Charges (Form 115.5 (10-94)RII) attached to this
proposal. Disposal costs for groundwater produced during purging of the
wells is not included in this proposal. These costs may range from no cost
if no VOCs are detected in groundwater to approximately $1,000 if the
groundwater contains elevated concentrations of VOCs and requires disposal as
a non-hazardous or hazardous material.
6.0 TERMS AND CONDITIONS
We propose to perform the investigation outline herein in accordance with our
Standard Schedule of Charges (Form 115.5 (10.94)RII). The terms and limits
of Dames & Moore's liability and scope of services are provided in the
attached General Conditions - Form A (115.6 (10-94/A)RII).
Dames & Moore trusts the services outlined in this proposal meet your current
requirements. If this proposal is satisfactory, please complete the attached
authorization statement to indicate your approval of the scope of services
and acceptance of our
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Trizec Properties, Inc.
June 9, 1995
Page 9
limitation of liability terms. A signed, complete copy of this proposal
returned to us will serve as Dames & Moore's formal authorization to proceed.
An additional copy of this proposal is provided for your files. This proposal
and its attachments will constitute the contractual agreement between Trizec
Properties, Inc. and Dames & Moore for this project. The services and cost
estimate presented herein are applicable for a period of 60 days from the
date of this proposal.
Thank you for the opportunity to be of assistance. Please contact us if you
have any questions or require further assistance.
Very truly yours,
DAMES & MOORE
/s/ DEBRA B. SCOTT
------------------
Debra B. Scott, R.G.
Senior Geologist
/s/ JAMES E. MCNALLY
--------------------
James E. McNally
Associate
Attachments: Authorization Statement
Figure
Table 1
General Conditions Form A
Schedule of Charges (115.5 (10.94)RII)
9
<PAGE>
SITE 2 GROUND-WATER ELEVATION MAP
6219 DE SOTO AVENUE
WOODLAND HILLS, CALIFORNIA
SUBSURFACE INVESTIGATION
DATA PRODUCTS FACILITIES
FOR TRIZEC PROPERTIES, INC.
[MAP]
10
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[MAP]
11
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TABLE 1
COST ESTIMATE
FIELD
Dames & Moore labor (36 hours) 2,600
Dames & Moore equipment 400
Geophysical survey 500
Soil vapor survey (3 days) 7,700
Laboratory analysis (3 groundwater, 1 trip
blank, EPA Method 8260) 700
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Subtotal 11,900
OFFICE
Clerical, accounting, graphics 200
Report preparation and senior review 2,100
Project management, client contact 900
-------
Subtotal 3,200
TOTAL $15,100
12
<PAGE>
EXHIBIT "E"
EXCLUSIONS FROM PREMISES
The following items are considered the personal property
and/or trade fixtures of Dataproducts (the tenant of the Premises as of the
execution of this Lease) and are excluded from the definition of Premises in
this Lease:
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1. Maintenance shop Ventilator Model #3N340
2. Maintenance shop Dust Collector
3. 50 cycle generator (SMG-20-6533-7699-3-30EX9E) SR. (2465)
NO (P14629)
4. 3X4X5 Cooling Tower Dayton Pump #MOD.6K511
5. SSR EP100 Compressor (New) Serial #D6967U88B
6. Compressor Cat. No. M2531 Spec 42B11W05
7. Compressor Serial #481245
8. Compressor Serial #351455
9. 2 Stage After cooler
10. Air Dryer Model R500A Serial #12465LP
11. Air tank Serial #42912
12. Thermotron Corporation (Environmental chamber) Model
#WP-560-CHN-15-15-5 Serial #7110
13. Trane liquid chiller (Clean Room) Model #CGACC801RANJJ4NK
14. Trane air handler (Clean Room)
15. Airhandler pumps for closed loop system (Clean Room) Serial
#EY18063021 EY180636018
16. Trane air handler (Clean Room)
17. Air & Gas Dryer Model #HL-20 Serial #HL-2268 (Clean Room)
18. Boiler Pumps Model F115 MFO Model P63CZZ-3037 (Clean Room)
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19. Ajax Water Boiler Model OWG-4OOS Serial #88-40821 (Clean
Room)
20. Cyllisan System Myron L. company Series 760 (Clean Room)
21. Kaeser Compressed Air Dryer Model #KRD10 Serial
#0302A-1-8712-281N (Clean Room)
22. Motor Serial #2066763 Model TE-5.5C-NO (Clean Room)
23. Welch Vacuum Pump Model 1397 Serial #49198 (Clean Room)
24. Branson Model #BC300 Serial #6-2357-88 (Clean Room)
25. Motor Model 1091045400 Serial #175133 (Clean Room)
26. 50 Cycle Generator SMG-30-6531-77788-1-50EX9E SR2483
27. Trash Compactor Serial 1741045
28. Cardboard Compactor 302599
29. (2) security cameras
30. Complete cardkey system with 8 readers
31. all telephone equipment owned by Dataproducts
32. Emergency P.A. system and speakers
33. Emergency P.A. system and speakers. Paging amplifier,
(1) McMaring LT-504, (1) Altec 1590C
34. 50 cycle generator SMG-15-6533-72580-3-30EX9E
35. 50 cycle generator SEC-KAMAG-14-70486-20EXGE
36. 50 Cycle generator, KATO, Serial 50744-1 5VS05
37. Zenith vacuum pump, Lincoln, Serial #2870916
38. Zenith auto transfer switch, Serial #A05489N, Type 013VB-16
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<PAGE>
AGREEMENT OF GUARANTY
1. THE GUARANTY.
1.1 GUARANTOR'S AGREEMENT. Trizec Properties, Inc. ("Guarantor"), a
Delaware corporation, whose address is 15760 Ventura Blvd., Suite 500,
Encino, CA, hereby unconditionally and irrevocably guarantees ("Guaranty") to
Panavision International, L.P. ("Tenant"), a Delaware limited partnership,
whose address is 18618 Oxnard Street, Tarzana, CA, to pay and perform when
due the Obligations (as defined below) and to pay on demand the Expenses (as
defined below). This Guaranty is absolute, independent and shall continue in
full force and effect under all circumstances, and is a guaranty of payment
and performance, not of collection. Guarantor acknowledges that Tenant has
given sufficient consideration for this Guaranty by entering into that
certain Lease of even date herewith ("Lease") with Trizec Warner Inc.
("Landlord"), a Delaware corporation, and acknowledges that Tenant is doing
so in reliance on each of the terms of this Guaranty.
1.2 OBLIGATIONS. For all purposes of this Guaranty, the term
"Obligations" shall mean all of Landlord's obligations under Section 15.4 of
the Lease.
1.3 EXPENSES. For all purposes of this Guaranty, the term
"Expenses" shall mean all reasonable attorneys' fees, court costs, and other
legal expenses (including those of Tenant's in-house legal staff at cost) and
all other costs and expenses of any kind which Tenant may at any time pay or
incur in attempting to collect, compromise or enforce the Obligations in any
respect, whether or not suit is ever filed, and whether or not in connection
with any insolvency, bankruptcy, reorganization, arrangement or other similar
proceeding involving Landlord, and the fees, costs, expenses and interest, if
any, which Guarantor becomes obligated to pay to Tenant pursuant to Paragraph
5.15 below. If Tenant pays any such fees, cost or expenses, "Expenses" shall
also include interest thereon at the rate provided for in Section 35.11 of
the Lease from the date of payment thereof until repayment of Tenant in full.
2. REPRESENTATIONS AND WARRANTIES. Guarantor hereby represents and
warrants to the Bank as follows:
2.1 REVIEW OF GUARANTY AND LEASE. Guarantor has reviewed with the
benefit of its legal counsel the terms of this Guaranty and the Lease;
2.2 FINANCIAL BENEFIT TO GUARANTOR. Guarantor is deriving a
material financial benefit from the Lease;
2.3 ORGANIZATION; AUTHORIZATION. Guarantor is duly organized,
validly existing and in good standing under the laws of the State of its
formation, and duly qualified and in good standing under the
<PAGE>
laws of each other State in which its activities require that it be
qualified. Guarantor has executed and delivered this Guaranty pursuant to
proper authority duly granted;
2.4 ENFORCEABILITY. Each obligation of Guarantor under this
Guaranty is legal, valid, binding and enforceable against Guarantor in
accordance with its terms;
2.5 NO EXISTING DEFAULTS AND NO LITIGATION. Guarantor is not in
default under any agreement, the effect of which could materially adversely
affect performance of its obligations under this Guaranty. There are no
actions, suits or proceedings pending or, to the best of its knowledge,
threatened against Guarantor before any court or any other governmental
authority of any kind which could materially adversely affect performance of
its obligations under this Guaranty;
2.6 GUARANTY WILL CAUSE NO VIOLATIONS OF LAW OR OTHER DEFAULTS.
Neither the execution and delivery of this Guaranty nor compliance with its
terms will violate any presently existing law, regulation, order, writ,
injunction or decree of any court or other governmental authority of any
kind, or result in any default by Guarantor under any other document or
agreement of any kind; and
2.7 NO MISSTATEMENTS OR OMISSIONS. This Guaranty does not contain
any untrue statement of fact or omit to state any fact material to this
Guaranty.
3. AGREEMENTS. Guarantor agrees as follows:
3.1 CERTAIN PERMITTED ACTIONS OF TENANT. Tenant may from time to
time, in its sole discretion and without notice to Guarantor, take any of the
following actions without in any way affecting any obligations of Guarantor:
(a) obtain, with the written consent of the owner, a security interest in any
property to secure any of the Obligations or any obligation hereunder; (b)
obtain the primary or secondary obligation of any additional obligor or
obligors with respect to any of the obligations; (c) as long as Landlord is
the owner of the premises covered by the Lease, extend, modify, subordinate,
exchange or release any of the Obligations; (d) alter the manner or place of
payment of the Obligations; and (e) enforce this Guaranty against Guarantor
for payment or performance of any of the Obligations, whether or not Tenant
shall have (A) proceeded against Landlord or any other party primarily or
secondarily obligated with respect to any of the Obligations or (B) resorted
to or exhausted any other remedy or any other security or collateral.
3.2 TENANT'S OPTION TO RELEASE GUARANTOR. Tenant may from time to
time in its sole discretion release
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Landlord or any other obligor from any of the Obligations without notice to
Guarantor or any other party and without in any way releasing or affecting
the liability of Guarantor.
3.3 APPLICATION OF PAYMENTS. Tenant may apply any payment made on
account of the Obligations toward such of the Obligations, and in such order,
as Tenant may from time to time elect in its sole discretion, whether or not
such Obligations are otherwise secured or due at the time of application.
3.4 SUBORDINATION. Guarantor hereby subordinates, and shall cause
any entity which Guarantor directly or indirectly controls ("Affiliate") to
subordinate, any claims or liens of Guarantor or any Affiliate of Guarantor
against Landlord of any kind (including any right of Guarantor to a return of
any capital contributed to Landlord) to all of the Obligations. Upon any
notice by Tenant to Landlord of any default in the payment or performance of
any of the Obligations, Guarantor and its Affiliates shall enforce their
claims and/or liens against Landlord as trustee for Tenant, and shall cause
any receipts to be paid over to Tenant on account of the Obligations without
affecting in any manner the liability of Guarantor under this Guaranty except
to the extent of such payment. As long as no such notice of default has been
given, Guarantor or any Affiliate of Guarantor may apply to its own account
payments made to it by Landlord.
3.5 CERTAIN EVENTS NOT AFFECTING OBLIGATIONS OF GUARANTOR. The
obligations of Guarantor hereunder shall not be affected by any of the
following: (a) the release or discharge of Landlord in any creditors',
receivership, bankruptcy, reorganization, insolvency, or other proceeding;
(b) the rejection or disaffirmance in any such proceeding of any of the
Obligations; (c) the impairment or modification of any of the Obligations, or
of any remedy for the enforcement thereof, or of the estate of Landlord in
bankruptcy, resulting from any present or future federal or state bankruptcy
law or any other law of any kind or from the decision or order of any court
or other governmental authority; (d) any disability or defense of Landlord
except that nothing contained herein shall be construed to constitute a
waiver of any defense that Landlord or Guarantor may have to an action to
enforce in any respect the Obligations or this Guaranty arising under the
proviso at the end of Article 15.4 of the Lease; (e) the cessation of the
liability of Landlord for any cause whatsoever; or (f) any disability or
defense of any kind now existing of Guarantor with respect to any provision
of this Guaranty.
3.6 NO OBLIGATION OF BANK REGARDING SECURITY INTEREST. Landlord
shall have no obligation to obtain, perfect or retain a security interest in
any property to secure any of the Obligations or this Guaranty.
-3-
<PAGE>
3.7 FILING OF CERTAIN CLAIMS. Guarantor shall promptly file in any
bankruptcy and in any other proceeding in which the filing of claims is
required by law all claims and proofs of such claims which Guarantor may have
against Landlord and will collaterally assign to Tenant or its nominee all
rights of Guarantor thereunder. If Guarantor does not so file, Guarantor
hereby irrevocably authorizes Tenant or its nominee to do so, either (in
Tenant's discretion) as attorney-in-fact for Guarantor, or in the name of
Tenant or Tenant's nominee. In all such cases, any party authorized to pay
such claim shall pay to Tenant or its nominee the full amount thereof.
4. WAIVERS. Guarantor hereby expressly waives:
4.1 NOTICES. Notice of the acceptance by Tenant of this Guaranty,
notice of the existence, creation or non-payment of any of the Obligations,
presentment, demand, notice of dishonor, protest, notice of protest, and all
other notices except any specifically required by this Guaranty;
4.2 DISCLOSURES ABOUT LANDLORD. Any obligation Tenant may have to
disclose to Guarantor any facts Tenant now or hereafter may know or have
reasonably available to it regarding Landlord or its financial condition,
whether or not Tenant has a reasonable opportunity to communicate such facts
or has reason to believe that any such facts are unknown to Guarantor or
materially increase the risk to Guarantor beyond the risk Guarantor intends
to assume hereunder. Guarantor shall be fully responsible for keeping
informed of the financial condition of Landlord and of all other
circumstances bearing on the risk of non-payment or non-performance of the
Obligations;
4.3 DILIGENCE IN COLLECTION. All diligence in collection of any of
the Obligations, any obligation hereunder, or any guaranty or other security
for any of the foregoing;
4.4 BENEFIT OF CERTAIN LAWS. The benefit of all appraisement,
valuation, marshaling, forbearance, stay, extension, redemption, homestead,
exemption and moratorium laws now or hereafter in effect;
4.5 CERTAIN DEFENSES. Any defense based on the incapacity, lack of
authority, death or disability of any person or entity or the failure of
Tenant to file or enforce a claim against the estate of any person or entity
in any administrative, bankruptcy or other proceeding;
4.6 RIGHTS OF SUBROGATION, CONTRIBUTION, ETC. Any rights arising
because of Guarantor's payment or performance of any of the obligations, (a)
against Landlord, by way of subrogation to the rights of Tenant or otherwise, or
(b) against any other guarantor or any other party obligated to pay any of
-4-
<PAGE>
the Obligations, by way of contribution or reimbursement or otherwise.
5. MISCELLANEOUS.
5.1 SUCCESSORS AND ASSIGNS. All obligations under this Guaranty
shall be binding upon Guarantor, and upon its successors and assigns.
5.2 ASSIGNMENT BY TENANT. Tenant may from time to time, without
notice to Guarantor, assign or transfer any interest in any of the
Obligations and, notwithstanding such assignment or transfer, such
Obligations shall remain Obligations for purposes of this Guaranty. Each
immediate and successive assignee or transferee of any interest in any of the
Obligations and this Guaranty shall, to the extent of such interest, be
entitled to the benefits of this Guaranty to the same extent as if such
assignee or transferee were Tenant.
5.3 LEGAL TENDER OF UNITED STATES. All payments hereunder shall be
made in coin or currency which at the time of payment is legal tender in the
United States of America for public and private debts.
5.4 TIME OF ESSENCE. Time is of the essence of this Guaranty.
5.5 INCLUDING MEANS WITHOUT LIMITATION. The use in this Guaranty of
the term "including", and related terms such as "include" shall in all cases
mean "without limitation".
5.6 NOTICES. Any notices that Tenant or Guarantor may give
hereunder shall be in writing and shall be deemed given upon the earlier of
receipt, or the third business day after being deposited by registered or
certified United States mail, postage prepaid, addressed to the recipient at
its address set forth above. Either party may specify another address for
receipt of notices hereunder by a notice given as provided herein. Nothing
in this notice provision shall be construed as a requirement that Tenant give
any notice under this Guaranty.
5.7 ENTIRE AGREEMENT. This Guaranty constitutes the entire
agreement of the Guarantor for the benefit of Tenant and supersedes any prior
agreements with respect to the subject matter hereof.
5.8 NO MODIFICATION WITHOUT WRITING. This Guaranty may not be
terminated or modified in any way nor can any right of Tenant or any
obligation of Guarantor be waived or modified, except by a writing signed by
Tenant and Guarantor.
-5-
<PAGE>
5.9 INDEPENDENT OBLIGATIONS. The obligations of Guarantor hereunder
are independent of the obligations of Landlord. In the event of any default
hereunder, Tenant may institute a separate action against Guarantor with or
without joining or instituting a separate action against Tenant or any other
obligor.
5.10 SEVERABILITY. Each provision of this Guaranty shall be
interpreted so as to be effective and valid under applicable law, but if any
provision of this Guaranty shall in any respect by ineffective or invalid
under such law, such ineffectiveness or invalidity shall not affect the
remainder of such provision or the remaining provisions of this Guaranty.
5.11 CUMULATIVE. All rights and remedies of Tenant and all
obligations of Guarantor under this Guaranty are cumulative. In addition,
Tenant shall have all rights and remedies available to it in law or equity
for the enforcement of this Guaranty.
5.12 EFFECT OF TENANT'S DELAY OR ACTION. No delay by Tenant in the
exercise of any right or remedy shall operate as a waiver thereof, and no
single or partial exercise by Tenant of any right or remedy shall preclude
any other exercise thereof or the exercise of any other right or remedy. No
action of Tenant permitted hereunder shall in any way impair or otherwise
affect any right of Tenant or obligation of Guarantor under this Guaranty.
5.13 GOVERNING LAW. This Guaranty shall be construed under and
governed by the laws of the State of California excluding conflicts of law
principals. In any suit, action or proceeding brought under or arising out
of this Guaranty, Guarantor hereby consents to the jurisdiction of any
competent court within the State of California and hereby consents to service
of process by any means authorized by California law.
5.14 WAIVER OF TRIAL BY JURY. GUARANTOR HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS THAT GUARANTOR MAY HAVE TO A
TRIAL BY JURY IN ANY LITIGATION ARISING IN ANY WAY IN CONNECTION WITH THIS
GUARANTY. GUARANTOR ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT
FOR TENANT TO ENTER INTO THE LEASE.
5.15 ATTORNEYS' FEE. In the event of any litigation between the
parties hereto to enforce any provision or right hereunder, the unsuccessful
party to such litigation covenants and agrees to pay to the successful party
therein all reasonable attorneys' fees, court costs, and other legal expenses
(including those of the successful party's in-house legal staff at cost) and
all other costs and expenses of any kind which the successful party may at
any time pay or incur in attempting to
-6-
<PAGE>
collect, compromise or enforce this Guaranty in any respect, whether or not
suit is ever filed, and whether or not in connection with any insolvency,
bankruptcy, reorganization, arrangement or other similar proceedings
involving Guarantor or Tenant. If the successful party pays any such fees,
costs or expenses, the unsuccessful party shall also pay interest thereon at
the rate provided for in Section 35.11 of the Lease from the date of payment
thereof until repayment of the successful party in full.
EXECUTED AND DATED this 13th day of June, 1995.
TRIZEC PROPERTIES, INC.
By /s/ CRAIG CAHOW
-----------------------------
Its Vice President
-------------------------
By /s/ ROBERT FORREST
-----------------------------
Its Senior Vice President
-7-
<PAGE>
PANAVISION
EXECUTIVE INCENTIVE COMPENSATION PLAN
AMENDED AND RESTATED OCTOBER 24, 1996
- --------------------------------------------------------------------------------
I. PURPOSE
The purpose of the Panavision Executive Incentive Compensation Plan is to
attract, retain and compensate key employees of Panavision Inc. (the
"Company") and its incorporated and unincorporated subsidiaries, including
Panavision International, L.P., who contribute materially to the
management, growth and success of the business of Panavision by their
ability, creativity, and diligence.
II. ELIGIBILITY TO PARTICIPATE IN THE PLAN
A. Participants eligible to be included in the Plan will be those
employees of Panavision whose duties and responsibilities permit the
individual to make a significant contribution to profits and to the
future growth, development and financial success of the Company.
B. Participants to be included in the Plan will be the Chairman and Chief
Executive Officer of Panavision International, L.P. (the "Chief
Executive Officer") and other employees selected by him, subject to
the approval of the Company.
III. DETERMINATION OF AMOUNT AVAILABLE FOR INCENTIVE
COMPENSATION
A. No incentive amount will be available and no awards will be paid to
Participants under the Plan for any year in which neither the Free
Cash Flow target nor the EBDIT targets set forth in Appendix A are
achieved.
B. The determination of the incentive compensation amount available each
year will be based on comparative measurement against required levels
of performance as follows:
1. EBDIT and Free Cash Flow will be the basis of determining the
level of performance. Actual EBDIT and actual Free Cash Flow for
each year will be measured against the standards set forth in
Appendix A attached hereto. These standards may be revised from
time to time by the Company.
2. Incentive groups will be established, as set forth in Appendix B
attached hereto, and Participants will be assigned to such groups
based upon the level of responsibility of their respective
positions, as determined by the Chief Executive Officer.
<PAGE>
2
3. The method for determination of the incentive compensation amount
available for the year will be:
(a) Determine the actual level of performance for the year under
the predetermined standards as set forth in (1) above.
(b) Calculate the aggregate amount available for incentive
compensation by applying against each Participant's base
salary an appropriate percentage from Appendix B which
increases proportionately (i) to the extent that actual
EBDIT exceeds the "minimum standard" and approaches the
"mid-point standard" and (ii) to the extent that actual
EBDIT exceeds the "mid-point standard" and approaches the
"maximum standard." More particularly, if EBDIT for the
year exceeds the "minimum standard" but does not exceed the
"mid-point standard," the aggregate amount available for
incentive compensation shall be equal to the sum of the
products obtained by multiplying (i) the annual base salary
of each Participant by (ii) a percentage equal to the
product of (x) the percentage shown for mid-point
performance opposite such Participant's incentive group in
Appendix B multiplied by (y) a fraction (not greater than
one) of which the numerator is the excess of actual EBDIT
over the "minimum standard" and the denominator is the
difference between the "minimum standard" and the "mid-point
standard." If EBDIT for the year exceeds the "mid-point
standard," the aggregate amount available for incentive
compensation shall be equal to the sum of the products
obtained by multiplying (i) the annual base salary of each
Participant by (ii) a percentage equal to the sum of (x) the
percentage shown for mid-point performance opposite such
Participant's incentive group in Appendix B plus the product
of (y) the difference between the percentage shown for
maximum performance opposite such Participant's incentive
group in Appendix B and the percentage shown for mid-point
performance multiplied by (z) a fraction (not greater than
one) of which the numerator is the excess of actual EBDIT
over the "mid-point standard" and the denominator is the
difference between the "mid-point standard" and the "maximum
standard." A sample calculation is shown on Appendix C.
(c) Notwithstanding the foregoing, if the Free Cash Flow target
set forth in Appendix A is achieved in any year, the
aggregate amount available for incentive compensation shall
be equal to the sum of the products obtained by multiplying
(i) the annual base salary of each Participant by (ii) the
percentage shown for maximum performance
<PAGE>
3
opposite such Participant's incentive group in Appendix B.
A sample calculation is shown on Appendix C.
C. Annual determination of the incentive compensation amount will be made
after completion of the annual audit of the Company by its independent
auditors.
D. With respect to any one year, the total amount to be distributed to
the Participants may not exceed 10% of the Company's EBDIT, as
defined, for such year, before providing for said amount.
IV. ALLOCATION OF INCENTIVE AMOUNTS TO PARTICIPANTS
A. Individual incentive awards, if any, will be completely discretionary.
The fact that a percentage of a particular Participant's base salary
is included in the calculation of the aggregate amount available for
incentive compensation does not necessarily mean that such Participant
will receive a bonus or award equal to the same percentage of the
Participant's base salary. An individual's award will be determined
based upon the evaluation of the individual's performance.
B. The procedure for determining the actual incentive awards to
Participants out of the total amount available for the year in
question will be as follows:
1. For the Chief Executive Officer, the amount to be awarded will be
determined by the Company.
2. For the employees other than the Chief Executive Officer, the
amount to be awarded to the individual Participants will be
determined by the Company after consideration of the
recommendations of the Chief Executive Officer.
3. Any undistributed portion of the total amount available for
incentive compensation will be retained by the Company and not
carried over to future years.
V. PAYMENT OF INCENTIVE AWARDS
A. The incentive compensation awarded to each Participant in accordance
with Section IV above, with respect to any year, will be paid on or
before the first day of the fourth month following the end of each
calendar year, provided that the Participant is an employee on the
date of payment.
VI. GENERAL CONDITIONS
A. The Company may amend, suspend or terminate the Plan at any time;
provided, however, that no amendment, suspension or termination will
apply to the payment
<PAGE>
4
to any Participant of an award made prior to the effective date of
such amendment, suspension or termination.
B. Should any Participant cease to be in Panavision's service by reason
of death, disability, termination, resignation, or any other reason
whatsoever, neither he nor his personal representatives, heirs,
executors, administrators or assigns shall be entitled to any
distribution of such incentive compensation for the year of such
cessation except insofar and to such extent, if any, as the Company,
after consulting with the Chief Executive Officer, shall determine to
be appropriate.
C. The decision of the Company on any question concerning the
interpretation or administration of this Plan or on the employees
participating or entitled to participate in the Plan, or in any
payment made pursuant thereto, will be final and conclusive.
VII. DEFINITIONS
For the purpose of this Plan, the following terms have the following
meanings:
1. "Panavision" means Panavision Inc. together with its incorporated
and unincorporated subsidiaries, including Panavision
International, L.P.
2. "Plan" means the Executive Incentive Compensation Plan herein
established for the employees of Panavision.
3. "Participant" means a key employee of Panavision who has been
selected in accordance with paragraph B of Section II of the
Plan.
4. "Company" means Panavision Inc. a Delaware corporation, the
general partner of Panavision International, L.P.
5. "Free Cash Flow" means EBDIT minus CAPEX.
6. "EBDIT" means the Company's net income before taxes on income,
determined in accordance with generally accepted accounting
principles, and before taking into account interest expense,
payments or accruals under this Plan, amortization and
depreciation charges, unrealized foreign exchange translation
gains or losses, and excluding those extraordinary and
nonrecurring items of income and expense, if any, the exclusion
of which is approved by the Company.
7. "CAPEX" means the Company's rental based and non-rental capital
expenditures net of cash received from equipment disposals and
insurance
<PAGE>
5
claims, excluding those acquisitions of businesses or assets,
the exclusion of which is approved by the Company.
8. Free Cash Flow will include the results of Lee Lighting Limited
beginning January 1, 1996, regardless of the actual date the
assets are purchased by Panavision International, L.P.
9. "Base Salary" means the actual base salary paid each Participant
of the Plan during the calendar year. If an individual is a
Participant in the Plan for a portion of the year, only his
actual base salary for such period of participation will be
included.
<PAGE>
EXHIBIT 11
PANAVISION INC
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Shares outstanding.......................... 13,706 13,706 13,706 13,706 13,706
Shares and options considered outstanding
for all periods under SAB 55, using the
treasury stock method at an assumed initial
public offering price of $17.00 per share
for stock options.......................... 1,571 1,571 1,571 1,571 1,571
--------- --------- --------- --------- ---------
Total................................... 15,277 15,277 15,277 15,277 15,277
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income.................................. $ 3,305 $ 7,078 $ 5,563 $ 4,435 $ 8,098
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net income per common share................. $ .22 $ .46 $ .36 $ .29 $ .53
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
- --------------
NOTE: Primary and fully diluted net income per share are the same.
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
<TABLE>
<CAPTION>
<S> <C> <C>
Name: Jurisdiction of Formation Doing Business As:
- ----- ------------------------- ------------------
Panavision International, L.P. Delaware Panavision;
Panavision Florida;
Panavision Hollywood;
Panavision Wilmington
Keepco I, Inc. Delaware
Keepco II, Inc. Delaware
Panavision Europe Limited United Kingdom Panavision U.K.;
Panavision Ireland;
Panavision France
Lee Filters
Panavision Canada Holdings, Inc. Ontario, Canada
Lee Filters Limited United Kingdom
Camera Bellows Limited United Kingdom
Colortran Limited United Kingdom
Joe Dunton Cameras Limited United Kingdom
Lee Lighting Ltd United Kingdom Lee Lighting
Panavision (Canada) Corporation Ontario, Canada Panavision Canada
Pana Truck Leasing Corporation Ontario, Canada
Panavision Italia S.R.L. Italy
</TABLE>
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated March 4, 1996, except Note 13, as to which the date
is November , 1996, in the Registration Statement (Form S-1 No. 333-12235) and
the related Prospectus of Panavision Inc. for the registration of its shares of
its common stock.
ERNST & YOUNG LLP
Los Angeles, California
November , 1996
The foregoing consent is in the format that will be signed upon the
effectiveness of the 1,413:1 stock split as described in Note 13 of the notes to
the consolidated financial statements.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Los Angeles, California
October 29, 1996
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated September 5, 1996, in the Registration Statement
(Form S-1 No. 333-12235) and the related Prospectus of Panavision Inc. for the
registration of its shares of its common stock.
/s/ ERNST & YOUNG
ERNST & YOUNG
Chartered Accountants
London, United Kingdom
October 29, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 SEP-30-1996
<CASH> 31,685 8,643
<SECURITIES> 0 0
<RECEIVABLES> 15,523 20,947
<ALLOWANCES> 2,043 2,294
<INVENTORY> 4,379 5,271
<CURRENT-ASSETS> 51,165 34,387
<PP&E> 208,942 231,595
<DEPRECIATION> 97,141 108,341
<TOTAL-ASSETS> 165,751 164,713
<CURRENT-LIABILITIES> 25,162 28,784
<BONDS> 0 0
0 0
0 0
<COMMON> 137 141
<OTHER-SE> 6,319 24,017
<TOTAL-LIABILITY-AND-EQUITY> 165,751 164,713
<SALES> 16,124 14,638
<TOTAL-REVENUES> 95,328 85,050
<CGS> 9,961 8,535
<TOTAL-COSTS> 44,369 40,079
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 351 286
<INTEREST-EXPENSE> 7,213 6,227
<INCOME-PRETAX> 6,938 10,110
<INCOME-TAX> 1,375 2,012
<INCOME-CONTINUING> 5,563 8,098
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 5,563 8,098
<EPS-PRIMARY> .36 .53
<EPS-DILUTED> 0 0
</TABLE>
<PAGE>
CONSENT TO BE NAMED AS A DIRECTOR
I, Martin D. Payson, hereby consent to be a director of Panavision Inc., a
Delaware corporation (the "Company"), and to be named as a director in the
Registration Statement on Form S-1 to be filed with the Securities and Exchange
Commission by the Company.
Dated: October 30, 1996 /s/ MARTIN D. PAYSON
---------------- --------------------
Martin D. Payson
