SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB-A-1
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUER UNDER SECTION 12(b)
OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
SYNTHONICS TECHNOLOGIES, INC.
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(Name of Small Business Issuer in Its Charter)
Utah 87-032620
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State or other Jurisdiction of (IRS Employer
of Incorporation or Organization) Identification No.)
N/A
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(SEC File No.)
31324 Via Colinas, Suite 106, Westlake Village, CA 91362
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(Address of principal executive offices) (Zip code)
Registrant's Telephone Number, Including Area Code: (818) 707-6000
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Securities to be registered pursuant to Section 12(b) of the Act:
NONE
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 Par Value Per Share
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(Title of Class)
DOCUMENTS INCORPORATED BY REFERENCE: See Exhibit Index herein.
<PAGE>
PART I.
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Item 1. Business
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(a) Business Development
Synthonics Technologies, Inc., (the "Company") was organized under the laws
of the State of Utah on March 27, 1974, under the name "Columbine Financial
Corporation." The Company was incorporated for the purpose of engaging in the
real estate development business in the State of Utah. No business activities
were engaged in and the company became inactive and remained so until 1978 when
it was reactivated and commenced business in the State of California for the
purpose of originating loans on swimming pools construction, primarily in
Southern California. The loan origination business operations ceased in 1991.
The Company was reclassified as a development stage company and began seeking
new business opportunities believed to hold a potential profit.
The Company was initially authorized to issue a total of 5,000,000 shares
of common stock having a par value of $0.01 per share. Copies of the Company's
initial Articles of Incorporation and its current Bylaws are attached hereto and
incorporated herein by reference. See the Exhibit Index, Part III.
The Board of Directors of the Company unanimously resolved on May 18, 1995
pursuant to Section 16-10a-1007 of the Utah Revised Business Corporation Act, to
restate the Articles of Incorporation to increase its authorized capital from
5,000,000 shares to 50,000,000 shares of common stock, with a par value to
remain at $0.01 per share. A copy of the Articles of Incorporation as Restated
whereby the Company effected this increase is attached hereto, and is
incorporated herein by this reference. See the Exhibit Index, Part III.
In May Synthonics Incorporated, a California Corporation, was acquired by
the Company, then known as Columbine Financial Corporation by way of a stock
exchange providing 4.5 shares of Columbine stock for every one share of
Synthonics Incorporated stock. The acquisition was completed in August 1995.
Columbine Financial Corporation was dormant, but still fully registered as a
public corporation at the time of the merger. Synthonics Incorporated pursued
this merger as a method of guaranteeing a means to enter into public trading of
its stock as soon as it was determined to be strategically desirable. At this
time, public trading has resumed. A Form 211 pursuant to Rule 15c-211 was
prepared and submitted by its market maker in order to resume trading.
On September 16, 1996, the Company changed its name to "Synthonics
Technologies, Inc." A copy of the Amendment of the Articles of Incorporation
whereby the Company effected this name change is attached hereto and is
incorporated herein by this reference. See Exhibit Index, Part III.
On November 4, 1996, the Company qualified itself as a foreign corporation
in the State of California. A copy of the Statement and Designation by Foreign
Corporation whereby the Company qualified to do business in the State of
California is attached hereto and is incorporated herein by this reference. See
Exhibit Index, Part III.
Synthonics Incorporated, a California Corporation (now a wholly owned
subsidiary of the Company) was founded in August 1993. Its primary focus since
its founding has been to develop technology that will have an extremely positive
impact on any industry where success can be enhanced by improving measurement
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accuracy, eliminating dangerous environments, extending human vision
capabilities, or replacing animation with realism. Virtually all efforts to date
have been focused on market research, technology concept definition, technology
design, and technology validation.
The Board of Directors of the Company unanimously resolved on August 22,
1997, to Amend Article IV, of the Articles of Incorporation to add a class of
Preferred Stock which would consist of 550,000 shares of Preferred Stock, with a
par value of $10.00 per share. The Preferred Stock would receive a dividend on a
cumulative basis at the rate of 12.0% of its par value per annum, payable on a
quarterly basis. The Preferred Stock is redeemable by the Company at a sum of
$10.50 per share and is convertible into common stock at a rate of $2.00 per
share of common stock being converted into. At a special meeting of the
shareholders held September 6, 1997, the shareholders of the Company voted to
adopt the amendment to Article IV, of the Articles of Incorporation to add the
class of Preferred Stock, with 9,687,803 shares voting in favor, no shares
voting against and none abstaining. A copy of the Certificate of Amendment to
the Articles of Incorporation whereby the Company effected the addition of the
class of preferred stock is attached hereto and is incorporated herein by this
reference. See Exhibit Index, Part III.
The Board of Directors of the Company unanimously resolved on March 3,
1998, to Amend and Restate its Articles of Incorporation to provide for a
staggered board of directors. At the Annual Meeting of the Shareholders held on
April 8, 1998, the shareholders of the Company voted to adopt the Amended and
Restated Articles of Incorporation, with 14,243,526 shares voting in favor, 525
shares voting against and 21,800 shares abstaining. A copy of the Amended and
Restated Articles of Incorporation are attached hereto and incorporated herein
by this reference. See Exhibit Index, Part III.
OPERATING STRATEGY
------------------
The operating plan being employed by Synthonics was chosen to facilitate
rapid growth while optimizing the use of resources within the Company. This
strategic approach is also designed to result in maximum growth of shareholder
value. Simply stated, Synthonics' operating objective is to rapidly deploy its
technological advantage into many diverse markets in order to entrench itself as
the standard for accurate and affordable 3D graphical content.
In order to accomplish this mission, Synthonics has embarked on a strategy
that provides the marketplace with the option of acquiring either the content
generation tools through strategic partner affiliations or the content itself
directly from Synthonics. Although preferring to be strictly a software tool
provider, the Company discovered, while doing its market research, that a very
large market exists for completed, but customized, 3D graphical content. It also
determined that by providing content directly it could reach several markets
sooner, thereby validating the utility of the technology in a shorter
time-frame. The Company believes that it will attract strategic partners in a
quicker fashion by virtue of its ability to demonstrate market demand for its
patented technology.
Business Model
--------------
Synthonics receives its revenues from supplying software tools and 3D
graphical content for direct sale to end users. The Company's primary goal is to
provide 3D content generation tools through strategic alliances with brand name
software tool providers currently supplying the markets described later in this
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document. These include Animation, Multimedia Authoring, CAD, Virtual
Environment, Configuration, and 3D Clip-Art. By entering the market in this
fashion, Synthonics takes advantage of the distribution channel access already
established by its strategic partner and can remain focused on its core
strengths - technology and business development. In some cases, it may be
advantageous for Synthonics to form a joint venture with its strategic partners.
This approach was taken by the Company as it positioned itself to service the
Medical Market. Synthonics could not find a suitable product to align itself
with, so it chose to partner with medical professionals to form Acuscape.
Synthonics supplies this venture with technology (via a license agreement) while
its partners provide the management expertise and capital required to develop
the business.
The secondary focus of the business model is to create and provide actual
3D graphical content. Synthonics determined that its ability to secure strategic
partners quickly was directly related to an established credibility in the
marketplace. A decision to supply 3D content was selected as the most effective
approach to accomplish this objective. The museum market was selected as the
target of this direct approach due to the vast market size and the outspoken
need on behalf of the museum industry to extend the benefits of their
collections to audiences around the world. Further, the Company decided to
target the prestigious Smithsonian Institution as its initial customer in order
to leverage this relationship both inside and outside the museum industry. To
implement this revenue path, Synthonics formed a wholly owned subsidiary called
Christopher Raphael, Inc. Below is a graphical display of the business model.
Business Revenue Model
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Revenue Source based on
Tools Customers Revenues From
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Software Partners License
Joint Ventures License
Buyers of Software Service
Database Visitors Subscriptions
Revenue Source based on
Content Customers Revenues From
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Museums Multimedia and Databases
Services and Subscription
Education Publishers Multimedia
Science Centers Multimedia
Computer Based Training Databases, Services and Subscriptions
Distance Learning Center Databases, Services and Subscriptions
As part of the business model, Synthonics intends to "spin-off" its equity
interest in Christopher Raphael, Inc., Acuscape, and other similar subsidiaries
or joint ventures, it may form or be involved with at future dates when it is
strategically and economically advantageous. This enables Synthonics to focus on
its core strength once it has adequately entrenched itself in the various
markets it has targeted. Upon divesting itself of each entity, stock dividends
(if done by way of an IPO or stock exchange) or cash dividends (if done by way
of a cash transaction) will be issued to the Company's shareholders. No such
divestitures are included in the Company's financial projections as it is
impossible to forecast such an event.
Further, while Synthonics is interested in pursuing any business
opportunity, venture, or strategic alliance that meets the operational goals of
the Company and would result in added value to the Company and its common stock,
other than the use of its website to advertise a need for a specific business
partner or service provider, the Company does not presently utilized any
advertisements seeking such opportunities.
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Marketing Plan
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Because Synthonics will focus in two major market segments, Software Tools
and 3D Content, the access to each market will be different.
As discussed below, the Software Tools market has defined participants that
have been identified and Synthonics has begun to approach segments within the
market based upon each segment's need and the value Synthonics' RVR(TM) brings
to that need. Initially, this marketing thrust will require a small, focused
effort with modest mass media-based-expenditures.
Due to the fact that RVR(TM) is a technology that substantially improves
productivity and lowers cost, Synthonics will begin its marketing efforts on
those software providers who have tools that are known to immediately benefit
from RVR(TM)'s technology (i.e. Animation tools). Synthonics' own content
generation organization uses many of these tools and has first-hand knowledge of
how RVR(TM) will assist both the target partner's product offering and the
ultimate user.
In addition to improved productivity, RVR(TM)'s technology will afford the
opportunity to the targeted tools providers to penetrate a new and large market
that they currently have great difficulty servicing --- Electronic Commerce. The
difficulty lies in the large computer file sizes generated by the available
methods used to create 3D digital models in the market today. These large file
sizes and the resulting slow throughput of the Internet result in high
frustration levels among potential electronic shoppers such that they will not
wait to make the proposed Electronic Commerce transaction. By virtue of
innovative RVR(TM) technology, these same digital models can have file sizes
smaller than one-tenth the size of those generated by conventional processes.
Thus, the long download and slow response times are eliminated when examining 3D
graphical content generated with Synthonics' tools. As a result, the market
opportunity afforded Synthonics' customers will provide them with significant
incremental revenue growth.
Once the frustration level associated with delays is eased, an additional
benefit is available to the ultimate Electronic Commerce user. Using the
Company's viewing tools, they will have full control of the 3D digital model of
the product on their computer monitor. They will be able to move and examine the
object from virtually any angle. They will be able to, for example, change the
color of the dress and place the dress on a 3D mannequin of their own body. The
user will literally be able to shop as though they were in the store without the
hassles of having to travel (likely to several stores); dealing with salesman
pressure tactics and having to pay the store mark-ups. The same process applies
to homes, landscaping, car purchases, grocery shopping, catalog shopping, and
many others. For the software tools providers, this is an opportunity of
enormous size. Synthonics will benefit from this emerging market.
Another of the major benefits to the Company's targeted tools customers is
ease of use. The major market realization that Windows NT is perceived as a
lower cost platform than UNIX is well documented, Thus, the end customers'
benefit is that the Windows Graphical Users Interface (GUI) is known and easier
to use. Synthonics will leverage not only its presence in NT but also the
genuine technical and financial benefit of the RVR(TM) tool set. In some cases,
RVR(TM) will add capability the customer has not possessed in its current
product offering (e.g. Autodesk's AutoCAD). The ability of RVR(TM) to use
photogrammetry as a measurement and creation tool is a capability that is not
currently available in AutoCAD or any other CAD product. The inclusion of this
tool from Synthonics provides the CAD user with much improved productivity when
creating 3D digital models of objects or environments that already exist. In a
very real sense, RVR(TM) brings technical and productivity benefits to existing
software tools in the Windows NT market that have existed in UNIX but have been
too expensive, cumbersome and not practical for the Windows users.
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Synthonics will offer to license its tools to each of the major brands
currently participating in the animation, CAD, authoring, configuration and
virtual realty software tool markets. The market is such that once any one of
the major participants adopts RVR(TM), the balance will have increasing market
pressure to match the capability. The Synthonics patents are strong protection
to assist in the total market adoption.
The three dimensional content focus of the marketing effort will be
centered on the Museum and Electronic Commerce segments. The museum market was
selected due to the enormous need of that market to be able to increase
accessibility to their artifact collections by their customers. The vast
majority of most museums treasures are not accessible due to:
(1) Lack of display space;
(2) The fragile nature of the artifact;
(3) The inability to fully explain the use, value, history, etc., of the
artifact;
(4) Sheer volume of known artifacts (over 800 million worldwide);
(5) Required travel
The museum market was identified by Synthonics as an immediate opportunity
to validate the technology. With the limited financial resources of the museum
market, both the combination of RVR(TM)s low cost of development and the
opportunity to generate revenues from products containing the digitized
collections of the museum is a significant mutual benefit for both parties.
Again, the list of museums is well known and a highly targeted effort can
be accomplished with lower cost methods such as broadcast fax, e-mail and
through industry shows associated to that market. There will be very little
media advertising required except through related industry magazines.
The Electronic Commerce market for 3D content will be pursued through end
user or software partners in the market. Due to the significant technological
benefit of three dimensional objects with relatively small file sizes and the
growing need for home shopping over the Internet, RVR(TM) will optimize network
throughput and minimize consumer frustration. This will be greatly aided by the
imminent increase of overall network speed. Essentially, Synthonics will be
optimizing the utility created by the resources established for the Museum
Industry as those resources will be applied to the same volume of need for
Electronic Commerce. Companies involved with home shopping, that do not desire
or possess internal resources, will opt to use Synthonics' team/network of
content providers to provide their electronic commerce content needs.
Sales Plan
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A small direct sales force will possess the appropriate skills to sell to
both the software tools market and the content target markets selected. An
integral part of the selling effort is to develop a multi-tier channel of
distribution. Targeted customers in the tools market will be sold directly by
the Synthonics sales force. Due to the size and geographical distribution of the
museum market, only the largest transactions for 3D content will be made by the
direct sales force. The sheer number of the museums dictates the establishment
of alliances with organizations that can service the smaller and more remote
locations.
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The financial models associated with the tools market have accounted for
the tiers of distribution for the tools market and the direct sale processes in
the content markets. For example, in the tools market, the Company expects to
allow a 50% margin for partner and allow a 50% margin for its partner's channel
of distribution.
(b) Business of Issuer
(1) Principal products or services and their markets
TARGET MARKETS
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Realistic 3D graphic content is a very desirable commodity that currently
costs far too much to be utilized effectively by those who desire it. Synthonics
believes that many industries would move rapidly to incorporate 3D graphics if
these could be procured at significantly lower cost than is available from
today's traditional processes. This belief is founded on research conducted with
several experts from different industries. A sampling of the vertical markets
that would benefit most from the use of Rapid Virtual Reality(TM) (RVR(TM) ) is
summarized below:
Computer Aided Design (CAD)
---------------------------
Includes all engineering functions where a product or an environment can be
modified by virtue of starting with an accurate 3D digital model rather
than a blank sheet of paper. Most all design engineers perform their tasks
in this regard by using a CAD software package. Many new products are
renditions of existing products and their designs can be completed much
quicker by using Synthonics' technology. Reverse engineering and
competitive analysis are both ideal applications. Another significant
advantage afforded CAD users by RVR(TM) is the ability to extract accurate
measurements from difficult to measure objects through the use of
photogrammetry.
Medical/Dental
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Includes all medical procedures requiring three-dimensional analysis to
achieve optimum results. This would include orthodontics, cosmetic surgery,
forensics, growth forecasting and veterinary.
Education/Edutainment
---------------------
Includes all educational applications where interaction between a computer
and the focused subject of the learning would result in a more rapid and
thorough rate of knowledge transfer to occur. For example, interactive case
studies requiring diagnosis and reaction plan formulation could easily be
constructed for medical and criminology courses with the use of accurate 3D
graphical content. Virtual laboratories could be brought into the home,
thereby overcoming scheduling and content availability problems that often
occur with physical laboratories. When targeting the younger generations,
many forms of education are camouflaged as games, hence the derivation of
the term Edutainment. Another very attractive segment of Education is that
of the rapid expansion and acceptance of the Distance Learning concept as a
primary method for obtaining formal education. Synthonics' tools are
ideally suited to serve both Edutainment's and Distance Learning's need for
3D graphical content.
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Video Games
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Includes video game customization applications where users can personalize
their games by installing familiar faces on a game's avatars and by
inserting familiar environments into a game. Also enables more realistic
graphics to be included in the game by the game developers. For those
players desiring a virtual reality experience, the ability to play the game
under full depth perception viewing conditions could be made available by
utilizing RVR(TM) stereoscopic viewing capability.
Electronic Commerce
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Includes on-line commerce where virtual handling of the product and a 3D
walk-around viewing on the Internet would dramatically enhance the
presentation of all products, thereby replicating the in-store shopping
experience without either the hassle of traveling to the store or having to
pay the distributor's mark-up. Photo-realistic 3D digital models created
using the RVR(TM) technology consists of much smaller file sizes than those
images created by CAD engineering tools, thus making the RVR(TM) technology
ideal for on-line 3D digital model manipulation, examination, and
transmission.
Movie Industry
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The costs of special effects could be significantly reduced in the face of
an escalating demand for more and more elaborate special effects. RVR(TM)
is able to lower the overall costs of special effects by lowering the cost
to produce 3D digital models, by substituting digital actors for stunt
doubles, by bringing environments to the studio by way of digital
replication, and by simplifying the task of marrying together live and
digital film footage. RVR(TM) is also capable of accurately resurrecting
actors from the past in the form of 3D digital models allowing them to,
once again, perform on the big screen. Finally, it is also possible to
convert existing two dimensional (2D) films into true virtual reality
experiences.
Museums
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Collections of valuable artifacts can be easily and accurately digitized in
3D with RVR(TM) technology. Museums that want to extend their collections
beyond physical viewing constraints, or the private collector who wants an
accurate 3D digital record of his valuables are both well served by this
technology. Most importantly, the ability to interact with accurate
digitized replicas of the artifacts greatly expands both the ability and
desire to increase knowledge which, of course, is the major objective of
most museums. Now anyone can view, and interact with, the wonders of the
Louvre or the Smithsonian Institution from the comfort of their own home.
Not just view these treasures, as one would a movie film, but, instead, be
able to walk around each item and dwell on any aspect they choose - just as
if they were in the museum. The original utility of each and every artifact
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can be demonstrated, without fear of damage, by interacting with an
animated 3D digital replica of the artifact. Also, the huge problem of no
access to stored artifacts (as high as 95% of the collections of many
museums) is eliminated as all artifacts can be accessed in a 3D digital
format. These needs have all been validated by a number of museums that
have witnessed the Company's presentations (both on-site at museums and at
the American Association of Museums annual show).
Accident and Crime Scene Investigation
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Most accident and crime scene work involves the capture of all conditions
as they existed at the time of the incident. This information is used to
solve the crime, settle claims, and for courtroom presentations. Accuracy
and speed are essential when gathering such data as the scene will
deteriorate very quickly. Video recording (speed) can be performed with a
calibration target inserted in the view. When a rendition of the scene is
required, RVR(TM) can be utilized to create an accurate 3D digital
environment or simply to extract precise measurements important to the
resolution of the case.
Synthonics believes its patented software offers the only solution to
providing accurate 3D digital images at a non-prohibitive cost. In fact, the
cost drops so dramatically that virtually all the industries within the vertical
markets described above will be demanding products utilizing Synthonics' RVR(TM)
technology in order to better serve their customers as well as increase their
own profits.
The targeted vertical markets, described above, are currently being
serviced by many established software tool providers. These providers, whose
tools fall into the following categories, are able to provide horizontal access
to the targeted vertical markets.
Animation Software - The software that "brings to life" the 3D
graphical content (i.e. an animal that displays human
characteristics).
Multimedia Authoring Software - The software that creates a story-line
around 3D graphical content (i.e. an interactive CD-ROM presentation).
CAD Software - The software that enables complex designs to take shape
in a 3D digital format (i.e. the creation of an architectural
structure).
Virtual Reality Environments - The software that creates simulated 3D
environments without the use of true 3D digital models (i.e. a
furniture showroom with chairs that spin around).
Configuration Software - The software that enables an on-line shopper
to configure the desired product from a list of optional features
(i.e. selecting and viewing a home theater system from many available
combinations).
Clip-Art Libraries - The suppliers of non-custom, off-the-shelf 3D
graphical content (i.e. an automobile for a website where the make and
model is unimportant).
Each of these families contain several prominent suppliers of the software
tools, and Synthonics' RVR(TM) portfolio of tools is very complimentary to most.
Therefore, Synthonics will seek to partner with these established software tool
providers to provide its tools to these same vertical markets. This strategy is
detailed in the Operating Plan section of this Business Plan.
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Each of these vertical and horizontal applications represents a significant
business opportunity on its own. Taken as a whole, they define a huge
opportunity the likes of which is only available to very few companies.
Synthonics believes the markets described above are by no means a complete
listing of all possible applications. While the Company believes it has
sufficient market-entry barriers against competition by virtue of both its
current lead over all competitors and the likelihood of many aspects of the
technology being patented, the sheer size of the market makes the advent of
additional competition a minor concern. In fact, the size of the market will
certainly attract competitors in the not-too-distant future. Competition will
also serve to accelerate technological advances within Synthonics.
THE PRODUCTS
------------
Thus far, Synthonics has developed a portfolio of software tools that can
be used separately or collectively to dramatically reduce the cost of generating
photo-realistic 3D graphical content. Overall, Synthonics refers to this
portfolio as Rapid Virtual Reality(TM). A brief description of each tool is
included below:
3D Model Generator - A tool that enables the construction of a
wireframe and the photo-rendering of same starting with as few as two
photographs of an object or environment. The output files can be
exported to different formats including DXF, 3DS, and VRML II.
Single Object Viewer - A tool that enables real time examination of a
3D digital model constructed by the 3D Model Generation tool (above).
The object can be viewed from any perspective, sized to fit viewing
need, measured, and converted to an anaglyph for stereoscopic viewing.
Multi-Object Viewer - A tool that enables several objects to be
present in the viewer at the same time. Thus, entire environments can
be altered or examined. Scenes can be rearranged, objects can be added
or subtracted from a scene, or objects can be altered within a scene.
Camera Parameter Tracking - A tool that precisely determines the
position, in free space, of the image capture device (camera or
camcorder) in six degrees of freedom (x-axis, y-axis, z-axis, tilt,
rotation, & azimuth) with only the focal length and a three point
calibration target as input. Knowing this information is essential to
the accurate projection of the third dimension from a 2D flat image
such as a photograph.
Morphing Editor - A tool that enables very rapid wireframe generation
by morphing a "standard" wireframe of similar shape by introducing
several landmark data points to the editor. Thus difficult shapes can
be altered instantaneously from the standard to create custom 3D
digital models containing all the "one-of-a-kind" traits of the object
of concern.
Optical Tape Measure - A tool that enables extremely accurate
measurements of complex shapes in very little time by using
photogrammetry. Overcomes the problems of access to an object,
mobility of an object, complexity of shape, and firmness of the
surface of the object which are inherent to all sophisticated
measurement devices, including laser scanners, optical comparators,
mechanical digitizers, and survey range finding equipment.
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Anaglyph Generation - A tool that enables a pair of stereo photographs
to be quickly converted to an anaglyph which allows full depth
perception viewing with the assist of red and blue glasses worn by the
viewer. The images can be output to devices as simple as red/blue
glasses or as sophisticated as total immersion headsets.
3D Stereo Movie Maker - A tool that enables stereo video capture to be
quickly converted to a series of anaglyphs that play as a full depth
movie with the assist of red and blue glasses worn by the viewer. The
images can be output to devices as simple as red/blue glasses or as
sophisticated as total immersion headsets.
File Converter - A tool that provides file format conversion between
Synthonics' tools and popular software tool formats.
M-PEG Converter - A tool that enables an efficient means of reducing
movie film file sizes.
Synthonics has determined that these software tools meet the needs of
several markets in their quest to secure an affordable solution for 3D graphical
content generation. Specifically, Education, Edutainment, Museums, Electronic
Commerce, Medical, Video Games, and Movies are all industries that are seeking
the ability to enhance their own products or services through the use of 3D
graphical content. The Company has also determined that several families of
available software tools currently reach most of these vertical markets. These
tool families include:
Animation Tools that bring life to inanimate objects.
Authoring Tools that wrap a story-line around content for presentation
purposes.
CAD Tools that are used by engineers and animators to create 3D
digital objects and scenes.
Virtual Environment Tools (video games) that are used to create
synthetic environments for display on computers.
Configuration Tools that are used by on-line shoppers to configure
product selections that offer several optional features.
Clip Art Libraries that are accessed as a resource for 3D graphical
content when generic content will suffice.
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The table below displays the current use levels of each software tool
across each targeted market:
<TABLE>
<CAPTION>
Software Tool Usage by Vertical Market
--------------------------------------
Education/ Electronic Video
Edutainment Museum Commerce Medical Game Movies
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Animation Tools High High Low Low High High
Authoring Tools High High Medium None High None
CAD Tools None None None Low None High
Virtual Environment
Tools High High High None Medium None
Configuration Tools Medium None High None None None
Clip Art Libraries High None Low None Medium Low
</TABLE>
This data suggests that several opportunities exist for Synthonics to
partner with current tool providers that currently supply complimentary software
tools to the very markets that Synthonics has determined have a real need for
its own software tools. Even the applications identified as "none" are, in fact,
opportunities because the lack of use is usually a result of the high cost of
the processes currently available. An example of a vertical market that falls
into this classification is the Medical Industry. By offering an affordable, yet
accurate solution (Synthonics' RVR(TM) ), this market will open up to our
strategic partners. In the same vein, if CAD tool providers possessed an
inexpensive option (Synthonics' RVR(TM)), they would be able to penetrate
several untapped markets.
THE TECHNOLOGY
--------------
Definition of Technology
------------------------
Synthonics has developed patented software that enables its user to create
photo-realistic, three-dimensional (3D) digital models from as few as two
photographs of an object or environment. Accurate 3D digital replicas can be
constructed of anything that can be seen, or anything that is now extinct but
had previously been well documented on film. Synthonics calls this technology
Rapid Virtual Reality(TM)(RVR(TM)).
To better understand the significance of what Synthonics has created with
its revolutionary RVR(TM) technology, one needs to understand what is required
to create a digital model that is accurately portrayed in all three dimensions.
Most are familiar with the construction of a house or the human body. They are
comprised of a frame or skeleton to support the structure and an outer shell or
skin which is overlaid to define the appearance. 3D digital models require the
same structure to be accurate and viewable in all three dimensions. The skeleton
is called a wireframe and the skin is referred to as the surface texture.
Like building a house, a wireframe is first constructed and then a skin is
overlaid to complete the model. When 3D digital models are built with most
conventional processes, the builder must decide on the exact dimension and
orientation of each "stick" used to complete the wireframe. The builder must
also place each "stick" close enough to each other to adequately hold the shape
of the yet-to-be-applied surface texture. Surface textures are then selected or
fabricated to best replicate the actual surface of the physical object that is
being digitally duplicated. The builder of 3D digital models using conventional
processes must be an engineer, an artist, and a highly trained computer
operator.
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<PAGE>
RVR(TM) is based on complex algorithms that trace their origins back to the
tracking of Russian submarines via satellites. That technology has been
dramatically altered in order to generate the commercial application known as
Rapid Virtual Reality(TM). Despite the complexity of what is "under the hood",
the RVR(TM) process is quite simple to operate and can be performed on a
standard PC. The basic steps of the process include:
(1) Capture at least two 2D images of subject;
(2) Digitize the 2D images;
(3) Assist the computer to construct a wireframe; and
(4) Photo-texturing of the wireframe by the computer.
The key to Synthonics' RVR(TM) is its ability to pinpoint the exact
location of the camera when the 2D image was captured. It does so in six degrees
of freedom: x axis, y axis, z axis, tilt, rotation, and azimuth. This
essential-for-accuracy data is determined with only two known facts being
provided to the software by the user, these include:
(1) Focal length of the camera, and
(2) A calibration target in the viewing window (defined as the known
distance between three points). This target can be something as simple as
placing a business card in the photograph or the dimensions can come from
some known measurement on the object being captured).
With this data, the precise physical location of the camera by the
photographer is not required when capturing the 2D images at the start of the
process. The camera can be stationary or in motion with a different location in
free space for every frame. The three point calibration requirement dramatically
simplifies the 3D model building process, as virtually all mathematical
solutions require a minimum of six points which is an extremely difficult and
very costly method when used to determine the location of the camera in free
space. In fact, the three point solution is so unique that its application has
been the basis for one of the patents thus far granted by the U.S. Patent
Office.
Benefits of the Technology
--------------------------
Rapid Virtual Reality(TM) by Synthonics is so revolutionary it virtually
eliminates most of the skill, time and equipment investment requirements of
conventional processes that provide the same output. The 3D digital models
created by RVR(TM) are accurate, realistic in appearance, comprised of small
file sizes, and constructed on low-end PCs.
Another advantage of the RVR(TM) process is that it is extremely flexible.
In other words the output quality can be "adjusted " to fit the exact needs of
the content application. In some cases, a very simple wireframe and the textures
acquired from a few "tourist type" photographs may be all that is required. An
example of this grade of 3D digital model might be those used for the three
dimensional layout of a factory. The RVR(TM) process also supports the
generation of higher grade requirements such as 3D digital models used for
research. In such cases, a denser wireframe is constructed and the photographs
providing the surface texturing will be of a higher resolution.
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<PAGE>
Until the innovations brought about by Synthonics, achieving the same
output as available from RVR(TM) has been extremely expensive and time
consuming. Traditional approaches also require very large initial investments in
human resources, assets, and training. Consequently, many companies, and even
entire industries, that could benefit from three dimensional graphical content
have been blocked from using it due to the prohibitive costs involved. Prior to
the development of the Synthonics RVR(TM) process of creating 3D digital models,
only the movie industry could recover the costs of today's process to generate
accurate 3D digital models.
Future of the Technology
------------------------
Synthonics' current patented technology requires a "human assist" in order
for the computer to successfully correlate data points between images. This
correlation of points is defined as the identification of the same data point in
each of two or more photos. Synthonics is currently developing tracking software
that will enable the "human assist" requirement to be eliminated altogether.
Once completed and integrated into a system that contains an image capture
device and RVR(TM) software, a 3D copy machine is possible. Synthonics expects
to utilize digital signal processors (DSPs) to accelerate the entire system such
that 3D digital models can be generated in a targeted time of 15 to 30 seconds
with the push of a single button. (Note: Synthonics does not intend to get into
the hardware business with this development, but rather will seek to partner
with someone who is an established hardware supplier).
If the above automation is described as the second generation of RVR(TM),
the third generation is defined as real time modeling of video streams. In other
words, data will be simultaneously captured and converted to 3D graphical
content. For example, with such an advance, real-time, full-depth-perception
internal viewing will be available to surgeons while performing invasive
surgeries. The evolution of this generation of technology will take three to
four years of dedicated resources.
(2) Distribution methods of the products or services
Synthonics' business strategy is to exploit its technical expertise while
minimizing its need for capital. The primary focus of its strategy will be the
development of strategic alliances with software providers that can immediately
benefit from the RVR(TM) technology. Examples of such providers include those in
the animation and authoring markets, which already require more effective 3D
capabilities. Synthonics will license its technology to its alliance partners,
who will embed the technology into their own branded product offerings. Thus,
the Company remains a technology provider while benefiting from its association
with a brand name software company and from access to that partner's established
distribution channels and custom service operations.
In certain industries, companies that desire the RVR(TM) technology may be
unwilling or unable to make direct use of the technology themselves. To
accommodate this demand, Synthonics has developed an internal capability to
provide 3D content.
Strategic Alliances
-------------------
Synthonics will seek high profile software tool providers as strategic
business partners. Alliances with these partners are essential to the overall
success of Synthonics. These alliances themselves are Synthonics' immediate
customers and, while the technology benefits the ultimate user functionally, its
business practices must take into account multiple levels of support. In other
words, Synthonics must establish an infrastructure that meets the needs of its
alliance partners but also incorporates the requirements of the end user as part
of its future technology development.
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<PAGE>
Clearly, the Company's major customer is the software tools industry and,
by definition, it must have product design, documentation, technical support,
marketing and sales support, and business policies which support this model.
This support structure does not conflict with that which is required for the
segment of the business model that provides 3D content. In fact, direct access
to end users will provide an accurate assessment of market needs that will
facilitate the Company's ability to service its strategic alliance partners as
customers.
Several potential strategic partners (customers) have been identified by
Synthonics and discussions are underway with many of those shown below:
Targeted Strategic Alliance Partners
------------------------------------
Animation Authoring CAD Virtual Environment
--------- --------- --- -------------------
Kinetix (Autodesk) Macromedia Autodesk Apple
Alias Adobe Systems SDRC Infinite Pictures, Inc.
Newtek Microsoft Parametric Tech. Live Picture
Adobe Systems MetaCreations Black Diamond
Microsoft IBM
MetaCreations Cadence
Corel Computervision
In most cases, the Company expects to form a strategic alliance with its
partners. In doing so, Synthonics will provide the appropriate interface for its
partner to embed Synthonics' tools as part of its own product. The merged
product offerings will be distributed through established channels already
maintained by Synthonics' strategic partner. Synthonics benefits from increased
revenues by virtue of brand name association and access to established
distribution channels. Synthonics' partner benefits from increased revenues by
providing a solution to markets it hasn't yet penetrated and by providing
value-added upgrades to its existing user base. Neither Configuration Tools nor
3D Clip Art Libraries are addressed in the table above. Both categories are
relatively new and comprised of new companies for the most part. Synthonics'
partners in this area will likely be lesser known than the companies noted
above, consequently its selection criteria will involve a forward assessment of
a company's potential based on its resources and marketing strategy.
In some situations, the strategic alliance may take the form of a joint
venture. Such is the case with Synthonics' entree into the Medical Industry when
it took an equity position (30%) in Acuscape. Synthonics' partners include an
orthodontist, a radiologist, and an image capture expert. Initially, this
company will provide software tools to existing image processing labs that
support orthodontists, oral surgeons, and dentists throughout the United States.
To utilize this service, the doctor simply transmits digitized photographs (of
the teeth and face) and x-rays of the head from his/her patient to the image
processing lab. Using Synthonics' RVR(TM) technology, the lab will generate a
precise 3D digital replica from these submissions. Upon accessing the patient
specific model on-line, the doctor can perform appropriate diagnosis and
determine the optimum treatment plan in the comfort of his office with the
software tools provided by Acuscape. The accuracy and utility of the software
applies to the full range of complexity from the installation of braces, to
implants, to a full facial reconstruct. This service center concept should
shorten the analysis phase of treatment, provide a more accurate custom
treatment, and produce "near perfect" smiles on its patients. Future products
will benefit medical education, forensics, growth forecasting and cosmetic
surgery. Synthonics is receiving revenues currently for its product development
work. Licensing royalties to Synthonics will commence during the second half of
1998.
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<PAGE>
Production Plan
---------------
As mentioned earlier, a large source of Synthonics future revenues will
come from the generation of custom 3D graphical content for those industries or
major customers that desire the benefits of the revolutionary technology brought
forth by Synthonics but are unwilling or unable to install internal capabilities
to do so. To accommodate this source of revenues, Synthonics has its wholly
owned subsidiary called Christopher Raphael, Inc. The objective of this business
unit is to solicit content contracts with prominent customers that will display
the content to large audiences that, in turn will promote demand for Synthonics'
licensed software tools. This subsidiary is capable of outputting 3D graphical
content in many formats. CD-ROMs, DVDs, kiosks, interactive websites, and asset
databases are all within Christopher Raphael's capabilities.
Initially, Christopher Raphael, Inc. is focused on providing content
solutions to the huge museum industry. By using RVR(TM) technology to create 3D
digital replicas of artifacts, several current museum problems are eliminated.
Access to the artifacts is no longer limited by the ability to travel or by the
availability of display space at the museum. Access via the Internet or with
CD-ROMs is both easy and more convenient for many interested in viewing the
treasures contained in museums throughout the world. Most museums are faced with
having to store large portions of their collections due to display space
limitations. For example, despite having sixteen large museums, the Smithsonian
currently has over 137 million artifacts (more than 90% of its collection) in
storage. For all practical purposes, stored artifacts are only accessible
through a digital medium.
Another severe problem within museums is finding a way to let viewers
interact with artifacts so that an optimum learning experience can take place.
Interaction with a museum artifact is often limited so as to not risk damage to
the artifact. If the artifact is a device of some sort, it is also highly
desirable to demonstrate the original utility of the artifact during the
interactive experience. RVR(TM) enables interaction with an animated 3D digital
model. Thus, 3D digital replicas of artifacts can be handled, magnified,
measured, put into operation, disassembled, and explored - all in a digital
format. Until now, museums have been unable to utilize the power of 3D graphics
due to the high cost of current processes necessary to portray the accuracy
level demanded by museums. RVR(TM) technology now insures the accuracy required
is available at a very reasonable cost.
To provide the above capabilities, Christopher Raphael, Inc. has been
staffed with a regionally located sales team, project management, 3D model
builders and graphic designers. Outside resources will be utilized to supplement
this subsidiary's staff as much as possible. The subsidiary is housed in a
separate facility located two miles from Synthonics' main office. Separation of
production from development is very desirable in order to maintain the
appropriate environment for each. However, the close proximity makes it
convenient to provide technical assistance when required.
(3) Status of any publicly announced new product or services
Rapid Virtual Reality(TM) -- On October 15, 1996, the Company announced the
introduction of Rapid Virtual Reality(TM) technology as a productivity enhancing
approach to the generation of photo-realistic 3D content. To date the Company
has developed ten software tools that it makes available for licensing and is
also utilizing in its own production environment (Christopher Raphael, Inc.)
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<PAGE>
SynthaScan - On December 15, 1996, the Company announced the formation of
SynthaScan, a wholly owned subsidiary of Synthonics. This company has done some
preliminary development work on a 3D copier. At present, Synthonics is seeking
an alliance partner to supplement its own expertise in the development of the 3D
copier. Until a partner is secured, SynthaScan is not investing time or money on
any future development.
Acuscape -- On August 15, 1997, the Company announced its participation in
the formation of 3D DiagnosTx, LLC (now Acuscape, Inc.). Synthonics owns 30% of
the equity of Acuscape. This company has raised initial capital, started its
staffing, opened their headquarters in Glendale, CA, and is completing
development of their first product offering. Acuscape's first product should be
available in late summer.
Smithsonian Institution Contract. -- On October 20, 1997, the Company
announced the License Agreement entered into between the Company and the
Smithsonian Institution. At present, the contracted CD-ROM is under development
and scheduled for a late summer release. A copy of the Smithsonian License
Agreement and Amendment No. 1 to the Smithsonian License Agreement are attached
hereto and is incorporated herein by this reference. See Exhibit Index, Part
III.
Christopher Raphael. -- On November 3, 1997, the Company announced the
completion of its acquisition of Christopher Raphael, Inc. With the acquisition,
Synthonics has an internal production capability to produce 3D graphical content
in many formats.
(4) Competitive business conditions and the Company's competitive position
in the industry and methods of competition
As noted earlier, digital 3D model construction is possible by means other
than Synthonics' Rapid Virtual Reality(TM). These competitive processes vary
dramatically as to the cost and accuracy of their output. The most common
processes are noted below:
(1) Animation studio process
(2) CAD software and rendering software
(3) 3D Scanners
(4) Other Photogrammetry processes
Animation Studio Process - This is the most sophisticated and costly of the
competitive processes. It is the output of this process that people are most
familiar with. If you've seen a movie with any special effect, it is likely the
computer graphic model used to create the special effect came from this process.
Because it is both the most familiar and extreme form of generating 3D digital
models, it is presented in much more detail below as compared to the RVR(TM)
process.
CAD Software and Rendering Software - CAD Software, such as Pro Engineer,
can be utilized to construct a wireframe model. Rendering software, such as 3D
Studio Max, can then be utilized to texture over the wireframe. This process is
expensive as it requires skilled operators (artists and/or engineers) and
sophisticated hardware (UNIX workstation or very high-end PCs). Normally, the
resultant model is not realistic in appearance as it is very difficult to
construct realism from nothing. On the other hand, the photo-realistic model
generated by RVR(TM) has the exact same appearance as viewed in the photograph.
This competitive process is best utilized for creating digital models of objects
or environments that don't already exist. If the desired digital model is of
something that already exists, the RVR(TM) process by Synthonics is a much
better choice due to lower cost, less time required and the realistic appearance
of the digital model.
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<PAGE>
3D Scanners - A number of 3D Scanners exist and their prices range from
$2,000 to $400,000. At the low end, the 3D scanners are touch and probe devices
that record each data point (relative to a fixed 3D coordinate axis), one at a
time, as the probe makes contact with the object. This is extremely tedious
requiring the object to be secure from movement. There are also considerable
problems associated with the probing of "soft skinned" objects. Applications
requiring tight dimensional tolerances do not fare well with these low-end 3D
scanners. At the high end, 3D scanners are sophisticated laser scanners
recording millions of data points. Typical data files from high-end 3D laser
scanners must be considerably reworked in order to retain only essential data
before they are usable in the construction of a 3D digital model. The huge
deficiency with today's 3D scanners is that they are little more than
measurement devices. One still has to construct a wireframe and texture the
wireframe in order to complete the 3D digital model. RVR(TM) allows for
completion of the entire 3D model generation process in much less time, for a
lot less money, and with a photo-realistic appearance.
Other Photogrammetry Processes - The Company is aware of two other
companies offering products that create 3D digital models from photographs. EOS
Systems, located in Canada, has a product called Photomodeler, and 3D
Construction Co., located in California, has a product called 3D Builder. Both
products require more photos and data points (resulting in larger file sizes)
than does the RVR(TM) process. More importantly, both competitive approaches
cannot precisely determine the location of the camera when it captured the
photograph, whereas RVR(TM) makes use of a calibration target and precisely
locates the camera. This patented feature results in a much more accurate
digital replica and also facilitates the marrying of live and digital images.
Additionally, neither competitive product offers a stereoscopic viewing
capability.
As suggested above, in many cases, Synthonics' technology can generate the
same output as an animation studio does today for as little as 3% the cost of
the animation studio process. This reduction in cost comes in two forms --
operating and investment savings. The table below describes the magnitude of
difference between the required elements of the Synthonics and animation studio
processes.
Synthonics Process vs. Animation Studio Process
------------------ ------------------------
Digitized 2D images Clay models
Synthonics patented software Molds from clay models
Cast urethane maquettes
Laser-generated 3D template
High-powered, branded software
In both cases, the output is accurate 3D digital models. The leading-edge
technology developed by Synthonics requires only one man-hour for every sixty
man-hours required by the animation studio to produce the same output. Further,
the skill levels required for the animation studio process are much higher,
resulting in a higher cost per hour for each hour invested in the animation
studio process as compared to the Synthonics process. The absolute investment in
man-hours will depend on the complexity of the project.
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<PAGE>
The difference in costs required from an investment standpoint are equally
impressive and are noted below:
Synthonics Process vs. Animation Studio Process
------------------- -------------------------
35MM or video camera Mold-making equipment
inexpensive photographic digitizer Casting equipment
Standard PC Laser scanner
UNIX workstation
There is another class of competitors that create a simulated virtual
reality (VR) environment without the use of 3D digital models. These photography
based approaches include Apple's Quicktime VR, Black Diamond's Surround Video,
and RealVR Traveler by Live Picture & Realspace. The viewer of environments
created by these software programs is subjected to a simulated portrayal of a
virtual reality panorama from specific points of view. In other words, several
photographs are stitched together and, as either the object or the viewer is
rotated in a fixed plane, the sensation of depth is created. In these
approaches, true virtual reality is not achieved. The objects or environments
cannot be controlled by the viewer, nor can any information (such as
measurements) be extracted directly from this simulated VR environment, as 3D
digital models are necessary for true virtual reality to occur.
Finally, Synthonics' RVR(TM) technology is totally flexible as it is able
to adopt to the full range of needs, in terms of 3D digital model intricacies,
from those of Electronic Commerce on the low end to those of the Movie Industry
on the high end. It is the combination of accuracy, affordability, flexibility
and compact file sizes that sets Synthonics apart from its competition. Each of
the competitors discussed possesses at least one of these traits, but only
Synthonics is capable of providing all four as a package.
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<PAGE>
The following chart summarizes the differences of the competitive
technologies discussed earlier in this section.
<TABLE>
<CAPTION>
Competitive Technology Comparison
---------------------------------
CAD
Animation Plus Other
Synthonics Studio Rendering 3D Photogrammetry
RVR(TM) Process Software Scanners Processes
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Description 3D Digital 3D Digital 3D Model Dimensional 3D Digital
Model Model Replication Measurement Model
Replication Replication or creation of object Replication
or creation
Applications A Realistic Creation of Creation of Complicated A Realistic
Digital Digital Digital models objects Digital Model
Model of Models with from a Concept Requiring of object or
object or very High Many Data Environmental
Environment Quality Points in that Exists
that Exists Viewing Order to
Requirements Re-Create
Strength * Low Cost * Realistic * Accurate * Accurate * Low Cost
* Easily Accuracy * Excellent * Easily
Produced * High Level creation Produced
* Low Data of Detail capabilities * Low Data
files sizes * Excellent files sizes
* Photo- creation * Photo-
Realistic and Realistic
Appearance Replication Appearance
* Flexible to capabilities * Flexible to
meet end meet end
need need
* Stereo-
scopic
viewing
* Accurate
Weakness * Object * Extremely * High cost * High * Object must
must exist high cost * High investment exist
* Multiple skill cost * Accuracy
high skills requirement * Time limitations
requirements * Large consuming * More complex
* Very large data file * Require than
data file size secondary Synthonics
size * Time operation process
* Very time consuming to complete
consuming to produce model
* Moderate to
high skill
level requirement
* Very large
data file size
</TABLE>
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<PAGE>
(5) Sources and availability of raw materials and names of principal
suppliers
The Company does not utilize any specialized raw materials and as such any
and all materials and raw materials, if any, required, are readily available.
The Company is not aware of any problem that exists at present time or that is
projected to occur with the near future that will materially affect the source
and availability of raw materials which would be required by the Company.
(6) Dependence on one or a few major customers
The Company feels that by the diversity of the applications and uses of the
technology in various products and services that alleviates the dependence on
any one or major customer. Through the widespread use of the technology in
medical, multimedia, electronic commerce, education and other developing
industries, the Company will develop a wide base of customers.
(7) Patents, trademarks, license, franchises, concessions, royalty
agreements or labor contracts
PATENTS
-------
Without knowing the precise location of the camera, it is impossible to use
photogrammetry to build 3D digital models. Without the use of photogrammetry,
the low-cost construction of 3D digital models is impossible. Synthonics'
technology is based on photogrammetry, and its algorithms "nail the location" of
the camera in free space with the extremely unique and simple requirement of
only three known points in the same plane. Synthonics believes its technology to
be unique in its approach and application. The Company is also dedicated to the
protection of its trade secrets and source code through tight security, the
advancement of the technology, and the establishment of strong patent
protection. Therefore, the Company has retained a prominent legal firm to
develop and submit patent applications for several technologies that the Company
views as patented. To date, twenty-three patent applications have been filed in
the US and internationally. A very brief summary of the categories covered by
the patent applications is listed below:
Subject Matter of Patent Applications
-------------------------------------
(1) High-speed correlation engine for P.C. using Field Programmable Gate
Array computer chips.
(2) Digital creation and transmission of 3D images.
(3) Digital methods of creating photo-realistic computer models.
(4) Capturing and transmitting stereoscopic 3D images for the entertainment
industry.
(5) Camera parameter determination from photo image data.
(6) Improved methods for morphing and special effects for the entertainment
industry.
(7) Converting existing 2D films to a 3D virtual reality experience.
(8) Multi-user interactive 3D on the Internet.
(9) 3D scanner or copier technology.
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<PAGE>
To date, two patents have been issued by the U.S. Patent and Trademark
Office. These include U.S. Patent No. 5,661,518 titled "Methods and Apparatus
for the Creation and Transmission of Three Dimensional Images"; and U.S. Patent
No. 5,699,444 titled "Methods and Apparatus for Using Image Data to Determine
Camera Location and Orientation". The Company has also been notified by the U.S.
Patent and Trademark Office that four additional applications contain allowable
claims. Each is expected to issue soon. Finally, the remaining seventeen patent
applications (eleven in U.S., three in Europe, and three in Japan) are all
pending. As discussed above, the ability to pinpoint the location of the camera
with a simple calibration target (three points) is fundamental to the
extraordinary benefits derived from using the RVR(TM) technology, therefore the
issuance of U.S. Patent No. 5,699,444 not only adds great value to the Company,
but also establishes an effective barrier against competition. Considerable
value to the Company will be added with the granting of each additional patent
as well.
TRADEMARKS
----------
Synthonics owns trademarks for Rapid Virtual Reality(TM), RVR(TM). 3D
Maker(TM), and Wireframe Express(TM).
LICENSES and ROYALTY AGREEMENTS
-------------------------------
Synthonics has entered into license and royalty agreements with the
following entities:
On November 30, 1996, Synthonics Incorporated (a wholly owned subsidiary of
the Company) entered into a License Agreement with MedScape, LLC (now known as
Acuscape, Inc.) wherein Acuscape will utilize Synthonics' technologies in the
creation its own analysis and treatment planning software tools for medical
professionals. The Agreement grants Acuscape exclusive worldwide rights to use
Synthonics' technologies only for tools to be used by orthodontists, dentists,
oral surgeons, and cosmetic surgeons in return for a 3% royalty of Acuscape's
gross sales. The Agreement also provides for recovery of costs from all Acuscape
required development. A copy of the Acuscape License Agreement is attached
hereto and is incorporated herein by this reference. See Exhibit Index, Part
III.
On October 2, 1997, the Company entered into a License Agreement with the
Smithsonian Institution wherein the Company will utilize its Rapid Virtual
Reality(TM) technology to produce an interactive CD-ROM introducing all 16
Smithsonian museums, and the National Zoo. This agreement allows Synthonics to
utilized the name and trademark of the Smithsonian upon and in connection with
the products which Synthonics will produce pursuant to the License Agreement.
The agreement also requires Synthonics to fund the production of the CD-ROM. All
initial revenues from the sale of the CD-ROM belong to Synthonics. Once
Synthonics has recovered their production costs, all subsequent revenues are
split 50/50 with the Smithsonian Institution. The term of the License Agreement
is for three (3) years and for only the territory designated as the United
States. A copy of the Smithsonian License Agreement and Amendment No. 1 to the
Smithsonian License Agreement are attached hereto and is incorporated herein by
this reference. See Exhibit Index, Part III.
On November 1, 1997, the Company and the Smithsonian Institution entered
into Amendment No. 1 to the above mentioned License Agreement wherein the
Company and the Smithsonian modified the dates and timetable for approval and
delivery as to the various phases in the production, among other things, of the
storyboards, images, script, packaging, prototype products, samples and final
product, pursuant to the License Agreement. See Exhibit Index, Part III.
On December 19, 1997, the Company entered into a Contract Agreement with
Centro Alameda, Inc. (an Affiliations Partner of the Smithsonian Institution) to
provide a 3D database and associated analysis tools. A down payment of 50% was
paid by Centro Alameda in December when the Company had completed approximately
50% of the project. Accordingly the downpayment was recorded in revenues in 1997
and the balance with be recognized when earned. A payment of 25% of the total
project fees due the Company are payable at the tie of the Beta review of the
product and the final payment of 25% is due and payable to the Company at the
time the final product is ready for the conference being hosted by Centro
Alameda, Inc. as set forth in the Contract Agreement. Synthonics' 3D tools will
be utilized by Christopher Raphael, Inc. (a wholly owned subsidiary of the
Company) to create the database and the analysis tools. A copy of the Centro
Alameda Contract Agreement is attached hereto and is incorporated herein by this
reference. See Exhibit Index, Part III.
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<PAGE>
On February 17, 1998, the Company signed a Strategic Alliance Agreement
with KnowledgeLINK to provide non-exclusive use of its 3D tools for electronic
commerce. Synthonics will receive a royalty payment of $100 per month for every
website produced by KnowledgeLINK that utilizes any of the 3D tools provided by
Synthonics. The Agreement also enables the Company to recover development costs,
be paid $50 per hour for customer maintenance support, and be paid for any 3D
content generated for KnowledgeLINK's customers. A copy of the KnowledgeLINK
Strategic Alliance Agreement is attached hereto and is incorporated herein by
this reference. See Exhibit Index, Part III.
(8) Need for Government approval
The products and services provided through use of the Company's technology
are not subject to approval of any government regulation.
(9) Effect of existing or probable governmental regulations on the business
The Company has voluntarily filed this Registration Statement on Form 10-SB
in order to register it common stock pursuant to Section 12(g) of the Securities
Exchange Act of 1934.
As a result of the effectiveness of its Registration Statement on Form
10-SB, the Company shall be subject to Regulation 14A of the Commission, which
regulates proxy solicitations. Section 14(a) of the Securities Exchange Act of
1934, as amended (the "1934 Act"), requires all companies with securities
registered pursuant to Section 12(g) thereof to comply with the rules and
regulations of the Commission regarding proxy solicitations, as outlined in
Regulation 14A. Matters submitted to stockholders of the Company at a special or
annual meeting thereof or pursuant to a written consent will require the Company
to provide its stockholders with the information outlined in Schedules 14A or
14C of Regulation 14; preliminary copies of this information must be submitted
to the Commission at least 10 days prior to the date that definitive copies of
this information are forwarded to stockholders.
The Company will also be required to file annual reports on Form 10-KSB and
quarterly reports on Form 10-QSB with the Commission on a regular basis, and
will be required to timely disclose certain events (e.g., changes in corporate
control; acquisitions or dispositions of a significant amount of assets other
than in the ordinary course of business; and bankruptcy) in a Current Report on
Form 8-K.
The Company's Management believes that it is in the Company's best interest
to become subject to the periodic reporting requirements as set forth above, in
order to provide a mechanism for the disclosure and publication of material
information about the Company and its financial condition to its shareholders
and the financial community. In the event that the Company's obligation to file
periodic reports is suspended under the Securities Exchange Act, it is the
intention of the Company to continue to voluntarily file period reports as if so
required to do so.
Management believes that these reporting obligations will increase the
Company's annual legal and accounting costs, but it is expected that revenues
will be sufficient to meet these costs.
The Company is not aware of any other governmental regulations now in
existence or that may arise in the future that would have an effect on the
business of the Company.
(10) Estimate of the amount spent during each of the last two fiscal years
on research and development activities.
R&D expenditures for 1996 and 1997 were $368,593 and $753,014 respectively.
In some cases (as described above), customer contracts require direct payment
for specific development requirements. In general, R&D activities will be
recovered through the application of a burden rate to all quotes.
(11) Costs and effects of compliance with environmental laws (federal,
state and local)
The Company does not plan to manufacture the products that are derived from
the application and use of its technology. The Company does not feel that it is
effected by any rules which have been enacted or adopted regulating the
discharge of material into the environment.
Page 23 of 64
<PAGE>
(12) Number of total employees and number of full time employees
At the present time the Company employs a total of 13 persons or which 13
are full time employees. These full time employees include F. Michael Budd,
Charles S. Palm, and Joseph R. Maher who are also officers and directors of the
Company.
Risk Factors.
-------------
Forward Looking Statements. When used in this Registration Statement, the
words or phrases "will likely result", "are expected to", "will continue", "is
anticipated", "estimate", "projected", "intends to" or similar expressions are
intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such statements are subject to
certain risks and uncertainties, including but not limited to market conditions,
competition, factors affecting the Company's ability to implement its growth
strategy, the Company's dependence on future financing, fluctuations in
operating results, the Company's ability to sustain levels of growth,
diversification of the Company's business, contingent risks, state and federal
regulation and licensing requirements, and environmental concerns that could
cause the Company's actual results to differ materially from those presently
anticipated or projected. Such factors, which are discussed in "Risk Factors,"
"Business" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the notes to consolidated financial statements, could
affect the Company's financial performance and could cause the Company's actual
results for future periods to differ materially from any opinions or statements
expressed with respect to future periods in this Registration Statement. As a
result all parties are cautioned not to place undue reliance on any such
forward-looking statements, which speak only as of the date made. The Company's
independent accountants have not examined or compiled the accompanying
forward-looking statements and accordingly do not provide any assurance with
respect to such statements.
The Company's present and proposed business operations will be highly
speculative and subject to the same types of risks inherent in any new or
unproven venture, as well as risk factors particular to the industries in which
it will operate, and will include, among other things, those types of risk
factors outlined below.
Developmental Stage Company. The Company was only recently organized and
has only a limited operating history. Although the Company and the Company's
operating subsidiaries do have limited operating experience, they too must be
deemed to be developmental stage companies. Taken together, the Company and its
subsidiaries must be considered to be in an early formative stage. There can be
no assurance that the Company's business plans will prove successful, or that
the Company or its wholly-owned subsidiaries will be able to operate profitably.
Competition. There are numerous corporations, firms and individuals which
are engaged in the type of business activities in which the Company is presently
engaged. Many of those entities are more experienced and possess substantially
greater financial, technical and personnel resources than the Company or its
subsidiaries. While the Company hopes to be competitive with other similar
companies, there can be no assurance that such will be the case.
Limited and Volatile Market for Common Stock. The Company's common stock is
quoted on the OTC Bulletin Board of the National Association of Securities
Dealers, Inc. (the "NASD") under the symbol "SNNT", however, there is a limited
and thinly traded trading market for the common stock and there can be no
assurance that an active market will ever develop or be maintained. Any market
price for shares of common stock of the Company is likely to be very volatile,
and numerous factors beyond the control of the Company may have a significant
effect. In addition, the stock markets generally have experienced, and continue
to experience, extreme price and volume fluctuations which have affected the
market price of many small capital companies and which have often been unrelated
to the operating performance of these companies. These broad market
fluctuations, as well as general economic and political conditions, may
adversely affect the market price of the Company's common stock in any market
that may develop.
Year 2000 Issues - Uncertainty Of The Effects Of The Year 2000 On Computer
Programs And Systems. Many currently installed computer systems and software
programs were designed to use only a two digit date field. These date code
fields will need to accept four digit entries to distinguish 21st century dates
Page 24 of 64
<PAGE>
from 20th century dates. Until the date fields are updated, the systems and
programs could fail or give erroneous results when referencing dates following
December 31, 1999.
None of the Company's products use dates, and therefore there are no Year 2000
issues over which the Company has direct control.
Given that the Company's products operate on certain hardware platforms and
within certain software operating systems and environments, the Company must
rely upon the efforts of the hardware and software vendors and manufacturers to
be in the vanguard with respect to OS and Platform issues relating to the Year
2000 compliance. The Company has not made an assessment as to whether hardware
and software vendors and manufacturers have brought their products into Year
2000 compliance, or if any of its customers, suppliers or service providers will
be so affected. Failure of the Company's software resulting from a hardware or
software vendor to be Year 2000 compliant, or that of its customers, suppliers
or service providers could have a material adverse impact on the Company's
business, financial condition and result of operations.
Risks of "Penny Stock." The Company's common stock may be deemed to be
"penny stock" as that term is defined in Reg. Section 240.3a51-1 of the
Securities and Exchange Commission. Penny stocks are stocks (i) with a price of
less than five dollars per share; (ii) that are not traded on a "recognized"
national exchange; (iii) whose prices are not quoted on the NASDAQ automated
quotation system (NASDAQ-listed stocks must still meet requirement (i) above);
or (iv) of an issuer with net tangible assets less than US$2,000,000 (if the
issuer has been in continuous operation for at least three years) or
US$5,000,000 (if in continuous operation for less than three years), or with
average annual revenues of less than US$6,000,000 for the last three years.
Section 15(g) of the 1934 Act and Reg. Section 240.15g-2 of the Commission
require broker-dealers dealing in penny stocks to provide potential investors
with a document disclosing the risks of penny stocks and to obtain a manually
signed and dated written receipt of the document before effecting any
transaction in a penny stock for the investor's account. Potential investors in
the Company's common stock are urged to obtain and read such disclosure
carefully before purchasing any shares that are deemed to be "penny stock."
Moreover, Reg. Section 240.15g-9 of the Commission requires broker-dealers
in penny stocks to approve the account of any investor for transactions in such
stocks before selling any penny stock to that investor. This procedure requires
the broker-dealer to (i) obtain from the investor information concerning his or
her financial situation, investment experience and investment objectives; (ii)
reasonably determine, based on that information, that transactions in penny
stocks are suitable for the investor and that the investor has sufficient
knowledge and experience as to be reasonably capable of evaluating the risks of
penny stock transactions; (iii) provide the investor with a written statement
setting forth the basis on which the broker-dealer made the determination in
(ii) above; and (iv) receive a signed and dated copy of such statement from the
investor, confirming that it accurately reflects the investor's financial
situation, investment experience and investment objectives. Compliance with
these requirements may make it more difficult for investors in the Company's
common stock to resell their shares to third parties or to otherwise dispose of
them.
Dependence on Key Employees. Historically, the Company has been heavily
dependent on the ability of its founder, Dr. Charles S. Palm as well as its
President, F. Michael Budd, to contribute essential technical and management
experience. In the event of future growth in administration, marketing,
manufacturing and customer support functions, the Company may have to increase
the depth and experience of its management team by adding new members. The
Company's success will depend to a large degree upon the active participation of
its key officers and employees. Loss of services of any of the current officers
and directors could have a significant adverse effect on the operations and
prospects of the Company. There can be no assurance that it will be able to
employ qualified persons on acceptable terms to replace officers that become
unavailable.
Future Capital Requirements; Uncertainty of Future Funding. The Company's
plan of operation calls for additional capital to facilitate growth and support
Page 25 of 64
<PAGE>
its long-term development and marketing programs. It is likely that the Company
would need to seek additional financing through subsequent future public or
private sales of its securities, including equity securities. The Company may
also seek funding for the development and marketing of its products through
strategic partnerships and other arrangements with investment partners. There
can be no assurance, however, that such collaborative arrangements or additional
funds will be available when needed, or on terms acceptable to the Company, if
at all. Any such additional financing may result in significant dilution to
existing stockholders. If adequate funds are not available, the Company may be
required to curtail one or more of its future programs.
Intense Competition and Rapid Technological Change. The industry in which
the Company operates is highly competitive, rapidly growing and the Company will
have to compete with a multitude of similar companies, possessing substantially
greater financial, personnel, technological and marketing resources. It is
particularly difficult for small independent companies to compete with such
major companies for recording artists, radio air time and floor space for their
releases in retail outlets. The Company is not a significant factor in the
industry. There is no assurance that the Company will be able to compete in such
an environment.
Item 2. Management's Discussion and Analysis of Plan of Operation
- -----------------------------------------------------------------
FINANCIAL CONDITION
-------------------
During its first three and one-half years of existence, the Company was
involved in the development of its technology. During this time, revenues were
virtually non-existent and expenditures primarily attributed to research and
development. Without adequate revenues to offset expenditures, the Company has
reported a loss in each of its years of existence. To date the Company has
funded itself by way of a series of private equity sales. As of the end of
fiscal 1997, the Company had offset its accumulated deficit in this manner and
has therefore not found it necessary to incur any long term debt. The most
valuable asset of the Company is its technology for which it has been granted
several patents and has several more pending. Although the Company believes its
patents to be very valuable in a real sense, this value is not quantified as
such on the Company's Balance Sheet. At the end of 1997, shareholder equity was
essentially equal to the cash on hand.
OPERATIONAL RESULTS
-------------------
During each of the last two years (1996 and 1997), the Company reported
revenues of $208,224 and $417,574 respectively. Revenues during 1996, were
almost exclusively the result of two license agreements that have both elapsed.
The balance of revenues for 1996 came as a result of some minor development work
for which the Company was reimbursed. During 1997, revenues were generated from
two primary sources: (1) a license agreement with Acuscape, Inc. and (2) a
contract with Centro Alameda, Inc. Nearly 50% of 1997's revenue occurred during
the fourth quarter reflecting the start of the Centro Alameda project.
The cost of goods sold increased both in the amount and as a percentage of
sales in 1997 versus 1996. These increases are due to the Company's securing of
contracts to produce 3D content. Both the Smithsonian and Centro Alameda
contracts are for the production of 3D content.
The gross profit percentage of the Company decreased substantially from
1996 to 1997 as a result of the purchase of Christopher Raphael during the 1997
fiscal year. Christopher Raphael was acquired by the Company on October 1, 1997,
and was accounted for as a purchase. Christopher Raphael was operating at a loss
with a very low gross operating profit percentage. Upon consolidating the
companies for the year ended December 31, 1997, the gross profit percentage
decreased. The Company believes that the gross profit percentage for the 1997
year is a better indicator of the Company's future profit margins.
Expenditures increased by more than 50% in 1997 as compared to 1996. The
primary reasons for this occurrence are:
Acquisition of Christopher Raphael, Inc. in order to acquire the needed
multimedia capability.
Page 26 of 64
<PAGE>
Smithsonian CD-ROM Contract. The terms of the CD-ROM contract with the
Smithsonian Institution require Synthonics to fund the entire production
with expenses to be paid back from the initial revenues of the CD-ROM.
During 1997, $87,000 of CD-ROM production costs were incurred.
Acuscape's Software Tools. Development of Acuscape's tools commenced during
1997 and $267,000 of programming effort was completed during the year.
Option Exercise. An expense in the amount of $249,000 was booked in 1997 to
offset the difference in the share market price and the share option price
for 750,000 shares of the Company's Common Stock.
Amortization and Depreciation. An increase of $78,000 in the current year
over the prior year reflects the additional amortization of patent costs as
well as the write-off of $48,000 of goodwill associated with the
acquisition of Christopher Raphael, Inc.
During each of the last two fiscal years, certain officers of the Company
deferred, then forgave compensation owed to them by the Company. In each
year, the debt forgiveness was in return for stock options. In 1996,
options to purchase 600,000 shares of Common Stock at a price of $1.00 per
share were issued in return for $236,500 of debt forgiveness. In 1997,
options to purchase 588,290 shares of Common Stock at a price of $1.00 per
share were issued in return for $279,133 of debt forgiveness. The debt
forgiveness was recorded as a contribution to capital.
CAPITAL FUNDING
---------------
The Company currently is unable to generate sufficient cash from operations
to sustain its business efforts as well as to accommodate its growth plans.
Until it is able to generate sufficient cash flow, the Company will seek capital
funding from outside resources. At present, the Company is seeking a capital
infusion of at least $3,000,000 and anticipates the funding to be in exchange
for a combination of debt incurred and the sale of a percentage of its equity.
The Company presently has no commitment for such funding and has not concluded
what form, whether debt or equity, such funding will be derived through.
FUTURE REVENUES
---------------
The Company has established two basic paths from which to achieve revenues.
These include 3D content creation and the licensing of the Company's 3D creation
software tools. The creation of 3D content, not only generates revenue through
the physical sale of the content but, also stimulates demand for the licensing
of the Company's tools by demonstrating the capabilities of same.
3D Content Creation. The prestigious and large museum industry is the
primary market targeted for 3D content sales. Museums around the world
are actively searching for ways to dramatically extend access to their
collections. The Company believes its patented technology provides the
only practical solution to this problem as it does not require a
compromise between the quality of the 3D content and the affordability
of acquiring same. The museum industry is huge as billions of
artifacts are contained in collections throughout the world. The
Company anticipates that by both utilizing an aggressive marketing
campaign and by leveraging its contractual relationship with the
Smithsonian Institution, it will be able to make significant
penetration into this market commencing in 1998. Additionally, the
Company anticipates that its efforts to advance its technology will
further reduce the cost of high quality 3D content and thereby enable
it to accelerate its penetration of the museum industry.
Licensing of 3D Content Creation Tools. The Company has constructed
its 3D content creation tools in such a manner that it believes they
are natural productivity extensions to currently available software
tools from name brand tool providers. These name brand providers
distribute animation, multimedia authoring, CAD, configuration, and
virtual reality tools to several markets including electronic
commerce, education, edutainment, video games, and movie special
effects. The Company believes that, if these name brand tool providers
were to offer their customers access to the tools provided by the
Company, each name brand tool provider would be able to increase their
own revenues by way of gaining additional market share as well as by
having access to new markets. The Company is seeking non-exclusive
Page 27 of 64
<PAGE>
licensing relationships thus allowing it to engage in licensing
relationships with all providers in any given market. The Company
believes that the advantage in 3D content creation afforded by its
tools is so powerful that the adoption by any one of the name brand
tool providers in a given market will prompt their competitors to
provide the same Synthonics advantage to their customers. The Company
anticipates significant revenue growth from the licensing of its 3D
content creation tools over the next several years as this approach
provides rapid access to already established channels of distribution
as well as market validation by partnering with name brand tool
providers.
Item 3. Properties
- ------------------
The Company does not own any real property. The Company currently occupies
approximately 2,430 square feet of space where it maintains its administrative
and development offices which are located at 31324 Via Colinas, Suite 106,
Westlake Village, California 91362. The Company leases this space from Westlake
Village Industrial Park. Westlake Village Industrial Park is not affiliated in
any way with the Company and the terms of the lease were negotiated at
arms-length.
A summary of the terms of the lease are as follows:
---------------------------------------------------
Lease Term: From September 1, 1996 through August 31, 1999.
Security Deposit: $6,762.00
Rental rate: Year 1 was $2,254 per month;
Year 2 was $2,376 per month;
Year 3 is $2,497 per month;
Option to Renew: One option to renew for one (1) additional year provided
that written notice of Synthonics' intent to renew is delivered to
Lessor at least six (6) months before expiration of the initial term.
Monthly rent during the renewal term will be $2,618.00 per month.
Real Property Taxes: Lessor is responsible for the payment of property
taxes. However, Lessee (i.e. Synthonics) shall pay as additional rent,
the amount, if any, by which the real property taxes applicable to the
premises increases over the fiscal real estate taxes year 1996 and
1997.
Personal Property Taxes: Synthonics shall pay all taxes assessed against
and levied upon trade fixtures, furnishings, equipment and all other
personal property of Lessee contained in the premises.
Utilities: Synthonics shall pay for all gas, heat, light, power telephone
and other utilities and services supplied to the premises, together
with any taxes thereon/
Subleasing: Consent of Lessor is required.
A copy of the Industrial Lease Agreement for the premises located at 31324
Via Colinas, Suite 106, Westlake Village, California 91362, is attached hereto
and incorporated herein by reference. See the Exhibit Index, Part III.
The Company also leases approximately 1,692 square feet to house its
production operation of its subsidiary, Christopher Raphael, Inc. These offices
are located at 30423 Canwood, Suite 203, Agoura Hills, California 91301. This
space is leased on a month to month basis and is presently sufficient to meet
the current requirements of the Company and the business which it conducts. The
Company leases this space from The Evelyn L. Matton Trust which is not
affiliated in any way with the Company and the terms of which lease were
negotiated at arms-length.
A summary of the terms of the lease are as follows:
--------------------------------------------------
Lease Term: From September 15, 1996 through September 14, 2000
Security Deposit: $2,080.40
Rental rate: Year 1 was $2,030.40 per month;
Year 2 was $2,030.40 per month;
Year 3 is $2,115.00 per month;
Year 4 is $2,199.60 per month.
Page 28 of 63
<PAGE>
Option to Renew: One option to renew for one (1) additional year provided
that written notice of Synthonics' intent to renew is delivered to
Lessor at least six (6) months before expiration of the initial term.
Monthly rent during the renewal term will be $2,618.00 per month.
Real Property Taxes: Lessor shall be responsible for the payment of
property taxes.
Personal Property Taxes: Lessee shall pay all taxes assessed against and
levied upon trade fixtures, furnishings, equipment and all other
personal property of Lessee contained in the premises.
Utilities: Lessee shall pay for all water, gas, heat, light, power and
other utilities and services specifically or exclusively supplied
and/or metered exclusively to the premises or to Lessee, together with
any taxes thereon. If any such services are not separately metered to
the Premises, Lessee shall pay at Lessor's option, either Lessee's
Share or a reasonable proportion to be determined by Lessor for
charges jointly metered with other premises in the Building.
Subleasing: Consent of Lessor is required.
A copy of the Standard Office Lease-Gross American Industrial Lease
Agreement for the premises located at 30423 Canwood, Suite 203, Agoura Hills,
California 91301, is attached hereto and incorporated herein by reference. See
the Exhibit Index, Part III.
The Company also lease various computers and computer equipment from
various companies as follows:
Dell Financial Services Leases. The Company has two (2) lease through Dell
Financial Services for various equipment. The first lease with through Dell
Financial Services is for a term of 36 months commencing in November 1997. The
monthly lease payment is $183.89. At the end of said lease the Company has the
option to purchase the leased equipment at a fee equal to 10% of the acquisition
costs of said equipment. The second lease with through Dell Financial Services
is also for a term of 36 months commencing May 22, 1998. The monthly lease
payment is $157.46. At the end of said lease the Company also has the option to
purchase the leased equipment at a fee equal to 10% of the acquisition costs of
said equipment. See the Exhibit Index, Part III.
Americorp Financial Inc. The Company has a lease through Americorp
Financial Inc., for certain Epson equipment. The term of this lease is 36 months
commencing June 19, 1998, with a monthly lease payment of $285.75. See the
Exhibit Index, Part III.
Sanwa Leasing Corporation. The Company's subsidiary, Christopher Raphael
Inc., has a through Sanwa Leasing Corporation for various computers and computer
equipment. The term of this lease is for 36 months commencing on February 5,
1996. The monthly lease payment is $367.60. At the expiration of the lease the
Company has the option to purchase the leased equipment for $1,026.82 plus
applicable sales tax. See the Exhibit Index, Part III.
AT & T Capital Corporation. The Company has two (2) lease through AT & T
Capital Corporation for various computers and computer equipment. The first
lease with through AT & T Capital is for a term of 24 months commencing in
November 1997. The monthly lease payment is $2,266.00 with two (2) months paid
in advance, along with applicable sales tax and a one time documentation fee. At
the end of said lease the Company has the option to purchase the leased
equipment for the fair market value of said equipment as determined at in the
reasonable judgment of the Lessor. The second lease with through AT & T Capital
is also for a term of 24 months commencing December in December 22, 1997. The
monthly lease payment is $205.00 with two (2) months paid in advance, along with
applicable sales tax and a one time documentation fee. At the end of said lease
the Company has the option to purchase the leased equipment for the fair market
value of said equipment as determined at in the reasonable judgment of the
Lessor. See the Exhibit Index, Part III.
Page 29 of 64
<PAGE>
Item 4. Security Ownership of Certain Beneficial Owners and Management
- ----------------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners
The following table sets forth security ownership information as of the
close of business on December 31, 1997, for any person or group, known by the
Company to own more than five percent (5%) of the Company's voting securities.
<TABLE>
<CAPTION>
Title of Name of Amount of Percent of
Class Beneficial Owner Ownership Class
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock F. Michael Budd 1,170,750 6.7%
743 Cedar Point Pl.
Westlake Village, CA 91362
</TABLE>
F. Michael Budd has sole investment power and sole voting power over the
shares set forth in the above table.
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<PAGE>
(b) Security Ownership of Management
The following table sets forth security ownership information as of the
close of business on December 31, 1997, for any director, executive officer or
group of the Company's voting securities:
<TABLE>
<CAPTION>
Title of Name of Amount of Percent of
Class Beneficial Owner Ownership Class
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Stock LeRoy K. Speirs 200,334 1.1%
312 West Palm Dr.
Arcadia, CA 91007
Common Stock F. Michael Budd 1,170,750 6.7%
743 Cedar Point Pl.
Westlake Village, CA 91362
Common Stock Charles S. Palm 428,751 2.4%
31324 Via Colinas
Suite 106
Westlake Village, CA 91362
Common Stock David L. Stewart 8,897 0.1%
99 Canal Center Plaza
Suite 300
Alexandria, Virginia 22314
Common Stock Ronald Speirs 50,000 0.3%
1632 S. Pacific Coast Hwy.
#455
Redondo Beach, CA 90277
Common Stock Joseph R. Maher 10,000 0.1%
1336 N. Moorpark Rd.
#161
Thousand Oaks, CA 91360
Common Stock Timothy J. Andrews 0 0.0%
550 South Hope St.
22nd Floor
Los Angeles, CA 90071
Common Stock Thomas K. Carpenter 0 0.0%
29 Via Falerno
Laguna Hills, CA 92656
Common Stock Timothy G. Paulson 20,000 0.1%
21240 Burbank Blvd.
Woodland Hills, CA 91367
Common Stock All Directors & Officers
as a Group (9 Persons) 1,888,732 10.8%
-----------------------------------------------------------
</TABLE>
(c) Change in Control.
There are no present arrangements or pledges of the Company's securities
which may result in a change in control of the Company.
Page 31 of 64
<PAGE>
Item 5. Directors, Executive Officers, Promoters and Control Persons
- --------------------------------------------------------------------
(a) Identity of Directors and Executive Officers.
<TABLE>
<CAPTION>
Name and Address Age Position Term Served Since
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
F. Michael Budd 51 President, CEO, 3 Years 1995
Director
Charles S. Palm 54 Chief Technology 3 Years 1995
Officer, Secretary,
Director
LeRoy K. Speirs 74 Chairman of Board 3 Years 1978
Ronald S. Speirs 46 Director 2 Years 1996
Timothy G. Paulson 51 Director 2 Years 1997
Thomas K. Carpenter 56 Director 2 Years 1997
Timothy J. Andrews 38 Director 1 Year 1997 to 9/25/98
Joseph R. Maher 37 VP Marketing 1 Year 1997
& sales, Director
David L. Stewart 54 Director 1 Year 1995
</TABLE>
Each of the persons listed in the above table possesses sole investment
power and sole voting power over the shares set forth in the above table.
There are no arrangements or understandings between any of the directors or
executive officers, or any other person or person pursuant to which they were
selected as directors and/or officers.
F. Michael Budd is a founder of Synthonics, Incorporated. He holds a BS in
Industrial Engineering from the General Motors Institute in Flint, Michigan, and
an MBA from the University of Detroit in 1973. Mr. Budd has had a long and
distinguished career in the administration of engineering and manufacturing
facilities, including 30 years of increasing management responsibility with
General Motors Corporation, Rockwell International, ITT Corporation, and Harman
International. During his career, Mr. Budd has orchestrated successful mergers,
acquisitions, divestitures, expansions, and start-ups for the companies with
whom he has been affiliated. He has successfully managed business units with
revenues up to $500 million, more than 7,000 employees, and with locations
around the world. Although he is most noted for his "turnaround" management
capabilities that convert marginal or losing operations into strong positive
cash-flow operations, Mr. Budd has been equally successful with new start-up
endeavors. Mr. Budd has been associated with the Company since its inception as
a director and shareholder.
Dr. Charles S. Palm, the "father" of Synthonics' technology, is a founder
of Synthonics, Incorporated. He received a Ph.D. in Engineering Sciences from
the University of Florida in 1975. Prior to joining the Company, he co-founded
Colorocs Corporation in Atlanta, Georgia. Colorocs developed and marketed
full-color copier and full-color laser printers that were marketed under several
different Brand names (such as Sharp and Savin) worldwide. Dr. Palm received
nine patents related to electro-photographic technologies used in his copier
designs. He was a member of the management team that took Colorocs through an
initial public offering in 1986. Dr. Palm supervised the Lunar Laser Ranging
Experiment at the University of Texas McDonald Observatory between 1975 and
1977. While in that capacity, he modified a gigawatt laser system used to
Page 32 of 64
<PAGE>
measure the distance from the Earth to the moon within an accuracy of 1.5
inches. Dr. Palm has led or been part of teams that have developed many
important inventions during his career. Besides those mentioned above, he was
very instrumental in the development of a device that was used by the US
Department of Defense, for nearly two decades, to track submerged Russian
submarines from satellite stereo photos of the ocean's surface.
Joseph R. Maher, combines sales, marketing, and promotional expertise with
a broad financial background. Mr. Maher has been responsible for the founding
and the senior level management of a variety of successful companies, both local
and national in scope. These include the publishing of consumer and trade
magazines, producing live entertainment for corporate and private clients,
directing the sales effort of the top out-placement firm in the United States,
and spearheading the growth and capital fund raising for several for-profit and
non-profit corporations. Mr. Maher was the founder and owner of Christopher
Raphael Marketing Design which was acquired by Synthonics during 1997.
LeRoy K. Speirs has been a successful entrepreneur throughout his entire
adult life with a number of different companies in endeavors as diverse as
opening a bookstore upon returning from World War II to founding of Contract
Insurance Underwriters located in Pasadena, California, which was a credit life
managing general agency, that grew to be the third-largest independent producer
of credit life insurance in California. He was a founder of the Brigham Young
University Center for Entrepreneurship in the Marriott School of Management and
recently received the prestigious Honorary Alumni Award (a life achievement
award) from Brigham Young University.
Ronald S. Speirs, was awarded BS and MS degrees in Computer Integrated
Manufacturing by Brigham Young University in 1986/1987. Mr. Speirs was a Senior
Industrial Engineer in Advanced Manufacturing Technologies for Allied Signal
Aerospace for five years, and is currently an independent computer consultant
and project facilitator for various high-tech enterprises.
David L. Stewart, Esq., is a patent attorney and partner in the firm of
McDermott, Will and Emory in Alexandria, Virginia. He holds a Bachelor of
Science degree in physics from California State University at Los Angeles and a
Juris Doctor degree from George Washington University in the District of
Columbia. Mr. Stewart was a Ph.D. candidate in information technology at George
Mason University in Fairfax, Virginia. He also served four years as
Administrative Patent Judge (Examiner-in-Chief) at the Board of Patent Appeals
and Interferences, United States Patent and Trademark Office.
Timothy J. Andrews served as a director of the Company from April 8, 1998
until his resignation on September 25, 1998. Mr. Andrew's resignation as a
director was not because of any disagreements between himself and the management
of the Company relating to the Company's operations, policies or practices. Mr.
Andrews is currently a Senior Vice President for Oaktree Capital Management, LLC
located in Los Angeles. His career has spanned seventeen years, all within the
investment community. Prior to Oaktree, Mr. Andrews held prominent positions at
Trust Company of the West, Govaars & Associates, and Price Waterhouse. Mr.
Andrews has also been appointed a member of several Boards of Directors for
companies in which Oaktree Capital has been involved. Mr. Andrews' expertise in
the areas of financial analysis, mergers & acquisitions, and capital funding are
essential skills resident within the Company.
Thomas K. Carpenter is an experienced executive with extensive P&L
responsibility and a heavy involvement in operational, technical, and
marketing/sales responsibilities. Mr. Carpenter has gained particular expertise
with software tools and applications within industrial, retail, government,
distribution, and medical marketplaces. Known as a persuasive, high energy
problem solver, he has demonstrated successes in both start-up and turn around
situations. Mr. Carpenter, a veteran of the software industry, is playing a key
role for the Company in the formation and execution of its operating strategy.
Mr. Carpenter is currently a member of the Board of Directors or the Board of
Advisors for three other companies all involved in the software industry.
Timothy G. Paulson has been a Corporate Vice President and the Treasurer of
Litton Industries, Inc. since 1994. With Litton since 1970, Mr. Paulson started
his career as a staff auditor and has progressed through several senior level
management positions prior to being appointed its Treasurer. He also earned his
Certified Public Accountant status in 1974. As a key member of management during
Litton's rise to prominence as a premier defense contractor, Mr. Paulson will
provide expert oversight guidance as Synthonics grows into a prominent software
tool provider.
Page 33 of 64
<PAGE>
(1) Directorships
No Director of the Company or person nominated or chosen to become a
Director holds any other directorship in any company with a class of securities
registered pursuant to section 12 of the Exchange Act or subject to the
requirements of section 15(d) of such Act or any other company registered as an
investment company under the Investment Company Act of 1940.
(a) Identity of Significant Employees.
The Company has no employees who are not executive officers, but who are
expected to make a significant contribution to the Company's business. It is
expected that current members of management and the Board of Directors will be
the only persons whose activities will be material to the Company's operations.
Members of management are the only persons who may be deemed to be promoters of
the Company
(b) Family Relationships.
The Chairman of the Board, LeRoy K. Speirs is the father of director Ronald
S. Speirs. Other than the father - son relationship of Messrs. Speirs, there is
no family relationship between any director or executive officer of the Company.
(c) Involvement in Certain Legal Proceedings.
During the past five years, no present or former director, executive
officer or person nominated to become a director or an executive officer of the
Company:
(1) was a general partner or executive officer of any business against
which any bankruptcy petition was filed, either at the time of the
bankruptcy or two years prior to that time;
(2) was convicted in a criminal proceeding or named subject to a
pending criminal proceeding (excluding traffic violations and other
minor offenses);
(3) was subject to any order, judgment or decree, not subsequently
reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining, barring,
suspending or otherwise limiting his involvement in any type of
business, securities or banking activities; or
(4) was found by a court of competent jurisdiction (in a civil
action), the Securities and Exchange Commission or the Commodity
Futures Trading Commission to have violated a federal or state
securities or commodities law, and the judgment has not been reversed,
suspended or vacated.
Page 34 of 64
<PAGE>
Item 6. Executive Compensation
- --------------------------------
The following table sets forth the aggregate compensation paid by the
Company for services rendered during the periods indicated:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
---------------------------
Long Term Compensation
-------------------------------
Annual Compensation Awards Payouts
---------------------------------------------------------
Securities All
Other Underlying Other
Name and Year or Annual Restricted Options/ LTIP Compen-
Principal Period Salary Bonus Compen- Stock SAR's Payouts sation
Position Ended ($) ($) sation) Awards (#) ($) ($)
($) ($)
(a) (b) (c) (d) (e) (f) (g) (h) (i)
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
F. Michael 1997 $90,000 $0 $0 $0 378,860 $0 $0
Budd,
President 1996 $0 $0 $0 $0 750,000 $0 $0
1995 N/A N/A N/A N/A N/A N/A N/A
Charles S. 1997 $150,000 $0 $0 $0 189,430 $0 $0
Palm, CTO 1996 $150,000 $0 $0 $0 1,162,260 $0 $0
1995 $ 38,500 $0 $0 $0 0 $0 $0
Joseph R. 1997 $36,000 $0 $0 $0 780,000 $0 $0
Maher, VP 1996 N/A N/A N/A N/A N/A N/A N/A
Sales & 1995 N/A N/A N/A N/A N/A N/A N/A
Marketing
<FN>
As of December 31, 1997 and 1996, there were accrued wages due and owing by
the Company to F. Michael Budd, the CEO and President of the Company in the
amount of $99,299 for 1997 and $120,000 for 1996.
</FN>
</TABLE>
EMPLOYMENT CONTRACTS/STOCK INCENTIVE PLANS
------------------------------------------
F. Michael Budd the CEO and President of the Company and a director and Dr.
Charles S. Palm, the Chief Technical Officer and a director of the Company each
have employment contracts with the Company. Each of these employment agreements
provide for an annual base salary of $240,000 per year. Each of these employment
agreements begin on July 1, 1996 and end on December 31, 2,000. Each contract
contains an Incentive Stock Option for 750,000 shares of common stock, of which
F. Michael Budd has exercised 300,000 shares from the option that he holds. The
option price per share is $0.50 and the 750,000 shares vest over a four year
period with all shares being vested by July 1, 2000 Joseph R. Maher has an
employment contract with the Company. It is effective until September 30, 2001.
His contract contains an Incentive Stock option for 750,000 shares of common
stock. The option price per share is $1.00 and the 750,000 shares vest over a
three year period. The total number of shares that vest is dependent on the
overall performance of Christopher Raphael, Inc., but cannot exceed a total of
750,000 shares.
Page 35 of 64
<PAGE>
INCENTIVE AWARDS FOR THE FISCAL YEARS OF 1998, 1999, AND 2000
--------------------------------------------------------------
The specific Performance Goals and Incentive Awards available to eligible
Participants for the fiscal years 1998, 1999, and 2000, have been predetermined
and shall be determined as set forth below. Any and all Incentive Awards for the
periods thereafter shall be determined in accordance with the terms of this
Plan.
Fiscal Year 1998 - In order for any Incentive Award to be granted during
fiscal year 1998, the Company must book no less than four million dollars
($4,000,000) of gross sales on a Consolidated Basis (i.e. the combined and
consolidation of sales from the Company and its subsidiaries). If the gross
sales exceed the $4,000,000 level, then there shall be created a bonus pool
equal to five percent (5%) of the total consolidated gross sales of the Company
for 1998, which shall be available for Incentive Awards.
Fiscal Year 1999 - In order for any Incentive Award to be granted during
fiscal year 1999, the Company must book no less than eight million dollars
($8,000,000) of gross sales on a Consolidated Basis (i.e. the combined and
consolidation of sales from the Company and its subsidiaries). If the gross
sales exceed the $8,000,000 level, then the bonus pool contribution for 1999
shall be equal to ten percent (10%) of the total pretax earnings of the Company
for 1999, which shall be available for Incentive Awards.
Fiscal Year 2000 - In order for any Incentive Award to be granted during
fiscal year 2000, the Company must book no less than fifteen million dollars
($15,000,000) of gross sales on a Consolidated Basis (i.e. the combined and
consolidation of sales from the Company and its subsidiaries). If the gross
sales exceed the $15,000,000 level then the bonus pool contribution for 2000
shall be equal to ten percent (10%) of the total pretax earnings of the Company
for 2000, which shall be available for Incentive Awards.
Incentive Awards from the bonus pool shall be made at the discretion of the
committee as set forth herein, up to the maximum of the entire bonus pool.
KEY EMPLOYEES
-------------
At the time of publication of this Annual Report, the Company has no other
employees that could not be replaced with other non-skilled labor. However, if
the Company is to grow, additional key personnel will be needed in the areas of
marketing, sales, and new product development. As the company expands,
additional sales, marketing, production, and support staff will be added.
Item 7. Certain Relationships and Related Transactions
- -------------------------------------------------------
TRANSACTIONS WITH MANAGEMENT AND OTHERS
---------------------------------------
Technology Acquisition: In 1993, Synthonics Incorporated made one-time
payments of $25,000 each to Dr. Charles Palm and Mr. Bruce Binns to acquire the
technology and image processing concepts that have become the proprietary
technological foundation of the Company's business for the foreseeable future.
Both Dr. Palm and Mr. Binns were full-time employees of the Company and occupied
significant executive positions within the Company's management structure.
Life Insurance on Key Employees: The Company obtained a life insurance
policy in the amount of $5 million on Dr. Palm. The Company is the beneficiary
of the policy. The insurance is intended to help protect the shareholder's
investment against the loss of the individual during the critical founding
period of the Company's growth cycle. See Exhibit Index, Part III.
Corporate Identity Artwork: Since the inception of Synthonics Incorporated,
the Company expended or committed approximately $66,850 in cash or
stock-equivalents of cash, in related-party transactions with Janet E. Jones,
one of the founders of the Company. The payments were made for work related to
establishing the corporate log and the corporate image graphics system, the
product packaging design, artwork for six (6) trademark application filings, and
numerous art projects related to magazine and Internet advertising and product
packing concepts for all of the product mentioned herein. Payment was made as
approximately $20,000 in cash with the balance paid in shares of Synthonics
Incorporated Common Stock issued at price per share valuations associated with
Page 36 of 64
<PAGE>
the time that the work was actually performed. It is expected that she will
continue to be used as a designer for additional trademark filings, additional
packaging designs and to guide the development of all corporate brochures,
advertising literature, corporate office designs, trade show booth designs, and
all other visual manifestations of the corporate image on an as-needed basis
throughout the balance of 1996.
Incentive Stock Options Exercised By Key Individuals By Means of Company
Loans: In 1993, a large number of shares (1,645,000) were allocated to the
founders, future officers of the Company, and other key people as incentive
stock options. The exercise price of the options was $.50 per share, the same
per share amount paid by all first round investors. In January 1994, the Company
made loans to eight individuals that allowed them to exercise their stock
options, Company, in accordance with California Corporations Code Section
315(c). The voting rights associated with the shares were passed to the
individual shareholders, but the Company as collateral for the notes is holding
the shares themselves issued. This action further provides, in effect, a call
option to the Company as collateral for the notes issued. This action further
provides, in effect, a call option to the Company that allowed the Company, at
the sole discretion of the Board of Directors, to repurchase the shares from any
key individual at the existing fair market value. The incentive shares were thus
recoverable if a key individual loses key individual status in the eyes of the
Board of Directors. The notes carried an interest at a rate of 6% per year, an
amount sufficient to pay for office rental and a portion of the operating
expenses each month. The notes were due and payable on or before December 1,
1996, by which time the Company would have received payments totaling $822,500
or the company would foreclose on and reclaim all shares covered by notes that
remain unpaid. These shares represented a significant overall dilution of voting
power and potential dividend distributions (of which, none are planned) to
subscribes under this offering and to subscribers of earlier offerings.
In late 1994, it was recognized that certain individuals were not going to
participate in the business in a material way and the remaining individuals who
had contributed in a material way had not performed as a group to a level of
performance that was anticipated at the start of the business and thereby felt
to be over-compensated by means of the stock purchase plan. Therefore, a program
was initiated to recover a significant portion of the incentive shares that were
felt to be attributed to over compensation. All recipients and participants in
the incentive stock plan either returned 50% of the incentive shares to the
Company for retirement or converted the shares to options to purchase at a
higher price or did both with each individual transaction covered by an
agreement that provided full satisfaction and accord to all parties. The
recovery of the incentive shares started in late 1994 and was completed just
prior to the tender offer made by Columbine Financial Corporation in May 1995.
The incentive share recovery program had a significant anti-dilution effect on
the Synthonics Incorporated minority shareholders that resulted in a greater
percentage ownership of the Company being pushed over to the minority
shareholders.
There have been no preliminary contact or discussion by any of the
Company's officers, directors, promoters, their affiliates or associates with
any representatives of the owners of any business or company regarding the
possibility of any acquisitions or mergers transactions, and there are no
present plans, proposals, arrangements or understandings with any person or
company regarding the possibility of any acquisitions or merger transaction.
TRANSACTIONS WITH PROMOTERS
---------------------------
There have been no material transactions, series of similar transactions,
currently proposed transactions, or series of similar transactions, to which the
Company or any of its subsidiaries was or is to be a party, in which the amount
involved exceeded $60,000 and in which any promoter or founder, or any member of
the immediate family of any of the foregoing persons, had a material interest.
Page 37 of 64
<PAGE>
Item 8. Description of Securities
- ----------------------------------
The Company has two classes of securities authorized, consisting of
50,000,000 authorized shares of common stock with a par value of $0.01 per share
and 550,000 authorized shares of preferred stock with a par value of $10.00 per
share.
COMMON STOCK
-------------
The holders of the Company's common stock are entitled to one vote per
share on each matter submitted to a vote at a meeting of stockholders. The
shares of common stock do not carry cumulative voting rights in the election of
directors.
The shareholders of the Company have no pre-emptive rights to acquire
additional shares of common stock or other securities. The common stock is not
subject to redemption rights and carries no subscription or conversion rights.
In the event of liquidation of the Company, the shares of common stock are
entitled to share equally in corporate assets after satisfaction of all
liabilities or the company and the liquidation preference of the preferred
shares. All shares of the common stock now outstanding are fully paid and
non-assessable.
PREFERRED STOCK
---------------
The Company has authorized 550,000 shares of preferred stock having a par
value of $10.00 per share. The Preferred Stock has dividend preferences over the
common stock. The preferred stock is entitled to receive dividends on a
cumulative basis at the rate of 12% of the stated par value per annum, payable
on a quarterly basis on the fifteenth day of the next month following the end of
each fiscal quarter. In addition, in the event of a voluntary or involuntary
liquidation or dissolution of the Company, the holders of the preferred stock
have a liquidation preference over the holders of the common stock.
The Company, at the option of the Board of Directors, may at any time after
December 31, 1998 redeem all the outstanding shares of preferred stock by
paying, in cash, a sum equal to $10.50 per share of each preferred share so
redeemed.
The holders of the preferred stock may, at any time up to 2 days fixed for
redemption, convert and receive 5 shares of common stock for each share of
preferred stock being converted at the rate of $2.00 per share of common stock
being converted into.
Page 38 of 64
<PAGE>
OUTSTANDING STOCK OPTIONS AND WARRANTS.
---------------------------------------
As of the year ended December 31, 1997, as well as March 6, 1998 there are
outstanding options to purchase additional shares of common stock of the Company
as follows:
<TABLE>
<CAPTION>
# Of Option Exercise Price Last
Name Shares Per Share Exercise Date
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
David Berkus 153,000 $1.00 Dec. 1999
F. Michael Budd 450,000 $0.50 July 2006
F. Michael Budd 378,860 $1.00 Dec. 2002
Janet Jones 187,740 $1.00 Dec. 2001
Janet Jones 909,855 $0.22 May 1999
Janet Jones 20,000 $1.00 Dec. 2002
Joseph R. Maher 30,000 $1.00 Dec. 2003
Joseph R. Maher 750,000 $1.00 Sept. 2003
Charles S. Palm 1,125,000 $0.22 May 1999
Charles S. Palm 750,000 $0.50 July 2006
Charles S. Palm 412,260 $1.00 Dec. 2001
Charles S. Palm 189,430 $1.00 Dec. 2002
Tony Riley 15,000 $1.00 Oct. 2002
Donald Cecil 15,000 $1.00 Oct. 2002
Timothy Paulson 90,000 $0.75 Oct. 2002
Timothy Andrews 180,000 $0.75 Oct. 2002
Thomas Carpenter 180,000 $0.75 Oct. 2002
LeRoy Speirs 200,000 $0.75 Oct. 2002
Ron Speirs 200,000 $0.75 Oct. 2002
David Stewart 100,000 $0.75 Oct. 2002
</TABLE>
As of December 31, 1997, there are outstanding warrants to purchase
additional shares of common stock of the Company as follows:
<TABLE>
<CAPTION>
# Of Shares Exercise Price Last
Name in Warrant Shares Per Share
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Rio Energy 250,000 $1.00 July, 1998
Mees Pierson 100,000 $1.00 July, 1998
B Warrant (Group) 167,000 50% x Avg. Price June, 1998
</TABLE>
As of March 6, 1998, there are outstanding warrants to purchase additional
shares of common stock of the Company as follows:
<TABLE>
<CAPTION>
# Of Shares Exercise Price Last
Name in Warrant Shares Per Share
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Rio Energy 250,000 $1.00 July 1998
Mees Pierson 100,000 $1.00 July 1998
B Warrant (Group) 167,000 50% x Avg. Price June 1998
SPARC Fund 70,000 $0.75 Feb. 1999
Ramon Cantero-Frau 13,300 $2.00 March 2002
Guardo M. Albini 2,362 $2.00 March 2002
Jose Antonio Perez 1,838 $2.00 March 2002
Ramon Cantero-Frau 29,260 $0.65 March 2002
Guardo M. Albini 5,198 $0.65 March 2002
Jose Antonio Perez 4,042 $0.65 March 2002
Nelson Capote 84,616 $0.65 March 1999
Manuel Freije 19,231 $0.65 March 1999
V. Suarez & Co., Inc. 76,924 $0.65 March 1999
Rafael Cortes Dapena 19,231 $0.65 March 1999
Empire Gas Company, Inc. 25,000 $0.65 March 1999
Ramon Cantero-Frau 50,000 $0.65 March 1999
</TABLE>
Page 39 of 64
<PAGE>
CHANGE IN CONTROL
-----------------
There is no provision in the Company's Articles of Incorporation, as
amended, or Bylaws, as amended, that would delay, defer, or prevent a change in
control of the Company.
Part II
-------
Item 1. Market Price Of And Dividends On The Company's Common Equity And Related
Stockholder Matters
- -------------------------------------------------------------------------------
The Company's Common Stock is traded on the Electronic Bulletin Board. The
following chart depicts the high and low trading prices for each fiscal quarter
that the Company's Common Stock has been publicly traded:
<TABLE>
<CAPTION>
Quarter High Price Low Price
-------------------------------------------------
<S> <C> <C>
1st, 1998 $1.00 $0.50
4th, 1997 $1.375 $0.3125
3rd, 1997 $1.0625 $0.3125
2nd, 1997 $1.875 $0.50
1st, 1997 $2.75 $1.25
4th, 1996 $2.50 $1.75
</TABLE>
These prices were obtained from the National Quotation Bureau, Inc. (the
"NQB") and do not necessarily reflect actual transactions, retail markups,
markdowns or commissions.
No assurance can be given that any active "established public market" will
develop in the Company's common stock, regardless or whether its current and
proposed business operations are successful, or if any active market does
develop, that it will be sustained for any period of time.
Holders
-------
The Company has approximately 600 Common Stock shareholders and four (4)
Preferred Stock shareholders.
Dividends
---------
The Company has never paid a dividend on its common stock. The Company has
paid a 12% dividend on its Preferred Stock in each of the last two quarters. The
dividends on the Preferred Stock were accrued during the last quarter of 1997
and paid in January, 1998. The Preferred stock is convertible to the Company's
Common Stock. At the time of conversion, the dividends on the Preferred Stock
will cease.
Page 40 of 64
<PAGE>
Item 2. Legal Proceedings
- -------------------------
The company was involved in litigation in the calendar year 1997. The
company was a party Plaintiff in the matter of Synthonics, Inc. v. 3rd Dimension
Technologies, Inc. and Affiliated Defendants, Los Angeles Superior Court Case
no. LC-041882. This matter was concluded favorably to the company. All time
frames for appeal or new trial have exhausted. The judgment has become final.
This matter involved the company prosecuting an action against 3rd Dimension
Technologies, Inc. to protect the company's patent, trademark and trade secret
interests in its three dimensional computer software. The relevant facts and
procedural history is as follows.
The action grew out of a license agreement between Synthonics and 3rd
Dimension Technologies wherein 3rd Dimension was granted the right to distribute
Synthonics three-dimensional software known as 3D Express and Express Mapper.
The software programs perform three dimensional model creations and are used in
a number of industries, including medical and dental practices, aerial surveying
and mapping and the motion picture industry for animation purposes. Synthonics
maintains patents and copyright protection on all of their technologies.
In February of 1997, during a routine check of the Internet, Synthonics
discovered numerous consumers were registering complaints against 3rd Dimension
Technologies for various business practices. Also, consumers registered
technical complaints regarding the software obtained from the distributor that
were unique to the programs being distributed by 3rd Dimension Technologies.
Further investigation by Synthonics found 3rd Dimenson Technologies attempted to
fabricate the programs creating unauthorized duplications of the computer
software. Synthonics immediately terminated the license agreement and conducted
an audit of the distributor.
To protect its property rights in the technologies being violated by 3rd
Dimension Technologies, Synthonics filed a four count civil action in the
Superior Court for the County of Los Angeles on July 23, 1997; alleging Breach
of Contract, Accounting for misappropriated gains in the unlawful duplication of
computer software, Violations of California Business & Professions Code Section
17200, fraudulent and unfair business practices and Misappropriation of Trade
Secrets. On July 28, 1997 a temporary Restraining Order was issued against 3rd
Dimension Technologies and all of their individual officers, directors, agents
and employees enjoining the same from copying, duplicating and distributing
Synthonics 3D Express and Express Mapper computer software, or copying or
duplicating any technology contained in the software. The Restraining Orders
were confirmed into a Preliminary Injunction with identical prohibitions on
September 5, 1997. On January 8, 1998 a final judgment was entered in favor of
Synthonics and against 3rd Dimension Technologies in the amount of $300,000.00.
Additionally, the trial court granted a permanent injunction against 3rd
Dimension and all of its agents, servants, officers, shareholders, affiliates,
employees and all those individuals or entities acting in concert with 3rd
Dimension from copying, duplicating and distributing Synthonics, Inc. computer
software or the technology contained in the software. The injunction is
enforceable with the contempt powers of the Superior Court. As stated above the
judgment has become final. All illegal competition and violations of Synthonics
rights in its computer software have been halted. The entities illegally
competing have been closed down. Finally, and most important to Synthonics, the
integrity of the software was preserved.
With the exception of the legal proceedings set forth above, the Company is
not presently a party to any litigation, claim, or assessment. Further, the
Company is unaware of any unasserted claim or assessment, which will have a
material effect on the financial position or future operations of the Company.
Page 41 of 64
<PAGE>
Item 3. Changes in and Disagreements with Accountants
- -----------------------------------------------------
There has been no change of the independent auditors of the Company and
there are no disagreements with such independent auditors.
Item 4. Recent Sales of Unregistered Securities
- -----------------------------------------------
The following transactions describe the sales of the Company's securities
over the last three years:
(a) Transaction #1:
Exercise of Warrants from a prior Private Placement Offering during
February, 1996 wherein 1,945,500 shares of Common Stock were sold at
$0.27 per share. No underwriters were used. The securities were sold
pursuant to an exemption from registration provided under Section 4(2)
of the Securities Act of 1933. The warrants were exercised by 22
investors 19 of which were accredited investors based on the
subscription agreements executed by said investors. The three other
investors are believe to be accredited investors or sophisticated
purchasers but the company has been unable as of the date of the
filing to located the necessary documentation to verify this.
(b) Transaction #2:
Private Placement Offering dated March 4, 1996 under which 168,500
Units consisting of one A Warrant and one B Warrant were sold at $2.00
per Unit. Each Warrant enables the owner to purchase one share of
Common Stock at a 50% discount from the prior month's average trading
price. The A Warrant can only be exercised during June, 1997 and the B
Warrant can only be exercised during June, 1998. No underwriters were
used. The securities were sold pursuant to an exemption from
registration provided under Section 4(2) of the Securities Act of 1933
and each of the investors of the above referenced Units were
accredited investors.
(c) Transaction #3:
Private sale of Stock and attached Warrants to "high net worth
entities" during July, 1996 wherein 545,000 shares of Common Stock
were sold at $1.00 per share. Each purchase of a share of stock
included the purchase of an equal amount of Warrants to purchase
additional shares of Common Stock at $1.00 per share prior to July,
1997. The purchasers included: Rio Energy 200,000 shares; Donald
Livingstone 100,000 shares; Paul Jennings 100,000 shares; Mees Pierson
A/C337 100,000 shares; and Lee Phillips 45,000 shares. No underwriters
were used. The securities were sold pursuant to an exemption from
registration provided under Section 4(2) of the Securities Act of 1933
and each of the investors and purchasers of the above referenced stock
and warrants were accredited investors.
(d) Transaction #4:
Exercise of stock option by Ray Hartman, a founder of the Corporation,
during December, 1996 wherein 78,591 shares of Common Stock were sold
at $0.22 per share. The securities were sold pursuant to an exemption
from registration provided under Section 4(2) of the Securities Act of
1933. Mr. Hartman, as a founder was an accredited investor at the time
of issuance of the stock option and, at the time of Mr. Hartmen's
exercise of the stock option he had full access to information on the
Company necessary for him to make and informed investment decision
(e) Transaction #5:
In February 1997, the Company issued 25,154 shares of common stock for
services rendered to the Company by employees and contractors. No
underwriters were used. The securities were sold pursuant to an
exemption from registration provided under Section 4(2) of the
Securities Act of 1933. The two investors receiving said shares were a
programer and an office administrator of the company, respectively and
had full access to information on the Company necessary for them to
make and informed investment decision in accepting shares of common
stock in exchange for their services.
Page 42 of 64
<PAGE>
(f) Transaction #6:
Exercise of stock options by Roger Grant, a founder and former
director of the company, during July of 1997 wherein 126,000 shares of
common stock were issued and sold at $0.22 per share upon the exercise
of the stock options by Mr. Grant. No underwriters were used. The
securities were sold pursuant to an exemption from registration
provided under Section 4(2) of the Securities Act of 1933. Mr. Grant
was a founder and former director of the company and had full access
to information on the Company necessary for him to make and informed
investment decision in exercising his stock options.
(g) Transaction #7:
Exercise of Warrants from a prior Private Placement Offering during
July, 1997 wherein 350,000 shares of Common Stock were sold at $0.70
per share. No underwriters were used. The securities were sold
pursuant to an exemption from registration provided under Section 4(2)
of the Securities Act of 1933. Each of the investors and purchasers
exercising their rights under the warrants were accredited investors.
(h) Transaction #8:
In August 1997, 179,700 shares of common stock were issued in exchange
for all remaining outstanding shares of common stock of Synthonics,
Inc. to complete the acquisition of by Synthonics Technologies, Inc.
No underwriters were used. The securities were issued pursuant to an
exemption from registration provided under Section 4(2) of the
Securities Act of 1933. The investor/shareholders of Synthonics, Inc.,
had full access to information on the Company necessary for them to
make and informed investment decision in exchanging their shares of
stock of Synthonics, Inc., for shares of stock of the Company.
(i) Transaction #9:
Private Placement Offering dated September 8, 1997 wherein 50,000
shares of Preferred Stock were sold at $10.00 per share. No
underwriters were used. The securities were sold pursuant to an
exemption from registration provided by Rule 505 of Regulation D of
the Securities Act of 1933. Each of the investors and purchasers of
the Preferred Stock were accredited investors.
(j) Transaction #10:
In October 1997, 10,000 shares of common stock were issued to Joseph
Maher for the acquisition of Christopher Raphael Inc. No underwriters
were used. The securities were sold pursuant to an exemption from
registration provided under Section 4(2) of the Securities Act of
1933. Mr. Maher is a sophisticated investor and as part of the
acquisition of Christopher Raphael, Inc., Mr. Maher was appointed as a
director of the Company, was an accredited investor as a director of
the Company and a sophisticated purchaser and had full access had full
access to information on the Company necessary for him to make and
informed investment decision in acquiring stock of the Company in
exchange for all his stock in Christopher Raphael.
(k) Transaction #11:
Exercise of stock options by F. Michael Budd during December, 1997
wherein 351,000 shares of Common Stock were sold at $0.22 per share
and 150,000 shares of Common Stock were sold at $0.50 per share. The
securities were sold pursuant to an exemption from registration
provided under Section 4(2) of the Securities Act of 1933. Mr. Budd is
the CEO, President and a director of the Company and an accredited
investor.
(l) Transaction #12:
Exercise of stock option by George Turner, a founder of the Company,
during December 1997 wherein 562,500 shares of Common Stock were sold
at $$0.22 per share. The securities were sold pursuant to an exemption
from registration provided under Section 4(2) of the Securities Act of
1933. Mr. Turner, as a founder was an accredited investor at the time
of issuance of the stock option and, at the time of Mr. Turner's
exercise of the stock option he had full access to information on the
Company necessary for him to make and informed investment decision
Page 43 of 64
<PAGE>
(m) Transaction #13:
Common Stock issued as payment for outstanding debt in February 1998
wherein 70,000 shares of Common Stock issued to relieve $50,000 of
debt ($0.71 per share). The securities were sold pursuant to an
exemption from registration provided under Section 4(2) of the
Securities Act of 1933. The fund to whom shares were issued in payment
of said debt was an accredited investors.
(n) Transaction #14:
Private Placement Offering dated January 20, 1998 wherein 550,000
shares of Common Stock were sold at $0.65 per share. No underwriters
were used. The securities were sold pursuant to an exemption from
registration provided by Rule 506 of Regulation D of the Securities
Act of 1933. Each of the investors and purchasers were accredited
investors.
Item 5. Indemnification of Directors and Officers
- -------------------------------------------------
Pursuant to Article 9., of the Articles of Incorporation, the Company shall
indemnify its directors, officers, employee, fiduciaries and agents as those
terms are defined in, and to the fullest extent permitted by, Part 9 of the Utah
Revised Business Corporation Act.
Sections 16-10a-902 through 16-10a-904 of the Utah Revised Business
Corporation Act provides as follows:
Section 16-10a-902. Authority to indemnify directors.
(1) Except as provided in subsection (4), a corporation may indemnify
an individual made a party to a proceeding because he is or was a
director, against liability incurred in the proceeding if:
(a) his conduct was in good faith; and
(b) he reasonably believed that his conduct was in, or not
opposed to, the corporation's best interests; and
(c) in the case of any criminal proceeding, he had no reasonable
cause to believe his conduct was unlawful
(2) A director's conduct with respect to any employee benefit plan for
a purpose he reasonably believed to be in or not opposed to the
interest of the participants in and beneficiaries of the plan is
conduct that satisfies the requirement of Subsection (1)(b).
(3) the termination of a proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent is
not, of itself, determinative that the director did not meet the
standard of conduct described in this section.
(4) Corporation may not indemnify a director under this section:
(a) in connection with a proceeding by or in the right of the
corporation in which the director was adjudged liable to the
corporation; or
(b) in connection with any other proceeding charging that the
director derived an improper personal benefit, whether or not
involving action in his official capacity, in which proceeding he
was adjudged liable on the basis that he derived an improper
personal benefit.
(5) Indemnification permitted under this section in connection with a
proceeding by or in the right of the corporation is limited to
reasonable expenses incurred in connection with the proceeding.
Section 16-10a-903. Mandatory indemnification of directors.
Unless limited by its articles of incorporation, a corporation shall
indemnify a director who was successful, on the merits or otherwise in the
defense of any proceeding or in the defense of any claim, issue, or matter in
the proceeding, to which he was a party because he is or was a director of the
corporation, against reasonable expenses incurred by him in connection with the
proceeding or claim with respect to which he has been successful.
Page 44 of 64
<PAGE>
16-10a-904. Advance of expenses for directors.
(1) A corporation may pay for or reimburse the reasonable expenses
incurred by a director who is a party to a proceeding in advance of
final disposition of the proceeding if:
(a) the director furnishes the corporation a written affirmation
of his good faith belief that he has met the applicable standard
of conduct described in Section 16-10a-902;
(b) the director furnishes to the corporation a written
undertaking, executed personally or on his behalf, to repay the
advance if it is ultimately determined that he did not meet the
standard of conduct; and
(c) a determination is made that the facts then known to those
making the determination would not preclude indemnification under
this part.
(2) The undertaking required by Subsection (1)(b) must be an unlimited
general obligation of the director but need not be secured and may be
accepted without reference to financial ability to make repayment.
(3) Determinations and authorizations of payments under this section
shall be made in the manner specified in Section 16-10a-906.
Page 45 of 64
<PAGE>
PART F/S
--------
SYNTHONICS TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998 (Unaudited)
December 31, 1997 and 1996 (Audited)
Independent Auditors' Report ...................................... 47
Consolidated Balance Sheet ........................................ 48
Consolidated Statements of Operations ............................. 50
Consolidated Statements of Stockholders' Equity ................... 51
Consolidated Statements of Cash Flows ............................. 54
Notes to the Financial Statement .................................. 56
Page 46 of 64
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors
Synthonics Technologies, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Synthonics
Technologies, Inc. and Subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the years ended December 31, 1997, 1996 and 1995. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Synthonics Technologies, Inc. and Subsidiaries as of December 31, 1997 and 1996,
and the consolidated results of their operations and their cash flows for the
years ended December 31, 1997, 1996 and 1995, in conformity with generally
accepted accounting principles.
Jones, Jensen & Company
Salt Lake City, Utah
February 6, 1998
Page 47 of 64
<PAGE>
SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
<TABLE>
<CAPTION>
ASSETS
September December 31,
---------------------------------------
1998 1997 1996
---------------------------------------
(Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $101,653 $311,610 $525,731
Accounts receivable (Note 1) 38,626 8,332 -
Inventory (Note 1) - - 4,296
Prepaid expenses 2,667 2,667 8,667
---------------------------------------
Total Current Assets 142,946 322,609 538,694
---------------------------------------
PROPERTY AND EQUIPMENT (Net) (Note 2) 100,165 124,534 100,166
---------------------------------------
OTHER ASSETS
Organization costs, net of accumulated
amortization of $1,195 and $920 (Note 1) - 183 459
Goodwill (Note 1) 12,023 48,092 -
Intangibles (Note 3) 189,902 144,591 44,898
Deposits 15,083 15,083 7,372
---------------------------------------
Total Other Assets 217,008 207,949 52,729
---------------------------------------
TOTAL ASSETS $460,119 $655,092 $691,589
=======================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
Page 48 of 64
<PAGE>
SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheet (Continued)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
September December 31,
---------------------------------------
1998 1997 1996
---------------------------------------
(Unaudited)
<S> <C> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 136,385 $ 126,034 $ 74,149
Accrued salaries (Note 5) 376,166 99,299 120,000
Other accrued expenses 37,680 22,166 863
Notes payable (Note 6) 555,000 100,000 -
---------------------------------------
Total Current Liabilities 1,105,231 347,499 195,012
---------------------------------------
COMMITMENTS AND CONTINGENCIES (Note 4)
STOCKHOLDERS' EQUITY
Preferred stock; 550,000 shares
authorized of $10.00 par value, 10,000
50,000 and -0- shares issued and
outstanding, respectively 100,000 500,000 -
Common stock; 50,000,000 shares
authorized of $0.01 par value,
19,948,279, 17,823,387 and
15,902,033 shares issued and
outstanding, respectively 199,483 178,23 159,020
Additional paid-in capital 4,995,812 3,961,790 3,091,389
Accumulated deficit (5,940,407) (4,332,431) (2,753,832)
---------------------------------------
Total Stockholders' Equity (645,112) 307,593 496,577
---------------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 460,119 $ 655,092 $ 691,589
=======================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
Page 49 of 64
<PAGE>
SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
For the Nine For the Years Ended
Months Ended December 31,
September 30, ---------------------------------
1998 1997 1996 1995
------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
REVENUE
Net sales $ 179,947 $ 417,574 $ 208,224 $ 182,436
Cost of goods sold 105,740 264,850 53,816 43,671
------------------------------------------------
Gross Profit 74,207 152,724 154,408 138,765
------------------------------------------------
EXPENSES
Research and development 326,261 753,014 368,593 344,362
General and administrative 1,248,414 830,415 690,779 436,384
Depreciation and amortization 83,842 110,979 32,918 38,627
------------------------------------------------
Total Expenses 1,658,517 1,694,408 1,092,290 819,373
------------------------------------------------
Loss From Operations (1,584,310) (1,541,684) ( 937,882) (680,608)
------------------------------------------------
OTHER INCOME (EXPENSE)
Other income - 2,104 971 1,075
Interest income 6,326 6,603 2,304 1,941
Interest expense (29,992) (9,142) (7,229) (6,795)
Bad debt expense - (34,780) (8,376) (1,000)
Income from debt release - - - 64,286
------------------------------------------------
Total Other Income (Expense) (23,666) (35,215) (12,330) 59,507
------------------------------------------------
Loss before provision
for income taxes (1,607,976) (1,576,899) (950,212) 621,101)
Provision for income
taxes (Note 8) - 1,700 800 800
------------------------------------------------
NET LOSS $(1,607,976) $(1,578,599) $(951,012) $(621,901)
================================================
LOSS PER SHARE $ (0.08) $ (0.10) $ (0.07) $ (0.05)
================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
Page 50 of 64
<PAGE>
SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
--------------- ------------- Paid-In Accumulated
Shares Amount Shares Amount Capital Deficit
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1994 - $ - 3,339,641 $ 33,396 $1,113,540 $(1,180,919)
Common stock issued
for acquisition of
Synthonics
Incorporated - - 9,983,301 99,833 274,137 -
Common stock issued
for services rendered
at $0.05 per share - - 10,000 100 400 -
Contribution to capital
by the Subsidiary - - - - 7,745 -
Net loss for the
year ended
December 31, 1995 - - - - - (621,901)
-----------------------------------------------------------
Balance,
December 31, 1995 - $ - 13,332,942 $133,329 $1,392,822 $(1,802,820)
Common stock issued
for cash at prices
ranging from $0.22
to $1.00 per share - - 2,515,500 25,155 1,027,523 -
Common stock issued
for services rendered
at $0.18 per share - - 275,000 2,750 45,830 -
Common stock issued
in lieu of debt and
equipment at $0.50
per share - - 105,000 1,050 51,450 -
Cancellation of
common stock - - (326,409) (3,264) 3,264 -
Contribution to
capital for the
purchase of
stock warrants
and options - - - - 570,500 -
Net loss for the
year ended
December 31, 1996 - - - - - (951,012)
-----------------------------------------------------------
Balance,
December 31,
1996 - $ - 15,902,033 $159,020 $3,091,389 $(2,753,832)
-----------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
Page 51 of 64
<PAGE>
SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Continued)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
--------------- ------------- Paid-In Accumulated
Shares Amount Shares Amount Capital Deficit
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1996 - $ - 15,902,033 $159,020 $3,091,389 $(2,753,832)
Common stock issued
upon exercise of
warrants - - 167,000 1,670 (1,670) -
Common stock issued
upon exercise of
warrants at
$0.70 per share - - 350,000 3,500 241,500 -
Common stock issued
upon exercise of
options at
$0.22 per share - - 688,500 6,885 144,862 -
Common stock issued
to acquire Christopher
Raphael, Inc. at
$0.52 per share - - 10,000 100 5,100 -
Common stock issued
to replace original
shares of Synthonics,
Inc. recorded at
predecessor cost - - 179,700 1,797 (1,797) -
Common stock issued
for services rendered
at $1.00 per share - - 25,154 252 24,903 -
Common stock issued in
exchange for the
forfeiture of 750,000
stock options - - 501,000 5,010 243,990 -
Preferred stock
issued for cash at
10.00 per share 50,000 500,000 - - - -
Stock offering
costs - - - - (50,620) -
Additional capital
contributed - - - - 279,133 -
Dividends declared - - - - (15,000) -
Net loss for
the year ended
December 31, 1997 - - - - - (1,578,599)
-----------------------------------------------------------
Balance,
December
31, 1997 50,000 $500,000 17,823,387 $178,234 $3,961,790 $(4,332,431)
================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
Page 52 of 64
<PAGE>
SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Continued)
(Unaudited)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
--------------- ------------- Paid-In Accumulated
Shares Amount Shares Amount Capital Deficit
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance,
December
31, 1997 50,000 $500,000 17,823,387 $178,234 $3,961,790 $(4,332,431)
Common stock issued
for cash at
$0.65 per share - - 550,002 5,500 352,000 -
Common stock issued
in lieu of debt at
$0.71 per share - - 70,000 700 49,300 -
Common stock issued
for services rendered
at $0.66 per share - - 34,815 348 22,630 -
Conversion of preferred
to common shares (40,000) (400,000) 615,200 6,152 393,848 -
Common stock issued
upon exercise of
warrants at
$0.20 per share - - 420,000 4,200 79,800 -
Common stock issued
upon exercise of
warrants - - 167,000 1,670 (1,670) -
Dividends declared - - - - (21,000) -
Stock offering costs - - - - (30,176) -
Common stock issued
upon exercise of
warrants at
$0.75 per share - - 250,000 2,500 185,000 -
Common stock issued
in lieu of debt at
$0.25 per share - - 17,875 179 4,290 -
Net loss for the
nine months ended
September 30, 1998 - - - - - (1,607,976)
-----------------------------------------------------------
Balance,
September
30, 1998 10,000 $100,000 19,948,279 $199,483 $4,995,812 $(5,940,407)
================================================================
</TABLE>
Page 53 of 64
<PAGE>
SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the Nine For the Years Ended
Months Ended December 31,
September 30, -----------------------------------
1998 1997 1996 1995
-------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net loss $(1,607,976) $(1,578,599) $(951,012) $(621,901)
Adjustments to reconcile net
loss to net cash used by
operating activities:
Depreciation and amortization 83,842 110,979 32,918 38,627
Stock issued for services 22,978 274,155 48,580 36,178
Changes in assets and
liabilities:
(Increase) decrease in
restricted cash - - - 14,357
(Increase) decrease in
accounts receivable (30,294) (7,244) 24,922 (24,922)
(Increase) decrease in prepaid
expenses and deposits - 1,505 (2,797) 3,942
(Increase) decrease in inventory - 4,296 (4,296) 4,838
(Increase) decrease in other
assets (61,011) - - -
Increase (decrease) in
accounts payable 14,820 (39,327) 8,434 7,642
Increase (decrease) in accounts
payable - shareholder - - (62,500) 62,500
Increase (decrease) in accrued
expenses 292,381 (10,157) 4,680 64,590
-------------------------------------------------
Net Cash Used by Operating
Activities (1,285,260) (1,244,392) (901,071) (414,149)
-------------------------------------------------
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of fixed assets (7,521) ( 18,530) ( 77,893) (10,405)
Patent costs - (126,459) - (20,966)
------------------------------------------------
Net Cash Used by Investing
Activities (7,521) (144,989) ( 77,893) (31,371)
------------------------------------------------
CASH FLOWS FROM FINANCING
ACTIVITIES
Principle payments on notes
payable (45,000) - (127,500) -
Cash received from notes payable 550,000 50,000 - 127,500
Dividends paid (21,000) - - -
Capital contributions - 279,133 570,500 -
Issuance of common and preferred
stock 598,824 846,127 1,052,678 271,500
------------------------------------------------
Net Cash Provided by
Financing Activities 1,082,824 1,175,260 1,495,678 399,000
------------------------------------------------
NET INCREASE (DECREASE) IN
CASH (209,957) (214,121) 516,714 (46,520)
CASH AT BEGINNING OF PERIOD 311,610 525,731 9,017 55,537
------------------------------------------------
CASH AT END OF PERIOD $ 101,653 $ 311,610 $ 525,731 $ 9,017
================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
Page 54 of 64
<PAGE>
SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
<TABLE>
<CAPTION>
For the Nine For the Years Ended
Months Ended December 31,
September 30, -----------------------------------
1998 1997 1996 1995
-------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION
CASH PAID FOR
Interest $ 29,992 $ 9,142 $ 7,229 $ 6,795
Income Taxes $ - $ 900 $ 800 $ 800
NON CASH FINANCING ACTIVITIES
Stock issued for services $ 22,978 $ 274,155 $ 48,580 $ 36,178
Stock issued in conversion
of debt to common stock $ 54,469 $ - $ 45,000 $ 71,537
Income from debt release $ - $ - $ - $ 64,286
Stock issued for equipment $ - $ - $ 7,500 $ -
Stock issued for acquisition
of subsidiary $ - $ 5,200 $ - $ -
</TABLE>
In accordance with Statement of Financial Accounting Standards No. 95,
"Statements of Cash Flows," the cash flows related to the purchase of
Christopher Raphael, Inc. during 1997 are shown for the three months ended
December 31, 1997. As a result, amounts related to assets and liabilities
reported on the consolidated statements of cash flows will not necessarily agree
with changes in the corresponding balances on the balance sheets.
The accompanying notes are an integral part of these consolidated financial
statements
Page 55 of 64
<PAGE>
SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 1998 and December 31, 1997 and 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Organization
The consolidated financial statements presented are those of
Synthonics Technologies, Inc. (STI) and its wholly-owned subsidiaries,
Synthonics Incorporated (Synthonics) and Christopher Raphael, Inc.
(CRI). Collectively, they are referred to herein as the "Company". STI
was incorporated on March 27, 1974 under the laws of the State of
Utah. Effective May 19, 1995, STI issued 9,983,301 shares of its
common stock in exchange for 98% of the issued and outstanding common
stock of Synthonics. During 1997, STI issued an additional 179,700
shares of its common stock for the remaining 2%. In 1996, STI changed
its name to Synthonics Technologies, Inc.
Synthonics was incorporated on August 26, 1993 under the state laws of
California. Synthonics was organized to engage in the design,
development and marketing of computer-interactive and
computer-automated image analysis software and hardware products. With
the acquisition of Synthonics, STI continued to engage in these
activities.
At the time of the acquisition of Synthonics, STI was essentially
inactive, with no operations and minimal assets. Additionally, the
exchange of STI's common stock for the common stock of Synthonics
resulted in the former stockholders of Synthonics obtaining control of
STI. Accordingly, Synthonics became the continuing entity for
accounting purposes, and the transaction was accounted for as a
recapitalization of Synthonics with no adjustment to the basis of
Synthonics' assets acquired or liabilities assumed. For legal
purposes, STI was the surviving entity.
On October 1, 1997, STI purchased CRI for $5,200 by issuing 10,000
shares of its common stock in exchange for 100% of the issued and
outstanding stock of CRI. The common stock issued was valued at its
trading price of $0.52 per share. The acquisition was accounted for as
a purchase. Initially, goodwill was recorded which consisted of the
excess of the purchase price over the fair value of the net tangible
assets of CRI. The goodwill is amortized over a two year period.
CRI was incorporated on June 17, 1997 under the state laws of
California. CRI was organized as a graphic design and print brokerage
firm.
b. Accounting Methods
The Company's financial statements are prepared using the accrual
method of accounting. The Company has elected a December 31, year end.
c. Cash and Cash Equivalents
Cash equivalents include short-term, highly liquid investments with
maturities of three months or less at the time of acquisition.
d. Loss Per Share
The computations of loss per share of common stock are based on the
weighted average number of common shares outstanding during the period
of the consolidated financial statements. Common stock equivalents,
consisting of warrants and employee stock options, have not been
included in the calculation as their effect is antidilutive or
immaterial for the periods presented.
e. Computer Software Development
The Company records all costs incurred to establish the technological
feasibility of its computer software products as research and
development expenses.
Page 56 of 64
<PAGE>
SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 1998 and December 31, 1997 and 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
f. Inventory
Inventory is stated at the lower-of-cost or market using the first-in,
first-out method. The inventory was $0, $0 and $4,296 as of September
30, 1998, December 31, 1997 and 1996, respectively, and consisted of
computer software products and packaging supplies.
g. Property and Equipment
Property and equipment is recorded at cost. Major additions and
improvement are capitalized. The cost and related accumulated
depreciation of equipment retired or sold are removed from the
accounts and any differences between the undepreciated amount and the
proceeds from the sale are recorded as gain or loss on sale of
equipment. Depreciation is computed using the straight-line method
over a period of three years.
h. Organization costs
Organization costs are recorded at cost and are amortized using the
straight-line method over a period of five years. Amortization expense
for the years ended December 31, 1997 and 1996 was $275 and $0,
respectively.
i. Accounts receivable
Accounts receivable are shown net of the allowance for doubtful
accounts.
j. Provision For Taxes
As of September 30, 1998, the Company has net operating loss
carryfowards of approximately $5,900,000 that may be offset against
future taxable income through 2012. No tax benefit has been reported
in the consolidated financial statements, because the Company believes
there is a 50% or greater chance the net operating loss carryforwards
will not be used. Accordingly, the potential tax benefits of the net
operating loss carryforwards are offset by a valuation allowance of
the same amount.
k. Principles of Consolidation
The consolidated financial statements include those of Synthonics
Technologies, Inc. and its wholly-owned subsidiaries, Synthonics
Incorporated and Christopher Raphael, Inc.
All material intercompany accounts and transactions have been
eliminated.
l. Uninsured Cash Balances
The Company maintains its corporate cash balances at various banks.
Corporate cash accounts at banks are insured by the FDIC for up to
$100,000. Amounts in excess of insured limits were approximately
$142,377 at December 31, 1997.
Page 57 of 64
<PAGE>
SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 1998 and December 31, 1997 and 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued))
m. Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
n. Goodwill
Goodwill consists of the excess of the purchase price over the fair
value of net tangible assets of the purchased subsidiary and is
amortized on the straight-line method over a two year period. The
Company periodically reviews goodwill for impairment. Amortization
expense on the goodwill for the year ended December 31, 1997 was
$48,092.
o. Unaudited Financial Statements
The accompanying unaudited financial statements include all of the
adjustments which, in the opinion of management, are necessary for a
fair presentation. Such adjustments are of a normal, recurring nature.
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
September 30, December 31,
---------------------------------------
1998 1997 1996
---------------------------------------
(Unaudited)
Computer equipment $ 174,821 $168,057 $ 114,329
Furniture and fixtures 18,546 17,789 11,403
Photographic equipment 55,122 55,122 55,122
---------------------------------------
248,489 240,968 180,854
Accumulated depreciation (148,324) (116,434) ( 80,688)
---------------------------------------
Net property and equipment $ 100,165 $ 124,534 $ 100,166
=======================================
Depreciation expense for the years ended December 31, 1997 and 1996
was $35,746 and $23,842, respectively.
NOTE 3 - INTANGIBLES
Intangible costs incurred are as follows:
September 30, December 31,
---------------------------------------
1998 1997 1996
---------------------------------------
(Unaudited)
Trademarks $ 1,484 $ 1,484 $ 1,484
Patents 247,686 186,675 60,116
---------------------------------------
249,170 188,159 61,600
Less accumulated amortization (59,268) ( 43,568) (16,702)
---------------------------------------
Total $ 189,902 $ 144,591 $ 44,898
=======================================
Page 58 of 64
<PAGE>
SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 1998 and December 31, 1997 and 1996
NOTE 3 - INTANGIBLES (Continued)
The patent costs that have been capitalized relate to legal fees
incurred to develop and secure the Company's patents on the 3-D
technology. The patents are recorded at costs and are amortized
using the straight-line method over a period of seven years.
Amortization expense for the years ended December 31, 1997 and
1996 was $26,866 and $9,076, respectively.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
During 1997, the Company entered into three separate operating lease
agreements for various computer equipment. The lease terms expire
beginning in November 1999 and ending November 2000. The monthly
rental payment for all three leases combined is $2,668.
The Company entered into a lease agreement for its office facilities
effective September 1, 1996 and expiring August 31, 1999. The monthly
rental payment is $2,254.
CRI has also entered into a lease agreement for its office facilities.
The lease expires September 14, 2000 and requires monthly rental
payments of $2,030.
Minimum future lease payments on all the leases as of December 31,
1997 are as follows:
<TABLE>
<CAPTION>
Year Ended
December 31, Amount
----------------------------------------------
<S> <C>
1998 $ 83,427
1999 69,473
2000 26,336
2001 8,121
2002 and thereafter -
-----------------------------------------------
Total $ 187,357
============
</TABLE>
The Company also has entered into employment agreements with certain
officers of the Company. The Company has agreed to pay its Chief
Executive Officer and Chief Technical Officer a base annual salary of
$240,000, each, beginning on July 1, 1996 and ending on December 31,
2000. The Company's Board of Directors may also authorize bonuses on
an ad-hoc basis.
NOTE 5 - RELATED PARTY TRANSACTIONS
As of September 30, 1998 and December 31, 1997 and 1996, the Company
owed $376,166, $99,299 and $120,000 to certain of its officers and
shareholders. These amounts represent accrued wages.
Page 59 of 64
<PAGE>
SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 1998 and December 31, 1997 and 1996
NOTE 6 - NOTES PAYABLE
Notes payable consisted of the following:
September 30, December 31,
---------------------------------------
1998 1997 1996
---------------------------------------
(Unaudited)
Note payable to a corporation,
principal and 7.50% interest
originally due April 1, 1997.
Secured by 70,000 shares of common
stock and 70,000 warrants to
purchase common stock. $ - $ 50,000 $ -
Notes payable to various
individuals, interest at 10%
due semi-annually, principal
due in May 1999 (payable in
cash or stock at $0.20 per
share, at the option of the
Company), unsecured 550,000 - -
Unsecured bank line-of-credit
at 11.5% interest, interest
paid monthly, principal
amount due December, 1998 5,000 50,000 -
---------------------------------------
Total Notes Payable $ 555,000 $ 100,000 $ -
=======================================
NOTE 7 - STOCK OPTIONS, WARRANTS AND RIGHTS
a. Stock Subscription Receivable
During 1993, the Board of Directors of Synthonics approved stock
purchase option agreements for certain of its key employees and
officers. During January 1994, all outstanding options to purchase
common stock were exercised at $0.50 per share. A total of 7,402,500
shares of common stock were issued as a result of the exercise of the
stock options. Synthonics received promissory notes in the amount of
$822,500 in return for all options exercised. During 1995, 6,997,500
of the shares of common stock issued were returned to the Company for
cancellation and the related promissory notes of $777,500 were also
canceled. During 1996, 326,409 of the 405,000 remaining shares were
returned to the Company for cancellation and an additional amount of
$35,000 on the promissory notes was canceled. The remaining 78,591
shares were paid for by the receipt of $10,000 during 1996.
b. Stock "Rights" and Warrants
In connection with its acquisition of Synthonics, the Company acquired
from Synthonics stockholders, warrants and "rights" to acquire
1,369,190 shares of Synthonics common stock. In exchange, the Company
granted the exchanging stockholders warrants and "rights" to purchase
6,161,355 shares of the Company's common stock. 1,950,500 of the
2,124,000 stock purchase warrants were exercised during 1996 at $0.27
per share and the remaining 173,500 warrants expired unexercised on
February 15, 1996. There are 2,597,355 uncertificated "rights" with an
exercise price of $0.11 per share outstanding at December 31, 1997.
562,500 expire January 1, 1998 and 2,034,855 expire May 31, 1999.
During 1996, 337,000 warrants were purchased at $1.00 per share for
$337,000. 168,500 of the warrants are "A" warrants and 168,500 are "B"
warrants. They are redeemable at 50% of the average price the month
before being exercised. The "A" warrants were exercised during June
1997 and the "B" warrants expire during June 1998.
Page 60 of 64
<PAGE>
SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 1998 and December 31, 1997 and 1996
NOTE 7 - STOCK OPTIONS, WARRANTS AND RIGHTS (Continued)
c. Common Stock Options
During 1996, certain of the Company's officers were granted stock
options for a total of 600,000 restricted common shares of the Company
at $1.00 per share in return for their forgiveness of deferred
compensation debt in the amount of $236,500. During 1997, these
officers were granted additional stock options to purchase 588,290
shares of restricted common stock at $1.00 per share in return for
their forgiveness of deferred compensation debt in the amount of
$279,133. The Company also issued 501,000 shares of common stock
during 1997 in exchange for the forfeiture of 750,000 common stock
options. 450,000 of those stock options were valued at $0.22 per
option and the remaining 300,000 stock options were valued at $0.50
per option. The amounts are recorded as contributed capital at
December 31, 1996 and 1997. The options can be exercised in total or
in part prior to December 31, 2001 and 2002.
The total amount of outstanding stock options of the Company at
December 31, 1997 is summarized as follows:
<TABLE>
<CAPTION>
Shares Exercise Price Exercised By
------------------------------------------------
<S> <C> <C>
2,034,855 $ 0.22 May 1999
1,200,000 $ 0.50 July 2006
2,151,290 $ 1.00 December 1999 - December 2002
950,000 $ 0.75 October 2002
</TABLE>
NOTE 8 - PROVISION FOR INCOME TAXES
The provision for income taxes for the years ended December 31, 1997
1996 and 1995, consists of the following:
December 31,
--------------------------------------
1997 1996 1995
--------------------------------------
State Franchise Taxes $ 1,700 $ 800 $ 800
======================================
NOTE 9 - PREFERRED STOCK
At December 31, 1997, the Company had 50,000 outstanding shares of
cumulative convertible preferred stock. Prior to September 30, 1998, 40,000
of the shares were converted early into 615,200 shares of the common stock.
The early conversion was at a 15.38 to 1 conversion as an incentive for the
preferred shareholders to give up their future dividens from the preferred
stock. Thus, at September 30, 1998, the Company has 10,000 outstanding
shares of cummulative convertible preferred stock. The remaining preferred
stock is convertible at the option of the holder into five shares of the
Company's common stock, for each share of preferred stock, are non-voting,
and feature a 12% annual dividend, paid quarterly. Accrued dividends as of
September 30, 1998 and December 31, 1997 were $3,000 and $15,000,
respectively.
Page 61 of 64
<PAGE>
SYNTHONICS TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
September 30, 1998 and December 31, 1997 and 1996
NOTE 10 - GOING CONCERN
The Company's consolidated financial statements are prepared using
generally accepted accounting principles applicable to a going concern
which contemplates the realization of assets and liquidation of
liabilities in the normal course of business. The Company has
historically incurred significant losses which have resulted in an
accumulated deficit of $4,332,431 at December 31, 1997 which raises
substantial doubt about the Company's ability to continue as a going
concern. The accompanying consolidated financial statements do not
include any adjustments relating to the recoverability and
classification of asset carrying amounts or the amount and
classification of liabilities that might result form the outcome of
this uncertainty. It is the intent of management to create additional
revenues through the development and sales of its image analysis
software and to rely upon additional equity financing if required to
sustain operations until revenues are adequate to cover the costs.
NOTE 11 - SUBSEQUENT EVENTS
On January 8, 1998, a default judgment was granted in favor of the
Company for breach of a license agreement and misappropriation of
trade secrets. The Company was awarded damages from the defendant in
the amount of $300,000. It is unlikely, however, that the Company will
receive any amount from the judgment.
Page 62 of 64
<PAGE>
PART III
--------
Item 1. Index to Exhibits
- --------------------------
The following exhibits are filed as a part of this Registration Statement:
<TABLE>
<CAPTION>
Exhibit
Number Description*
--------------------------------------------------------------------------
<S> <C>
3.1 Articles of Incorporation of Columbine Financial filed on March
27, 1974
3.2 Restated Articles of Incorporation of Columbine Financial dated
May 18, 1995
3.3 Articles of Amendment to Articles of Incorporation, filed on
September 16, 1996
3.4 Statement and Designation as Foreign Corporation in California
filed November 4, 1996
3.5 Certificate of Amendment to Articles of Incorporation filed
September 6, 1997.
3.6 Amended and Restated Articles of Incorporation filed April 23,
1998.
3.7 Bylaws of Synthonics Technologies, Inc.
4.1 Statement of Rights, Preferences, and Privileges of Common and
Preferred Stock as of September 6, 1997.
10.1 Management Cash Incentive Plan
10.2 1998 Stock Option Plan
10.3 Acuscape License Agreement
10.4 Smithsonian License Agreement dated October 2, 1997
10.5 Amendment No. 1 to Smithsonian License Agreement
10.6 Centro Alameda Inc. Contract Agreement dated December 19, 1997
10.7 Knowledge LINK Strategic Alliance Agreement
10.8 Synthonics Technologies - Industrial Lease Agreement
10.9 Joseph Maher - Industrial Lease Agreement
10.10 Dell Financial Lease No. 004591649-001
10.11 Dell Financial Lease No. 004591649-002
10.12 Americorp Financial Inc. - Lease 6976-2
10.13 Sanwa Leasing Corporation - Lease Agreement
10.14 AT & T Equipment Lease - 003866952
10.15 AT & T Equipment Lease - 003871854
10.16 F. Michael Budd Employment Agreement
10.17 Charles S. Palm Employment Agreement
10.18 First Colony Life Insurance Policy
21 Subsidiaries of the Registrant
27 Financial Data Schedule
</TABLE>
* Summaries of all exhibits contained within this registration statement
are modified in their entirety by reference to these exhibits.
Page 63 of 64
<PAGE>
SIGNATURES
----------
In accordance with Section 12 of the Securities Exchange Act of 1934, the
Company has caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
Synthonics Technologies, Inc.
Date: November 6, 1998 /S/ F. Michael Budd
---------------------------------------
By: F. Michael Budd,
Its: President, Chief Financial Officer,
and Director
Date: November 6, 1998 /S/ Charles S. Palm
---------------------------------------
By: Charles S. Palm
Its: Vice President of Technology,
Secretary and Director
Page 64 of 64
Exhibit 3.1
-----------
[Stamp of approval of the Secretary of State of Utah dated March 27, 1974
appears here]
ARTICLES OF INCORPORATION
OF
COLUMBINE FINANCIAL CORPORATION
We the undersigned, natural persons being more than twenty-one years of
age, acting as incorporators of a Corporation pursuant to the provisions of the
Utah Business Corporation Act, do hereby adopt the following Articles of
Incorporation for such a Corporation.
ARTICLE I
---------
NAME
-----
The name of the Corporation hereby created shall be:
COLUMBINE FINANCIAL CORPORATION
ARTICLE II
----------
DURATION
--------
The Corporation shall continue in existence perpetually unless sooner
dissolved according to the law.
ARTICLE III
-----------
PURPOSES
--------
The purposes for which the Corporation is organized are:
1. To purchase or otherwise acquire, and to hold, grant security interests
in pledge, sell, exchange, or otherwise dispose of, securities (which term
includes, without limitation of the generality thereof, any shares of stocks,
bonds, debentures, contracts, options, notes mortgages, or other obligations,
and any certificates, receipts, or other instruments representing rights to
receive, purchase, or subscribe for the same, or representing any other rights
or interests therein or in any property or assets) created or issued by any
persons, firm, associations, corporations, or governments or subdivisions
thereof; to make payment therefor in any lawful manner; and to exercise, as
owner or holder of a any securities, any and all rights, powers, and privileges
in respect thereof.
2. To acquire by purchase, subscription, underwriting, or otherwise, and to
own, hold for investment, or otherwise, and to use, sell, assign, transfer,
mortgage, create security interests in, pledge, exchange, or otherwise dispose
of real and personal property of every sort and description and wheresoever
situated.
-1-
<PAGE>
3. To issue offer, underwrite, buy, sell sponsor, create, assign, transfer,
pledge or otherwise deal in commodities, options, or double options on
commodities of any kind whatsoever.
4. To act as registrar or transfer agent either for itself or for others,
including the cancellation, authentication, validation, issuance and execution
of share certificates; the preparation and maintenance of any and all books,
ledgers, journals and records in connection therewith; the execution, signing,
verification, and acknowledgment of any kind and all documents or writings of
any kind whatsoever; and all other acts necessary or appropriate in connection
thereto.
5. To do any act or thing provided or permitted herein either directly or
indirectly through agents, independent contractors, joint ventures,
subsidiaries, divisions, contractual arrangements or otherwise.
6. In general, to possess and exercise all the powers an privileges granted
by the laws of the State of Utah or by these Articles of Incorporation together
with any powers incidental thereto, so far as such powers and privileges are
necessary or convenient to the conduct, promotion or attainment of the purpose
of the Corporation.
7. The business and purposes specified in the foregoing clauses shall,
except where otherwise expressed, be in no ways limited or restricted by
reference to, or inference from, the terms of any other clause in there Articles
of Incorporation together with any powers incidental thereto, so far as such
powers and privileges are necessary or convenient to the conduct, promotion or
attainment of the purpose of the Corporation.
ARTICLE IV
----------
CAPITALIZATION
--------------
The aggregate number of shares which the Corporation shall have authority
to issue is 5,000,000 capital shares with a par value of $.01 per share, each of
which shall have equal voting rights.
ARTICLE V
----------
PAID-IN CAPITAL
---------------
The Corporation shall not commence business until consideration of a value
of at least $1,000.00 has been received by it as consideration for the issuance
of its shares.
ARTICLE VI
----------
PRE-EMPTIVE RIGHTS
------------------
No holder of the Corporation of any class now or hereafter authorized,
shall have any preferential or pre-emptive right to subscribe for,
-2-
<PAGE>
ARTICLE VII
-----------
OFFICERS AND DIRECTORS CONTRACTS
---------------------------------
No contract of other transaction between this Corporation and any other
firm or corporation shall be affected by the fact that a director or officer of
this Corporation has an interest in, or is a director or officer of such firm or
other corporation. Any officer or director, individually or with others, may be
a party to, or may have an interest in, or is a director, individually or with
others, may be a party to, or may have an interest in, any transaction of this
Corporation or any transaction in which the Corporation is a party or has an
interest. Each person who is now or may become an officer or a director of this
Corporation is hereby relieved from liability that might otherwise obtain in the
event that such an officer or director contracts with this Corporation for the
benefit of himself or any other corporation for the benefit of himself or any
firm or other corporation in which he may have an interest, provided such
officer or director acts in good faith.
ARTICLE VIII
------------
REGISTERED OFFICE AND AGENT
---------------------------
The address of the initial registered office of the Corporation is:
Suite 500 Continental Bank Bldg.
Salt Lake City, Utah 84101
and the name of its initial registered agent at such address is:
Karin A. Lewis
ARTICLE IX
----------
DIRECTORS
---------
The internal affairs of the Corporation shall be managed by Board of
Directors which shall have not less than three (3) nor more than nine (9)
directors, as determined from time to time by the Board of Directors. The
original Board of Directors shall be comprised of three (3) persons. The names
and residence address of the person who are to serve as directors until the
first annual meeting of shareholders and until their successors are elected
shall qualify as follows:
-3-
<PAGE>
NAME ADDRESS
---- -------
Richard L. Chatham Suite 500 - Continental Bank Bldg.
Salt Lake City, Utah 84101
Gary L. Merrill Suite 500 - Continental Bank Bldg.
Salt Lake City, Utah 84101
Jo Lynda Mayhew Suite 500 - Continental Bank Bldg.
Salt Lake City, Utah 84101
ARTICLE X
---------
INCORPORATORS
-------------
The names and residence addresses of the incorporators are:
Karin A. Lewis 5678 Holladay Blvd.
Salt Lake City, Utah 84121
Gary Lee Merrill 5852 Fountaine Bleu Circle
Salt Lake City, Utah 84121
Sue Frankenberger 151 South Main #18
Midvale, Utah 84047
INCORPORATORS
-------------
/S/ Karin A. Lewis
--------------------------
Karin A. Lewis
/S/ Gary Lee Merrill
--------------------------
Gary Lee Mitchell
/S/ Sue Frankenberger
--------------------------
Sue Frankenberger
STATE OF UTAH )
) ss
COUNTY OF SALT LAKE )
I, Jo Lynda Mayhew, a Notary Public, hereby certify that on the 24th day of
March, 1974, personally appeared before me Karin A. Lewis, Gary Lee Merrill, and
Sue Frankenberger, who being by me first duly sworn, severally declared that
they are the persons who signed the foregoing documents as incorporators, and
that the statements therein contained are true.
/s/ Jo Lynda Mayhew
------------------------
Notary Public
Residing at Salt Lake City, Utah
My commission Expires:
11-20-74
- --------
-4-
Exhibit 3.2
-----------
[Stamp of approval of the Division of Corporations and Commercial Code of the
State of Utah Department of Commerce dated May 19, 1995, appears here]
ARTICLES OF INCORPORATION
(RESTATED)
OF
COLUMBINE FINANCIAL CORPORATION
Pursuant to ss.16-10a-1007 of the Utah Revised Business Corporation Act
("the Act") and a resolution heretofore adopted (by written consent pursuant to
ss.16-10a-821 of the Act) by its board of directors, Columbine Financial
Corporation hereby restates its Articles of Incorporation, as heretofore amended
and without any further amendment to be effectuated hereby, to-wit:
ARTICLE I
The name of this corporation is "Columbine Financial Corporation".
ARTICLE II
The corporation shall continue in existence perpetually unless sooner
dissolved according to law.
The Corporation is organized to engage in any and all lawful acts and/or
activities for which corporations may be organized under the Utah Revised
Business Corporation Act.
ARTICLE IV
The Corporation is authorized to issue a total of Fifty Million shares,
which shares are all of the same class, to-wit $0.01 par value common stock, and
when issued shall have all unlimited voting rights and be entitled to received
the net assets of the Corporation on dissolution.
-1-
<PAGE>
ARTICLE V
The Corporation shall indemnify its directors, officers, employees,
fiduciaries and agents as those terms are defined in, and to the fullest extent
permitted by, Part 9 of the Utah Revised Business Corporation Act.
ARTICLE VI
The shareholders of the Corporation shall not have any pre-emptive right to
acquire any additional shares of the Corporation and/or rights in respect of its
shares.
ARTICLE VII
(a) The board of directors of the Corporation shall consist of such number
or persons, not less than three, as shall be determined in accordance with the
bylaws from time to time. As of the effective date of this article the number of
directors is three.
(b) The officers of the Corporation are and shall hereafter be a President,
one or more Vice Presidents (as may be prescribed by the bylaws), a Secretary, a
Treasurer, and such other officers as may hereafter be designated by the board
of directors in a manner not inconsistent with the bylaws.
-2-
<PAGE>
ARTICLE VIII
The corporation may take action by the written consent of fewer than all of
the shareholders entitled to vote with respect to the subject matter of an
action in question; provided, however, that in order to be valid any and all
such written consents shall be made and provided in accordance with all
applicable requirements of ss.16-10a-704 of the Utah Revised Business
Corporation Act and signed by the holders of not less than a majority of the
corporation's outstanding shares (calculated as of the record date provided for
by S16-10a-704(6)) of that Act.
ARTICLE IX
Shares present in person or by proxy at a duly called shareholders meeting
shall constitute a quorum, and the affirmative vote of the majority of a quorum
shall constitute the act of the shareholders.
Upon filing by the Division of Corporations and Commercial Code of the Utah
Department of Commerce these restated Articles of Incorporation of Columbine
Financial Corporation shall supersede the original articles if incorporation and
all prior amendments to them.
-3-
<PAGE>
IN WITNESS WHEREOF, the undersigned Secretary of Columbine Financial
Corporation hereby makes and executes these restated Articles of Incorporation
pursuant to specific authorization and direction from the board of directors of
said corporation to do so, on this 18th day of May, 1995:
/S/ Richard M. Day
--------------------------------
Richard M. Day, Secretary
-4-
Exhibit 3.3
-----------
AMENDMENT OF ARTICLES OF
COLUMBINE FINANCIAL CORPORATION
1. Article I of the Articles of Incorporation of this corporation is
amended to read as follows:
ARTICLE I
The name of this corporation is Synthonics Technologies, Inc.
2. The foregoing amendment of Articles of Incorporation was duly approved
and adopted by the Corporation's Board of Directors on August 14, 1996.
3. The foregoing amendment of Articles of Incorporation has been duly
approved and adopted by the shareholders, in accordance with the Utah
Corporations Code. The number of outstanding shares of the Corporation is
15,283,442. The number of votes entitled to be cast is 15,283,442. The total
number of votes indisputably represented and cast for the amendment is
9,490,835. The number of votes cast for the amendment is sufficient for
approval.
IN WITNESS WHEREOF, I certify that the matters set forth in this
certificate are true and correct.
Date: September 3, 1996
/S/ Charles S. Palm
---------------------------
Charles S. Palm
President
[Stamp of receipt of the Utah Division of Corporations and Commercial Code dated
September 16, 1996, appears here]
Exhibit 3.4
-----------
[Stamp of the Office of the Secretary of State of the State of California
Endorsed - Filed 1904683 dated November 4, 1996, appears here]
STATEMENT AND DESIGNATION
BY
FOREIGN CORPORATION
Synthonics Technologies, Inc., a corporation organized end existing under
the laws of Utah, makes the following statements and designation:
1. The address of its principal executive office is 31324 Via Colinas,
Suite 106 Westlake Village, CA 91362. (Insert complete address of principal
executive office wherever located.) DO NOT USE POST OFFICE BOX
2. The address of its principal office in the State of California is 31324
Via Colinas, Suite 106, Westlake Village CA 91362
DESIGNATION OF AGENT FOR SERVICE OF PROCESS IN THE STATE OF CALIFORNIA
(Complete either item 3 or item 4)
3. F. Michael Budd, a natural person residing in the State of California,
whose complete address is 743 Cedar Point Pl., Westlake Village, CA 91362
Is designated as agent upon whom process directed to the undersigned
corporation may be served within the State of California, in the manner provided
by law.
-1-
<PAGE>
4. (Use this paragraph if the process agent is a corporation) N/A, a
corporation organized and existing under the laws of N/A, is designated as agent
upon whom process directed to the undersigned corporation may be served within
the State of California, in the manner provided by law.
NOTE: Before a corporation may be designated by any other corporation
as an agent for service of process, a corporate agent must have
complied with Section 1505, California Corporations Code.
5. The undersigned corporation hereby irrevocably consents to service of
process directed to it upon the agent designated above, and to service of
process on the Secretary of State of the State of California if the agent so
designated or the agent's successor is no longer authorized to act or cannot be
found at the address given.
Synthonics Technologies, Inc.
---------------------------------------
(Name of Corporation)
/S/ F. Michael Budd
---------------------------------------
(Signature of Corporate Officer)
F. Michael Budd, President and CEO
---------------------------------------
Typed Name and Title of Officer Signing)
-2-
Exhibit 3.5
-----------
[Stamp of approval of the Division of Corporations and Commercial Code of the
State of Utah Department of Commerce dated September 8, 1997, appears here]
CERTIFICATE OF AMENDMENT
TO ARTICLES OF INCORPORATION
OF
SYNTHONICS TECHNOLOGIES, INC.
- -------------------------------------------------------------------------------
Charles S. Palm hereby certifies that:
1. He is the Secretary of Synthonics Technologies, Inc., a Utah corporation
(the "Corporation").
2. Article IV., of the articles of incorporation of this Corporation is
amended to read as follows:
ARTICLE IV.
-----------
A. This Corporation is authorized to issue two (2) classes of shares
designated respectively "Common Stocks" and "Preferred Stock", and referred to
herein as either Common Stock or Common Shares and Preferred Stock or Preferred
Shares. The total number of shares of capital stock this Corporation shall have
the authority to issue is Fifty Million Five Hundred and Fifty Thousand
(50,550,000). No Fractional shares may be issued.
B. Common Stock. The total number of shares of Common Stock this
Corporation shall have the authority to issue is Fifty Million (50,000,000). The
Common Stock shall have a stated par value of $0.01 per share. Each shall of
Common Stock shall have, for all purposes one (1) vote per share. Subject to the
cumulative dividend preference to holders of Preferred Stock as provided in
Paragraph C. below. The shares of Common Stock are entitled to participate in
any dividends available therefor in equal amounts per share on all outstanding
Preferred and Common Stock. Subject to the provisions for the payment of the
Liquidation Preference to the holders of Preferred Stock as provided in
paragraph C., below, the Common Stock is entitled to participate in all
distributions to shareholders made upon liquidation, dissolution or winding up
of the Corporation in equal amounts per share as all outstanding Preferred and
Common Stock. The holders of Common Shares issued and outstanding have and
possess the right to receive notice of shareholders' meetings, and to vote upon
the election of directors or upon any other matter as to which approval of the
outstanding shares of Common Stock or approval of the common shareholders is
required or requested.
C. Preferred Stock. The total number of shares of Preferred Stock this
Corporation is authorized to issue is Five Hundred Fifty Thousand (550,000). The
Preferred Stock shall have a stated par value of $10.00 per share. The
designations, powers, preferences, rights and restrictions granted or imposed
upon the Preferred Stock and holders thereof are as follows:
Page 1 of 5
<PAGE>
(1) Dividend Preference: The Preferred Stock is entitled to
receive dividends on a cumulative basis at the rate of twelve
percent (12%) of its stated par value per annum (the "Dividend
Preference"), payable on a quarterly basis on the fifteenth
(15th) day of the next month following the end of each fiscal
quarter. Such dividends shall accrue from the date of issuance,
whether or not earned. Dividends on the Preferred Shares shall be
cumulative so that if dividends required to be paid on said
shares are not paid or set apart for payment by the Board of
Directors on or before fifteenth day of the month following the
end of each fiscal quarter, in which the same are due, the rights
thereof shall cumulate and remain due and payable by the
Corporation. No dividends or other distributions may be made to
the Common Stock during any fiscal year of the Corporation until
dividends on the Preferred Stock in the amount of the Dividend
Preference have been paid or set apart for payment.
(2) Liquidation Preference:
(a) In the event of a voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of
Preferred Shares shall be entitled to receive out of the
assets of the Corporation, whether such assets are capital
or surplus of any nature, an amount equal to the stated par
value less the aggregate amount of all prior distributions
to its Preferred Shareholders made to holders of Preferred
Stock, plus any accrued previously declared but unpaid
dividends (the amount so determined being hereinafter
referred to as the "Liquidation Preference"). No
distribution shall be made to the holders of the Common
Shares upon liquidation, dissolution or winding up until
after the full amount of the Liquidation Preference has been
distributed or provided to the holders of the Preferred
Shares.
(b) If, upon such liquidation, dissolution or winding up,
the assets thus distributed among the Preferred Shareholders
shall be insufficient to permit payment to such shareholders
of the full amount of the Liquidation Preference, then the
entire assets of the Corporation shall be distributed
ratably among the holders of the Preferred Shares.
(c) In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation,
when the Corporation has completed distribution of the full
Liquidating Preference to the holders of the Preferred
Shares, the Preferred Shares shall be considered to have
been redeemed, and thereafter, the remaining assets of the
Corporation shall be paid in equal amounts on all
outstanding shares of Common Stock.
Page 2 of 5
<PAGE>
(d) A consolidation or merger of the Corporation with or
into any other corporation or corporations, or a sale of all
or substantially all of the assets of the Corporation shall
not be deemed a liquidation, dissolution or winding up
within the meaning of this Paragraph C(2).
(3) Redemption Rights. The Corporation, at the option of the
Board of Directors, may at any time redeem all of the outstanding
Preferred Stock by paying, in cash, a sum equal to the $10.50 per
share for each Preferred Share so redeemed, less the aggregate
amount of all previously paid dividends, through and including
the date of redemption, hereinafter referred to as the
"redemption price", by giving to each Preferred Shareholder of
record at his or her last known address, as shown on the records
of the Corporation at least thirty (30) days prior notice in
writing, by first-class mail, postage prepaid, stating the date
and plan of redemption, hereinafter called the "redemption
notice". On or after the date fixed for redemption, each holder
of shares called for redemption shall surrender his or her
certificate(s) for such shares to the Corporation at the place
designated in the redemption notice and shall thereupon be
entitled to receive payment of the redemption. price. If the
redemption notice is duly given, and if sufficient funds are
available therefor on the date fixed for redemption, then,
whether or not the certificates evidencing the shares to be
redeemed are surrendered, all rights with respect to such shares
shall terminate on the date fixed for redemption, except the
right of the holders to receive the redemption price, without
interest, on surrender of their certificates therefor. Shares
redeemed by the Corporation shall be restored to the status of
authorized but unissued shares of the Corporation.
(4) Conversion Rights. At any time up to and including two (2)
days before the date fixed for redemption of redeemable shares in
a notice of redemption (as provided above), holders of the
Preferred Shares being redeemed who endorse the share
certificates and deliver them together with a written notice of
their intent to convert to the corporation at its Principal
office, shall be entitled to convert and receive five (5) shares
of Common Stock for each share being converted at the rate of
$2.00 per share of Common Stock being converted into. Such
redemption is subject to the following adjustments, terms and
conditions:
(a) If the number of outstanding shares of Common Stock has
been increased or decreased since the initial issuance or
the Preferred Stock (or series having conversion rights (by
reason of any split, stock dividend, merger, consolidation
or other capital change or reorganization affecting the
number of outstanding shares of Common Stock), the number of
shares of Common Stock to be issued on conversion to the
Page 3 of 5
<PAGE>
holders or Preferred Stock shall equitably be adjusted by
appropriate amendment of this article. The purpose of such
adjustment is to preserve fairly and equitably (as far as
reasonably possible) the original conversion rights of the
Preferred shares being converted. No redemption notice
pursuant to this article shall be given until an amendment
to the articles required to effect this adjustment has been
made.
(b) Shares converted under this article shall not be
reissued. The corporation shall at all times reserve and
keep available a sufficient number of authorized but
unissued common shares, and shall obtain and keep in effect
any required permits, to enable it to issue and deliver all
common shares required to implement the conversion rights
granted herein.
(c) No fractional shares shall be issued upon conversion,
but the corporation shall pay cash for any fractional shares
of Common Stock to which shareholders may be entitled, at
the fair value of such shares at the time of conversion.
Such fair value shall be determined by the board of
directors.
(5) Default Conversion Rights. If the Corporation is in default
in the payment of any dividend to be paid to the holders of the
Preferred Stock, as required under this Article, then, the
holders of the Preferred Stock, at any time up to and including
two (2) days before the date fixed for redemption of redeemable
shares in a notice of redemption (as provided above), who endorse
the share certificates and deliver them together with a written
notice of their intent to convert to the corporation at its
Principal office, shall be entitled to convert and receive seven
(7) shares of Common Stock for each share being converted at the
rate of $1.43 per share of Common Stock being converted into.
Such conversion and redemption is subject to the adjustments,
terms and conditions set forth in paragraph C(4)(a)(b) and (c)
above.
3. The foregoing amendment to the Articles of Incorporation was duly
approved and adopted by the Corporation's Board of Directors on August 25, 1997.
4. The foregoing amendment to the Articles of Incorporation has been duly
approved and adopted by the shareholders, in accordance with the Utah Revised
Business Corporation Act. The total number of outstanding shares of the
Corporation is 16,512,437. The number of votes entitled to be cast is
16,512,437. The total number of votes indisputably represented and cast for the
amendment is 9,687,803. The total number of votes cast for the amendment is
sufficient for approval.
Page 4 of 5
<PAGE>
IN WITNESS WHEREOF, We certify that the matters set forth in this
certificate are true and correct of our own knowledge.
Dated: September 6, 1997 /S/ Charles S. Palm
--------------------------
By: Charles S. Palm
Its: Secretary
Page 5 of 5
Exhibit 3.6
------------
[Stamp of approval of the Division of Corporations and Commercial Code of the
State of Utah Department of Commerce dated April 23, 1998, appears here]
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
SYNTHONICS TECHNOLOGIES, INC.
- ------------------------------------------------------------------------------
F. Michael Budd and Charles S. Palm hereby certify that:
1. They are the President and Secretary, respectively, of Synthonics
Technologies, Inc., a Utah corporation (the "Corporation").
2. The Articles of Incorporation of this Corporation is amended and
restated in its entirety to read as follows:
ARTICLE 1.
----------
Name
----
The name of this corporation is Synthonics Technologies, Inc.
ARTICLE 2.
----------
Duration
--------
The corporation shall continue in existence perpetually unless sooner
dissolved according to law.
ARTICLE 3.
---------
Purpose
-------
The Corporation is organized to engage in any and all lawful acts and/or
activities for which corporations may be organized under the Utah Revised
Business Corporation Act.
ARTICLE 4.
----------
Capitalization
--------------
A. This Corporation is authorized to issue two (2) classes of shares
designated respectively "Common Stock" and "Preferred Stock," and referred to
herein as either Common Stock or Common Shares and Preferred Stock or Preferred
Shares. The total number of shares of capital stock this Corporation shall have
the authority to issue is Fifty Million Five Hundred and Fifty Thousand
(50,550,000). No Fractional shares may be issued.
Page 1 of 8
<PAGE>
B. Common Stock. The total number of shares of Common Stock this
Corporation shall have the authority to issue is Fifty Million (50,000,000). The
Common Stock shall have a stated par value of $0.01 per share. Each share of
Common Stock shall have, for all purposes one (1) vote per share. Subject to the
cumulative dividend preference to holders of Preferred Stock as provided in
Paragraph C below. The shares of Common Stock are entitled to participate in any
dividends available therefor in equal amounts per share on all outstanding
Preferred and Common Stock. Subject to the provisions for the payment of the
Liquidation Preference to the holders of Preferred Stock as provided in
paragraph C below, the Common Stock is entitled to participate in all
distributions to shareholders made upon liquidation, dissolution, or winding up
of the corporation in equal amounts per share as all outstanding Preferred and
Common Stock. The holders of Common Shares issued and outstanding have and
possess the right to receive notice of shareholders' meetings and to vote upon
the election of directors or upon any other matter as to which approval of the
outstanding shares of Common Stock or approval of the common shareholders is
required or requested.
C. Preferred Stock. The total number of shares of Preferred Stock this
Corporation is authorized to issue is Five Hundred fifty Thousand (550,000). The
Preferred Stock shall have a stated par value of $10.00 per share. The
designations, powers, preferences, rights and restrictions granted or imposed
upon the Preferred Stock and holders thereof are as follows:
(1) Dividend Preference. The Preferred Stock is entitled to receive
dividends on a cumulative basis at the rate of twelve percent (12%) of
its stated par value per annum (the "Dividend Preference"), payable on
a quarterly basis on the fifteenth (15th) day of the next month
following the end of each fiscal quarter. Such dividends shall accrue
from the date of issuance whether or not earned. Dividends on the
Preferred Shares shall be cumulative so that if dividends required to
be paid on said shares are not paid or set apart for payment by the
Board of Directors on or before fifteenth day of the month following
Page 2 of 8
<PAGE>
the end of each fiscal quarter, in which the same are due, the rights
thereof shall cumulate and remain due and payable by the Corporation.
No dividends or other distributions may be made to the Common Stock
during any fiscal year of the Corporation until dividends on the
preferred Stock in the amount of the Dividend Preference have been
paid or set apart for payment.
(2) Liquidation Preference.
(a) In the event of a voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of Preferred
Shares shall be entitled to receive out of the assets of the
Corporation, whether such assets are capital or surplus of any nature,
an amount equal to the stated par value less the aggregate amount of
all prior distributions to its Preferred Shareholders made to holders
of Preferred Stock, plus any accrued previously declared but unpaid
dividends (the amount so determined being hereinafter referred to as
the "liquidation Preference"). No distribution shall be made to the
holders of the Common Shares upon liquidation, dissolution, or winding
up until after the full amount of the Liquidation Preference has been
distributed or provided to the holders of the Preferred Shares.
(b) If, upon such liquidation, dissolution or winding up the
assets thus distributed among the Preferred Shareholders shall be
insufficient to permit payment to such shareholders of the full amount
of the Liquidation Preference, the entire assets of the Corporation
shall be distributed ratably among the holders of the Preferred
Shares.
(c) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, when the Corporation has
completed distribution of the full Liquidating Preference to the
holders of the Preferred Shares, the Preferred Shares shall be
considered to have been redeemed, and thereafter, the remaining,
assets of the Corporation shall be paid in equal amounts on all
outstanding shares of Common Stock.
(d) A consolidation or merger of the Corporation with or into any
other corporation or corporations, or a sale of all or substantially
all of the assets of the Corporation shall not be deemed a
liquidation, dissolution or winding up within the meaning of this
Paragraph C(2).
Page 3 of 8
<PAGE>
(3) Redemption Rights. The Corporation, at the option of the
Board of Directors, may at any time redeem after December 31,
1998, all of the outstanding Preferred Stock by paying, in cash,
a sum equal to the $10.50 per share for each Preferred Share so
redeemed, hereinafter referred to as the "redemption price" by
giving to each Preferred Shareholder of record at his or her last
known address, as shown on the records of the Corporation at
least thirty (30) days prior notice in writing, by first-class
mail, postage prepaid stating the date and plan of redemption,
hereinafter called he "redemption notice." On or after the date
fixed for redemption, each holder of shares called for redemption
shall surrender his or her certificate(s) for such shares to the
Corporation at the place designated in the redemption notice and
shall thereupon be entitled to receive payment of the redemption
price. If the redemption notice is duly given, and if sufficient
funds are available therefore on the date fixed for redemption,
then, whether or not the certificates evidencing the shares to be
redeemed are surrendered, all rights with respect to such shares
shall terminate on the date fixed for redemption, except the
right of the holders to receive the redemption price, without
interest, on surrender of their certificates therefor. Shares
redeemed by the Corporation shall be restored to the status of
authorized but unissued shares of the Corporation.
(4) Conversion Rights. At any time up to and including two (2)
days before the date fixed for redemption of redeemable shares in
a notice of redemption (as provided above), holders of the
Preferred Shares being redeemed who endorse the share
certificates and deliver them together with a written notice of
their intent to convert to the corporation at its Principal
office, shall be entitled to convert and receive five (5) shares
of Common Stock for each share being converted at the rate of
$2.00 per share of Common Stock being converted into. Such
redemption is subject to the following adjustments, terms, and
conditions:
Page 4 of 8
<PAGE>
(a) If the number of outstanding shares of common Stock has
been increased or decreased since the initial issuance of the
Preferred Stock (or series having conversion rights (by reason of
any split, stock dividend, merger, consolidation or other capital
change or reorganization affecting the number of outstanding
shares of Common Stock), the number of shares of common Stock to
be issued on conversion to the holders or Preferred Stock shall
equitably be adjusted by appropriate amendment of this article.
The purpose of such adjustment is to preserve fairly and
equitably (as far as reasonably possible) the original conversion
rights of the Preferred shares being converted. No redemption
notice pursuant to this article shall be given until an amendment
to the articles required to effect this adjustment has been made.
(b) Shares converted under this article shall not be
reissued. The corporation shall at all times reserve and keep
available a sufficient number of authorized but unissued common
shares, and shall obtain and keep in effect any required permits
to enable it to issue and deliver all common shares required to
implement the conversion rights granted herein.
(c) No fractional shares shall be issued upon conversion,
but the corporation shall pay cash for any fractional shares of
Common Stock to which shareholders may be entitled at the fair
value of such shares at the time of conversion. The board of
directors shall determine such fair value.
(5) Default Conversion Rights. If the Corporation is in default
in the payment of any dividend to be paid to the holders of the
Preferred Stock, at any time up to and including two (2) days
before the date fixed for redemption of redeemable shares in a
notice of redemption (as provided above), who endorse the share
certificates and deliver them together with a written notice of
their intent to convert to the corporation at its Principal
office, shall be entitled to convert and receive seven (7) shares
of Common Stock for each share being converted at the rate of
$1.43 per share of Common Stock being converted into. Such
conversion and redemption is subject to the adjustments, terms
and conditions set forth in paragraph C (4)(a)(b) and (c) above.
Page 5 of 8
<PAGE>
ARTICLE 5.
---------
Pre-Emptive Rights
-------------------
The shareholders of the Corporation shall not have any pre-emptive right to
acquire any additional shares of the Corporation and/or rights in respect of its
shares.
ARTICLE 6.
----------
Board of Directors
------------------
(a) Number. The board of directors of the Corporation shall consist of such
number of persons, not less than three, as shall be determined in accordance
with the bylaws from time to time. As of the effective date of this article the
number of directors is nine.
(b) Staggered Board; Tenure. The directors shall be divided into three
classes: Class I, Class II, and Class III. The term of office of directors shall
be three years, staggered by class so that one class is elected each year. Such
classes shall be as nearly equal in number as possible. Directors chosen to
succeed those who have been removed or whose terms have expired shall be
identified as being of the same class as the directors they succeed and shall be
elected for a term expiring at the expiration date of such class or thereafter
when their respective successors are elected and have been qualified. If the
number of directors is changed, any increase or decrease in directors shall be
apportioned among the classes so as to maintain all classes as nearly equal in
number as possible, and any individual director elected to any class shall hold
office for a term which shall coincide with the term of such class. In no case,
will a decrease in the number of directors shorten the term of any incumbent
director.
ARTICLE 7.
---------
Officers
--------
The officers of the Corporation are and shall hereafter be a President, one
or more Vice Presidents (as may be prescribed by the bylaws), a Secretary, a
Treasurer, and such other officers as may hereafter be designated by the board
of directors in a manner not inconsistent with the bylaws.
Page 6 of 8
<PAGE>
ARTICLE 8.
----------
Action by Written Consent of Shareholders
-----------------------------------------
The corporation may take action by the written consent of fewer than all of
the shareholders entitled to vote with respect to the subject matter of an
action in question; provided, however, that in order to be valid any and all
such written consents shall be made and provided in accordance with all
applicable requirements of ss.16-10a-704 of the Utah Revised Business
Corporation Act and signed by the holders of not less than a majority of the
corporation's outstanding shares (calculated as of the record date provided for
by ss.16-10a-704(6)) of that Act.
ARTICLE 9.
----------
Indemnification
---------------
The Corporation shall indemnify its directors, officers, employee,
fiduciaries and agents as those terms are defined in, and to the fullest extent
permitted by, Part 9 of the Utah Revised Business Corporation Act.
3. The foregoing Amended and Restated Articles of Incorporation has been
duly approved by the board of directors.
4. The foregoing Amended and Restated Articles of Incorporation has been
duly approved by the required vote of shareholders in accordance with the Utah
Revised Business Corporation Act. The total number of outstanding shares of the
corporation is 17,893,387. The number of votes entitled to be cast on the
amended and restated articles of incorporation is 17,893,387 and the number of
votes indisputably represented at the meeting at which the foregoing amended and
restated articles of incorporation was approved was 15,985,914. The total number
of undisputed votes cast for the amended and restated articles of incorporation
was 14,243,526, which was sufficient for approval of the same.
Page 7 of 8
<PAGE>
IN WITNESS WHEREOF, We certify that the matters set forth in this
certificate are true and correct of our own knowledge.
Dated: April 8, 1998 /S/ F. Michael Budd
-----------------------------
By: F. Michael Budd
Its: President
Dated: April 8, 1998 /S/ Charles S. Palm
-----------------------------
By: Charles S. Palm
Its: Secretary
Page 8 of 8
Exhibit 3.7
------------
BY-LAWS
ARTICLES I. OFFICES
--------------------
The principal office of the corporation in the State of Utah shall be
located in Slat Lake City, Utah. The corporation may have such other offices,
either within or without the State of Utah, as the Board of Directors may
designate or as the business of the corporation may require from time to time.
The registered office of the corporation required by the Utah Business
Corporation Act to be maintained in the State of Utah may be, but need not be,
identical with the principal office in the State of Utah, and the address of the
registered office may be changed from time to time by the Board of Directors.
ARTICLE II. SHAREHOLDERS
------------------------
Section 1. Annual Meeting. The annual meeting of the shareholders shall be
held on 2nd Tuesday, in the month of April, in each year, beginning with the
year 1975, at the hour of 10:00 o'clock a.m., for the purpose of electing
Directors and for the transaction of such other business as may come before the
meeting. If the day fixed for the annual meeting shall be a legal holiday in the
State of Utah, such meeting shall be held on the next succeeding business day.
If the election of Directors shall not be held on the day designated herein or
any annual meeting of the shareholders, or at any adjournment thereof, the Board
of Directors shall cause the election to be held at a special meeting of the
shareholders as soon as thereafter as conveniently may be.
Section 2. Special Meetings. Special meetings of the shareholders, for any
purpose or purposes, unless otherwise prescribed by statute, may be called by
the President at the request of the holders of not less than one-tenth of all
outstanding shares of the corporation entitled to vote at the meeting. Should
the President fail to call a shareholders meeting within ten (10) days after
notification by ten percent of the shareholders, said shareholders may call and
conduct the meeting by notifying the Company's transfer agent.
Section 3. Place of Meeting. The Board of Directors may designate any
place, either within or without the State of Utah, as the place of meeting for
any annual meeting or for any special meeting for any annual meeting or for any
special meeting called by the Board of Directors. A waiver of notice signed by
all shareholders entitled to vote at a meeting may designate any place, either
within or without the State of Utah, as the place for the holding of such
meeting. If no designation is made, or if a special meeting be otherwise called,
the place of meeting shall be the principal office of the corporation in the
State of Utah.
Section 4. Notice of Meeting. Written notice stating the place, day and
hour of the meeting and, in case of a special meeting, the purpose or purposes
for which the meeting is called, shall, unless otherwise prescribed by statute,
be delivered not less than ten nor more than fifty days before the date of the
meeting, either personally or by mail, by the direction of the President, or the
Secretary, or the persons calling the meeting, to each shareholder or record
entitled to vote at such meeting. If mailed, such notice shall be deemed to be
delivered when deposited in the United State mail, addressed to the shareholders
at his address as it appears on the stock transfer books of the corporation,
with postage thereon prepaid.
Section 5. Closing of Transfer Books or Fixing or Record Data. For the
purpose of determining shareholders entitled to notice of or to vote at any
meeting of shareholders or any adjournment thereof, or shareholders entitled to
receive payment of any dividend, or in order to make a determination of
shareholders for any other purposes, the Board of Directors of the Corporation
may provide that the stock transfer books shall be closed for a stated period
but not to exceed, in any case, fifty days. If the stock transfer books shall be
closed for the purpose of determining shareholders entitled to notice of or to
vote at a meeting of shareholders, such books shall be closed for at least ten
days immediately preceding such meeting. In lieu of closing the stock transfer
books, the Board of Directors may fix in advance a date as the record date for
-1-
<PAGE>
any such determination of shareholders, such date in any case to be not more
than fifty days and, in case of a meeting of shareholders, not less than ten
days prior to the date on which the particular action, requiring such
determination of shareholders, is to be taken. If the stock transfer books are
not closed and no record date is fixed for the determination of shareholders
entitled to notice of or to vote at a meeting of shareholders, or shareholders
entitled to receive payment of a dividend, the date on which notice of the
meeting is mailed or the date on which the resolution of the Board of Directors
declaring such dividend is adopted, as the case may be, shall be the record date
for such determination of shareholders. When a determination of shareholders
entitled to vote at any meeting of shareholders has been made as provided in
this section, such determination shall apply to any adjournment thereof.
Section 6. Voting Lists. The officer or agent having charge of the stock
transfer books for shares of the corporation shall make a complete list of the
shareholders entitled to vote at each meeting of shareholders or any adjournment
thereof, arranged in alphabetical order, with the address of and the number of
shares held by each. Such list shall be produced and kept open at the time and
place of the meeting and shall be subject to the inspection of any shareholder
during the whole time of the meeting for the purpose thereof.
Section 7. Quorum. A majority of the outstanding shares of the corporation
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of shareholders. If less than a majority of the outstanding shares
are represented at a meeting, a majority of the outstanding shares are
represented at a meeting, a majority of the shares so represented may adjourn
the meeting from time to time without further notice. At such adjourned meeting
at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
noticed. The shareholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum.
Section 8. Proxies. At all meetings of shareholders, a shareholder may vote
in person or by proxy executed in writing by the shareholder or by his duly
authorized attorney in fact. Such proxy shall be filed with the secretary of the
corporation before or at the time of the meeting. No proxy shall be valid after
eleven months from the date of its execution, unless otherwise provided in the
proxy.
Section 9. Voting of Shares. Subject to the provisions of Section 12 of
this Article II, each outstanding share entitled to vote shall be entitled to
one vote upon each matter submitted to a vote at a meeting of shareholders.
Section 10. Voting of Share of Certain Holders. Shares outstanding in the
name of another corporation may be voted by such officer, agent or proxy as the
by-laws of such corporation may prescribe, or, in the absence of such provision,
as the Board of Directors of such corporation may determine.
Shares held by an administrator, executor, guardian or conservator may be
voted by him, either in person or by proxy, without a transfer of such shares
into his name. Shares standing in the name of a trustee may be voted by him,
either in person or by proxy, but nor trustee shall be entitled to vote shares
held by him without a transfer of such shares into his name.
Shares standing in the name of a receiver may be voted by such receiver,
and shares held by or under the control of a receiver may be voted by such
receiver without the transfer thereof into his name if authority so to do be
contained in an appropriate order of the court by which such receiver was
appointed.
-2-
<PAGE>
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the share so transferred.
Neither shares of the own stock held by the corporation, nor those held by
another corporation if a majority of the shares entitled to vote for the
election of directors of such other corporation are held by the corporation,
shall be voted at any meeting or counted in determining total number of
outstanding shares at any given time for the purpose of any meeting.
Section 11. Informal Action by Shareholders. Any action required to be take
at a meeting of the shareholder, or any action which may be taken at a meeting
of the shareholders, may be taken without a meeting if a consent in writing,
setting forth the action so taken shall be signed by all of the shareholders
entitled to vote with respect to the subject thereof.
Section 12. Cumulative Voting. There shall be no cumulative voting.
ARTICLE III. BOARD OF DIRECTORS
--------------------------------
Section 1. General Powers. The business and affairs of the corporation
shall be managed by its Board of Directors.
Section 2. Number, Tenure and Qualifications. The number of directors shall
not be less than three nor more than nine. Each shall until the next annual
meeting of shareholders and until his successor shall have been elected and
qualified. Directors need not be residents of the State of Utah or shareholders
of the corporation.
Section 3. Regular Meetings. A regular meeting of the Board of Directors
shall be held without other notice than this by-law immediately after, and at
the same place as, the annual meeting of the shareholders. The Board of
Directors may provide, by resolution, the time and place, either within or
without the State of Utah, for the holding of additional regular meeting without
other notice than such resolution.
Section 4. Special Meeting. Special meeting of the Board of Directors may
be called by or at the request of the President or any two Directors or more, or
10% of the shareholders. The person or persons authorized to call special
meeting of the Board of Directors may fix any place, either within or without,
the State of Utah, as the place for holding of additional regular meeting
without other notice than resolution.
Section 5. Notice. Notice of any special meeting shall be given at least
two days previously thereto by written notice delivered personally or mailed to
each Director at his business address, or by telegram. If mailed, such notice
shall be deemed to be delivered when deposited in the United States mail, so
addressed, with postage thereon prepaid. If notice be given by telegram, such
notice shall be deemed to be delivered when the telegram is delivered to the
telegram company. Any Director may waive notice of any meeting. The attendance
of a Director at a meeting shall constitute a waiver of notice of such meeting,
except where a Director attends a meeting for the express purpose of objecting
to the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Board of Directors need be specified in the
notice or waiver of notice of such meeting.
Section 6. Quorum. A majority of the number of Directors fixed by Section 2
of this Article III shall constitute a quorum for the transaction of business at
any meeting of the Board of Directors, but if less than such majority is present
at a meeting, a majority of the Directors present may adjourn the meeting from
time to time without further notice.
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<PAGE>
Section 7. Manner of Acting. The act majority of the Directors present at a
meeting at which a quorum is present shall be the act of the Board of Directors.
Any action which may be taken at a meeting of the directors may be taken without
a meeting if a consent in writing, setting forth the action so taken, shall be
signed all of the directors.
Section 8. Vacancies. Any vacancy occurring in the Board of Directors may
be filled by the affirmative vote of a majority of the remaining Directors
though less than a quorum of the Board of Directors. A Director elected to fill
a vacancy shall be elected for the unexpired term of his predecessor in office.
Any directorship to be filled by reason of an increase in the number of
Directors may be filled by election by the Board of Directors for a term of
office continuing only until the next election of Directors by the shareholders.
Section 9. Compensation. By resolution of the Board of Directors, each
Director may be paid his expenses, if any, of attendance at each meeting of the
Board of Directors, and may be paid a stated salary as director or a fixed sum
for attendance at each meeting of the Board of Directors or both. No such
payment shall preclude any Director from serving the corporation in any other
capacity and receiving compensation therefor.
Section 10. Presumption of Assent. A Director of the Corporation who is
present at a meeting of the Board of Directors at which action on any corporate
matter is taken shall be presumed to have assented to the action taken unless
his dissent shall be entered into the minutes of the meeting or unless he shall
file his written dissent to such action with the person acting as the secretary
of the meeting before the adjournment thereof or shall forward such dissent by
registered mail to the Secretary of the corporation immediately after the
adjournment of the meeting. Such right to dissent shall not apply to a Director
who voted in favor of such action.
ARTICLE IV. OFFICERS.
---------------------
Section 1. Number. The officers of the corporation shell be a President,
one or more Vice-Presidents (the number thereof to be determined by the Board of
Directors), a Secretary, and a Treasurer, each of whom shall be elected or
appointed by the Board of Directors. Such other officers and assistant officers
as may be deemed necessary may be elected or appointed by the Board of
Directors. Any two or more offices may be held by the same person, except the
offices of President and Secretary.
Section 2. Election and Term of Office. The officers of the corporation to
be elected by the Board of Directors shall be elected annually by the Board of
Directors at the first meeting of the Board of Directors held after each annual
meeting of the shareholders. If the election of officers shall not be held as
soon thereafter as conveniently may be. Each officer shall hold office until his
death or until he shall resign or shall have been removed in the manner
hereinafter provided.
Section 3. Removal. Any officer or agent may be removed by the Board of
Directors whenever in its judgment, the best interests of the prejudice to the
contract rights, if any, of the person so removed. Election or appointment of an
officer or agent shall not of itself create contract rights.
Section 4. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, may be filled by the Board
of Directors for the unexpired portion of the term.
Section 5. President. The president shall be the principal executive
officer of the corporation and, subject to the control of the Board of
Directors, shall be general supervise and control all of the business and
affairs of the corporation. He shall, when present, preside at all meetings of
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<PAGE>
the shareholders and of the Board of Directors. He may sign, with the Secretary
or any other proper officer of the corporation thereunto authorized by the Board
of Directors, certificated for shares of the corporation, any deeds, mortgages,
bonds contracts, or other instruments which the Board of Directors has
authorized to be executed, except in cases where the signing and executing
thereof shall be expressly delegated by the Board of Directors or by those
By-laws to some other officer or agent of the corporation, or shall be required
by law to be otherwise signed or executed; and in general shall perform all
duties incident to the office of President and such other duties as may be
prescribed by the Board of Directors from time to time.
Section 6. The Vice-President. In the absence of the President or in the
event of his death, inability or refusal to act, the Vice-President (or in the
event there be more than one Vice-President, the Vice-Presidents in the order
designated at the time of their election, or in the absence of any designation,
them in the order of their election) shall perform the duties of the President,
and so when acting, shall have all the powers of and be subject to all the
restrictions upon the President. Any Vice-President may sign, with the Secretary
an the Assistant Secretary, certificates for shares of the corporation; and
shall perform such other duties as from time to time may be assigned to him by
the President or by the Board of Directors.
Section 7. The Secretary. The Secretary shall: (a) keep the minutes of the
proceedings of the shareholders and of the Board of Directors in one or more
books provided for that purpose; (b) see that all notices are duly given in
accordance with the provisions of these By-laws or as required by laws; (c) be
custodian of the corporate records and of the seal of the corporation and see
that the seal of the corporation is affixed to all documents the execution of
which on behalf of the corporation under its seal is duly authorized; (d) keep a
register of the post office address of each shareholder; (e) sign with the
President, or a Vice-President, certificates for shares of the corporation, the
issuance of which shall have been authorized by resolution of the Board of
Directors; (f) have a general charge of the stock transfer books of the
corporation; and (g) in general perform all duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him by
the President or by the Board of Directors.
Section 8. The Treasurer. The Treasurer shall: (a) have charge and custody
and be responsible for all funds and securities of the corporation; (b) receive
and give receipts for moneys due and payable to the corporation from any source
whatsoever, and deposit all such moneys in the name of the corporation in such
banks, trust companies or other depositories as shall be selected in accordance
with the provisions of Article V of these By-laws; and (c) in general perform
all of the duties as from time to time may be assigned to him by the President
or by the Board of Directors. If requested by the Board of Directors, the
Treasurer shall give a bond for the faithful discharge of his duties in such sum
and with such surety or sureties as the Board of Directors shall determine.
Section 9. Assistant Secretaries and Assistant Treasurers. The Assistant
Secretaries, when authorized by the Board of Directors, may sign with the
President or a Vice-President certificates for shares of the corporation the
issuance of which shall have been authorized by a resolution of the Board of
Directors. The Assistant Treasurers shall respectively, if required by the Board
of Directors, give bonds for the faithful discharge of their duties in such sums
and with such sureties as the Board of Directors shall determine. The Assistant
Secretaries and Assistant Treasurers, in general, shall perform such duties as
shall be assigned to them by the Secretary of the Treasurer, respectively, or by
the President or the Board of Directors.
Section 10. Salaries. The salaries of the officers shall be fixed from time
to time by the Board of Directors and no officer shall be prevented from
receiving such salary by reason of the fact that he is also a Director of the
Corporation.
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<PAGE>
ARTICLE V. CONTRACTS, LOANS, CHECKS, AND DEPOSITS
-------------------------------------------------
Section 1. Certificates for Shares. Certificates representing shares of the
corporation shall be in such forms as shall be determined by the Board of
Directors. Such certificates shall be signed by the President or a
Vice-President and by the Secretary and sealed with the corporate seal or a
facsimiles thereof. The signatures of such officers upon a certificate may be
facsimiles if the certificate is countersigned by a transfer agent, or
registered by a registrar, other than the corporation itself or one of its
employees. All certificates for shares shall be consecutively numbered or
otherwise identified. The name and address of the person to whom the shares
represented thereby are issued, with the number of shares and date of issue,
shall be entered on the stock transfer books of the corporation. All
certificates surrendered to the corporation for the transfer shall be canceled,
and no new certificates shall be issued until the former certificate for a like
number of shares shall have been surrendered and canceled, except that in case
of a lost, destroyed or mutilated certificate a new one may be issued therefor
upon such terms and indemnity to the corporation as the Board of Directors may
prescribe.
Section 2. Transfer of Shares. Transfer of shares of the corporation shall
be made only on the stock transfer books of the corporation by the holder of the
record thereof or by his legal representative, who shall furnish proper evidence
of authority to transfer, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary of the corporation, and on
surrender for cancellation of the certificate for such shares. The person in
whose name shares stand on the books of the corporation shall be deemed by the
corporation to be the owner thereof for all purposes.
ARTICLE VII. FISCAL YEAR.
--------------------------
The fiscal year of the corporation shall begin on the first day of January
and end on the thirty-first day of December in each year.
ARTICLE VIII. DIVIDENDS.
------------------------
The Board of Directors may, from time to time, declare and the corporation
may pay dividends on its outstanding shares in the manners and upon the term and
conditions provided by law and its articles of incorporation.
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<PAGE>
ARTICLE IX. CORPORATE SEAL.
---------------------------
The Board of Directors shall provide a corporate seal.
ARTICLE X. WAIVER OF NOTICE.
----------------------------
Whenever any notice is required to be given to any shareholder or director
of the corporation under the provisions of the articles of incorporation or
under the provisions of the Utah Business Corporation Act, a waiver thereof in
writing signed by the person or persons entitled to such notice, whether before
or after the time stated therein, shall be deemed equivalent to the giving of
such notice.
ARTICLE XI. AMENDMENTS.
-----------------------
These By-Laws may be altered, amended or repealed and new By-Laws may be
adopted by the Board of Directors at any regular or special meeting of the Board
of Directors.
ARTICLE XII. PROCEDURE FOR CONDUCTING MEETINGS.
-----------------------------------------------
All shareholders and director meetings shall be conducted in accordance
with the rules and procedures set forth in the most current edition of Robert's
Rules of Order.
-7-
Exhibit 4
---------
STATEMENT OF RIGHTS, PREFERENCES AND PRIVILEGES
OF THE COMMON STOCK AND PREFERRED STOCK
OF
SYNTHONICS TECHNOLOGIES, INC.
A Utah Corporation
- -------------------------------------------------------------------------------
The rights, preferences, privileges and restrictions granted to or imposed
upon the Common stock and the Preferred stock of Synthonics Technologies, Inc.,
a Utah Corporation, as established by Article IV, of its Articles of
Incorporation, as amended are as follow:
1. Common Stock. The total number of shares of Common Stock this
Corporation shall have the authority to issue is Fifty Million (50,000,000). The
Common Stock shall have a stated par value of $0.01 per share. Each shall of
Common Stock shall have, for all purposes one (1) vote per share. Subject to the
cumulative dividend preference to holders of Preferred Stock as provided in
Paragraph C. below. The shares of Common Stock are entitled to participate in
any dividends available therefor in equal amounts per share on all outstanding
Preferred and Common Stock. Subject to the provisions for the payment of the
Liquidation Preference to the holders of Preferred Stock as provided in
paragraph C., below, the Common Stock is entitled to participate in all
distributions to shareholders made upon liquidation, dissolution or winding up
of the Corporation in equal amounts per share as all outstanding Preferred and
Common Stock. The holders of Common Shares issued and outstanding have and
possess the right to receive notice of shareholders' meetings, and to vote upon
the election of directors or upon any other matter as to which approval of the
outstanding shares of Common Stock or approval of the common shareholders is
required or requested.
2. Preferred Stock. The total number of shares of Preferred Stock this
Corporation is authorized to issue is Five Hundred Fifty Thousand (550,000). The
Preferred Stock shall have a stated par value of $10.00 per share. The
designations, powers, preferences, rights and restrictions granted or imposed
upon the Preferred Stock and holders thereof are as follows:
(a) Dividend Preference: The Preferred Stock is entitled to receive
dividends on a cumulative basis at the rate of twelve percent (12%) of
its stated par value per annum (the "Dividend Preference"), payable on
a quarterly basis on the fifteenth (15th) day of the next month
following the end of each fiscal quarter. Such dividends shall accrue
from the date of issuance, whether or not earned. Dividends on the
Preferred Shares shall be cumulative so that if dividends required to
be paid on said shares are not paid or set apart for payment by the
Board of Directors on or before fifteenth day of the month following
the end of each fiscal quarter, in which the same are due, the rights
thereof shall cumulate and remain due and payable by the Corporation.
No dividends or other distributions may be made to the Common Stock
during any fiscal year of the Corporation until dividends on the
Preferred Stock in the amount of the Dividend Preference have been
paid or set apart for payment.
(b) Liquidation Preference:
(i) In the event of a voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of Preferred
Shares shall be entitled to receive out of the assets of the
Corporation, whether such assets are capital or surplus of any nature,
an amount equal to the stated par value less the aggregate amount of
all prior distributions to its Preferred Shareholders made to holders
Page 1 of 3
<PAGE>
of Preferred Stock, plus any accrued previously declared but unpaid
dividends (the amount so determined being hereinafter referred to as
the "Liquidation Preference"). No distribution shall be made to the
holders of the Common Shares upon liquidation, dissolution or winding
up until after the full amount of the Liquidation Preference has been
distributed or provided to the holders of the Preferred Shares.
(ii) If, upon such liquidation, dissolution or winding up, the
assets thus distributed among the Preferred Shareholders shall be
insufficient to permit payment to such shareholders of the full amount
of the Liquidation Preference, then the entire assets of the
Corporation shall be distributed ratably among the holders of the
Preferred Shares.
(iii) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, when the Corporation has
completed distribution of the full Liquidating Preference to the
holders of the Preferred Shares, thereafter, the Preferred Shares
shall be considered to have been redeemed, and thereafter, the
remaining assets of the Corporation shall be paid in equal amounts on
all outstanding shares of Common Stock.
(iv) A consolidation or merger of the Corporation with or into
any other corporation or corporations, or a sale of all or
substantially all of the assets of the Corporation shall not be deemed
a liquidation, dissolution or winding up within the meaning of this
Paragraph 2(b).
(c) Redemption Rights. The Corporation, at the option of the Board of
Directors, may at any time redeem all of the outstanding Preferred
Stock by paying, in cash, a sum equal to the $10.50 per share for each
Preferred Share so redeemed, less the aggregate amount of all
previously paid dividends, through and including the date of
redemption, hereinafter referred to as the "redemption price", by
giving to each Preferred Shareholder of record at his or her last
known address, as shown on the records of the Corporation at least
thirty (30) days prior notice in writing, by first-class mail, postage
prepaid, stating the date and plan of redemption, hereinafter called
the "redemption notice". On or after the date fixed for redemption,
each holder of shares called for redemption shall surrender his or her
certificate(s) for such shares to the Corporation at the place
designated in the redemption notice and shall thereupon be entitled to
receive payment of the redemption. price. If the redemption notice is
duly given, and if sufficient funds are available therefor on the date
fixed for redemption, then, whether or not the certificates evidencing
the shares to be redeemed are surrendered, all rights with respect to
such shares shall terminate on the date fixed for redemption, except
the right of the holders to receive the redemption price, without
interest, on surrender of their certificates therefor. Shares redeemed
by the Corporation shall be restored to the status of authorized but
unissued shares of the Corporation.
(d) Conversion Rights. At any time up to and including two (2) days
before the date fixed for redemption of redeemable shares in a notice
of redemption (as provided above), holders of the Preferred Shares
being redeemed who endorse the share certificates and deliver them
together with a written notice of their intent to convert to the
Page 2 of 3
<PAGE>
corporation at its Principal office, shall be entitled to convert and
receive five (5) shares of Common Stock for each share being converted
at the rate of $2.00 per share of Common Stock being converted into.
Such redemption is subject to the following adjustments, terms and
conditions:
(i) If the number of outstanding shares of Common Stock has been
increased or decreased since the initial issuance or the
Preferred Stock (or series having conversion rights (by reason of
any split, stock dividend, merger, consolidation or other capital
change or reorganization affecting the number of outstanding
shares of Common Stock), the number of shares of Common Stock to
be issued on conversion to the holders or Preferred Stock shall
equitably be adjusted by appropriate amendment of this article.
The purpose of such adjustment is to preserve fairly and
equitably (as far as reasonably possible) the original conversion
rights of the Preferred shares being converted. No redemption
notice pursuant to this article shall be given until an amendment
to the articles required to effect this adjustment has been made.
(ii) Shares converted under this article shall not be reissued.
The corporation shall at all times reserve and keep available a
sufficient number of authorized but unissued common shares, and
shall obtain and keep in effect any required permits, to enable
it to issue and deliver all common shares required to implement
the conversion rights granted herein.
(iii) No fractional shares shall be issued upon conversion, but
the corporation shall pay cash for any fractional shares of
Common Stock to which shareholders may be entitled, at the fair
value of such shares at the time of conversion. Such fair value
shall be determined by the board of directors.
(e) Default Conversion Rights. If the Corporation is in default in the
payment of any dividend to be paid to the holders of the Preferred
Stock, as required under this Article, then, the holders of the
Preferred Stock, at any time up to and including two (2) days before
the date fixed for redemption of redeemable shares in a notice of
redemption (as provided above), who endorse the share certificates and
deliver them together with a written notice of their intent to convert
to the corporation at its Principal office, shall be entitled to
convert and receive seven (7) shares of Common Stock for each share
being converted at the rate of $1.43 per share of Common Stock being
converted into. Such conversion and redemption is subject to the
adjustments, terms and conditions set forth in paragraph 2(d)(i)(ii)
and (iii) above.
Page 3 of 3
Exhibit 10.1
------------
SYNTHONICS TECHNOLOGIES, INC.
MANAGEMENT CASH INCENTIVE PLAN
1. PURPOSE AND EFFECTIVE TIME.
This Synthonics Technologies, Inc., Management Cash Incentive Plan (the
"Plan") is designed to provide a significant and flexible economic opportunity
to selected officers and employees of the Company and its Affiliates as a
reflection of their individual and group contributions to the success of the
Company and its Affiliates. Payments pursuant to Section 10, of the Plan are
intended to qualify under Section 162(m)(4)(C) of the Internal Revenue Code of
1986, as amended, as excluded from the term "applicable employee remuneration"
(such payments are hereinafter referred to as "Excluded Income"). The Plan shall
be effective at the Effective Time, as defined below, if the shareholder
approvals required by Section 13, of the Plan are obtained.
2. DEFINITIONS.
"Affiliate" means (i) a corporation at least 50% of the common stock or
voting power of which is owned, directly or indirectly, by the Company and (ii)
any other corporation or other entity controlled by the Company and designated
by the Committee from time to time as such.
"Board" shall mean the Board of Directors of the Company.
"Bonus Pool" shall mean the pool of available cash created pursuant to the
Plan to be made available for Incentive Awards.
"Change in Control" shall mean the happening of any of the following
events:
(a) An acquisition by any individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act)
of 20% or more of either (1) the then outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock") or (2) the combined voting
power of the then outstanding voting securities of the Company entitled to vote
generally in the election of directors (the "Outstanding Company Voting
Securities"); excluding, however, the following: (i) any acquisition directly
from the Company, other than an acquisition by virtue of the exercise of a
conversion privilege unless the security being so converted was itself acquired
directly from the Company, (ii) any acquisition by the Company, (iii) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the: Company or any corporation controlled by the Company or (iv)
any acquisition by any corporation pursuant to a transaction which complies with
clauses (i), (ii) and (iii) of subsection (c) of this definition; or
(b) A change in the composition of the Board such that the individuals who,
as of the Effective Time, constitute the Board (such Board shall be hereinafter
referred to as the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board; provided, however, for purposes of this
definition, that any individual who becomes a member of the Board subsequent to
the Effective Time, whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of those individuals
Page 1 of 8
<PAGE>
who are members of the Board and who were also members of the Incumbent Board
(or deemed to be such pursuant to this proviso) shall be considered as though
such individual were a member of the Incumbent Board; but, provided further,
that any such individual whose initial assumption of office occurs as a result
of either an actual or threatened election contest (as such terms are used in
Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board shall not be so considered as a member of the
Incumbent Board; or
(c) The approval by the shareholders of the Company of a reorganization,
merger, consolidation, share exchange, or sale, or other disposition of all or
substantially all of the assets of the Company ("Corporate Transaction") or, if
consummation of such Corporate Transaction is subject, at the time of such
approval by shareholders, to the consent of any government or governmental
agency, the obtaining of such consent (either explicitly or implicitly by
consummation); excluding, however, such a Corporate Transaction pursuant to
which (i) all or substantially all of the individuals and entities who are the
beneficial owners, respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such Corporate
Transaction will beneficially own, directly or indirectly, more than 60% of,
respectively, the outstanding shares of common stock, and the combined voting
power of the then outstanding voting securities entitled to vote generally in
the election of directors, as the case may be, of the corporation resulting from
such Corporate Transaction (including, without limitation, a corporation which
as a result of such transaction owns the Company or all or substantially all of
the Company's assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership, immediately prior to such
Corporate Transaction, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, as the case may be, (ii) no Person (other than the
Company, any employee benefit plan (or related trust) of the Company or such
corporation resulting from such Corporate Transaction) will beneficially own,
directly or indirectly, 20% or more of, respectively, the outstanding shares of
common stock of the corporation resulting from such Corporate Transaction or the
combined voting power of the outstanding voting securities of such corporation
entitled to vote generally in the election of directors except to the extent
that such ownership existed prior to the Corporate Transaction and (iii)
individuals who were members of the Incumbent Board will constitute at least a
majority of the members of the board of directors of the corporation resulting
from such Corporate Transaction; or
(d) The approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Committee" shall mean the Compensation Committee of the Board, or such
other committee of the Board as the Board may from time to time determine,
which, except as specifically decided otherwise by the Board, is composed solely
of not less than two non-employee directors, each of whom shall be appointed by
and serve at the pleasure of the Board.
"Company" shall mean Synthonics Technologies, Inc., a Utah corporation.
"Consolidated Basis" shall mean the combined and consolidation of sales
from the Company and its Affiliates.
Page 2 of 8
<PAGE>
"Covered Employees" shall mean Participants designated by the Committee
prior to the award of an Incentive Award opportunity hereunder who are or are
expected to be "covered employees" within the meaning of Section 162(m)(3) of
the Code for the Incentive Period as to which an Incentive Award hereunder is
payable and for whom the Committee intends that amounts payable hereunder
constitute Excluded Income.
"Disinterested Person" shall mean a member of the Board who qualifies as an
"outside director" for purposes of Section 162(m) of the Code.
"Effective Time" shall mean the Effective Time as defined in the Merger
Agreement.
"Incentive Award" shall mean a cash award payable to a Participant pursuant
to the terms of the Plan, including a Special Incentive Award.
"Incentive Period" shall mean the period with respect to which a
Participant is eligible to earn an Incentive Award.
"Participant" shall have the meaning set forth in Section 4., hereof.
"Payment Date" shall mean the date following the conclusion of a particular
Incentive Period on which the Committee certifies that applicable Performance
Goals have been satisfied and authorizes payment of corresponding Incentive
Awards.
"Performance Goals" shall have the meaning set forth in Section 10, hereof.
"Special Incentive Award" shall have the meaning set forth in Section 10,
hereof.
"Target Incentive Award" shall mean the amount determined by multiplying a
Participant's base salary as of the last day of the applicable Incentive Period
by a percentage designated by the Committee in its sole discretion at the time
the award is granted, which percentage need not be the same for each
Participant.
3. ADMINISTRATION.
The Plan shall be administered by the Committee. In administering the Plan,
the Committee may at its option employ compensation consultants, accountants and
counsel (who may be the compensation consultants, independent auditors, and
outside counsel of the Company or an Affiliate) and other persons to assist or
render advice to the Committee, all at the expense of the Company. The Committee
shall have sole authority to make rules and regulations relating to the
administration of the Plan, and any interpretations and decisions of the
Committee with respect to the Plan shall be final and binding.
4. ELIGIBILITY.
The Committee shall, in its sole discretion, determine for each Incentive
Period those full-time officers and salaried employees of the Company and its
Affiliates who shall be eligible to participate in the Plan (the "Participants")
for such Incentive Period based upon such Participants' opportunity to have a
substantial impact on the operating results of the Company or an Affiliate.
Page 3 of 8
<PAGE>
Nothing contained in the Plan shall be construed as or be evidence of any
contract of employment with any Participant for a term of any length nor shall
participation in the Plan in any Incentive Period by any Participant require
continued participation by such Participant in any subsequent Incentive Period.
5. INITIAL PERFORMANCE GOALS AND INCENTIVE AWARDS FOR THE FISCAL YEARS 1998,
1999 AND 2000.
The specific Performance Goals and Incentive Awards available to eligible
Participants for the fiscal years 1998, 1999 and 2000, have been predetermined
and shall be determined as set forth below. Any and all Incentive Awards for the
periods thereafter shall be determined in accordance with the terms of this
Plan.
Fiscal Year 1998 - In order for any Incentive Award to be granted
during fiscal year 1998, the Company must book no less than four
million dollars ($4,000,000) of gross sales on a Consolidated Basis
(i.e. the combined and consolidation of sales from the Company and its
subsidiaries). If the gross sales exceed the $4,000,000 level, then
there shall be created a bonus pool equal to five percent (5.0%) of the
total consolidated gross sales of the Company for 1998, which shall be
available for Incentive Awards.
Fiscal Year 1999 - In order for any Incentive Award to be granted
during fiscal year 1999, the Company must book no less than eight
million dollars ($8,000,000) of gross sales on a Consolidated Basis
(i.e. the combined and consolidation of sales from the Company and its
subsidiaries). If the gross sales exceed the $8,000,000 level, then the
bonus pool contribution for 1999 shall be equal to ten percent (10.0%)
of the total pretax earnings of the Company for 1999, which shall be
available for Incentive Awards.
Fiscal Year 2000 - In order for any Incentive Award to be granted
during fiscal year 2000, the Company must book no less than fifteen
million dollars ($15,000,000) of gross sales on a Consolidated Basis
(i.e. the combined and consolidation of sales from the Company and its
subsidiaries). If the gross sales exceed the $15,000,000 level, then
the bonus pool contribution for 2000 shall be equal to ten percent
(10.0%) of the total pretax earnings of the Company for 2000, which
shall be available for Incentive Awards.
Incentive Awards from the bonus pool shall be made at the discretion
of the Committee as set forth herein, up to the maximum of the entire
bonus pool.
6. DETERMINATION OF INCENTIVE AWARDS.
Subject to Article 10, hereof, the amount and terms of each Incentive Award
to a Participant shall be determined by and at the discretion of the Committee.
The Committee may condition the earning of an Incentive Award upon the
attainment of specified performance goals, measured over a period ending no
later than the end of the applicable Incentive Period. Such performance goals
may relate to the Participant or the Company, or any Affiliate, division or
department of the Company for or within which the Participant is primarily
employed, or upon such other factors or criteria as the Committee shall
determine, and may be different for each Participant. Incentive Awards payable
under the Plan will consist of a cash award from the Company, based upon a
percentage (which may exceed 100%) of the Target Incentive Award and, if
applicable, the degree of achievement of such performance goals. With the
exception of the Incentive Periods for the fiscal years 1998, 1999 and 2000 for
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which Performance Goals have been established as set forth in Section 5,
Incentive Awards under this Plan for Covered Employees shall be subject to
pre-established Performance Goals in accordance with Section 10, hereof. Except
with respect to Covered Employees, the Committee may, in its sole discretion,
increase or decrease the amount of any Incentive Award payable to a Participant
and, in recognition of changed or special circumstances, may award Incentive
Awards to Participants even though the Incentive Awards are not earned.
Incentive Awards earned or otherwise awarded will be paid as soon as
administratively feasible on or after the Payment Date.
7. TERMINATION OF EMPLOYMENT.
In the event that a Participant's employment with the Company and its
Affiliates terminates for any reason during the Incentive Period with respect to
any Incentive Awards, the balance of any Incentive Award which remains unpaid at
the time of such termination shall be payable to the Participant, or forfeited
by the Participant, in accordance with the terms of the award granted by the
Committee; provided, however, that in the case of a Covered Employee, no amount
shall be payable pursuant to the Plan unless the Performance Goals are satisfied
or the termination of employment of the Covered Employee is due to death or
disability. A Participant who remains employed through the Incentive Period, but
is terminated prior to the Payment Date shall be entitled to receive any
Incentive Award payable to such Participant with respect to such Incentive
Period.
8. AMENDMENT AND DISCONTINUANCE.
The Board shall have the right to amend, alter, discontinue, or otherwise
modify the Plan from time to time but no such modification shall, without the
consent of the Participant affected, impair any award made prior to the
effective date of the modification.
9. MISCELLANEOUS.
It is presently intended that the Plan constitute an "unfunded" plan for
incentive and deferred compensation. The Committee may authorize the creation of
trusts or other arrangements to meet the payment obligations created under the
Plan; provided, however, that, unless the Committee otherwise determines, the
existence of such trusts or other arrangements is consistent with the "unfunded"
status of the Plan. The Plan shall be governed by and construed in accordance
with the laws of the State of California, without regard to its principles of
conflict of laws.
10. PROCEDURES FOR CERTAIN DESIGNATED PARTICIPANTS.
Incentive Awards under the Plan to Participants who are Covered Employees
shall be subject to pre-established Performance Goals as set forth herein.
Notwithstanding Section 6, hereof, the Committee shall not have discretion to
modify the terms of awards to such Participants except as specifically set forth
in this Section 10.
(a) Target Bonus. On or before the 90th day of each Incentive Period, and
in any event before 25% or more of the Incentive Period has elapsed, the
Committee shall establish in writing specific Performance Goals for the
Incentive Period (provided that no Performance Goals for such Incentive Period
has been previously established), upon the attainment of which will be
conditioned the payment of Incentive Awards ("Special Incentive Awards") to such
of the Participants who may be Covered Employees. A Special Incentive Award
shall consist of a cash award from the Company to be based upon a percentage
(which may exceed 100%) of a Target Incentive Award. The extent, if any, to
which a Special Incentive Award will be payable will be based upon the degree of
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achievement of pre-established Performance Goals over a specified Incentive
Period; provided, however, that the Committee may, in its sole discretion,
reduce the amount which would otherwise be payable with respect to an Incentive
Period.
(b) Incentive Period. With the exception of the Incentive Periods
established in Section 5., the Incentive Period will be a period of up to twelve
months, unless a shorter period is otherwise selected and established in writing
by the Committee at the time the Performance Goals are established with respect
to such Incentive Period.
(c) Performance Goals. The Performance Goals established by the Committee
at the time a Special Incentive Award is granted may be based on one or more of
the following: earnings per share, market share, stock price, gross or net
sales, costs, net operating income, pretax earnings, cash flow, retained
earnings, return on equity, results of customer satisfaction surveys, aggregate
product price and other product price measures, safety record, service
reliability, demand-side management (including conservation and load
management), operating and maintenance cost management, energy production
availability, and individual performance measures; provided, that all
Performance Goals shall be objective performance goals satisfying the
requirements for "performance-based compensation" within the meaning of Section
162(m)(4) of the Code. Such Performance Goals also may be based on the
attainment of specified levels of performance of the Company and/or any
Affiliates under one or more of the measures described above relative to the
performance of other corporations.
(d) Payment of an Incentive Award. At the time the Special Incentive Award
is granted, the Committee shall prescribe a formula to determine the percentage
of the Target Incentive Award which may be payable based upon the degree of
attainment of the Performance Goals during the Incentive Period. If the minimum
Performance Goals established by the Committee are not met, no payment will be
made to a Participant who is a Covered Employee. To the extent that the minimum
Performance Goals are satisfied or surpassed, and upon written certification by
the Committee that the Performance Goals have been satisfied to a particular
extent and any other material terms and conditions of the Special Incentive
Awards have been satisfied, payment shall be made on the Payment Date in
accordance with the prescribed formula based upon a percentage of the Target
Incentive Award unless the Committee determines, in its sole discretion, to
reduce the payment to be made.
(e) Maximum Payable. The maximum amount payable to a Covered Employee under
this Plan for any fiscal year of the Company pursuant to this Plan shall be
$1,000,000.
11. CHANGE IN CONTROL.
Notwithstanding any other provision of this Plan, (i) upon a Change in
Control, each Participant who is employed by the Company or an Affiliate
immediately before the Change in Control shall be entitled to receive a payment
equal to his or her Target Incentive Award for the Incentive Period that
includes the date of the Change in Control, and (ii) any additional Incentive
Award that becomes payable to such a Participant for that Incentive Period shall
be reduced (but not below zero) by the amount of the payment made to such
Participant pursuant to clause (i) of this Section 11.
12. DEFERRAL ELECTIONS.
The Committee may at its option establish procedures pursuant to which
Participants are permitted to defer the receipt of Incentive Awards payable
hereunder.
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13. SHAREHOLDER APPROVAL.
This Plan shall not become effective with respect to individuals who are
Covered Employees unless it shall have been approved by the affirmative vote of
a majority of the votes entitled to be cast by the holders of the shares of
common stock of Synthonics Technologies, Inc., represented at a meeting and
entitled to vote thereon and by the affirmative vote of a majority of the total
voting power of the shares of common stock, present in person or by proxy and
entitled to vote thereon.
14. INDEMNIFICATION.
To the extent permitted by applicable law in effect from time to time, no
member of the Board or the Committee shall be liable for any action or omission
of any other member of the Board or Committee, nor for any act or omission on
the member's own part, except only the member's own willful misconduct or gross
negligence. The Company shall pay expenses incurred by, and satisfy a judgment
or fine rendered or levied against, a present or former director or member of
the Committee in any action against such person (whether or not the Company is
joined as a party defendant) to impose liability or a penalty on such person for
an act alleged to have been committed by such person while a director or member
of the Committee arising with respect to the Plan or administration thereof or
out of membership on the Committee or by the Company, or all or any combination
of the preceding; provided, the director or Committee member was acting in good
faith, within what such director or Committee member reasonably believed to have
been within the scope of his or her employment or authority and for a purpose
which he or she reasonably believed to be in the best interests of the Company
or its shareholders. Payments authorized hereunder include amounts paid and
expenses incurred in settling any such action or threatened action. This section
does not apply to any action instituted or maintained in the right of the
Company by a shareholder or holder of a voting trust certificate representing
shares of the Company. The provisions of this section shall apply to the estate,
executor, administrator, heirs, legatees or devisees of a director or Committee
member, and the term "person" as used in this section shall include the estate,
executor, administrator, heirs, legatees or devisees of such person.
15. MISCELLANEOUS PROVISIONS.
(a) Further Assurances. All parties to this Plan agree to perform any and
all further acts and to execute and deliver any documents that may reasonably be
necessary to carry out the provisions of this Plan.
(b) Attorneys' Fees. In any legal action or other proceeding brought by any
party to enforce or interpret the terms of this Plan, the prevailing party shall
be entitled to recover reasonable attorneys' fees and costs.
(c) Governing Law. The Plan and all determinations made and actions taken
pursuant hereto, to the extent not otherwise governed by the Code or the
securities laws of the United States, shall be governed by the law of the State
of California.
(d) Notices. Any written notice to the Company required by any of the
provisions of the Plan shall be addressed to the Chair of the Committee, if any,
the chief operational officer or to the chief executive officer of the Company,
and shall become effective when it is received by the office of the chief
personnel officer or the chief executive officer.
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(e) Entire Agreement. This Plan, together with those documents that are
referenced in the Plan, are intended to be the final, complete, and exclusive
statement of the terms of this Plan. This Plan supersedes all other prior
agreements, communications, and statements, whether written or oral, express or
implied, pertaining to that subject matter. This Plan may not be contradicted by
evidence of any prior or contemporaneous statements or agreements, oral or
written, and may not be explained or supplemented by evidence of consistent
additional terms.
(f) Interpretation. This Plan shall be construed as a whole, according to
its fair meaning, and not in favor of or against any party. By way of example
and not in limitation, this Plan shall not be construed in favor of the party
receiving a benefit nor against the party responsible for any particular
language in this Plan. Captions are used for reference purposes only and should
be ignored in the interpretation of the Plan. Unless the context requires
otherwise, all references in this Plan to Paragraphs are to the paragraphs of
this Plan.
The undersigned hereby certify that the foregoing Management Cash Incentive
Plan was duly adopted and approved by the Board of Directors on March 3, 1998
and the shareholders on April 8, 1998.
/S/ F. Michael Budd Charles S. Palm
- ----------------------------- --------------------------------
F. Michael Budd - President Dr. Charles S. Palm - Secretary
Page 8 of 8
Exhibit 10.2
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SYNTHONICS TECHNOLOGIES, INC.
1998 STOCK OPTION PLAN
- -------------------------------------------------------------------------------
1. Purpose.
The purpose of this 1998 Stock Option Plan (the "Plan") is to attract,
retain, and reward persons providing services to Synthonics Technologies, Inc.,
a Utah corporation, and any successor corporation thereto (collectively referred
to as the "Company"), and any present or future parent and/or subsidiary
corporations of such corporation (all of which along with the Company being
individually referred to as a "Participating Company" and collectively referred
to as the "Participating Company Group"), and to motivate such persons to
contribute to the growth and profits of the Participating Company Group in the
future. For purposes of the Plan, a parent corporation and a subsidiary
corporation shall be as defined in Sections 424(e) and 424(f) of the Internal
Revenue Code of 1986, as amended (the "Code").
2. Administration.
(a) Administration By Board And/Or Committee. The Plan shall be
administered by the Board of Directors of the Company (the "Board") and/or by a
duly appointed committee of the Board having such powers as shall be specified
by the Board. Any subsequent references herein to the Board shall also mean the
committee if such committee has been appointed, and unless the powers of the
committee have been specifically limited. The committee shall have all of the
powers of the Board granted herein, including, without limitation, the power to
terminate or amend the Plan at any time, subject to the terms of the Plan and
any applicable limitations imposed by law. All questions of interpretation of
the Plan or of any options granted under the Plan (an "Option") shall be
determined by the Board, and such determinations shall be final and binding upon
all persons having an interest in the Plan and/or any Option.
(b) Options Authorized. Options may be either incentive stock options as
defined in Section 422 of the Code ("Incentive Stock Options") or non-statutory
stock options.
3. Eligibility.
(a) Eligible Persons. Options may be granted only to employees (including
officers) and directors of the Participating Company Group, or to individuals
who are rendering services as consultants, advisors, or other independent
contractors to the Participating Company Group. The Board shall, in its sole
discretion, determine which persons shall be granted Options (an "Optionee").
Eligible persons may be granted more than one (1) Option.
(b) Restrictions on Option Grants. A director of a Participating Company
may only be granted a non-statutory stock option unless the director is also an
employee of the Participating Company Group. An individual who is rendering
services as a consultant, advisor, or other independent contractor may only be
granted a non-statutory stock option.
4. Shares Subject to Option. Options shall be for the purchase of shares of
the authorized but unissued common stock or treasury shares of common stock
$0.01 par value of the Company (the "Stock"), subject to adjustment as provided
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in paragraph 10 below. The maximum number of shares of Stock which may be issued
under the Plan shall be Two Million (2,000,000) shares. In the event that any
outstanding Option for any reason expires or is terminated or canceled and/or
shares of Stock subject to repurchase are repurchased by the Company, the shares
allocable to the unexercised portion of such Option, or such repurchased shares,
may again be subject to an Option grant. Notwithstanding the foregoing, any such
shares shall be made subject to a new Option only if the grant of such new
Option and the issuance of such shares pursuant to such new Option would not
cause the Plan or any Option granted under the Plan to contravene Rule 16b-3.
5. Time for Granting Options. All Options shall be granted, if at all,
within three (3) years from the earlier of the date the Plan is adopted by the
Board or the date the Plan approved by the stockholders of the Company.
6. Terms, Conditions and Form of Options. Subject to the provisions of the
Plan, the Board shall determine for each Option (which need not be identical)
the number of shares of Stock for which the Option shall be granted, the
exercise price of the Option, the timing and terms of exercisability and vesting
of the Option, the time of expiration of the Option, the effect of the
Optionee's termination of employment or service, whether the Option is to be
treated as an Incentive Stock Option or as a non-statutory stock option, the
method for satisfaction of any tax withholding obligation arising in connection
with Option, including by the withholding or delivery of shares of stock, and
all other terms and conditions of the Option not inconsistent with the Plan.
Options granted pursuant to the Plan shall be evidenced by written agreements
specifying the number of shares of Stock covered thereby, in such form as the
Board shall from time to time establish, which agreements may incorporate all or
any of the terms of the Plan by reference and shall comply with and be subject
to the following terms and conditions:
(a) Exercise Price. The exercise price for each Option shall be
established in the sole discretion of the Board; provided, however, that
(i) the exercise price per share for an Incentive Stock Option shall be not
less than the fair market value, as determined by the Board, of a share of
Stock on the date of the granting of the Option, (ii) the exercise price
per share for a non-statutory stock option shall not be less than
eighty-five percent (85%) of the fair market value, as determined by the
Board, of a share of Stock on the date of the granting of the Option and
(iii) no Incentive Stock Option granted to an Optionee who at the time the
Option is granted owns stock possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of a Participating
Company within the meaning of Section 422(b)(6) of the Code (a "Ten Percent
Owner Optionee") shall have an exercise price per share less than one
hundred ten percent (110%) of the fair market value, as determined by the
Board, of a share of Stock on the date of the granting of the Option.
Notwithstanding the foregoing, an Option (whether an Incentive Stock Option
or a non-statutory stock option) may be granted with an exercise price
lower than the minimum exercise price set forth above if such Option is
granted pursuant to an assumption or substitution for another option in a
manner qualifying with the provisions of Section 424(a) of the Code.
(b) Exercise Period of Options. The Board shall have the power to set,
including by amendment of an Option, the time or times within which each
Option shall be exercisable or the event or events upon the occurrence of
which all or a portion of each Option shall be exercisable and the term of
each Option; provided, however, that no Option shall be exercisable after
the expiration of seven (7) years after the date such Option is granted.
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(c) Termination of Employee Options. If an optionee who is an employee
ceases to be an employee of the Company, his or her rights to exercise an
incentive stock option then held shall be only as follows:
(i) Death. If an optionee dies while he or she is employed by the
Company, the optionee's estate shall have the right for a period of
six (6) months (or such longer period as the Committee may determine
at the date of grant or during the term of the option) after the date
of death to exercise the option to the extent the optionee was
entitled to exercise the option on that date, provided the date of
exercise is in no event after the expiration of the term of the
option. To the extent the option is not exercised within this period,
the option will terminate. An optionee's "estate" shall mean the
optionee's legal representative or any person who acquires the right
to exercise an option by reason of the optionee's death.
(ii) Disability. If an optionee's employment with the Company
ends because the optionee becomes disabled, the optionee or his or her
qualified representative (in the event of the optionee's mental
disability) shall have the right for a period of twelve (12) months
after the date on which the optionee's employment ends to exercise the
option to the extent the optionee was entitled to exercise the option
on that date, provided the date of exercise is in no event after the
expiration of the term of the option. To the extent the option is not
exercised within this period, the option will terminate.
(iii) Resignation. If an optionee voluntarily resigns from the
Company, the optionee shall have the right for a period of two (2)
months after the date of resignation to exercise the option to the
extent the optionee was entitled to exercise the option on that date,
provided the date of exercise is in no event after the expiration of
the term of the option. To the extent the option is not exercised
within this period, the option will terminate.
(iv) Termination for Reasons other than Cause. If an optionee's
employment is terminated by the Company for reasons other than
"Cause," the optionee shall have the right for a period of two (2)
months after the date of termination to exercise the option to the
extent the optionee was entitled to exercise the option on that date,
provided the date of exercise is in no event after the expiration of
the term of the option. To the extent the option is not exercised
within this period, the option will terminate. For the purpose of this
clause, "Cause" shall mean that: the optionee is determined by the
Committee to have committed an act of embezzlement, fraud, dishonesty,
or breach of fiduciary duty to the Company, or to have deliberately
disregarded the rules of the Company which resulted in loss, damage,
or injury to the Company, or because the optionee has made any
unauthorized disclosure of any of the secrets or confidential
information of the Company, has induced any client or customer of the
Company to break any contract with the Company, has induced any
principal for whom the Company acts as agent to terminate the agency
relationship, or has engaged in any conduct that constitutes unfair
competition with the Company.
(v) Other Reasons. If an optionee's employment with the Company
ends for any reason not mentioned above in this Subsection 6(c), all
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rights of the optionee in an incentive stock option, to the extent
that it has not been exercised, shall terminate on the date the
optionee's employment ends.
(d) Terminations of Non-employee Director Options. If a non-employee
director ceases to be a director of the Company, his or her rights to
exercise an option then held shall be only as follows:
(i) Death. If a nonemployee director dies while he or she is
serving on the Board of the Company, the director's estate shall have
the right for a period of six (6) months (or such longer period as the
Committee may determine at the date of grant or during the term of the
option) after the date of death to exercise the option to the extent
the director was entitled to exercise the option on that date,
provided the date of exercise is in no event after the expiration of
the term of the option. To the extent the option is not exercised
within this period, the option will terminate. A director's "estate"
shall mean the director's legal representative or any person who
acquires the right to exercise an option by reason of the director's
death.
(ii) Disability. If a nonemployee director's Board membership
ends because the director becomes disabled, the director or his or her
qualified representative (in the event of the director's mental
disability) shall have the right for a period of twelve (12) months
after the date on which the director's Board membership ends to
exercise the option to the extent the director was entitled to
exercise the option on that date, provided the date of exercise is in
no event after the expiration of the term of the option. To the extent
the option is not exercised within this period, the option will
terminate.
(iii) Resignation. If a nonemployee director voluntarily resigns
from the Company's Board, the director shall have the right for a
period of six (6) months after the date of resignation to exercise the
option to the extent the director was entitled to exercise the option
on that date, provided the date of exercise is in no event after the
expiration of the term of the option. To the extent the option is not
exercised within this period, the option will terminate.
(iv) Termination for Reasons other than Cause. If a nonemployee
director's Board membership is terminated by the Company for reasons
other than "Cause," the director shall have the right for a period of
six (6) months after the date of termination to exercise the option to
the extent the director was entitled to exercise the option on that
date, provided the date of exercise is in no event after the
expiration of the term of the option. To the extent the option is not
exercised within this period, the option will terminate. For the
purpose of this clause, "Cause" shall mean that: the director is
determined by the Committee to have committed an act of embezzlement,
fraud, dishonesty, or breach of fiduciary duty to the Company, or to
have deliberately disregarded the rules of the Company which resulted
in loss, damage, or injury to the Company, or because the director has
made any unauthorized disclosure of any of the secrets or confidential
information of the Company, has induced any client or customer of the
Company to break any contract with the Company, has induced any
principal for whom the Company acts as agent to terminate the agency
relationship, or has engaged in any conduct that constitutes unfair
competition with the Company.
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(v) Other Reasons. If a nonemployee director's Board membership
ends for any reason not mentioned above in this Subsection 6(d), all
rights of the director in an option, to the extent that it has not
been exercised, shall terminate on the date the director's Board
membership ends.
(e) Payment of Exercise Price.
(i) Forms of Payment Authorized. Payment of the exercise price
for the number of shares of Stock being purchased pursuant to any
Option shall be made (1) in cash, by check, or cash equivalent, (2) by
tender to the Company of shares of the Company's stock owned by the
Optionee having a fair market value, as determined by the Board (but
without regard to any restrictions on transferability applicable to
such stock by reason of federal or state securities laws or agreements
with an underwriter for the Company), not less than the exercise
price, (3) by the Optionee's recourse promissory note in a form
approved by the Company, (4) by the assignment of the proceeds of a
sale of some or all of the shares being acquired upon the exercise of
the Option (including, without limitation, through an exercise
complying with the provisions of Regulation T as promulgated from time
to time by the Board of Governors of the Federal Reserve System), (5)
by the withholding of shares being acquired upon exercise of the
Option having a fair market value, as determined by the Board (but
without regard to any restrictions on transferability applicable to
such stock by reason of federal or state securities laws or agreements
with an underwriter for the Company), not less than the exercise
price, or (6) by any combination thereof. The Board may at any time or
from time to time grant Options which do not permit all of the
foregoing forms of consideration to be used in payment of the exercise
price and/or which otherwise restrict one (1) or more forms of
consideration.
(ii) Tender of Company Stock. Notwithstanding the foregoing, an
Option may not be exercised by tender to the Company of shares of the
Company's stock to the extent such tender of stock, as determined by
the Board, would constitute a violation of the provisions of any law,
regulation and/or agreement restricting the redemption of the
Company's stock. Unless otherwise provided by the Board, an Option may
not be exercised by tender to the Company of shares of the Company's
stock unless such shares of the Company's stock either have been owned
by the Optionee for more than six (6) months or were not acquired,
directly or indirectly, from the Company.
(iii) Promissory Notes. No promissory note shall be permitted if
an exercise using a promissory note would be a violation of any law.
Any permitted promissory note shall be due and payable not more than
four (4) years after the Option is exercised, and interest shall be
payable at least annually and be at least equal to the minimum
interest rate necessary to avoid imputed interest pursuant to all
applicable sections of the Code. The Board shall have the authority to
permit or require the Optionee to secure any promissory note used to
exercise an Option with the shares of Stock acquired on exercise of
the Option and/or with other collateral acceptable to the Company.
Unless otherwise provided by the Board, in the event the Company at
any time is subject to the regulations promulgated by the Board of
Governors of the Federal Reserve System or any other governmental
entity affecting the extension of credit in connection with the
Company's securities, any promissory note shall comply with such
applicable regulations, and the Optionee shall pay the unpaid
principal and accrued interest, if any, to the extent necessary to
comply with such applicable regulations.
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(iv) Assignment of Proceeds of Sale. The Company reserves, at any
and all times, the right, in the Company's sole and absolute
discretion, to establish, decline to approve and/or terminate any
program and/or procedures for the exercise of Options by means of an
assignment of the proceeds of a sale of some or all of the shares of
Stock to be acquired upon such exercise.
7. Standard Forms of Stock Option Agreement.
(a) Incentive Stock Options. Unless otherwise provided for by the
Board at the time an Option is granted, an Option designated as an
"Incentive Stock Option" shall comply with and be subject to the terms and
conditions of an Incentive Stock Option Agreement which shall be in such
form as designated by the Board of Directors or Committee from time to
time.
(b) Non-Statutory Stock Options. Unless otherwise provided for by the
Board at the time an Option is granted, an Option designated as a
"Non-statutory Stock Option" shall comply with and be subject to the terms
and conditions of a Non-statutory Stock Option Agreement which shall in
such form as designated by the Board of Directors or Committee from time to
time.
(c) Standard Term For Options. Unless otherwise provided for by the
Board in the grant of an Option, any Option granted hereunder shall be
exercisable for a term of seven (7) years.
8. Authority To Vary Terms. The Board shall have the authority from time to
time to vary the terms of either of the standard forms of Stock Option Agreement
described in paragraph 7 above either in connection with the grant or amendment
of an individual Option or in connection with the authorization of a new
standard form or forms; provided, however, that the terms and conditions of such
revised or amended standard form or forms of stock option agreement shall be in
accordance with the terms of the Plan. Such authority shall include, but not by
way of limitation, the authority to grant Options which are not immediately
exercisable.
9. Fair Market Value Limitation. To the extent that the aggregate fair
market value (determined at the time the Option is granted) of stock with
respect to which Incentive Stock Options are exercisable by an Optionee for the
first time during any calendar year (under all stock option plans of the
Company, including the Plan) exceeds one hundred thousand dollars ($100,000),
such Options shall be treated as non-statutory stock options. This paragraph
shall be applied by taking Incentive Stock Options into account in the order in
which they were granted.
10. Effect of Change in Stock Subject to Plan. Appropriate adjustments
shall be made in the number and class of shares of Stock subject to the Plan and
to any outstanding Options and in the exercise price of any outstanding Options
in the event of a stock dividend, stock split, reverse stock split,
recapitalization, combination, reclassification, or like change in the capital
structure of the Company. In the event a majority of the shares which are of the
same class as the shares that are subject to outstanding Options are exchanged
for, converted into, or otherwise become (whether or not pursuant to a Transfer
of Control (as defined below)) shares of another corporation (the "New Shares"),
the Company may unilaterally amend the outstanding Options to provide that such
Options are exercisable for New Shares. In the event of any such amendment, the
number of shares and the exercise price of the outstanding Options shall be
adjusted in a fair and equitable manner.
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11. Transfer of Control. A "Transfer of Control" shall be deemed to have
occurred in the event any of the following occurs with respect to the Company.
(a) the acquisition of direct or indirect ownership of stock by any
person, entity or group of persons or entities acting in concert possessing
more than a majority of the beneficial interest in the voting stock of the
Company;
(b) the direct or indirect sale or exchange by the stockholders of the
Company of all or substantially all of the stock of the Company where the
stockholders of the Company before such sale or exchange do not retain,
directly or indirectly, at least a majority of the beneficial interest in
the voting stock of the Company after such sale or exchange;
(c) a merger or consolidation where the stockholders of the Company
before such merger or consolidation do not retain, directly or indirectly,
at least a majority of the beneficial interest in the voting stock of the
Company after such merger or consolidation;
(d) the sale, exchange, or transfer of all, or substantially all, of
the assets of the Company (other than a sale, exchange, or transfer to one
(1) or more subsidiary corporations (as defined in paragraph 1 above) of
the Company; or
(e) a liquidation or dissolution of the Company. For purposes of the
foregoing, if a group of persons or entities begins to act in concert, and
if such group meets the beneficial ownership requirements set forth in
clause (a) above, then such acquisition shall be deemed to have occurred on
the date the Company first becomes aware of such group or its actions.
A Stock Option Agreement may, in the discretion of the Board, provide for
accelerated vesting in the event of a Transfer of Control. In the event of a
Transfer of Control, the surviving, continuing, successor, or purchasing
corporation or parent corporation thereof, as the case may be (the "Acquiring
Corporation"), shall either assume the Company's rights and obligations under
outstanding stock option agreements or substitute options for the Acquiring
Corporation's stock for such outstanding Options. In the event the Acquiring
Corporation elects not to assume or substitute for such outstanding Options in
connection with the Transfer of Control, any unexercisable and/or unvested
shares subject to such outstanding stock option agreements shall be immediately
exercisable and fully vested as of the date thirty (30) days prior to the
proposed effective date of the Transfer of Control. The exercise and/or vesting
of any Option that was permissible solely by reason of this paragraph 11 shall
be conditioned upon the consummation of the Transfer of Control. Any Options
which are neither assumed or substituted for by the Acquiring Corporation in
connection with the Transfer of Control nor exercised as of the date of the
Transfer of Control shall terminate and cease to be outstanding effective as of
the date of the Transfer of Control.
12. Provision of Information. Each Optionee shall be given access to
information concerning the Company equivalent to that information generally made
available to the Company's common stockholders generally.
Page 7 of 10
<PAGE>
13. Options Non-Transferable. During the lifetime of the Optionee, the
Option shall be exercisable only by the Optionee. No Option shall be assignable
or transferable by the Optionee, except by will or by the laws of descent and
distribution.
14. Termination or Amendment of Plan or Options. The Board, including any
duly appointed committee of the Board, may terminate or amend the Plan or any
Option at any time; provided, however, that without the approval of the
Company's stockholders, there shall be (a) no increase in the total number of
shares of Stock covered by the Plan (except by operation of the provisions of
paragraph 10 above), (b) no change in the class eligible to receive Incentive
Stock Options, and (c) no expansion in the class eligible to receive
non-statutory stock options. In addition to the foregoing, the approval of the
Company's stockholders shall be sought for any amendment to the Plan for which
the Board deems stockholder approval necessary in order to comply with Rule
16b-3. In any event, no amendment may adversely affect any then outstanding
Option or any unexercised portion thereof, without the consent of the Optionee,
unless such amendment is required to enable an Option designated as an Incentive
Stock Option to qualify as an Incentive Stock Option.
15. Information to Optionees. The Company shall provide to each Optionee
during the period for which he or she has one or more outstanding options,
copies of all annual reports and all other information which is provided to
shareholders of the Company. The Company shall not be required to provide such
information to key employees whose duties in connection with the Company assure
their access to equivalent information.
16. Privileges of Stock Ownership, Securities Law Compliance. No Optionee
shall be entitled to the privileges of stock ownership as to any Shares not
actually issued and delivered to the Optionee. The exercise of any option under
the Plan shall be conditioned upon the registration of the Shares with the SEC
and qualification of the options and underlying Shares under the California
securities laws, unless in the opinion of counsel to the Company registration or
qualification is not necessary. The Company shall diligently endeavor to comply
with all applicable securities laws before any options are granted under the
Plan and before any Shares are issued pursuant to the exercise of such options.
17. Indemnification. To the extent permitted by applicable law in effect
from time to time, no member of the Board or the Committee shall be liable for
any action or omission of any other member of the Board or Committee nor for any
act or omission on the member's own part, excepting only the member's own
willful misconduct or gross negligence. The Company shall pay expenses incurred
by, and satisfy a judgment or fine rendered or levied against, a present or
former director or member of the Committee in any action against such person
(whether or not the Company is joined as a party defendant) to impose liability
or a penalty on such person for an act alleged to have been committed by such
person while a director or member of the Committee arising with respect to the
Plan or administration thereof or out of membership on the Committee or by the
Company, or all or any combination of the preceding; provided the director or
Committee member was acting in good faith, within what such director or
Committee member reasonably believed to have been within the scope of his or her
employment or authority and for a purpose which he or she reasonably believed to
be in the best interests of the Company or its shareholders. Payments authorized
hereunder include amounts paid and expenses incurred in settling any such action
or threatened action. This section does not apply to any action instituted or
maintained in the right of the Company by a shareholder or holder of a voting
trust certificate representing shares of the Company. The provisions of this
section shall apply to the estate, executor, administrator, heirs, legatees or
devisees of a director or Committee member, and the term "person" as used in
this section shall include the estate, executor, administrator, heirs, legatees
or devisees of such person.
Page 8 of 10
<PAGE>
18. Miscellaneous Provisions.
(a) Withholding Taxes. In the event that the Company determines that
it is required to withhold federal, state, or local tax as a result of the
exercise of this option, Employee, as a condition to the exercise of this
option, shall make arrangements satisfactory to the Company to enable it to
satisfy all withholding requirements.
(b) No Rights as a Shareholder. Employee shall have no rights as a
shareholder with respect to any Shares subject to this option until the
Shares have been issued in the name of Employee.
(c) No Employment Rights. Nothing in this Plan shall be construed as
giving Employee the right to be retained as an employee of the Company.
(d) Further Assurances. All parties to this Plan agree to perform any
and all further acts and to execute and deliver any documents that may
reasonably be necessary to carry out the provisions of this Plan.
(e) Attorneys' Fees. In any legal action or other proceeding brought
by any party to enforce or interpret the terms of this Plan, the prevailing
party shall be entitled to recover reasonable attorneys' fees and costs.
(f) Governing Law. The Plan and all determinations made and actions
taken pursuant hereto, to the extent not otherwise governed by the Code or
the securities laws of the United States, shall be governed by the law of
the State of California.
(g) Notices. Any written notice to the Company required by any of the
provisions of the Plan shall be addressed to the chief personnel officer or
to the chief executive officer of the Company, and shall become effective
when it is received by the office of the chief personnel officer or the
chief executive officer.
(h) Entire Agreement. This Plan, together with those documents that
are referenced in the Plan, are intended to be the final, complete, and
exclusive statement of the terms of the agreement between Employee and the
Company with regard to the subject matter of this Plan. This Agreement
supersedes all other prior agreements, communications, and statements,
whether written or oral, express or implied, pertaining to that subject
matter. This Plan may not be contradicted by evidence of any prior or
contemporaneous statements or agreements, oral or written, and may not be
explained or supplemented by evidence of consistent additional terms. This
Plan does not effect the terms and conditions of any options granted by the
Company prior to the date of adoption of this Plan by the Board of
Directors.
(i) Successors and Assigns. Optionee agrees that he will not assign,
sell, transfer, delegate, or otherwise dispose of, whether voluntarily or
involuntarily, or by operation of law, any rights or obligations under this
Plan, except as expressly permitted by this Plan. Any such purported
Page 9 of 10
<PAGE>
assignment, sale, transfer, delegation, or other disposition shall be null
and void. Subject to the limitations set forth in this Plan, the Plan shall
be binding on and inure to the benefit of the successors and assigns of the
Company and any successors and permitted assigns of Employee, including any
of his executors, administrators, or other legal representatives. It shall
not benefit any person or entity other than those specifically enumerated
in this Agreement.
(j) Severability. If any provision of this Plan, or its application to any
person, place, or circumstance, is held by an arbitrator or a court of competent
jurisdiction to be invalid, unenforceable, or void, that provision shall be
enforced to the greatest extent permitted by law, and the remainder of this
Agreement and of that provision shall remain in full force and effect as applied
to other persons, places, and circumstances.
(k) Interpretation. This Plan shall be construed as a whole, according to
its fair meaning, and not in favor of or against any party. By way of example
and not in limitation, this Plan shall not be construed in favor of the party
receiving a benefit nor against the party responsible for any particular
language in this Plan. Captions are used for reference purposes only and should
be ignored in the interpretation of the Plan. Unless the context requires
otherwise, all references in this Plan to Paragraphs are to the paragraphs of
this Plan.
The undersigned hereby certify that the foregoing 1998 Stock Option Plan
was duly adopted and approved by the Board of Directors on March 3, 1998 and the
shareholders on April 8, 1998.
/s/ F. Michael Budd Charles S. Palm
- ------------------------------ ----------------------------------
F. Michael Budd - President Dr. Charles S. Palm - Secretary
Page 10 of 10
Exhibit 10.3
-------------
LICENSE AGREEMENT
BETWEEN
SYNTHONICS, INCORPORATED
AND
MEDSCAPE, LLC
This LICENSE AGREEMENT is entered into between Synthonics, Incorporated
(hereinafter referred to as "Synthonics, Incorporated"), a California
corporation with principal offices at 31324 Via Colinas, Suite 106, Westlake
Village, California, 91362, and MedScape, LLC (hereinafter referred to as
"MedScape"), a California limited liability company with principal offices at
31324 Via Colinas, Suite 106, Westlake Village, CA 91362.
RECITALS
A. On or about September 2, 1996, Synthonics Technologies, Inc., a Utah
corporation (hereinafter referred to as "Synthonics Technologies, Inc.") and
William E. Harrell, Jr., DMD, P.C., an Alabama professional corporation
(hereinafter referred to as "Harrell") entered a written Operating Agreement as
members of MedScape. MedScape came into existence on or about August 13, 1996,
when its Articles of Organization were filed with the California Secretary of
State. Synthonics, Incorporated is the wholly owned subsidiary of Synthonics
Technologies, Inc.
B. Synthonics Technologies, Inc., and Harrell desire that H&M Associates,
LLC (hereinafter referred to as "H&M Associates"), a California limited
liability company, be added as a member of MedScape. H&M Associates desires to
become a member of MedScape. Therefore, concurrently with the execution of this
License Agreement, Synthonics Technologies, Inc., Harrell, and Harrell are
executing a First Amended Operating Agreement (hereinafter referred to as "First
Amended Operating Agreement") pursuant to which H&M Associates is being added as
a member of MedScape.
C. Also concurrently with or prior to the execution of this License
Agreement, Harrell and H&M Associates have each entered a License Agreement with
MedScape which is virtually identical in form and substance to this License
Agreement except that those separate license agreements provide for the
licensing by H&M Associates and H&M Associates to MedScape of other proprietary
technology which is owned by Harrell and H&M Associates, respectively.
D. Harrell, Synthonics Technologies, Inc., and H&M Associates have founded
MedScape to combine their proprietary technologies to create, develop and offer
software products to the medical and dental professions and their support labs.
The software will be modular and include a system for sending, retrieving,
cataloging and storing images. Each module will have an application to solve or
enhance specific diagnostic challenges, improve treatment planning capabilities
and may be used to enhance communication with colleagues and patients.
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E. In accordance with the First Amended Operating Agreement, Synthonics,
Incorporated is required to grant certain exclusive, worldwide license rights to
certain proprietary technology under the terms and conditions of this License
Agreement as the initial contribution by Synthonics Technologies, Inc. to
MedScape.
F. MedScape desires to use that proprietary technology to develop the
software products referenced above.
NOW THEREFORE, in consideration of the foregoing, the mutual covenants and
obligations hereinafter contained, and other good and valuable consideration,
Synthonics, Incorporated and MedScape agree as follows:
TERMS
1.0 DEFINITIONS
1.1 Usage
All words, terms and phrases used in this License Agreement shall have
meanings ascribed to them in standard English language dictionaries. However,
where this License Agreement specifically defines a word, term or phrase, that
definition shall be used in this License Agreement. That definition shall govern
whether the term is used in the singular or plural, and shall apply regardless
of the gender of the object or person to which it is applied. Capitalization
will have no effect on the meaning of the word, term or phrase in question.
1.2 Synthonics, Incorporated
"Synthonics, Incorporated" means the California corporation having that
name with its principal offices at 31324 Via Colinas, Suite 106, Westlake
Village, California 91362, and its successors, any surviving Entity into which
that corporation may be merged, or any Entity resulting from a consolidation of
that corporation with any other Entity. Synthonics, Incorporated is the licensor
in this License Agreement. It is understood that Synthonics, Incorporated is
acting as the wholly owned subsidiary of Synthonics Technologies, Inc., and that
Synthonics, Incorporated is and shall be completely controlled by Synthonics
Technologies, Inc..
1.3 MedScape
"MedScape" means the California limited liability company having that name
with its principal offices at 31324 Via Colinas, Suite 106, Westlake Village, CA
91362, and its successors, any surviving Entity into which that limited
liability company may be merged, or any Entity resulting from a consolidation of
that limited liability company with any other Entity. MedScape is the licensee
in this License Agreement.
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1.4 Affiliate
"Affiliate" means, with respect to a party to this License Agreement, any
Entity in which such party, its managers or members, singly or cumulatively, has
a direct or indirect ownership interest exceeding twenty percent (20%), or any
Entity which, directly or indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control with such party. The term
"control" means possession, direct or indirect, of the powers to direct or cause
the direction of the management or policies of a person or Entity; whether
through ownership of equity participation, voting securities, or beneficial
interests; by contract; by agreement; or otherwise.
1.5 Distributor
"Distributor" means any person or Entity engaged by MedScape, or any agent
or representative of MedScape, which distributes any Licensed Product(s) to any
End User, either directly or indirectly through other distributors.
1.6 Effective Date
"Effective Date" means the date upon which this License Agreement is fully
executed.
1.7 End User(s)
"End User" means any individual or Entity licensed to use Licensed
Product(s) for his/her/its own use, in the regular conduct of its own business
and not for licensing to other Entities or individuals.
1.8 Entity
"Entity" means a corporation, a limited liability company, an association,
a joint venture, a partnership, a trust, a business, a government or political
subdivision thereof, including an agency, or any other organization which can
exercise independent legal standing.
1.9 Gross Revenues
"Gross Revenues" means the actual money received, in the ordinary course of
business, as revenues for goods or services less any returns or allowances
granted.
1.10 Improvements
"Improvements" means any alterations, modifications, revisions,
enhancements, betterments, and the like of the software codes or ideas related
directly to the Licensed Technology, made at the request of MedScape during the
term of this License Agreement. Notwithstanding the foregoing, software codes or
ideas that are patentable shall not be considered Improvements of the Licensed
Technology under this License Agreement.
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1.11 Invention
"Invention" means any idea, design, concept, technique, discovery, or
Improvement, whether or not patentable, copyrightable or otherwise protectable
as intellectual property, which is conceived or brought to practice as a result
of work done or acquisition made by MedScape or Synthonics, Incorporated during
the term of this License Agreement.
1.12 Know-How
"Know-How" means information, skills, ingenuity, and other intellectual
property which are not generally known to the public, including without
limitation knowledge, techniques, processes, and Inventions relating to or
developed in connection with the Licensed Technology and owned, developed, or
acquired by and proprietary to Synthonics, Incorporated during the term of this
License Agreement. Information, skills, ingenuity, and other intellectual
property which Synthonics, Incorporated does not have the right, by restriction
in a prior contract, restriction under government law, or otherwise, to disclose
or transfer to MedScape shall be specifically excluded from the definition of
Know-How for purposes of this License Agreement.
1.13 License Agreement
"License Agreement" means the license agreement in which this Subsection
1.13 appears. This License Agreement is between Synthonics, Incorporated, as
licensor, and MedScape, as licensee. Also included in this License Agreement are
all Exhibits attached hereto and all amendments which may be made.
1.14 Licensed Process
"Licensed Process" means any process or method which makes use of or
incorporates all or any part of the Licensed Technology combined directly or
indirectly with all or any part of the technology licensed in the Harrell
License Agreement and the H&M Associates License Agreement.
1.15 Licensed Product(s)
"Licensed Product(s)" means any product, apparatus, or service the
production, manufacture, sale, lease, use, or practice of which incorporates or
makes use of all or any part of the Licensed Technology combined directly or
indirectly with all or any part of the technology licensed in the Harrell
License Agreement and the H&M Associates License Agreement. It is understood
that the Licensed Products are products, apparatus, or services which are only
for use in diagnosis, treatment planning, and image management by orthodontists,
dentists, oral surgeons and cosmetic surgeons.
1.16 Licensed Technology
"Licensed Technology" means proprietary technology and intellectual
property owned by Synthonics, Incorporated relating to photogrammetry described
on Exhibit B attached to this License Agreement and incorporated by this
reference.
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1.17 Original Members
"Original Members" means Harrell, Synthonics Technologies, Inc., and H&M
Associates, the three members of MedScape after the execution of the First
Amended Operating Agreement.
1.18 Harrell License Agreement
"Harrell License Agreement" means the license agreement between Harrell and
MedScape executed prior to or concurrently with this License Agreement.
1.19 H&M Associates License Agreement
"H&M Associates License Agreement" means the license agreement between H&M
Associates and MedScape executed prior to or concurrently with this License
Agreement.
1.20 Confidential Information
"Confidential Information" means all information or material that is
confidential and proprietary to the disclosing party, including, without
limitation, the following types of information or material or other information
or material of a similar nature:
(a) Software (in various stages of development);
(b) Designs;
(c) Drawings;
(d) Specifications;
(e) Models;
(f) Source Code;
(g) Object Code;
(h) Documentation;
(i) Diagrams;
(j) Flow Charts;
(k) Marketing and Development Plans;
(l) Business Plans;
(m) Financial Information;
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(n) Procedures;
(o) Processes; and
(p) Customer and Contact Lists.
All written information and material which are provided by either party to the
other shall be deemed to be Confidential Information if it is prominently marked
"Confidential." Additionally, all verbal information disclosed by a party to the
other party shall be deemed Confidential Information if it is identified as such
in writing within five (5) days of disclosure. Information disclosed by one
party to the other shall cease to be Confidential Information only if the party
or parties to whom such disclosure is made can prove by written, clear, and
convincing evidence that the Confidential Information 0) is now or has
subsequently become generally known or available to or from the general public,
(ii) is known to the party to whom such disclosure is made at the time of
receipt, (iii) is provided by the disclosing party to a third party without
restriction or disclosure, (iv) is subsequently provided to the party to whom
disclosure is made by a third party without restriction on disclosure, or (v) is
independently developed by the party to whom disclosure is made, and the person
or persons developing the same have not had access to the Confidential
Information of the disclosing party.
2.0 LICENSE RIGHTS GRANTED/RESERVED
2.1 Grant of Rights
(a) Subject to the terms and conditions of this License Agreement,
Synthonics, Incorporated hereby grants to MedScape, and MedScape hereby accepts,
worldwide, exclusive license rights to use the Licensed Technology for the
development of Licensed Products and Licensed Processes and the production,
manufacture, marketing, distribution, sale, lease, or other transfers of
Licensed Products and/or Licensed Processes during the term of this License
Agreement.
(b) MedScape shall be given only the object code for the computer programs
included in the Licensed Technology and any Improvements thereon. Synthonics,
Incorporated agrees that it will be reasonably responsive to MedScape's requests
for alterations and Improvements that MedScape wants to have made in the source
code of the computer programs included in the Licensed Technology. In a
reasonably timely manner, Synthonics, Incorporated shall make such alterations
and Improvements, where such can reasonably be made, at a cost to MedScape equal
to Synthonics, Incorporated's actual costs. At all times, Synthonics,
Incorporated shall have title to and full ownership of the Licensed Technology
including, without limitation, all Improvements and all software codes or ideas
which are patentable.
(c) Within thirty (30) days after the execution of this License Agreement,
Synthonics, Incorporated and MedScape shall execute and deliver a Master Source
Code Escrow Agreement (hereinafter referred to as "Escrow Agreement") providing,
among other things, that MedScape would have the right to obtain the source code
from the escrow agent designated in the Escrow Agreement and use it to maintain,
update, and enhance the computer software included as part of the Licensed
Technology in the event that (i) Synthonics, Incorporated materially fails to
perform its obligations pursuant to this License Agreement, or (ii) Synthonics,
Incorporated becomes bankrupt or insolvent.
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(d) This grant will extend to and authorize the production, manufacture,
marketing, distribution, sale, lease or other transfer of Licensed Products
and/or Licensed Processes directly or through an Affiliate, Distributor, or
retail outlet and shall authorize End Users' use of Licensed Products and/or
Licensed Processes transferred by MedScape or MedScape's Affiliates,
Distributors, or retail outlets.
2.2 Royalties
As a royalty, Synthonics, Incorporated will receive, quarterly in arrears,
three percent (3%) of the Gross Revenues of MedScape. MedScape will provide
Synthonics, Incorporated with a written accounting of the royalty calculation
along with each payment. Synthonics, Incorporated shall be entitled to inspect
and copy the financial books and records of MedScape relating to the calculation
of royalties at any time upon reasonable notice.
2.3 Rights to Sublicense
Unless specifically authorized in writing by Synthonics, Incorporated,
MedScape shall not either directly or indirectly, sell, transfer, sublicense,
assign in whole or in part, convey, pledge, or otherwise dispose of this License
Agreement, the Licensed Technology, or any right, duty, or license granted by
this License Agreement to any individual or Entity except as provided in the
immediately subsequent sentence. MedScape shall be permitted to grant the right
to use the Licensed Product(s) and the Licensed Processes to (i) End Users, and
(ii) manufacturers or developers of Licensed Products. Except as specifically
provided in this License Agreement, any attempted sale, transfer, sublicense,
assignment in whole or in part, conveyance, pledge, or other disposition of this
License Agreement, the Licensed Technology, or any right, duty, or license
granted by this License Agreement without the prior express written consent of
Synthonics, Incorporated is null and void and is a material breach of this
License Agreement. Synthonics, Incorporated may refuse to give its consent to
such action in the sole and absolute discretion of Synthonics, Incorporated.
2.4 Rights Reserved
This License Agreement shall not be interpreted or construed as granting to
MedScape any rights, express or implied, by estoppel or otherwise, to any
copyrights, patents, patent applications, inventions, methods, technical
information, confidential information, proprietary information, expertise,
Know-How, trade secrets, or knowledge not specifically licensed by this License
Agreement; and all such items and rights not expressly granted to MedScape by
this License Agreement are expressly reserved by Synthonics, Incorporated. The
words used in this Subsection 2.4 are intended to have their broadest possible
meanings, and are not to be limited by definitions set forth in this License
Agreement. Without limitation, nothing contained in this License Agreement shall
be construed as granting MedScape any right or license to produce, process or
otherwise manufacture, use, sell, lease or otherwise transfer any items other
than Licensed Product(s) and Licensed Process(es).
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2.5 Rights Granted Back to Licensor
MedScape hereby grants to Synthonics, Incorporated, and Synthonics,
Incorporated accepts, worldwide, non-exclusive, royalty-free license rights to
use, produce, manufacture, market, distribute, sell, lease or otherwise transfer
any Improvements and Inventions and all copyrighted, non-copyrighted, patented,
non-patented, technological or Know-How developments relative to the Licensed
Technology arising from MedScape's use, research, or development associated with
the Licensed Technology.
2.6 Training and Support
At no additional charge to MedScape, Synthonics, Incorporated agrees to
provide, from time to time, up to a total of 40 (forty) hours of training
concerning the Licensed Technology to one or more of MedScape's representatives,
as shall be designated by MedScape. Any training in excess of such 40 hours
shall be provided at reasonable rates to be agreed upon by Synthonics,
Incorporated and MedScape, which shall in no event exceed rates Synthonics,
Incorporated may charge to third parties for similar training.
3.0 TERM AND TERMINATION
3.1 Term of Agreement
The term of this License Agreement shall commence on its Effective Date and
this License Agreement shall terminate on the sixth (6th) anniversary of the
Effective Date unless this License Agreement earlier terminates by operation of
law or by acts of the parties in accordance with the terms of this License
Agreement; provided, however, that (i) Synthonics, Incorporated shall have the
option to terminate this License Agreement at any time prior to the second (2nd)
anniversary of the Effective Date of this License Agreement in the event that,
for any three fiscal quarters taken as a whole, the actual Gross Revenues of
MedScape are not at least twenty-five percent (25%) of the projected Gross
Revenues of MedScape as shown in Exhibit A attached to this License Agreement
and incorporated by this reference, and (ii) MedScape shall have the option to
renew this License Agreement for an unlimited number of additional successive
six (6) year terms provided that MedScape is not in default under this License
Agreement at the time any particular option is exercised and, with respect to
the option for any particular six (6) year renewal term, Synthonics,
Incorporated shall have received during the previous six (6) year term an
aggregate of at least $5,000,000 in royalties under this License Agreement and
cash member distributions from MedScape.
3.2 Licensee's Rights to Termination
This License Agreement may be terminated at any time by MedScape. In order
to terminate, MedScape must give written notice of termination at least sixty
(60) days prior to actual termination.
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3.3 Licensor's Rights to Termination
(a) Upon (i) any material breach of or default under this License Agreement
by MedScape, (ii) the termination of the Harrell License Agreement or the H&M
Associates License Agreement, or (iii) the failure of MedScape to actually
receive at least $250,000 in cash contributions from equity investors other than
the Original Members within 180 days of the Effective Date, Synthonics,
Incorporated may terminate this License Agreement.
(b) Synthonics, Incorporated shall give MedScape written notice of
termination prior to terminating this License Agreement. Such notice shall state
the cause(s) for termination and the procedures, if any, MedScape must follow to
prevent such termination. MedScape shall have thirty (30) days after the
effective date of the notice to remedy the stated cause(s) for termination,
according to the procedures stated, otherwise this License Agreement and all
rights granted MedScape shall automatically terminate at the end of the
thirtieth (30th) day.
(c) In the event MedScape ceases conducting business in a normal course,
becomes insolvent, makes a general assignment for the benefit of creditors,
suffers or permits the appointment of a receiver for its business or assets, or
avails itself of, or becomes subject to, any proceeding under the Federal
Bankruptcy Act or any other statute of any state or country relating to
insolvency or the protection of creditor rights, this License Agreement shall
immediately and automatically terminate on the occurrence of any such event.
3.4 Results of Termination
Should this License Agreement be terminated for any reason, excepting a
material breach by Synthonics, Incorporated which is not cured or remedied by
Synthonics, Incorporated within thirty (30) days after the effective date of
notice given to Synthonics, Incorporated which specifically describes the
material breach and the procedures, if any, Synthonics, Incorporated must follow
to remedy or cure it, then MedScape shall cease all use of the Licensed
Technology for any purpose, and shall cease all production, manufacturing,
marketing, distribution, sale, lease, or transfer of the Licensed Product(s) and
Licensed Process(es). Termination of this License Agreement shall not affect the
rights granted back to Synthonics, Incorporated by this License Agreement nor
any other provisions, the nature of which are intended to survive such
termination. Within ten (10) days after termination of this License Agreement,
MedScape shall return to Synthonics, Incorporated the computer programs included
as part of the Licensed Technology in the form provided by Synthonics,
Incorporated or as modified by Synthonics, Incorporated or as modified by
MedScape, and shall deliver to Synthonics, Incorporated all documentation and
records of any sort, whether on paper, magnetic media, memory, etc., and all
copies wherever located, referring or relating to all or any part of the
Licensed Technology.
4.0 REPRESENTATIONS AND WARRANTIES OF SYNTHONICS, INCORPORATED
Synthonics, Incorporated hereby represents and warrants to MedScape that:
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(a) To the best of its knowledge, Synthonics, Incorporated's execution and
delivery of this License Agreement, and the performance of its obligations under
this License Agreement, do not breach, and will not result in a breach or
violation of any indenture, security interest, mortgage, grant, research
project, endowment, gift, contract or other agreement or commitment to which
Synthonics Technologies, Inc., Synthonics, Incorporated or any of their
Affiliates is a party or is bound or of any law, governmental rule, regulation,
order or grant.
(b) To the best of its knowledge, Synthonics, Incorporated owns all right,
title and interest in and to all the Licensed Technology.
(c) To the best of its knowledge, neither the Licensed Technology, nor any
component part thereof, nor the grant of the rights by Synthonics, Incorporated
to MedScape hereunder or MedScape's exercise of such rights infringes or will
infringe upon the contractual or proprietary rights or intellectual property
rights of any third party.
(d) To the best of its knowledge, there is no action, suit, claim,
arbitration, or proceeding pending or threatened (or basis therefor) which (i)
questions this License Agreement or the power, authority and right of
Synthonics, Incorporated to execute, deliver and perform its obligations under
this License Agreement, or (ii) alleges that the Licensed Technology infringes
any rights (including intellectual property rights) of any third party.
5.0 CONFIDENTIAL INFORMATION RESTRICTIONS
5.1 Protection Requirements
(a) Each party acknowledges that the other party (the "Disclosing Party")
may be required to disclose to it (the "Receiving Party") information which is
Confidential Information considered to be the Disclosing Party's intellectual
property. Each party agrees to take reasonable precautions to protect such
Confidential Information and preserve its confidential, proprietary, or trade
secret status. The Receiving Party shall use at least the same degree of care
and precaution as is customarily used to protect its own Confidential
Information or which would customarily be used in the software or high
technology industries. A Receiving Party shall hold and maintain the
Confidential Information disclosed to it in the strictest confidence and in
trust for the sole and exclusive benefit of the Disclosing Party.
(b) The Receiving Party shall utilize all such Confidential Information
solely for furthering the objectives of this License Agreement and it will not,
either during the term of this License Agreement or at any time subsequent to
the termination of this License Agreement, otherwise use such information for
its own benefit or for the benefit of others; nor will it publish or otherwise
disclose such Confidential Information to any other individual or Entity without
first complying with the terms of this License Agreement and obtaining written
consent from the Disclosing Party, which consent may be withheld in the sole
discretion of the Disclosing Party.
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(c) The obligations of Synthonics, Incorporated and MedScape pursuant to
the provisions of this License Agreement regarding Confidential Information
shall survive termination of this License Agreement for a period of five (5)
years.
(d) The Receiving Party may allow employees and independent contractors to
access and use the Confidential Information as reasonably necessary in the
performance of their duties for the Receiving Party and in the exercise of the
Receiving Party's rights hereunder. All such employees and independent
contractors shall be contractually obligated in writing to make no other use of
the Confidential Information before such access and use is permitted. Upon
request, the Receiving Party shall provide copies of said writings to the
Disclosing Party. The Receiving Party shall take all reasonable precautions
necessary to ensure that no employee or independent contractor makes an
unauthorized use or disclosure of the Confidential Information.
(e) In the event of a default or an imminent default under this License
Agreement, and upon request, the Receiving Party shall immediately return to the
Disclosing Party any and all records, notes, and other written, printed, and
tangible material, and copies thereof pertaining to the Confidential Information
disclosed. The Disclosing Party may be liable to the Receiving Party for any
damages which may be suffered by the Receiving Party as a result of compliance
with any such request which is improper or unjustified.
(f) MedScape will not copy all or any portion of the computer programs
which are included in the Licensed Technology other than as expressly allowed
pursuant to this License Agreement or as Synthonics, Incorporated may
specifically authorize in writing. MedScape agrees to respect and not to remove,
obliterate, or cancel from view any copyright, trademark, or confidentiality
notice, mark, or legend appearing on any of such computer programs or output
generated by such computer programs. Further, MedScape agrees not to modify,
disassemble, or decompile such computer programs, or any portion thereof.
(g) Notwithstanding any of the foregoing provisions, nothing in this
License Agreement shall prevent a Receiving Party from disclosing all or part of
the Confidential Information that it is legally compelled to disclose, by oral
deposition, interrogatories, requests for information or documents, subpoena,
civil investigative demand, or any other process; provided, however, that before
any such disclosure the Receiving Party shall notify the Disclosing Party in
writing of any such order or request to disclose and cooperate with the
Disclosing Party (at the Disclosing Party's cost) with respect to any procedures
sought to be pursued by the Disclosing Party in protecting against such
disclosure.
6.0 INTELLECTUAL PROPERTY MAINTENANCE AND MARKINGS
6.1 Maintenance
Synthonics, Incorporated shall prosecute and maintain the intellectual
property included in the Licensed Technology during the term of this License
Agreement. Matters related to the prosecution, filing and maintenance of all
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copyrights, trademarks and patents related to the Licensed Technology shall be
primarily the responsibility of Synthonics, Incorporated; provided, however,
MedScape shall be given reasonable opportunity to advise Synthonics,
Incorporated concerning such matters, and MedScape agrees to reasonably
cooperate with Synthonics, Incorporated in such matters.
6.2 Markings
MedScape shall comply with all applicable United States and foreign
statutes relating to the marking of Licensed Product(s), Licensed Product
packaging, and Licensed Processes with patent pending, patent number(s),
copyrights, trademark or other intellectual property notices and legends
required to maintain the intellectual property rights included in the Licensed
Technology.
7.0 WARRANTIES
7.1 Warranties, Rights and Liabilities
SYNTHONICS, INCORPORATED MAKES NO WARRANTIES, EXPRESS, IMPLIED OR STATUTORY,
WITH RESPECT TO THE LICENSED TECHNOLOGY NOT EXPRESSLY SET FORTH IN THIS LICENSE
AGREEMENT. ALL ITEMS INCLUDED IN THE LICENSED TECHNOLOGY ARE MADE AVAILABLE BY
SYNTHONICS, INCORPORATED TO MEDSCAPE STRICTLY ON AN "AS IS" BASIS. SYNTHONICS,
INCORPORATED DOES NOT WARRANT THAT THE LICENSED TECHNOLOGY IS ERROR FREE OR THAT
IT WILL MEET MEDSCAPE REQUIREMENTS. MEDSCAPE ACKNOWLEDGES THAT THE COMPUTER
SOFTWARE INCLUDED IN THE LICENSED TECHNOLOGY IS IN A DEVELOPMENT STAGE AND IS
NOT IN A FINAL, USABLE FORM. ALL IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE ARE EXPRESSLY DISCLAIMED AND EXCLUDED. THE
ENTIRE RISK AS TO THE RESULTS AND PERFORMANCE OF THE LICENSED TECHNOLOGY,
TANGIBLE ITEMS TO BE DELIVERED TO MEDSCAPE WHICH RELATE TO THE LICENSED
TECHNOLOGY, AND ANY PRODUCTS, SERVICES OR METHODS BASED ON THE LICENSED
TECHNOLOGY IS ASSUMED BY MEDSCAPE. NO SYNTHONICS, INCORPORATED AGENTS OR
EMPLOYEES SHALL ASSUME ANY PERSONAL LIABILITY RESULTING FROM ANY EXERCISE OF
RIGHTS GRANTED UNDER THIS LICENSE AGREEMENT. NO AGENT OF SYNTHONICS,
INCORPORATED IS AUTHORIZED TO ALTER OR EXCEED THE WARRANTY OBLIGATIONS OF
SYNTHONICS, INCORPORATED SET FORTH IN THIS LICENSE AGREEMENT.
8.0 INFRINGEMENT; INDEMNIFICATION; LIMITATION ON LIABILITY
8.1 Obligation to Notify
(a) Should either Synthonics, Incorporated or MedScape become aware of any
infringement or potential infringement of any intellectual property rights
included in the Licensed Technology, it shall give the other party prompt
written notice detailing as many facts as possible concerning such infringement
or potential infringement.
(b) Synthonics, Incorporated and MedScape agree that they shall promptly
give each other written notice of any action taken to enforce or defend any
intellectual property rights included in the Licensed Technology.
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8.2 Obligation to Enforce
Notwithstanding any other provisions of this License Agreement, neither
Synthonics, Incorporated nor MedScape shall be obligated to institute suit or
take any action against any alleged infringer of the Licensed Technology.
8.3 Rights to Join or Obtain Support
(a) Synthonics, Incorporated shall have the right to join MedScape as a
party plaintiff in any action brought by Synthonics, Incorporated to enforce any
intellectual property rights included in the Licensed Technology. Should
Synthonics, Incorporated so join MedScape, Synthonics, Incorporated shall pay
all expenses incurred by MedScape in connection with its participation in the
action, and Synthonics, Incorporated shall indemnify MedScape against any
losses, judgments, or awards that MedScape may incur as a result of such action.
(b) MedScape shall have the right to join Synthonics, Incorporated as a
party plaintiff in any action brought by MedScape to enforce any intellectual
property rights included in the Licensed Technology. Should MedScape so join
Synthonics, Incorporated, MedScape shall pay all expenses incurred by
Synthonics, Incorporated in connection with its participation in the action, and
MedScape shall indemnify Synthonics, Incorporated against any losses, judgments,
or awards that Synthonics, Incorporated may incur as a result of such action.
(c) At the expense of the requesting party, Synthonics, Incorporated and
MedScape agree to furnish to the other data, records, evidence, testimony,
technical assistance, and cooperation as reasonably necessary to facilitate any
actions or defenses against actions, including without limitation reexamination
or reissue proceedings, brought by or against Synthonics, Incorporated or
MedScape in connection with the defense or enforcement of any intellectual
property rights included in the Licensed Technology.
8.4 Licensed Technology Infringes Third Party's Rights
Should a claim that the Licensed Technology infringes a third party's
intellectual property rights be threatened or made against Synthonics,
Incorporated, MedScape, or any Entity receiving rights to the Licensed
Technology through MedScape pursuant to the provisions of this License
Agreement, Synthonics, Incorporated and MedScape agree that they shall give the
other party prompt written notice detailing as many facts as possible concerning
such claim.
8.5 Indemnification
(a) Synthonics, Incorporated will indemnify MedScape from and against any
and all liability, costs, expenses or damages of any kind or nature, including
but not limited to reasonable fees of attorneys, accountants and other
professionals, incurred by MedScape as a result of any claim or proceeding
brought against MedScape (or its sublicensees or customers) by any individual or
Entity not a party to this License Agreement, which claim or proceeding is based
in whole or in part on any of the representations and warranties contained in
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Section 4 hereof being untrue, provided that MedScape will promptly notify
Synthonics, Incorporated of any such claim or proceeding in writing and will
give Synthonics, Incorporated the opportunity to defend or settle by its sole
control such claim or proceeding. MedScape agrees to cooperate with Synthonics,
Incorporated, at Synthonics, Incorporated's expense, in defending or settling
any such claim or proceeding. Synthonics, Incorporated will not be liable under
this Section 8.5 to the extent that the claim or proceeding brought against
MedScape is based on modifications or enhancements to the Licensed Technology
made by MedScape or its agents or Affiliates.
(b) MedScape will indemnify Synthonics, Incorporated from and against any
and all liability, costs, expenses or damages of any kind or nature, including
but not limited to reasonable fees of attorneys, accountants, and other
professionals, incurred by Synthonics, Incorporated as a result of any claim or
proceeding brought against Synthonics, Incorporated by any individual or Entity
not a party to this License Agreement, which claim or proceeding is based in
whole or in part on MedScape's (i) use of the Licensed Technology in a manner
exceeding the scope of rights granted to MedScape pursuant to this License
Agreement, 00 use of the Licensed Technology in any manner inconsistent with the
terms and conditions of this License Agreement, or (iii) use of the Licensed
Technology after Synthonics, Incorporated's written reasonable notice that
MedScape should cease the use of the Licensed Technology due to an infringement
claim.
8.6 Limitation of Liability
EXCEPT AS OTHERWISE SET FORTH HEREIN, NEITHER PARTY SHALL BE LIABLE TO THE
OTHER WITH RESPECT TO ANY LOSS (DIRECT OR INDIRECT) OF PROFITS, LOSS OF BUSINESS
REVENUE, OR FAILURE TO REALIZE EXPECTED SAVINGS OR FOR ANY INDIRECT, SPECIAL OR
CONSEQUENTIAL LOSS OR DAMAGES OF ANY NATURE OCCASIONED BY THE PARTY'S
PERFORMANCE OR NON-PERFORMANCE OF ITS OBLIGATIONS PURSUANT TO THIS LICENSE
AGREEMENT. IN NO EVENT SHALL SYNTHONICS, INCORPORATED'S AGGREGATE LIABILITY
PURSUANT TO THIS LICENSE AGREEMENT EXCEED THE AGGREGATE AMOUNT OF ROYALTY
PAYMENTS RECEIVED BY SYNTHONICS, INCORPORATED FROM MEDSCAPE. THE ABOVE
LIMITATION SHALL NOT APPLY TO VIOLATIONS OF THE REPRESENTATIONS AND WARRANTIES
DESCRIBED IN SECTION 4.0 ABOVE OF THIS LICENSE AGREEMENT.
9.0 GENERAL PROVISIONS
9.1 Assignment
This License Agreement may not be assigned or transferred by either party
without the prior written consent of the other party. Such consent may be
withheld in the sole, absolute discretion of either party.
9.2 Mediation
If any dispute arises under this License Agreement, the parties shall
negotiate in good faith to settle such dispute. If the parties cannot resolve
such dispute themselves within ten (10) days, then either party to the dispute
may submit the dispute to mediation by a mediator approved by both parties. The
parties shall both cooperate with the mediator. If the parties cannot agree to
any mediator, then the dispute shall be mediated by the Judicial and Arbitration
Mediation Service, Inc. office nearest the party submitting the dispute. The
parties shall share equally in the costs of such mediator.
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9.3 Arbitration
In the event that any dispute which arises under this License Agreement is
not resolved within a total of thirty (30) days by mediation as provided above
in Subsection 9.2 above of this License Agreement, such dispute shall be settled
by arbitration in accordance with the Commercial Rules of the American
Arbitration Association. After the failure to settle through mediation,
arbitration shall be the exclusive dispute resolution process. Any party may
commence arbitration by sending a written demand for arbitration to the other
party. Such demand shall set forth the nature of the matter to be resolved by
arbitration. Any arbitration shall take place in Sacramento, California. The
substantive law of the State of California shall be applied by the arbitrator to
the resolution of the dispute. The parties shall share equally all initial costs
of arbitration. The prevailing party shall be entitled to reimbursement of
attorney fees, costs, and expenses incurred in connection with the arbitration.
All decisions of the arbitrator shall be final, binding, and conclusive on both
parties. Judgment may be entered upon any such decision in accordance with
applicable law in any court having jurisdiction thereof. The arbitrator (if
permitted under applicable law) or such court may issue a writ of execution to
enforce the arbitrator's decision.
9.4 Entire Agreement
This License Agreement and the First Amended Operating Agreement constitute
the entire agreement and understanding between Synthonics, Incorporated and
MedScape with respect to the Licensed Technology, and any modification of this
License Agreement shall be in writing and shall be signed by a duly authorized
representative of both Synthonics, Incorporated and MedScape. There are no
understandings, representations, or warranties, between Synthonics, Incorporated
and MedScape concerning the Licensed Technology which are not fully expressed in
this License Agreement or in the First Amended Operating Agreement and no rights
are granted by this License Agreement which are not expressly set forth in this
License Agreement.
9.5 Export Control
This License Agreement is subject to laws and regulations controlling the
export of technical data, computer software, laboratory prototypes, and all
other export controlled commodities that may be imposed by the United States or
any country or organization of nations within whose jurisdiction MedScape
operates or does business. These laws include, but are not limited to, the Arms
Export Control Act and the Export Administration Act as they may be amended. All
rights granted by this License Agreement are contingent upon compliance with
these laws and regulations. MedScape shall not, directly or indirectly, export
any export controlled commodities, which are subject to this License Agreement,
unless the required authorization and/or license is obtained from the proper
government agency(ies) prior to export. By granting rights in this License
Agreement, Synthonics, Incorporated does not represent that export authorization
or an export license will not be necessary or, if necessary, that such
authorization or export license will be granted.
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9.6 Force Majeure
Neither Synthonics, Incorporated nor MedScape shall be in default of the
terms of this License Agreement because it delays performance or fails to
perform such terms, provided such delay or failure is not the result of the
party's intentional or negligent acts or omissions, but the result of causes
beyond the reasonable control of such party. Causes reasonably beyond the
control of Synthonics, Incorporated and MedScape shall include, but not be
limited to, revolutions; civil disobedience; fires; acts of God, war, or public
enemies; blockades; embargoes; strikes; labor disputes; laws; governmental,
administrative or judicial orders, proclamations, regulations, ordinances,
demands, or requirements; delays in transit or deliveries; or inability to
secure necessary permits, permissions, raw materials, or equipment.
9.7 Governing Law
This License Agreement shall be deemed to have been made in California and
shall be governed and construed in accordance with the laws of the State of
California.
9.8 Headings
The section and subsection titles and headings contained in this License
Agreement are for convenience and reference only. Such titles and headings do
not form a part of this License Agreement, shall not define or limit the scope
of the sections or subsections, and shall not affect the construction or
interpretation of any of the sections or subsections.
9.9 Independence of the Parties
Synthonics Incorporated and MedScape are independent entities engaged in
independent business, and neither party nor any agent or employee of either
party shall be regarded as an agent or employee of the other except to the
extent that Synthonics Technologies, Inc., the parent of Synthonics,
Incorporated, is a member of MedScape. Nothing herein shall be construed as
reserving to either party the right to control the other in the conduct of its
employees or business, nor shall either party have the authority to make any
promise, guarantee, warranty, or representation which will create any obligation
or liability whatsoever, whether express or implied, on behalf of the other.
Synthonics, Incorporated and MedScape are not joint ventures or partners in any
sense.
9.10 Modifications
Either Synthonics, Incorporated or MedScape may propose a modification to
this License Agreement. The proposing party shall give the other party notice
which sets forth the proposed modification. Within thirty (30) days following
the effective date of such notice, the other party shall accept or reject the
modification proposed. Synthonics, Incorporated and MedScape agree to work in
good faith to modify this License Agreement should modification be required to
meet the needs of either party.
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9.11 Notices
Any notice, demand, or communication required or permitted to be given by
any provision of this License Agreement shall be deemed to have been
sufficiently given or served for all purposes if delivered personally or by
express mail or courier service (with receipt acknowledged) to the party or to a
manager of the party to whom the same is directed, if telecopied or sent via
facsimile (with receipt acknowledged) to the party or a manager of the party to
whom the same is directed or, if sent by registered or certified mail, postage
and charges prepaid, addressed to the party's address as appropriate, which is
set forth below or to such other address as may be designated by written notice
from either party to the other party. Except as otherwise provided herein, any
such notice shall be deemed to be given two (2) business days after the date on
which the same was deposited in the United States mail, addressed and sent as
indicated above, if sent by mail or upon confirmation of receipt if delivered by
telecopier, facsimile, personal delivery, or courier service.
Synthonics, Incorporated's Notification Address:
Synthonics, Incorporated
31324 Via Colinas, Suite 106
Westlake Village, CA 91362
MedScape's Notification Address:
MedScape, LLC
31324 Via Colinas
Suite 106
Westlake Village, CA 91362
With Copies to:
H&M Associates, LLC
1 Scripps Drive, Suite 101
Sacramento, CA 95825
and
William E. Harrell, Jr., DMD, P.C.
Suite 1A, Medical Arts Bldg.
125 Alison Drive
Alexander City, AL 35010
9.12 Severability
The provisions of this License Agreement are severable, and should any
provision(s) be determined, by agreement of the parties or by an arbitrator or a
court of competent jurisdiction to be invalid, illegal or unenforceable, the
parties and the arbitrator or the court shall have the right to strike the
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provision(s) or modify the provision(s), within the original intent of the
parties, to make the provision(s) valid and enforceable. The remainder of this
License Agreement shall remain in full force and effect.
9.13 Waiver of Rights
In order to be effective, any waiver, by either party, of any right under
this License Agreement must be in a writing signed by an authorized
representative of the party making the waiver. No such waiver or failure of
Synthonics, Incorporated or MedScape to enforce a right or strict performance
under this License Agreement shall be deemed to be a waiver or forbearance which
would in any way prevent Synthonics, Incorporated or MedScape from subsequently
asserting or exercising any such right, making a claim not specifically waived,
or requiring strict performance of this License Agreement. No such waiver or
failure to enforce shall affect the validity of this License Agreement or be a
continuing waiver excusing compliance with any provision of this License
Agreement in the future.
9.14 Insolvency
Each party hereto acknowledges that if such party, as a
debtor-in-possession, or if a trustee in bankruptcy, in a case under of Title
11, United States Code (the "Bankruptcy Code") rejects this Agreement, then the
other party may elect to retain its rights under this Agreement as provided in
Section 365(n) of the Bankruptcy Code. The parties acknowledge and agree that
the Licensed Technology hereunder constitutes "intellectual property" as that
term is used in the Bankruptcy Code. Upon written request of a party hereto to
the other party or the bankruptcy trustee, the party to whom such request is
made or such trustee will not interfere with the rights of the requesting party
as provided in this Agreement.
9.15 Counterparts
This Agreement may executed in two or more counterparts, each of which
shall be deemed an original, and all of which together shall constitute one and
the same instrument. This Agreement shall become binding when one or more
counterparts, individually or taken together, shall bear the signatures of all
the parties hereto.
9.16 Conditions Precedent
Neither Synthonics, Incorporated nor MedScape shall have any rights or
obligations pursuant to this License Agreement until all of the following
conditions precedent have been satisfied:
(a) The Harrell License Agreement has been fully executed and delivered;
(b) The H&M Associates License Agreement has been fully executed and
delivered;
(c) The First Amended Operating Agreement has been fully executed and
delivered; and
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(d) A research and development agreement between MedScape and the Original
Members has been fully executed and delivered.
These conditions will be deemed to have failed in the event that they are not
satisfied on or before November 30, 1996. In the event of such failure of
conditions, the parties to this License Agreement shall have no rights or
obligations pursuant to this License Agreement, and this License Agreement shall
be null and void as though it was never executed.
9.17 Legal Representation
The parties acknowledge and agree that neither of them have been
represented in connection with this License Agreement by attorney James L.
Hanschu or the law firm of Moore, Meegan, Hanschu & Kassenbrock. Although the
final version of this License Agreement was generated by Mr. Hanschu, Mr.
Hanschu and the law firm of Moore, Meegan, Hanschu & Kassenbrock have
represented H&M Associates only. The parties to this License Agreement consulted
with independent counsel of their own choosing prior to signing this License
Agreement.
IN WITNESS WHEREOF, Synthonics, Incorporated and MedScape have caused this
License Agreement to be executed in duplicate originals by their duly authorized
representatives.
LICENSOR: LICENSEE:
Synthonics, Incorporated, MedScape, LLC
a California corporation a California limited liability company
/S/ F. Michael Budd F. Michael Budd
- ------------------------------- ---------------------------------------
By: F Michael Budd, President By: F. Michael Budd, Manager
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EXHIBIT "A"
PROJECTED GROSS REVENUES OF MEDSCAPE, LLC
Calendar
Year 1996 1997 1998 1999
Projected $0 $669 $10,921 $36,286
Gross Revenues
(amounts in thousands)
A-1
<PAGE>
EXHIBIT "B"
LICENSED TECHNOLOGY
The following is a description of the Licensed Technology:
Photogrammetry (measurement from photographs) proprietary technology and
intellectual property consisting of:
1. The software product known commercially as Wireframe Express 4.0 that
contains the following software executable files:
a. WFE40AB.EXE (the main executable program);
b. Wmerge dll (a dynamic link library that merges wireframe components);
c. WVRX dlI (a dynamic link library that creates VRX user-interactive
files);
d. WL.dII and WF30QL.dll (dynamic link libraries that creates "QuickLook"
photorendered images);
e. and various support libraries including Ddeml.dll, Cmdialog.vbx,
gauge.vbx, ikcoll6.dll, ikdspl6.vbx, ikengl6.dll, Lead5ln.dll, Muscle.vbx,
Spin.vbx, Spread20.vbx, Vbrun300.dll and Ver.dll;
2. VRX04.EXE: a real-time, user-interactive rendering viewer that is based on
the Argonaut Brender game engine. This viewer can display wireframe models,
surface models and phototextured models in standard 3D perspective views as well
as stereoscopic 3D that convey depth perception when viewed through red-blue
glasses;
3. Software modules that have yet to be incorporated in commercial products, but
have the following operating characteristics:
a. Assign3.dll: a utility for assigning a "generic wireframe model" to a
photograph by means of assigning three known 3-dimensional locations
on the generic model to three 2 dimensional perspective projection
image points of that same object.
b. Assign4.dll: a utility for fitting (by assignment and scaling) a
"generic wireframe model" to a photograph by means of assigning four
known 3-dimensional locations on the generic model to four
2-dimensional perspective projection image points of a similar object,
thus creating a patient-specific wireframe model; and
4. All Know-How and Confidential Information relating in any manner to the
foregoing.
B-1
Exhibit 10.4
-------------
AGREEMENT
LICENSE AGREEMENT made this 2nd day of October, 1997, between the SMITHSONIAN
INSTITUTION ("Smithsonian") an educational, non-profit organization established
by the Congress of the United States in 1846 (20 U.S.C. 41 et seq.) and having
its principal offices at 1000 Jefferson Drive, S.W., Washington, D.C. 20560 and
SYNTHONICS TECHNOLOGIES, INC. ("Licensee") a California corporation having its
principal place of business at Westlake Village, California.
WHEREAS, Smithsonian desires to encourage the development of quality products
which are uniquely related to Smithsonian and its collections and which are in
keeping with the dignity, history, and traditions of Smithsonian, and which will
enable Smithsonian to further its mandate "for the increase and diffusion of
knowledge"; and
WHEREAS, Licensee is the developer of Rapid Virtual Reality(TM) technology and,
by using this innovative technology, desires to develop a unique CD-ROM for
commercial sale that contains high quality, three-dimensional images of
Smithsonian artifacts, while keeping with the dignity, history and traditions of
Smithsonian (the "Product");
WHEREAS, Licensee desires to acquire the right to use the name and the trademark
of Smithsonian upon and in connection with the Product; and,
WHEREAS, Smithsonian has the rights to said name, it having devolved under the
will of James Smithson, benefactor, and been designated by the Congress of the
United States as the official name of the Institution, and being well known and
recognized by the general public mind with the same Smithsonian, and it being
registered accordingly in the United States Patent and Trademark Office;
NOW, THEREFORE, in consideration of the premises and mutual Agreements herein
contained, the parties agree with each other as follows:
1. GRANT OF LICENSE.
----------------
a. Smithsonian grants to Licensee for the term of this Agreement, subject
to the terms and conditions herein contained, a personal and
non-transferable license to utilize the names "Smithsonian
Institution," and "Smithsonian" ("Names") and all Smithsonian images
and materials, but only for the Product and purposes set forth herein.
Synthonics Technologies, Inc. shall use the license granted hereunder
solely in connection with the design and development ("Development")
of the Product under the Licensee label.
b. Smithsonian agrees not to issue to any other party a license to use
its Names or the same images and materials in connection with the
production or sale of the same product covered by this Agreement.
2. SPECIFICATIONS OF THE PRODUCT.
-----------------------------
a. The Product will be a high quality CD-ROM which presents a
cross-section of the most popular artifacts in each of the
Smithsonian's museums, with the general theme of "An Introduction to
the `Electronic Smithsonian'." The Smithsonian shall have final
approval concerning which artifact images shall appear on the Product.
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b. The CD-ROM will contain images of at least 600 to 800 artifacts.
Licensee shall use its patented Rapid Virtual Reality (TM)technology
to represent at least seventy-five (75) artifacts by three-dimensional
models. The Smithsonian shall have final approval as to which
artifacts will be represented by three-dimensional models. The images
shall be accompanied by appropriate educational text, which shall be
approved by Smithsonian. The CD-ROM shall employ the latest multimedia
authoring tools to provide a full script around all three-dimensional
images.
c. Synthonics agrees that Smithsonian may use the digitized images
appearing on the Product for any non-profit use.
d. Smithsonian encourages Licensee and all of its licensees to
manufacture the products in the United States of America or its
Territories in keeping with the spirit and intent of the Buy American
Act (ss.ss. 41 U.S.C. 10a et seq.).
e. It is understood that Licensee shall manufacture the Product in its
own factories, plants, or workshops in the United States of America or
its Territories. Any agency or sublicense, and/or any change in
country of manufacture must be approved based on a prior written
request by Licensee and prior written approval by Smithsonian.
Licensee agrees that the identification of the country of origin on
all copies of the Product shall be in conformance with all laws
governing manufacturing and said designated countries of origin shall
be limited to those countries as specified above or as approved by
Smithsonian.
f. In the event that Licensee subcontracts concerning elements or
components of the Products, Licensee agrees that, prior to any product
development or manufacture by a third party, it will execute a
Trademark and Design Protection Agreement (a sample of such and
suggested wording is incorporated into Schedule C) which, among other
things, will expressly prohibit said third party from using the name
and/or names of any Smithsonian program offices and/or Smithsonian
trademarks. In addition, such agreement will prohibit any third party
from exploiting in any manner its association with the Smithsonian,
its collections, products, or components or derivatives thereof. Each
of the above mentioned Trademark and Design Protection Agreements
shall be kept on file by Licensee.
g. Licensee agrees that every copy of the Product shall bear an
appropriate identification to avoid confusion in the public mind
between the images and the original artifacts. The form and use of
this identification must be approved, in advance, by Smithsonian.
h. Licensee further represents and warrants that the Product and all
copies of the Product have not been and shall not be produced or
manufactured, in whole or in part by convict, forced or child labor or
by any other matter prohibited by applicable law. Licensee shall
provide Smithsonian with any guarantee of compliance in such form as
Smithsonian may from time to time designate, with respect to the
Product, as required or permitted under any law, rule or regulation of
the United States and any other countries where the Product is
produced or delivered.
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3. LICENSEE'S RESPONSIBILITIES.
---------------------------
a. Licensee shall produce the Product in accordance with the
specifications agreed upon by Smithsonian and set forth above, using
the highest professional quality materials.
b. Licensee shall employ research analysts as recommended by Smithsonian
to insure the accuracy of the images of the artifacts and the artifact
history included with the artifact images.
c. All costs associated with the development of the Product, whether
approved or disapproved at any stage by Smithsonian, shall be borne by
Licensee and Smithsonian has no responsibility for any such costs even
if the Product does not sell any copies or generate any revenue
whatsoever.
d. Licensee shall use its best efforts to complete and design production
of the Product and have it available to the Smithsonian for
distribution on or before February 24, 1998, but in no event shall
complete production of the Product and have it available to the
Smithsonian for distribution later than March 10, 1998.
4. SMITHSONIAN RESPONSIBILITIES. Smithsonian shall:
----------------------------
a. Work with Licensee to agree to all specifications of the Product,
including all content on the Product, prior to the commencement of
production of the Product.
b. Provide all Smithsonian approvals in writing and as soon as
practicable.
c. Allow Synthonics reasonable access to the artifacts selected and
approved to appear on the Product.
5. APPROVALS.
---------
a. All manufacturing shall be fine quality and comply with the highest
product specifications, standards, and quality control procedures.
Licensee agrees to furnish Smithsonian with samples of the Products in
their consecutive planned stages of development for inspection and
judgment of accuracy, quality, style and appropriateness by curatorial
and other Smithsonian staff. No Product will be manufactured or sold
by Licensee until Smithsonian has given written approval at each
appropriate stage. There shall be a minimum of six (6) production
stages for the Smithsonian to approve prior to the approval of the
final sample of the Product, including, but not limited to, approval
of 1) the final storyboards for the Product; 2) list of assets to be
included on the Product; 3) the scripts, any final assets,
interactivity planning and initial packaging of the Product; 4)
alphaprototype CD and packaging; 5) the beta prototype CD; and, 6) a
sample of the final Product. Licensee agrees to make all changes,
modifications and revisions requested by Smithsonian during the
approval process. A mutually agreed upon timetable for concept and
design approvals is set forth in Schedule B and is hereby incorporated
into this contract. This schedule incorporates the time necessary to
meet Licensee's production schedule and to ensure proper review and
comment by Smithsonian's curatorial staff. Smithsonian agrees not to
unreasonably withhold approval or unreasonably delay notice of
disapproval to Licensee at any stage in conformance with the agreed
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upon schedules. Approval of the final sample by Smithsonian will be
the last stage of approval. All final finished samples approved by
Smithsonian will be retained unchanged by Licensee and they may be
inspected by Smithsonian at any time during the term of this Agreement
or within two (2)years thereafter. Any deviation in quality or content
from the approved sample shall be grounds for Smithsonian to terminate
this agreement.
b. Licensee shall submit for Smithsonian's prior written approval:
galleys, drafts, and samples of all packaging associated with the
Product; and, galleys, drafts and samples of all text, images and
other content contained in or on the Product. Final packaging, text,
images and other content of the Product shall be approved in writing
by Smithsonian before final production may begin.
c. For the purposes of this Agreement, "promotional material" shall be
defined as any materials, whether audio, visual, or printed, designed
by Licensee and which is targeted to promote the Product. Licensee
shall submit for Smithsonian's prior written approval all promotional
materials. If Licensee intends to use any media whatsoever, Licensee
shall seek Smithsonian's written approval prior to doing so.
d. Licensee agrees that the Names possess a special, unique and
extraordinary character. If at any time Smithsonian deems that the
continued development, manufacture or sale of the Product or any
copies of the Product will harm, bring into disrepute, or affect the
integrity of the Names, or is not in keeping with the dignity, history
and traditions of the Smithsonian Institution, Smithsonian shall have
the right to withdraw its approval previously given. Licensee shall be
afforded the right to dispose of its remaining inventory of the item
in question for a period of six (6) months according to the terms of
Paragraph 19 herein.
e. Except as otherwise provided herein, Licensee shall not refer to
Smithsonian or any of its museums, organizations, or facilities in any
manner or through any medium, whether written, oral, or visual, for
any purpose whatsoever, including but not limited to advertising,
marketing, promotion, publicity or on any letterhead by any company.
6. TERRITORY.
---------
Licensee shall be entitled to use the License granted hereunder only in the
United States of America and its territories.
7. LICENSE PERIOD.
--------------
The License granted hereunder shall be effective as of the date of this
Agreement and terminate three (3) years after the date of this Agreement,
unless sooner terminated in accordance with the terms and conditions of
this Agreement ("License Period").
8. DISTRIBUTION.
------------
a. The parties agree that the Product shall be initially marketed,
distributed and sold through Smithsonian outlets, including, but not
limited to, the Smithsonian museum shops, the Smithsonian catalogues,
and Smithsonian websites. The Product will be offered for sale through
in at least one (1) Smithsonian catalogue per year. The Product will
also be offered for sale on the Smithsonian website and in the
Smithsonian museum shops.
b. The Product shall be sold through Smithsonian outlets on consignment.
Synthonics shall provide sufficient copies of the Product, packaged
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and ready for immediate sale to the public, to Smithsonian at no cost
to Smithsonian. Synthonics shall pay for the costs of shipping the
Product to Smithsonian for sale to the public. The parties will
mutually agree on quantities for initial and subsequent shipment to
the Smithsonian Institution.
c. Both parties are free to explore the possibility of other distribution
and sale through non-Smithsonian venues. Should one party desire to
market, distribute or sell the Product in a non-Smithsonian outlet, or
should one party locate a distributor who is ready and willing to
distribute the Product, the parties to this Agreement shall meet to
negotiate whether such distribution and/or sale of the Product is
desirable and feasible for both parties. Both Synthonics and the
Office of Contracting at Smithsonian must grant written approval to
engage in negotiations with a third party relating to the marketing,
distribution or sale of the Product by that third party. If
Smithsonian is to be a signatory on an agreement with a third party
for the marketing, distribution and/or sale of the Product, the Office
of Contracting at Smithsonian shall participate in all discussions and
negotiations with that third party. The Product will not be marketed,
sold or distributed in or by a non-Smithsonian outlet without the
written approval of both parties to this Agreement. The Contracting
Officer's Representative is not empowered to engage in such
discussions or negotiations, nor authorized to grant the approvals
required by this Paragraph.
d. Licensee shall promptly provide Smithsonian, at no charge, reasonable
quantities of the Products for purposes such as quality control,
museum collections, trademark registration and other related needs.
e. Licensee may distribute a limited number of copies of the Product to
demonstrate Licensee's technology to potential customers. Under no
circumstances shall Licensee sell or accept anything of value for
promotional copies of the Product. Licensee may also use the Names for
resume purposes only, which shall include 1) including the Names in an
alphabetical list of all active clients; 2) including the Names in an
alphabetical list of all clients within a specific category; and, 3)
including the Names in an alphabetical list of a significant and
representative sample of clients.
9. REVENUE.
-------
a. For the purpose of this Agreement, "sales proceeds" shall mean gross
or invoiced sales of copies of the Product less discounts and returns
actually made or allowed, and uncollectible accounts.
b. At the completion of the production stage of the Product, Licensee
shall submit to Smithsonian a detailed list of all direct development
costs for the Product. Licensee shall not include any profit or fee in
the declared development costs. Upon delivery and acceptance of the
list by Smithsonian, Licensee may retain all sales proceeds received
through the sale and marketing of the Product until it is reimbursed
for the listed development costs. The parties anticipate that the
development costs will not exceed $300,000.00. Licensee shall not be
entitled to reimbursement for more than $450,000.00 in developing
costs.
c. After Licensee is reimbursed for the development costs for the
Products, the parties shall each receive fifty percent (50%) of all
sales proceeds received in connection with the Product.
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10. PAYMENTS AND STATEMENTS.
-----------------------
a. Procedure for Payments.
i. Payments from both parties shall be made monthly and shall be
accompanied by the Periodic Statement set forth in Paragraph
10.b. If the accumulated payment to one party from the other is
less than three hundred dollars ($300.00), such payment may be
deferred until the accumulated amount reaches three hundred
dollars ($300.00).
ii. Payments to Synthonics by Smithsonian should be mailed to the
following address:
Synthonics Technologies, Inc.
31324 Via Collinas
Suite 106
Westlake Village, CA 91362
iii. In the event that the Product is distributed through
non-Smithsonian outlets, payments to the Smithsonian should be
mailed to the following address:
Smithsonian Institution
S.I. Contract Number RC9-821003-0000
Department 0561
Washington, DC 20073-0561
All payments, statements and correspondence shall refer to the
Smithsonian Contract Number from page one of this Agreement.
b. Periodic Statements. Each party shall furnish to the other monthly a
complete and accurate statement, certified to be accurate by an
officer of Licensee, showing the number, description and gross sales
price and itemizing the allowable deductions from the gross sales
price of the Product distributed and/or sold by that party during the
preceding month. If Licensee withholds any moneys from Smithsonian for
reimbursing development costs pursuant to paragraph 9.b., above,
Licensee shall show such sum as an allowable deduction on its periodic
statement to Smithsonian.
c. Receipt or acceptance by one party of any of the statements furnished
by the other party pursuant to this Agreement or of any sums paid
hereunder by the other party shall not preclude that party from
questioning the correctness thereof at any time, and in the event that
any inconsistencies or mistakes are discovered in such statements or
payments, they shall immediately be rectified and the appropriate
payments shall be made. In the event that either party has a
reasonable basis for needing an independently certified statement,
which need cannot otherwise be met, and upon demand, the other party
shall at its own expense, but not more than one (1) time in any twelve
(12) month period, furnish to the requesting party a detailed
statement by an independent certified public accountant, showing the
number, description, gross sales price, itemized deductions from gross
sales price and net sales price of each Smithsonian Product
distributed and/or sold by that party up to the date of the requesting
party's demand.
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11. BOOKS AND RECORDS.
-----------------
Licensee shall keep accurate books of account and records covering all
transactions relating to the license hereby granted; Smithsonian and its
duly authorized representatives shall have the right at all reasonable
hours of the day to an examination of, including the right to make extracts
from and copies of, said books of account and records and of all other
documents and material in the possession or under the control of Licensee
with respect to the subject matter and the terms of this Agreement. To
facilitate inspection by Smithsonian of Licensee's books and records with
respect to the amounts due Smithsonian, Licensee will designate an
individual identification number which will be used exclusively in
connection with Smithsonian Products. Licensee shall retain duplicates of
all invoices to its customers for Smithsonian products. Smithsonian agrees
that it will conduct no more than one (1) examination pursuant to the terms
of this Agreement during any twelve (12) month period that this Agreement
is in effect. All books of account and records shall be kept available for
at least two (2) years after the termination of this License, or any
renewal thereof, and Licensee agrees to permit inspection by Smithsonian
during such two (2) year period under the conditions stated above and
Licensee shall pay for such inspection if the margin of error is in excess
of five (5%) percent.
12. WARRANTIES AND INDEMNIFICATIONS.
-------------------------------
a. Warranties.
i. Smithsonian Warranties. Smithsonian warrants and represents that
it has the full right and authority to grant all of the rights
granted herein, that except as may be noted in a separate writing
from Smithsonian to Licensee, no permission is required of any
other party to filly enforce the rights granted herein; the use
of Smithsonian-provided materials is not a violation of the
copyright or any proprietary or personal right of any person or
entity or otherwise contrary to law; that it has not previously
assigned, pledged or otherwise encumbered the rights herein
granted to Licensee; that it will not grant to any other party a
license to use the same images and materials in connection with
the same products during the life of this Agreement. Nothing
herein shall bar Smithsonian from using other digitized images of
the same objects in other products centered on a different
thematic approach.
ii. Licensee Warranties. Licensee warrants and represents that it has
the full right and authority to enter into this Agreement; that
none of the non-Smithsonian materials incorporated in the
completed Smithsonian products are a violation of the copyright,
patent right, or any proprietary or personal right of any person
or entity or otherwise contrary to law; that Licensee has fully
complied with all applicable laws and regulations both within and
outside the U. S. pertaining to the development, manufacture,
distribution, and sale of the Product including, without
limitation, consumer products safety laws and labeling
requirements applicable to the manufacture and sale of children's
toys, games, and activity kits; and that licensee has not nor
will not in any manner grant, assign, encumber, or dispose of any
of the rights granted herein except as provided herein.
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<PAGE>
b. Smithsonian hereby indemnifies Licensee and shall hold it harmless:
i. against any claims or suits asserting any proprietary rights in
an artifact or image from Smithsonian collections which Licensee
has reproduced pursuant to this Agreement, but only to the extent
of Licensee's out-of-pocket costs; and
ii. against any judgments or settlements arising out of use by
Licensee of the Names as authorized in this Agreement, but only
to the extent of such authorized use and only to the extent of
Licensee's actual out-of-pocket costs including reasonable
outside attorneys' fees; and provided further that Licensee shall
give prompt written notice to Smithsonian of any such claim or
suit, and provided further that Smithsonian shall have the option
to undertake and conduct the defense of any suit so brought.
Nothing contained in this subparagraph, or elsewhere in this
Agreement, shall create any liability on the part of Smithsonian
for any other claims or suits against Licensee.
iii. against any judgments or settlements arising out of a breach of
one of the warranties made above in Paragraph 13.a., but only to
the extent of Licensee's actual out-of-pocket costs including
reasonable outside attorneys' fees; Nothing contained in this
subparagraph, or elsewhere in this Agreement, shall create any
liability on the part of Smithsonian for any other claims or
suits against Licensee.
c. Licensee shall assist Smithsonian, to the extent necessary, in the
protection of any of Smithsonian's right to the Names, and
Smithsonian, if it so desires, may commence or prosecute at its own
expense any claims or suits in its own Names or in the name of
Licensee or join Licensee as a party thereto. Licensee shall notify
Smithsonian in writing of any infringements or imitations by others of
the Names on articles the same as and/or similar to the Smithsonian
Products. In the event that Smithsonian does not take action against
an infringer, Licensee may do so at its own expense and Smithsonian
will cooperate with Licensee in prosecuting any such action, provided,
however, that Licensee shall have given Smithsonian thirty (30) days
written notice of its intention to do so and Smithsonian shall not
have objected thereto in writing in that period, it being understood
that Smithsonian shall have the final determination whether or not any
action shall be taken on account of such infringements or imitations.
d. Licensee hereby agrees to indemnify, defend, and hold Smithsonian
harmless from any claim or suit arising or alleging to arise out of or
from the development of Smithsonian Products or arising out of a
breach of Licensee's warranties under the Licensee name, excepting
claims for which Smithsonian is indemnifying Licensee.
13. INSURANCE.
---------
a. During the term of this Contract, Licensee shall secure and maintain
at a minimum the following amount of insurance coverage:
i. Commercial General Liability policy, including products
liability, in the minimum amount of two million ($2,000,000)
dollars per occurrence, to include coverage for bodily injury,
property damage, personal injury, advertising injury, contractual
liability and products and completed operations coverage.
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<PAGE>
ii. Media Professional Liability policy in the minimum amount of
three million ($3,000,000) dollars per occurrence, to include
coverage for defamation or harm to character, invasion or
infringement of right to privacy, infringement of copyright,
infringement of patent, plagiarism, piracy and misappropriation
of ideas committed in the dissemination of printed or other
matter.
b. Policies evidencing the above coverage shall include Smithsonian as an
Additional Insured and shall include or provide for insurance coverage
for liability assumed under this Contract. All such insurance policies
shall contain a minimum thirty (30) day notice requirement to
Smithsonian prior to cancellation. As evidence that Licensee has the
required coverage, original certificates of insurance or true copies
of the policies shall be presented to Smithsonian upon signing of the
Agreement and for review on a yearly basis. Smithsonian may also
request copies of the policies for further review and evaluation.
Before the expiration or cancellation of any insurance policy required
hereunder, Licensee shall mail to Smithsonian certificates of
insurance evidencing renewal or replacement coverage sufficient to
satisfy its obligations under this Section. If Smithsonian does not
receive this evidence of insurance coverage within a reasonable time
after this contract is signed, and/or if Licensee fails to maintain
the required insurance during the term of this Contract, Smithsonian
shall provide written notice of its intention to cancel this Agreement
unless this breach is remedied within five (5) business days. If the
breach is not remedied within five (5) business days, Smithsonian may
cancel this Agreement. If Smithsonian cancels pursuant to this
provision, Smithsonian shall not incur any liability or penalty. Upon
receipt of written notice of such cancellation, Licensee shall make
all remaining payments due and owing to Smithsonian, including but not
limited to royalties, under this Contract.
14. COPYRIGHT AND TRADEMARK.
-----------------------
a. Trademark. Licensee agrees to cause an appropriate statutory notice of
trademark registration to be affixed to or imprinted on each copy of
the Product wherever the federally registered trademarks, Smithsonian
and/or Smithsonian Institution are first used. Such notice shall be in
one of the following forms:
i. (R) placed on the right hand "shoulder" of the trademark and/or
ii. "This trademark is owned by the Smithsonian Institution and is
registered in the U.S. Patent and Trademark Office".
The Smithsonian logo shall not be changed, altered, moved, manipulated
or incorporated into another design and it shall stand separate and on
its own. Licensee agrees to submit an attachment sample containing the
Smithsonian logo and the Licensee logo before completion of the
product design stage.
Smithsonian agrees that Licensee may affix its own trademark to
Smithsonian Product(s), subject to Smithsonian's prior written
approval before completion of the product design stage.
b. Copyright. Licensee acknowledges that all materials produced pursuant
to this Agreement, which are based on artifacts and images from the
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Smithsonian's collections, shall be deemed derivative products within
the meaning of the United States Copyright Act of 1976, as amended (17
U.S.C. section 101, et jug.), and all right, title and interest,
including copyright, shall be owned by Smithsonian. These materials
include but are not limited to designs, sketches, tracings, draft and
finished artwork, packaging, advertisements, instructions and
descriptive or textual materials. In the event such materials are
adjudged not to be derivative products, Licensee hereby transfers and
assigns to Smithsonian, for fair consideration, all rights, including
copyright, in all materials produced pursuant to this Agreement.
Licensee agrees to cause an appropriate copyright notice to appear on
all copyrightable materials produced as a result of this agreement,
including but not limited to, the product itself and any and all
advertising, packaging and/or promotional materials relating to the
product. Such copyright notice shall be in a form similar to the
following:
(C) 1997 Smithsonian Institution
If requested by Smithsonian, Licensee shall secure and maintain United
States copyright registration in the name of Smithsonian within three
(3) months of the date of first publication of the Product, as the
term "first publication" is defined in the United States Copyright Act
of 1976, as amended. Licensee shall submit proper samples and/or forms
of the copyrighted material for copyright deposit purposes with the
United States Library of Congress. Licensee shall be responsible for
any and all costs associated with such registration and deposit.
c. Goodwill. Licensee recognizes the great value of the prestige,
publicity and good will associated with the Names, and in such
connection, acknowledges that such goodwill exclusively belongs to
Smithsonian and that the Names has acquired a secondary meaning in the
mind of the purchasing public as a source of museum services and
museum products.
15. DISPOSAL OF SECONDS.
-------------------
In the event a Product under a Smithsonian license fails to pass Licensee's
normal quality control inspection, or otherwise deviates from the standards
of the industry, that Product shall by physically destroyed and shall not
be otherwise sold, traded or given away.
16. SPECIFIC UNDERTAKINGS OF LICENSEE.
------------------------------------
During the term of the License Period and thereafter Licensee agrees that:
a. It will not attack Smithsonian's rights in and to the Names and any
copyright or trademark pertaining thereto, nor will it attack the
validity of the License granted hereunder. It will not harm, misuse or
bring into disrepute the name and, in the development of Smithsonian
Product, will assist Smithsonian in preserving the integrity of the
Names. This obligation shall continue indefinitely following
expiration of the license;
b. It will ensure that the development of Smithsonian Products proceeds
in an ethical manner in keeping with the dignity and traditions of the
Smithsonian and in accordance with the terms and intent of this
Agreement;
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c. It agrees not to discriminate in its business practices including but
not limited to hiring, marketing, sub-contracting and wholesaling on
the basis of race, creed, color, religion, sex, age, national origin,
handicap or for any other reason prohibited by Federal or applicable
state law.
17. TERMINATION.
-----------
a. Breach. Smithsonian may terminate this Agreement at any time if the
continued manufacture or sale of any Smithsonian Products will harm or
bring into disrepute the Names or the reputation and integrity of the
Smithsonian.
b. Material Breach. Smithsonian may terminate this Agreement in the event
of a material breach by Licensee provided that Licensee has been given
thirty (30) days written notice of such breach, the nature of the
breach has been identified, and Licensee has failed to cure, or to
attempt to cure, the asserted breach to the satisfaction of
Smithsonian within the notice period. Failure to meet deadlines in
Schedules shall constitute a material breach.
c. Default. It is understood that Licensee will commence in good faith
with the development of the Product and will actively continue with
the development, manufacture and sale of the Licensed Products in
accordance with Schedule B. If Licensee fails to have manufactured,
distributed or sold any Smithsonian Products in any two (2)
consecutive calendar quarters during the License Period, Smithsonian
shall have the right, in addition to all other remedies available to
it, to terminate this Agreement upon thirty (30) days prior written
notice. If the Licensed Products consist of more than one (1) product
and some but not all of such products are not actively distributed
and/or sold during any two (2) consecutive quarters, Smithsonian may
terminate the Agreement entirely or only as to those certain products
not being distributed and/or sold by Licensee. The effective date of
such termination shall be thirty (30) days following receipt of the
notice by Licensee.
d. Bankruptcy/Cessation of Business. In the event Licensee enters into
proceedings relating to bankruptcy, whether voluntary or involuntary,
Licensee agrees to furnish, by certified mail, written notification of
the bankruptcy to the Contracting Officer. This notification shall be
furnished within five (5) days of the initiation of the proceedings
relating to bankruptcy filing. This notification shall include the
date on which the bankruptcy petition was filed, the name and location
of the court where the petition was filed and the Smithsonian
Institution Contract Number as it appears on the first page of this
Agreement. This obligation remains in effect until final payment is
made under this Agreement. Upon receipt of such notice, and subject to
such approvals as may be required by the bankruptcy court and/or
trustee in bankruptcy, Smithsonian have the first and exclusive right
to purchase part or all of Licensee's remaining Smithsonian Products.
If Smithsonian chooses not to purchase the remaining Smithsonian
Products, Licensee may dispose of the remainder consistent with the
terms and conditions of this Agreement and/or the terms and conditions
of any arrangement ordered by the court and/or trustee.
e. Transfer. Smithsonian may terminate this Agreement effective
immediately, at its sole option, if Licensee sells or otherwise
disposes of substantially all of its business or assets to a third
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party, or control of Licensee is transferred, or present management of
Licensee is changed, or no longer is involved directly in the
day-to-day supervision of Licensee's performance under this Agreement
unless Licensee shall have first obtained Smithsonian's prior written
permission to such transfer and/or changes.
f. Force Majeure. If by reason of the laws, regulations, acts, demands,
orders, or interpositions of any government or any subdivision or
agent thereof; or by acts of God, strike, fire, flood, weather,
explosion, accidents, war, rebellion, insurrection, terrorism or any
other cause beyond the control of either party whether similar or
dissimilar to the foregoing Licensee shall be delayed or prevented
from performing this Agreement, such delay or failure to perform shall
be excused during the continuance of and to the extent of such cause,
and the contract period for performance shall be extended for a period
equal to the duration of such cause. If such delay exceeds ninety (90)
days, either party hereto may terminate this Agreement, and all rights
and obligations hereunder shall cease, except that Licensee shall be
responsible for all sums due and owing as of the date of delay.
18. CONDUCT UPON TERMINATION.
------------------------
a. Notice. Upon receipt of a notice of termination from Smithsonian,
Licensee shall cease the manufacture, sale, promotion and distribution
of the Licensed Products immediately, except for the sell-off period
as specified in paragraph l9.b. Licensee shall deliver to Smithsonian
within thirty (30) days of the date of termination a statement
indicating the number and description of Smithsonian Products on hand
or in process of being manufactured at the time of termination.
b. Sell-off. Licensee has the right to dispose of the remaining inventory
for six (6) months following the date of termination, including the
right to use promotional materials developed prior to termination, but
only for purposes directly relating to disposal of remaining inventory
with the prior written approval of Smithsonian. If Licensee intends to
dispose of remaining inventory at a discounted price, Licensee shall
notify Smithsonian in advance and afford Smithsonian the opportunity
to buy part or all such inventory at the reduced price. If Smithsonian
declines to buy the inventory, Licensee may sell it at the discounted
price, provided it pays Smithsonian in accordance with this Agreement.
Smithsonian shall have the right to conduct physical inventories
during the six (6) month disposal period following termination of this
Agreement and during normal business hours upon five days prior
written notice to Licensee.
c. Use of Name. Upon termination or expiration of this Agreement,
Licensee shall cease to use the Names and shall not exploit in any
manner its association with Smithsonian, except as authorized during
the sell-off period. These provisions shall survive termination and
expiration of this Agreement.
d. Production Materials. After providing a thirty (30) day advance
written notification to Smithsonian, Licensee shall destroy or, upon
Smithsonian request, deliver to Smithsonian all production materials
including molds, casts, dyes, plates, film or other photographic
material, or similar production necessities containing the Names and
first created as a result of this License.
e. Smithsonian Materials. Upon termination or expiration of this
Agreement, Licensee shall return all materials, including but not
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limited to color transparencies, slides, photographs, files of
digitized images and text, or reference books provided by Smithsonian
for the development of the Products under this Agreement.
f. Payment. In the event the License granted hereunder is terminated for
any reason, each party shall pay immediately to the other any monies
owed but unpaid pursuant to this Agreement and, further, Licensee
shall pay Smithsonian in accordance with Paragraph 9 for all copies of
Products sold during the six (6) month sell-off period.
g. Rights. Upon termination or expiration of this Agreement, all rights
granted hereunder shall revert to Smithsonian.
19. CONDUCT UPON EXPIRATION OR RENEWAL OF THE LICENSE PERIOD.
---------------------------------------------------------
Smithsonian shall send a notice of expiration or renewal to Licensee
approximately ninety (90) days prior to expiration of the license period.
Upon receipt of either notice, Licensee shall have fourteen (14) days from
receipt of the notice to respond in writing. Smithsonian may grant such
renewal in its sole discretion and may propose modifications of this
Agreement as it deems appropriate. Except as modified by the parties, the
terms and conditions applicable during the renewal term shall be the same
as those contained herein. In the event Licensee fails to respond within
the specified period of time or Smithsonian declines to grant renewal, the
Agreement shall be deemed terminated and the rights and obligations of
Licensee shall be governed by Paragraph 18, above.
20. RESERVATION OF RIGHTS.
---------------------
Notwithstanding any provision contained herein to the contrary, Smithsonian
may license others, including but not limited to firms, individuals,
co-partnerships or corporations to use the Names and trademarks in
connection with other products and, except as specifically granted herein,
the Smithsonian reserves all rights pertaining to the Names and trademarks.
21. AUTHORIZED REPRESENTATIVES.
--------------------------
a. Contracting Officer For the purposes of liaison and direction in
contractual interpretation matters, dispute resolution, or for
modification of this Agreement, Licensee shall deal with and
Smithsonian shall be represented by the Smithsonian Contracting
Officer or his special designee.
b. Contracting Officer's Representative For purposes of liaison,
providing guidance and direction in daily operational matters,
granting approvals or withholding same and for general contract
coordination as detailed herein, the Smithsonian Institution
Contracting Officer shall be represented by J. Michael Carrigan,
External Affairs Officer, Office of the Provost.
c. Licensee' Representative ("Licensee") For purposes of liaison and
direction in daily operational matters, Licensee shall be represented
by F. Michael Budd, President & CEO, Synthonics Technologies, Inc., or
his/ her designated representative. The Licensee's Representative
shall be responsible for informing the staff of Licensee working on
Smithsonian Products about each and every provision of this contract,
including, but not limited to, Paragraph 5, above, Approvals.
Page 13
<PAGE>
d. Substitution of Representative Smithsonian and Licensee shall each
have the right to change their representatives and designees set forth
herein by providing notice pursuant to Paragraph 23 below. They shall
also advise one another in writing of any substitution for said
representatives.
22. NOTICES.
-------
All correspondence, notices, royalty payments and all other written
communications related to this Agreement in any way shall be delivered by
U. S. certified mail, postage prepaid, return receipt requested, or a
similar carrier requiring signature and receipt.
All notices which shall be required to be sent by Smithsonian to Licensee
shall be sent to the following address:
Synthonics Technologies, Inc.
31324 Via Collinas
Suite 106
Westlake Village, CA 91362
All notices which shall be required to be sent by Licensee to Smithsonian
shall be sent to:
For Contract Coordination: For Contract Matters:
------------------------- --------------------
J. Michael Carrigan Contracting Officer
Office of the Provost Office of Contracting
Smithsonian Institution Smithsonian Institution
1000 Jefferson Drive, S. W., Rm. 230 955 L'Enfant Plaza, Suite P-114
Washington, DC 20024 Washington, DC 20560
With copy to:
------------
Office of the General Counsel
Smithsonian Institution
1000 Jefferson Drive, S.W., Rm. 302
Washington, DC 20560
By providing notice pursuant to this paragraph, either party to this
Agreement may change the individuals and/or the address(es) for
correspondence, notices, or royalties that are to be sent.
23. NO PARTNERSHIP.
--------------
This Agreement does not constitute and shall not be construed as
constituting a partnership or joint venture between Smithsonian and
Licensee. Neither party shall have the right to obligate or bind the other
in any manner whatsoever and nothing herein contained shall give or is
intended to give any rights of any kind to any third persons.
24. NO ASSIGNMENT.
-------------
This Agreement and all rights and obligations herein are personal to
Licensee and shall not be assigned without Smithsonian's prior written
consent.
25. AMENDMENTS.
----------
No amendments, modifications or waivers to this Agreement shall be valid
unless in writing and signed by all parties to this Agreement.
26. TIME IS OF THE ESSENCE.
----------------------
The parties agree that time is of the essence in this Agreement, and that
adherence to the mutually-agreed schedule is vital to the performance of
the parties' respective obligations.
Page 14
<PAGE>
27. DISCLAIMER OF IMPLIED WAIVERS.
-----------------------------
The failure of Smithsonian to insist upon the strict performance by
Licensee of any of RS the terms of this Agreement, or the acceptance by
Smithsonian of any payments, even partial payments, from Licensee with
knowledge of any default or breach thereof, shall not be construed as a
waiver by Smithsonian of its right to insist at any subsequent time upon
the full performance of any of the terms of this Agreement.
28. CONSTRUCTION.
------------
This Agreement shall be construed in accordance with the applicable Federal
laws and laws of the District of Columbia regardless of its place of
execution or performance.
29. NECESSARY SIGNATURES AND CONSENT.
--------------------------------
This Agreement and attached Schedules A through C constitute the complete
understanding of the parties. This Agreement shall not be deemed effective,
final or binding upon Smithsonian or Licensee until signed by each of them
at the appropriate places at the conclusion of the annexed schedules.
30. SEVERABILITY.
------------
The terms of this Agreement are severable. If any term or provision is
declared invalid, it shall not affect the remaining terms which shall
continue to be binding.
31. HEADINGS.
--------
The Section headings hereof are for the convenience of the parties only and
shall not be used in the interpretation of this Agreement.
32. RECITALS.
--------
The recitals herein constitute an integral part of the Agreement reached
and are to be considered as such.
33. ENTIRE AGREEMENT.
----------------
This Agreement constitutes the entire agreement between the parties and
supersedes all previous agreements in this matter. There are no other
written or oral agreements, representations or understandings with respect
to the subject matter of this Agreement. This Agreement and its terms may
be amended, modified, or waived only by written agreement, signed by the
authorized representative of Licensee and the Contracting Officer,
Smithsonian Institution. This Agreement may not be assigned by either party
without the written consent of the other.
IN WITNESS WHEREOF, THE PARTIES hereto have signed this Agreement in
duplicate originals as of the day and year above written.
Accepted and agreed,
SMITHSONIAN INSTITUTION SYNTHONICS TECHNOLOGIES, INC.
/S/ John F. Coffee /S/ F. Michael Budd
- -------------------------------- --------------------------------
By: John F. Coffee for By: F. Michael Budd
John Cobert Its: President & CEO
Its: Contracting Officer
Date: 10/2/97 Date: 10/2/97
Page 15
<PAGE>
SCHEDULES
SCHEDULE A: SMITHSONIAN PRODUCTS
- ---------------------------------
As used herein the following words will have these definitions:
REPRODUCTION: A reproduction is a product which is an exact copy of the
original.
ADAPTATION: An adaptation is a product which is a modification and/or
derivative of the original. Through flexible interpretation of the artifact, the
resulting product will have an appearance similar to the original, but may
differ in terms of one or more of the following: function, material, type of
manufacture and/or size or color.
CREATION: A creation is a product resulting from the use of the Smithsonian
Institution's collections and its mission as a source of inspiration and/or as a
reference point. Such an item need not focus on a particular object in the
collections, but rather might be a reflection of the collections as a whole.
Page 16
<PAGE>
SCHEDULE B: CONCEPT AND DESIGN APPROVALS
- ------------------------------------------
<TABLE>
<CAPTION>
Approval Stages Month Day Year
<S> <C> <C> <C>
Kick-off Date: October 3, 1997
Phase #1:
Approval of the final Storyboards, which
shall be delivered to Smithsonian
no later than: October 17, 1997
Phase #2:
Approval of the final lists of all
assets to be reproduced on the Product,
including, but not limited to, museum
artifacts, video clips and audio clips.
The final list shall state which
artifacts will be represented by
two-dimensional images and which
artifacts will be represented by
three-dimensional images. The final list
shall be delivered to Smithsonian
no later then: October 31, 1997
Phase #3:
Approval of the Product's script
(all text which shall appear on the Product),
credits, interactivity planning, and
initial CD packaging, which shall
be delivered to Smithsonian no
later than: November 28, 1997
Phase #4:
Approval of the alpha prototype CD
and packaging, which shall be
delivered to Smithsonian no later than: January 30, 1998
Phase #5:
Approval of beta prototype CD and
packaging, which shall be delivered
to Smithsonian no later than: February 16, 1998
Phase #6:
Approval of sample of final Product,
which shall be delivered to
Smithsonian no later than: February 24, 1998
</TABLE>
If Smithsonian changes the date of any approval set forth above to a later date,
the remaining approval and delivery dates shall be similarly moved to a later
date. For example, if one approval date is moved back one (1) week, then all
remaining dates will also be moved back one (l) week.
Failure to meet scheduled deadlines as set forth herein, may be grounds for
termination pursuant to Paragraph 18 of this Agreement. Modification of the
scheduled deadlines may be made by mutual agreement between the parties.
Page 17
<PAGE>
SCHEDULE C: TRADEMARK AND DESIGN PROTECTION AGREEMENT
- -----------------------------------------------------------
RE: Sample/Purchase Orders and Manufacturing Contracts for:
Dear Sir or Madam:
Our company may be entering into Sample/Purchase Order Contract or other
manufacturing arrangements with you in the near future and would like to take
this opportunity to call to your attention the basis upon which we will enter
such arrangements.
Pursuant to our agreements, we may be providing you with certain designs
and artwork and requisitions for finished items (including samples), piece goods
and trim, packaging, business materials or labels, among other things. By
accepting our instructions, orders, or contracts, your firm agrees that it has
only a limited, non-transferable right to use any trademarks, characters,
designs, names, symbols, and/or other materials copyrighted, or owned by the
Smithsonian Institution or any of its affiliates. You agree that such Material
shall not be used by your firm at any time for any purpose other than that for
which they were placed in your trust, i.e. in fulfillment of sample/purchase
orders and/or manufacturing arrangements, and you shall exercise due diligence
so that they are not made available to third parties. No rights shall remain in
your firm or its employees or agents as to such material of Smithsonian and you
agree that to the extent your firm may acquire any rights to said material, such
rights shall revert to Smithsonian, or its affiliates, as the case may be,
without any further act of the parties hereunder. All materials containing the
aforementioned Material will be returned promptly at any time Smithsonian
requests such return, but in any event no later than when the finished product
is shipped to Licensee.
Please place the acknowledgment signature of two (2) of your executive
officers in the space provided below and return one signed copy of this letter
to the undersigned as soon as possible. Thank you for your cooperation.
Respectfully yours,
- ------------------------------ -----------------------------------
By: By:
Title: Title:
[SPECIMEN ONLY -- DO NOT SIGN]
Page 18
Exhibit 10.5
-------------
AMENDMENT NO. 1
This AMENDMENT is made this 1st day of November, 1997 by and between the
SMITHSONIAN INSTITUTION ("Smithsonian") an educational, non-profit organization
established by the Congress of the United States in 1846 (20 U.S.C. 41 et seq.)
And having its principal offices at 1000 Jefferson Drive, S.W., Washington, D.
C., and SYNTHONICS TECHNOLOGIES, INC. ("Licensee"), a California corporation
having its principal place of business in Westlake Village, California.
WHEREAS, Smithsonian and Licensee have entered into an agreement dated
October 2, 1997, bearing S.I. Contract No. RC9-821003-0000 (the "Agreement"),
wherein Licensee agreed to use its innovative technology to develop a unique
CD-ROM for commercial sale that contains high quality, three-dimensional images
of Smithsonian artifacts ("Product");
WHEREAS, Paragraph 3.d. of the Agreement specifies that Licensee shall
complete production of the Product on or before February 24, 1998, but in no
event shall complete production of the Product and have it available to the
Smithsonian for distribution later than March 10, 1998;
WHEREAS, Schedule B of the Agreements sets forth a timetable concerning the
approval and deliverable phases for the performance of this Agreement;
WHEREAS, the parties desire to change the delivery deadlines and timetables
set forth in Paragraph 3.d. and Schedule B of the Agreement;
NOW THEREFORE, in consideration of the covenants and agreements contained
herein and in the Agreement, the parties hereto further agree, and the Agreement
is hereby modified, as follows:
1. DEFINITIONS. Capitalized terms used in this Amendment shall have the same
meaning as in the Agreement.
2. The parties agree that Paragraph 3.d. of the Agreement is hereby amended to
read, in its entirety: "Licensee shall use its best efforts to complete and
design production of the Product and have it available to the Smithsonian
for distribution on or before May 23, 1998, but in no event shall complete
production of the Product and have it available to the Smithsonian for
distribution later than June 6, 1998."
Page 1
<PAGE>
3. The parties agree that Schedule B :Concept and Design Approvals of the
Agreement is hereby amended to read, in its entirety:
Approval Stages Date
--------------- --------------
Kick-off Date: October 3, 1997
Phase #1
October 3, 1997 Approval of the final Storyboards,
which shall be delivered to Smithsonian no later than: October 3, 1997
Phase#2
Approval of the final lists of all assets to
be reproduced on the Product, including, but
not limited to, museum artifacts, video
clips and audio clips. The final list shall
state which artifacts will be represented by
two-dimensional images and which artifacts
will be represented by three-dimensional images.
The final list shall be delivered to Smithsonian
no later than: November 22, 1997
Phase #3
Licensee shall deliver to Smithsonian for
its approval the Product's script (all
text which shall appear on the Product),
credits, interactivity planning, and initial
CD packaging no later than: January 29, 1998
Smithsonian shall provide to Licensee its
written approval or disapproval and comments,
if any, of the Product's script (all text
which shall appear on the Product), credits,
interactivity planning, and initial CD
packaging no later than: February 7, 1998
Phase #4
Licensee shall deliver to Smithsonian for its
approval the alpha prototype CD and packaging
no later than: April 2, 1998
Smithsonian shall provide to Licensee its
written approval or disapproval and comments,
if any, of the alpha prototype CD and packaging
no later than: April 11, 1998
Page 2
<PAGE>
Phase #5
Licensee shall deliver to Smithsonian for its
approval the beta prototype CD and packaging
no later than: April 23, 1998
Smithsonian shall provide to Licensee its
written approval or disapproval and
comments, if any, of the alpha prototype CD
and packaging no later than: May 2, 1998
Phase #6
Licensee shall deliver to Smithsonian for its
approval a sample of the final Product
no later than: May 14, 1998
Smithsonian shall provide to Licensee its written
approval or disapproval and comments, if any,
of the sample of the final Product
no later than: May 23, 1998
If Smithsonian changes the date of any approval set forth above to a later date,
the remaining approval and delivery dates shall be similarly moved to a later
date. For example, if one approval date is moved back one (1) week, then all
remaining dates will also be moved back one (l) week.
Failure to meet scheduled deadlines as set forth herein may be grounds for
termination pursuant to Paragraph 18 of this Agreement. Modification of the
scheduled deadlines may be made by mutual agreement between the parties.
4. All other provisions of the Agreement remain in full force and effect.
IN WITNESS WHEREOF, THE PARTIES hereto have signed this Agreement in duplicate
originals as of the day and year above written.
Accepted and agreed,
SMITHSONIAN INSTITUTION SYNTHONICS TECHNOLOGIES, INC.
/S/ John F. Coffee /S/ F. Michael Budd
- -------------------------------- --------------------------------
By: John F. Coffee for By: F. Michael Budd
John Cobert Its: President & CEO
Its: Contracting Officer
Date: 11/12/97 Date: 11/1/97
Page 3
Exhibit 10.6
-------------
Contract Agreement
CONTRACT AGREEMENT made this 19th day of December, 1997 between Centro
Alameda Inc. ("Contractor"), a non-profit organization having its principal
place of business at 318 West Houston, Suite 201, San Antonio, Texas 78205 and
Synthonics Technologies, Inc. ("Synthonics"), a Utah corporation having its
principal place of business at 31324 Via Colinas, Suite 106, Westlake Village,
California 91362.
WHEREAS, Contractor desires the procurement of a unique data base for
display purposes at a scheduled conference with the Virgin Mary as the subject
of the conference,
WHEREAS, Contractor represents that the scheduled conference is a preview
to a larger exhibit, held in conjunction with the Smithsonian Institution that
will require a much larger data base created from similar subject matter,
WHEREAS, Synthonics will utilize its patented Rapid Virtual Reality
technology to create and provide the unique data base, and
WHEREAS, Contractor shall secure access by Synthonics to the statues,
paintings, images, sketches, photographs, videos, etc. required for the creation
of the unique data base,
NOW THEREFORE, in consideration of the promises and mutual agreements
herein contained, the parties agree with each other as follows:
1. SPECIFICATIONS OF THE PRODUCT
-----------------------------
a) The Product will be a unique data base with the Virgin Mary as its
central theme. Included in the Product will be the following sets of
data:
Twenty-five (25) three dimensional (3D) digital models of selected
statues,
Two (2) 3D digital models of selected statues that also include 3D
digital models of x-ray images of each statue,
A series of photographs of ten (10) paintings, and
Two (2) 3D digital models of above selected paintings that also
include 3D digital models of x-ray images of each painting,
Selected support data (videos, text, audio recordings, etc.) for one
(1) of the 3D digital models described above.
b) The Product will include specific features designed for the analysis
of the data base. Included in the Product will be the following
features:
All 3D digital models will be viewable in Synthonics' latest version
of its VRX(TM) Viewer,
Side-by-side viewing and comparison capability of two (2) 3D digital
models simultaneously,
The ability to "walk-thru" layers of those 3D digital models created
from x-rays,
Page 1
<PAGE>
The ability to overlay-multiple two dimensional (2D) photographs for
profile comparisons, and
The ability to access, via "hot spots" on the selected 3D digital
model, the support data.
c) A simple CD-ROM will be created and produced that will only include a
promotional film clip (not to exceed eight (8) minutes in duration)
provided by the Contractor and the VRX(TM)3D digital model library.
Except for the VRX(TM) 3D digital model library, this CD-ROM will not
include any other Product features as described above in Paragraph
l(b). A total of one hundred (100) CD-ROMs will be provided by
Synthonics in time for the scheduled conference. Additional CD-ROMs
may be purchased from Synthonics at a price of $35 each for a minimum
order quantity of 100 units or a price of $20 each for a minimum order
quantity of 1000 units.
d) The Product (defined as the unique data base, its features, and its
associated CD-ROM) are for the sole use of the Conference on the
Virgin Mary, the participants in this Conference, and the Contractor.
The Product is not to be licensed, sold or reproduced by any person or
entity.
e) The underlying source code used to develop the Product (including data
base, analysis features, and the CD-ROM) is the proprietary property
of Synthonics and is not considered to be any part of the Product
being purchased by the Contractor under the terms of this Agreement.
f) Synthonics retains the right to use the Product for other promotional
applications as it may choose. Synthonics shall treat the data base in
a proper and reverent manner in any other promotional application
within which it may be used. The associated CD-ROM may only be used by
Synthonics in a promotional manner and is not to be offered for sale.
Likewise, Contractor retains the right to use the data base and its
features for other non-revenue applications within the context of the
conference and subsequent exhibit. The associated CD-ROM may only be
used by the Contractor in a promotional manner and is not to be offered
for sale.
2. SYNTHONICS' RESPONSIBILITIES
----------------------------
a) Synthonics shall produce the Product in accordance with the
specifications set forth above.
b) Synthonics shall use its best efforts to complete the Product by April
24, 1998, but, in no case, later than May 15, 1998, unless the penalty
clause included in paragraph 4(b) is in effect. In such case, the
terms defined in paragraph apply.
3. CONTRACTOR'S RESPONSIBILITIES
-----------------------------
a) Contractor shall identify and provide access to all statues,
paintings, images, photographs, sketches, videos, etc. that are
required for the Product.
Page 2
<PAGE>
b) Contractor shall work with Synthonics to provide all required Product
approvals by the required dates provided, however, Contractor shall
not be required to incur any extraordinary costs or expenses in
connection with such approvals.
c) Contractor shall make timely payments to Synthonics at the completion
of specific milestones as described later in this Agreement.
4. PRODUCTION AND DELIVERY SCHEDULE MILESTONES
-------------------------------------------
a) Both Synthonics and the Contractor shall be committed to achieving the
scheduled milestones required for an on-time delivery of the Product.
These milestones are described below:
Milestone #1: Signed Agreement December 19, 1997
Milestone #2: All Product content identified by
Contractor
(see Attachment A for details) December 26, 1997
Milestone #3: Beta review of the Product April 8, 1998
Milestone #4: Product ready for Conference April 24, 1998
Milestone #5: 100 CD-ROMS packaged May 15, 1998
Milestone #6: Conference start May 15, 1998
b) In the event Contractor does not achieve Milestone #2 (as described in
Attachment A) by December 26, 1997, the dates set forth in the above
description of Milestones shall be extended one day for each day
Contractor fails to meet Milestone #2.
c) Both Synthonics and Contractor acknowledge that the Milestone schedule
detailed in paragraph 3(a) is very aggressive and that each party
shall commit appropriate resources to insure that product design and
development, along with associated reviews and approvals, are
accomplished in a timely manner.
5. PAYMENTS TO SYNTHONICS FOR THE PRODUCT
--------------------------------------
a) The Contractor shall pay to Synthonics a total of $235,800 for the
Product.
b) A down payment of 50% of the total, equal to $117,900, is payable to
Synthonics by the Contractor at the time of the signing of this
Agreement (Milestone # 1).
c) A progress payment of 25% of the total, equal to $58,950 is payable to
Synthonics by the Contractor at the time of the Beta review of the
Product (Milestone #3).
d) A final payment of 25% of the total, equal to $58,950 is payable to
Synthonics by the Contractor at the time the Product is ready for the
Conference (Milestone #4).
e) All payments are to be made by Contractor in US dollars and are due to
Synthonics upon receipt of the invoice by the Contractor and approval
of meeting relevant Milestone by Contractor.
Page 3
<PAGE>
6. WARRANTIES AND INDEMNIFICATIONS
-------------------------------
a) Warranties
i) Contractor Warranties: Contractor warrants and represents that
it has the full right and authority to grant all of the rights
granted herein, that except as may be noted in a separate writing
from the Contractor to Synthonics, no permission is required from
any other party to fully enforce the rights granted herein; the
use of Contractor provided materials is not a violation of the
copyright or any proprietary or personal right of any person or
entity or otherwise contrary to law; that it has not previously
assigned, pledged or otherwise encumbered the rights herein
granted to Synthonics; that it will not grant to any other party
a license to use the Product, and that the Product shall not be
sold or reproduced by Contractor, its agents, its principals, or
its employees.
ii) Synthonics Warranties: Synthonics warrants and represents
that it has the full right and authority to enter into this
Agreement; that none of the non-Contractor provided materials
incorporated in the completed Product are a violation of the
copyright, patent right, or any proprietary or personal right of
any person or entity or otherwise contrary to law; that
Synthonics has fully complied with all applicable laws and
regulations both within and outside the United States pertaining
to the development and manufacture of the Product; and that
Synthonics has not nor will not in any manner grant, assign,
encumber, or dispose of any of the rights granted herein except
as provided herein.
b) Contractor hereby indemnifies Synthonics and shall hold it harmless:
i) against any claims or suits asserting any proprietary rights
in an item identified and provided for inclusion by Contractor
which Synthonics has reproduced pursuant to this Agreement, but
only to the extent of Synthonics' out-of-pocket costs; and
ii) against any judgments or settlements arising out of a breach
of one of the warranties made above in paragraph 6(a), but only
to the extent of Synthonics' actual out-of-pocket costs including
reasonable legal fees. Nothing contained in this subparagraph, or
elsewhere in this Agreement, shall create any liability on the
part of Contractor for any other claims or suits against
Synthonics.
c) Synthonics hereby agrees to indemnify, defend, and hold Contractor
harmless from any claim, suit, judgment, settlement, loss, or damage
arising or alleging to arise out of or from the development of the
Product or arising out of a breach of Synthonics' warranties under the
Synthonics name, excepting claims for which Contractor is indemnifying
Synthonics.
Page 4
<PAGE>
7. TERMINATION
-----------
a) Material Breach: Contractor may terminate this Agreement in the event
of a material breach by Synthonics provided that Synthonics has been
given thirty (30) days written notice of such breach, the nature of
the breach has been identified, and Synthonics has failed to cure the
asserted breach to the satisfaction of Contractor within the notice
period. Failure to meet any of the Milestones as described in
paragraph 4 shall be deemed a material breach, providing the cause of
failure to meet such deadlines was not the responsibility of the
Contractor. If the cause of a miss to a Milestone is the
responsibility of Contractor or if the penalty clause described in
paragraph 4(b) is activated, the miss of any Milestone shall not be
considered a material breach of this Agreement.
b) Bankruptcy or Cessation of Business: In the event Synthonics enters
into proceedings relating to bankruptcy, whether voluntary or
involuntary, Synthonics agrees to furnish, by certified mail, written
notification of the bankruptcy to the Contractor. This notification
shall be provided within five (5) days of the initiation of the
proceedings relating to bankruptcy filings. This notification shall
include the date on which the bankruptcy petition was filed, the name
and location of the court where the petition was filed. This
obligation remains in effect until final payment is made under this
Agreement. Upon receipt of such notice, and subject to such approvals
as may be required by the bankruptcy court and/or trustee in
bankruptcy, Contractor shall have the first and exclusive right to
purchase all or part of the Product being developed by Synthonics for
the Contractor. If Contractor chooses not to purchase the in-progress
development of the Product, Synthonics may dispose of the in-progress
development of the Product consistent with the terms and conditions of
any arrangement ordered by the court and/or trustee. The voluntary or
involuntary filing of bankruptcy proceedings by Synthonics shall be
deemed a material breach of this Agreement.
c) Transfer: Contractor may terminate this Agreement effective
immediately, at its sole option, if Synthonics sells or otherwise
disposes of substantially all of its business or assets to a third
party, or control of Synthonics is transferred, or present management
of Synthonics is changed, or no longer is involved directly in the
day-to-day supervision of Synthonics' performance under this Agreement
unless Synthonics shall have first obtained Contractor's prior written
permission to such transfer and/or changes.
d) Force Majeure: If by reasons of the laws, regulations, acts, demands,
orders, or interpositions of any government or any subdivision or
agent thereof; or by acts of God, strike, flood, weather, explosion,
accidents, war, rebellion, insurrection, terrorism or any other cause
beyond the control of either party whether similar or dissimilar to
the foregoing Synthonics shall be delayed or prevented from performing
this Agreement, such delay or failure to perform shall be excused
during the continuance of and to the extent of such cause, and the
Agreement period for performance shall be extended for a period equal
to the duration of such cause. If such delay exceeds ninety (90) days,
either party hereto may terminate this Agreement, and all rights and
obligations hereunder shall cease, except that Contractor shall be
responsible for all sums due and owing as of the date of delay.
Page 5
<PAGE>
e) In the event Contractor terminates this Agreement as provided herein,
and the Contractor has met all of its obligations as described in this
Agreement, Synthonics shall immediately pay to Contractor all sums
which have been paid by Contractor to Synthonics as of the date of
termination and Contractor shall have no further obligations under
this Agreement. If this Agreement is terminated for any reason and the
Contractor has not fulfilled its obligation as described in this
Agreement all sums previously paid to Synthonics are not reimbursable
to Contractor, and Synthonics will be paid by Contractor for any
non-billed costs that they have incurred prior to the date of the
termination.
8. AUTHORIZED REPRESENTATIVES
--------------------------
a) Contractor's Representative: For purposes of providing a liaison,
providing guidance and direction in daily operational matters,
granting approvals and withholding same, and for general Agreement
coordination as detailed herein, the Contractor shall be represented
by Henry Munoz, President of Centro Alameda Inc. or his designated
representative.
b) Synthonics' Representative: For the purpose of liaison and direction
in daily operation matters, Synthonics shall be represented by Joseph
Maher, VP Marketing & Sales for Synthonics Technologies, Inc., or his
designated representative. The Synthonics representative shall be
responsible for informing the staff of Synthonics working on the
Product about each and every provision of this contract.
9. NOTICES
-------
All correspondence, notices, payments and all other written communications
related to this Agreement in any way should be delivered by US certified
mail, postage prepaid, return receipt requested, or a similar carrier
requiring signature and receipt.
All notices which shall be required to be sent by Contractor to Synthonics
shall be sent to the following address:
Synthonics Technologies, Inc.
31324 Via Colinas, Suite 106
Westlake Village, CA 91362
Attention: Joseph Maher
All notices which shall be required to be sent by Synthonics to Contractor
shall be sent to the following address:
Centro Alameda Inc.
318 West Houston, Suite 201
San Antonio, TX 78205
Attention: Henry Munoz
By providing notice pursuant to this paragraph, either party to this
Agreement may change the individual and/or address for correspondence,
notices, or payments that are to be sent.
10. NO PARTNERSHIP
--------------
This Agreement does not constitute and shall not be construed as
constituting a partnership or joint venture between Contractor and
Synthonics. Neither party shall have the right to obligate or bind the
other in any manner whatsoever and nothing herein contained shall give or
is intended to give any rights of any kind to any third persons.
11. NO ASSIGNMENT
-------------
This Agreement and all rights and obligations herein are personal to
Synthonics and shall not be assigned without Contractor's prior written
consent.
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12. AMENDMENTS
----------
No amendments, modifications or waivers to this Agreement shall be valid
unless in writing and signed by all parties to this Agreement.
13. TIME IS OF THE ESSENCE
----------------------
The parties agree that time is of the essence in this Agreement, and that
adherence to the mutually agreed schedule is vital to the performance of
the parties' respective obligations.
14. DISCLAIMER OF IMPLIED WAIVERS
-----------------------------
The failure of Contractor to insist upon the strict performance by
Synthonics of any of the terms of this Agreement or the acceptance by
Synthonics of any payments, even partial payments, from Contractor with
knowledge of any default or breach thereof, shall not be construed as a
waiver by Contractor of its right to insist at any subsequent time upon the
* full performance of any of the terms of this Agreement.
15. CONSTRUCTION
------------
This Agreement shall be construed in accordance with the applicable federal
laws and the laws of the State of Texas regardless of its place of
execution or performance.
16. NECESSARY SIGNATURES AND CONSENT
--------------------------------
This Agreement constitutes the complete understanding of the parties. This
Agreement shall not be deemed effective, final or binding upon Contractor
or Synthonics until signed by each of them at the appropriate places at the
conclusion of this Agreement.
17. SEVERABILITY
------------
The terms of this Agreement are severable. If any term or provision is
declared invalid, it shall not affect the remaining terms which shall
continue to be binding.
18. HEADINGS
--------
The Section headings hereof are for the convenience of the parties of this
Agreement only and shall not be used in the interpretation of this
Agreement.
19. RECITALS
--------
The recitals herein constitute an integral part of the Agreement reached
and are to be considered as such.
20. ENTIRE AGREEMENT
----------------
This Agreement constitutes the entire agreement between the parties and
supersedes all previous agreements in this matter. There are no other
written or oral agreements, representations or understandings with respect
to the matter of this Agreement. This Agreement and its terms may be
amended, modified, or waived only by written agreement, signed by the
authorized representatives of Synthonics and the Contractor. This Agreement
may not be assigned by either party without the prior written consent of
the other.
Page 7
<PAGE>
IN WITNESS WHEREOF, THE PARTIES hereto have signed this Agreement in
duplicate originals as of the day and year above written.
Accepted and Agreed:
CENTRO ALAMEDA, INC. SYNTHONICS TECHNOLOGIES, INC.
/S/ Henry Munoz /S/ Joseph Maher
----------------------------- ----------------------------------
By: Henry Munoz By: Joseph Maher
Its: President Its: VP Marketing & Sales
Date: 12-18-97 Date: 12-19-97
Page 8
<PAGE>
Attachment A
Milestone #2 requires the delivery of the information described below as
well as access to extended information on the dates indicated.
I. Items required from Contractor to create database:
1) Twenty-five (25) Madonna statues.
2) Two (2) Madonna statues (from 25 statues listed as #1 above) that
have x-rays of sub-layers available.
3) Ten (10) Madonna paintings that are considered a series of
paintings.
4) Two (2) Madonna paintings (from the 10 paintings listed as #3
above) that have x-rays of sub-layers available.
5) Support data (text, audio, video, etc.) for the Madonna statue,
included as part of #1 above, that is to be considered the
"centerpiece" statue of the data base.
II. The following information is required for the items listed above:
1) Location of statues and paintings. (I-1 & I-3)
2) Date, during January, when Synthonics will have access to each
painting and each statue for photography purposes. (I-1 & I-3)
3) Date, during January, when required x-rays will be provided to
Synthonics by Contractor. (I-2 & I-4)
4) Name and location of technical resource(s) that will provide
Synthonics with the required background information for the statues
and paintings. (I-l, I-2, I-3, I-4, & I-5)
5) Name and location of technical resource(s) that will provide
Synthonics with the required interpretations of the x-rays taken of
the statues and paintings. (I-2 & I-4)
6) Listing of each item of support data to be included with the
"centerpiece" statue. (I-5)
7) Date, during January, when each support data item [II-6 above] will
be provided to Synthonics by Contractor. (I-5)
III. All items identified by Contractor in Section I-1 through I-4 of this
Attachment A must be available for photography by Synthonics prior to
January 16, 1998.
Page 9
Exhibit 10.7
-------------
STRATEGIC ALLIANCE AGREEMENT
----------------------------
This STRATEGIC ALLIANCE AGREEMENT (this "Agreement") is entered into by and
between Synthonics Technologies, Inc., a Utah Corporation ("Synthonics") and
Knowledge LINK, a California Company ("KL") with respect to the terms of a
strategic working relationship between the two companies.
RECITALS
--------
A. Whereas, Synthonics represents that it is a provider of software tools
for the generation, of 3D content, and that these tools are collectively
referred to as Rapid Virtual RealityTM (RVRTM),
B. Whereas, Synthonics represents that it has developed and patented the
technology known as Rapid Virtual Reality(TM),
C. Whereas, Synthonics desires to make its RVR(TM) technology available for
use by KL on a non-exclusive basis,
D. Whereas, KL represents that it is a provider of custom electronic
commerce solutions,
E. Whereas, KL represents that its customers are comprised of leading
consumer electronics, home appliance, home automation, and healthcare
manufacturers,
F. Whereas, KL desires to integrate Synthonics' RVR(TM) technology into its
custom electronic commerce solutions,
G. Whereas, both parties desire to establish a formal working relationship
between the two companies that is focused on servicing the needs of the
electronic commerce industry.
AGREEMENT
---------
NOW, THEREFORE, based upon the foregoing and in consideration of the
covenants, agreements, warranties and representations hereinafter set forth, the
parties hereto hereby agree as follows:
1. Definitions:
-----------
1.1 Rapid Virtual Reality(TM) (RVRTM) A suite of 3D software tools
consisting of Optical Tape Measure, Camera Parameter Tracker, 3D Model Maker,
Single Object Viewer, Multi-Object Viewer, Anaglyph Generator, 3D Stereo Movie
Maker, File Converter, and M-PEG Converter.
1.2 Content All imagery, including two dimensional (2D) and three
dimensional (3D), required for electronic catalogs and storefronts developed by
KL.
1.3 Preferred Source A pre-selected supplier of a specifically identified
product or service for which competitive bids are not required. To retain the
preferred source supplier status, a supplier must remain competitive.
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<PAGE>
2. Operating Relationship.
----------------------
2.1 Synthonics grants KL a license to incorporate or to include any of the
RVR(TM) software tools, defined above in Paragraph l.l, as part of electronic
commerce solutions that it provides to its customers.
2.2 KL designates Synthonics as its preferred source for content to be used
in any of the electronic catalogs or storefronts that it develops for its
customers.
2.3 Synthonics agrees to make reasonable changes to the RVR(TM) suite of
tools as requested by KL.
2.4 Synthonics shall provide support services to KL as its "in-house" 3D
technical resource.
2.5 The use of its RVR(TM) tools by KL is on a non-exclusive basis and
Synthonics is free to make its RVR(TM) tools available to other entities
operating in the electronic commerce or any other industry.
2.6 Synthonics grants KL the right of first refusal relative to the
exclusive use of the RVR(TM) tools for the electronic commerce industry. Prior
to the signing of any agreement for the use of its RVR(TM) tools with any
company that competes with KL, Synthonics shall allow KL to exercise its right
to procure the exclusive use of RVR(TM) for the electronic commerce industry.
The value of an exclusive use agreement shall be determined by Synthonics at the
time of the intended exercise of this right by KL.
3. Payment Terms.
--------------
3.1 Synthonics shall be paid a license fee of one hundred dollars ($100)
per month for each website produced by KL that contains any of the tools
included in the RVR(TM) suite of tools. A cap of one thousand dollars ($1,000)
per month applies to contracted CEDIA members only.
3.2 Synthonics shall be paid at the rate it quotes for all content that it
generates for KL. A progress schedule of payments shall be utilized for all work
performed in this manner.
3.3 Synthonics shall be paid at the rate of fifty dollars ($50) per hour
for all maintenance support required by KL or its customers. Synthonics shall
provide a weekly summary log to KL of the hours it has invested in maintenance.
3.4 Synthonics shall be paid at the rate it quotes for any customization of
its RVR(TM) tools that is required by KL.
3.5 Synthonics shall be financially responsible for incorporating "fixes"
to any of its RVR(TM) tools. KL agrees, as much as possible, to accumulate fix
requests so as to be included as a general update to a specific RVR(TM) tool.
3.6 License payments payable to Synthonics by KL are due at the end of
every month in which they were incurred. All other payments to Synthonics by KL
are due upon receipt of an invoice from Synthonics.
Page 2
<PAGE>
4. Length of Agreement.
-------------------
4.1 This Agreement shall be in effect for twelve (12) months from the date
of signing by both parties. It is the intent of both parties to continue their
Strategic Alliance beyond twelve (12) months. Therefore, it is both parties
intent to re-negotiate the terms of this Agreement on or before the twelfth
month anniversary of this Agreement.
5. Infringement.
------------
5.1 Synthonics hereby authorizes KL, at its option, to bring independent
infringement actions, including law suits, against third-party infringers of the
RVR(TM) on behalf of itself and/or Synthonics.
5.2 Synthonics agrees to defend and hold KL harmless in case of an
infringement action brought by a third party against KL for any and all
utilization of the RVR(TM) technology by KL.
5.3 KL agrees to defend and hold Synthonics harmless in case of an
infringement action brought by a third party against KL for any and all
utilization of technology and content not directly provided by Synthonics.
Further, KL agrees to defend and hold Synthonics harmless for any liability
claim made by its clients or its client's customers.
6. Confidentiality.
---------------
6.1 Synthonics and KL agree and understand that the RVR(TM) technology
licensed hereunder and the KL technology to which Synthonics may be exposed to
contains certain information that is confidential and proprietary which the
parties expressly agree to retain in strictest confidence and to use only in
conjunction with and pursuant to the teems of this Agreement. The parties
further agree to keep all protected technology, source code and all related
documentation confidential and not to disclose such information to any third
party. Both Synthonics and KL shall require any sub-contractor and each of their
employees granted access to the confidential information to execute
confidentiality agreements under which the third party and their employee agree
to limit their use of the confidential information to not disclose or make any
other use of the source code and/or related documentation except for purposes
expressly authorized by Synthonics or KL. The parties shall further require such
third parties to return all source code and documentation with respect to the
confidential information after the third party has completed the project
involving the confidential information for which they were hired.
6.2 The parties obligations with respect to such confidential information
shall survive the termination of this Agreement for a period of three years.
Notwithstanding anything to the contrary in Section 6.1, both Synthonics and KL
shall not be prohibited frown using or disclosing information which:
(a) is already available to the public as of the date of this
Agreement;
(b) becomes publicly available through no fault of Synthonics (or the
fault of its employees or agents) or KL (or the fault of its employees or
agents);
7. Termination.
-----------
7.1 This Agreement and the license granted hereunder shall terminate if
either party commits an act of or is subject to a Default. A "Default" means any
one or more of the following events:
Page 3
<PAGE>
(a) The nonpayment of any amount due hereunder, or
(b) a material breach of a term or condition of this Agreement.
7.2 Upon the occurrence of a Default, the non-defaulting party shall
provide written notice to the other party of the Default and the defaulting
party shall have fifteen (15) days from the defaulting party's receipt of notice
of Default to cure the same. If the defaulting party shall not effect such cure
then this Agreement shall terminate. The parties' rights as set forth in this
Section 7 are cumulative and in addition to any other rights the parties may
have at law or in equity.
8. General Terms.
-------------
8.1 Synthonics shall have the right, upon reasonable request and during
normal business hours, to audit KL's books to verify revenue from sources
utilizing the RVR(TM) technology.
8.2 If a dispute arises resulting from a discrepancy in the payment of the
license fee, an audit shall be performed by an independent auditor as appointed
and agreed to by both parties. The payment of the audit and all fees and
expenses ancillary and necessary thereto shall born by the parties as follows:
(a) Synthonics agrees to pay all fees and expenses of the audit if the
aggregate of the license fees paid by KL to Synthonics differs by less than
10 % of the aggregate of the fees that the independent audit determines
should have been paid to Synthonics.
(b) KL agrees to pay all fees and expenses of the audit if the
aggregate of the license fees paid by KL to Synthonics differs by 10% or
more than the aggregate of the fees that the independent audit determines
should have been paid to Synthonics.
8.3 KL and its principals, employees, and agents agrees not to use,
replicate, disburse or divulge any of the technology developed on behalf of and
paid for by Synthonics.
8.4 KL and Synthonics agree that if this Agreement is terminated
prematurely, for any reason, both Synthonics and KL shall maintain and hold in
confidence each others technology and not disclosure any such technology of the
other without the expressed written consent of the other party except as set
forth herein.
9. Miscellaneous.
-------------
9.1 The parties will not incur liability to each other for failing to
perform any obligation under this Agreement if such failure results from a force
majeure or any force beyond their reasonable control.
9.2 This Agreement may be executed in any number of copies, each of which
shall be deemed to be an original and all of which taken together shall
constitute but one instrument. The headings and organization of this Agreement
are included and used solely for convenience of reference and shall not
constitute a part in this Agreement for any other purpose
9.3 This Agreement shall be deemed made and accepted in and governed by the
laws of the State of California. The state and federal courts situated in
California shall have exclusive jurisdiction and venue to hear all disputes
arising out of or related to this Agreement.
Page 4
<PAGE>
9.4 The waiver of any breach of any covenant or condition of this Agreement
shall not hinder or otherwise prevent the subsequent enforcement of said
covenant or condition.
9.5 Synthonics shall have the right to assign any and all rights and
obligations granted or incurred hereunder. KL shall not have the right to
assign, or otherwise transfer, without the prior written consent of Synthonics,
any and all rights and obligations created hereunder and such assignment or
other transfer by KL without such consent shall be null and void and of no
effect.
9.6 If any of the provisions in this Agreement shall for any reason be
declared or held invalid, illegal, or unenforceable in any respect, such
invalidity, illegality, or unenforceability shall not affect any other provision
thereof and this Agreement shall be construed as if such invalid, illegal, or
unenforceable provision had never been contained herein.
9.7 Notices under this Agreement shall be in writing and shall, for all
purposes, be sent by registered or certified mail, return receipt requested,
postage prepaid, properly addressed to the parties at the addresses set forth
below, or at such other address for either party as may be specified by such
party for purposes of this Agreement:
If to KL, addressed to:
----------------------
Sunil Mehrotra, President
1012 Candlecrest Drive
Westlake Village, California 91362
If to Synthonics, addressed to:
------------------------------
F. Michael Budd, President
31324 Via Colinas
Suite 106
Westlake Village, California 91362
9.8 This Agreement is the entire agreement between the parties hereto and
supersedes all previous letters, understandings, or verbal agreements which
relate to the working relationship between the two parties. No modification of
this Agreement shall be binding on the parties hereto unless such modification
is in writing and duly signed by each party.
IN WITNESS WHEREOF, the parties have caused their authorized
representatives to make and sign this Agreement.
Knowledge LINK
Dated: 2/17/98 /s/ Sunil Mehrotra
---------------------------------------
By: Sunil Mehrotra
Its: President & CEO
Synthonics Technologies, Inc.
Dated: 2/17/98 /S/ F. Michael Budd
---------------------------------------
By: F. Michael Budd
Its: President
Page 5
Exhibit 10.8
-------------
STANDARD INDUSTRIAL LEASE - GROSS
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. Parties. This Lease, dated, for reference purposes only, July 8, 1996, is
made by and between WESTLAKE VILLAGE INDUSTRIAL PARK (herein called "Lessor")
and SYNTHONICS INCORPORATED, A CALIFORNIA CORPORATION (herein called "Lessee").
2. Premises. Lessor hereby leases to Lessee and Lessee leases from Lessor for
the term, at the rental, and upon all of the conditions set forth herein, that
certain real property situated in the County of LOS ANGELES State of CALIFORNIA
commonly known as 31324 VIA COLINAS, UNITS 106/107, WESTLAKE VILLAGE, CA 91362
and described as SAME AS ABOVE - WESTLAKE VILLAGE INDUSTRIAL PARK APPROXIMATELY
2424 SQUARE FEET. INCLUDING THE OVERHANG, IF APPLICABLE AS OUTLINED IN EXHIBIT
"B"
Said real property including the land and all improvements therein, is herein
called "the Premises"
3. Term.
3.1 Term. The term of this Lease shall be for THREE (3) YEARS WITH ONE (1),
ONE (1) YEAR OPTION TO RENEW commencing on SEPTEMBER 1, 1996 And ending on
AUGUST 31, 1999 unless sooner terminated pursuant to any provision hereof.
3.2 Delay in Possession. Notwithstanding said commencement date, if for any
reason Lessor cannot deliver possession of the Premises to Lessee on said date,
Lessor shall not be subject to any liability therefor, no; shall such failure
affect the validity of this Lease or the obligations of Lessee hereunder or
extend the term hereof but in such case, Lessee shall not be obligated to pay
rent until possession of the Premises is tendered to Lessee; provided however,
that if Lessor shall not have delivered possession of the Premises within sixty
(60) days from said commencement date, Lessee may. at Lessee's option, by notice
in writing to Lessor within ten (10) days thereafter cancel this Lease, in which
event the parties shall be discharged from all obligations hereunder; provided
further, however, that It such written notice of Lessee Is not received by
Lessor within said ten (10) day period, Lessee's right to cancel this Lease
hereunder shall terminate and be of no further force or effect.
3.3 Early Possession. If Lessee occupies the Premises prior to said
commencement date, such occupancy shall be subject to all provisions hereof,
such occupancy shall not advance the termination date, and Lessee shall pay rent
for such period at the initial monthly rates set forth below.
4. Rent. Lessee shall pay to Lessor as rent for the Premises, monthly payments
of $2,254.00, in advance, on the FIRST day of each month of the term hereof.
Lessee shall pay Lessor PRIOR TO MOVE-IN $2,254.00 as rent for SEPTEMBER 1, 1996
THROUGH SEPTEMBER 30, 1996.
Rent for any period during the term hereof which Is for less than one month
shall be a pro rata portion of the monthly installment. Rent shall be payable in
lawful money of the United States to Lessor at the address stated herein or to
such other persons or at such other places as Lessor may designate in writing.
5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof $
6,762.00* as security for Lessee's faithful performance of Lessee's obligations
hereunder. If Lessee fails to pay rent or other charges due hereunder, or
otherwise defaults with respect to any provision of this Lease, Lessor may use,
apply or retain all or any portion of said deposit for the payment of any rent
or other charge in default or for the payment of any other sum to which Lessor
may become obligated by reason of Lessee's default, or to compensate Lessor for
any loss, or damage which Lessor may suffer thereby. If Lessor so uses or
applies all or any portion of said deposit, Lessee shall within ten (10) days
alter written demand therefor deposit cash with Lessor in an amount sufficient
to restore said deposit to the full amount hereinabove stated and Lessee's
failure to do so shall be a material breach of this Lease. If the monthly rent
shall, from time to time, increase during the term of this Lease, Lessee shall
Page 1
<PAGE>
thereupon deposit with Lessor additional security deposit so that the amount of
security deposit held by Lessor shall at all times bear the same proportion to
current rent as the original security deposit bears to the original monthly rent
set forth in paragraph 4 hereof. Lessor shall not be required to keep said
deposit separate from its general accounts. If Lessee performs all of Lessee's
obligations hereunder, said deposit, or so much thereof as has not theretofore
been applied by Lessor, shall be returned, without payment of interest or other
increment for its use, to Lessee (or, at Lessor's option, to the last assignee,
if any, of Lessee's Interest hereunder) at the expiration of the term hereof,
and after Lessee has vacated the Premises. No trust relationship is created
herein between Lessor and Lessee with respect to said Security Deposit.
* SEE ADDENDUM I PARAGRAPH 31, PREVIOUSLY PAID $4,140.00. AMOUNT DUE - $2,622.00
6. Use
6.1 Use. The Premises shall be used and occupied only for COMPUTER SOFTWARE
DEVELOPMENT or any other use which is reasonably comparable and for no other
purpose.
6.2 Compliance with Law.
(a) Lessor warrants to Lessee that the Premises, in its state existing on
the date that the Lease term commences, but without regard to the use for which
Lessee will use the Premises, does not violate any covenants or restrictions of
record, or any applicable building code, regulation or ordinance in effect on
such Lease term commencement date. In the event it is determined that this
warranty has been violated, then it shall be the obligation of the Lessor, after
written notice from Lessee, to promptly, at Lessor's sole cost and expense,
rectify any such violation. In the event Lessee does not give to Lessor written
notice of the violation of this warranty within six months from the date that
the Lease term commences, the correction of same shall be the obligation of the
Lessee at Lessee's sole cost. The warranty contained in this paragraph 6.2 (a)
shall be of no force or effect if, prior to the date of this Lease, Lessee was
the owner or occupant of the Premises, and, in such event, Lessee shall correct
any such violation at Lessee's sole cost.
(b) Except as provided in paragraph 6.2(a), Lessee shall. at Lessee's
expense, comply promptly with all applicable statutes, ordinances, rules
regulations, orders, covenants and restrictions of record. and requirements in
effect during the term or any part of the term hereof, regulating the use by
Lessee of the Premises. Lessee shall not use nor permit the use of the Premises
in any manner that will tend to create waste or a nuisance or, if there shall be
more than one tenant in the building containing the Premises, shall tend to
disturb such other tenants.
6.3 Condition of Premises.
(a) Lessor shall deliver the Premises to Lessee clean and free of debris on
Lease commencement date (unless Lessee is already in possession) and Lessor
further warrants to Lessee that the plumbing, lighting, air conditioning,
heating and loading doors in the Premises shall be in good operating condition
on the Lease commencement date. In the event that it is determined that this
warranty has been violated then it shall be the obligation of Lessor. after
receipt of written notice from Lessee setting forth with specificity the nature
of the violation, to promptly, at Lessor's sole cost, rectify such violation.
Lessee's failure to give such written notice to Lessor within thirty (30) days
after the Lease commencement date shall cause the conclusive presumption that
Lessor has complied with all of Lessor's obligations hereunder. The warranty
contained in this paragraph 6 3(a) shall be of no force or effect if prior to
the date of this Lease, Lessee was the owner or occupant of the Premises.
(b) Except as otherwise provided in this Lease, Lessee hereby accepts the
Premises in their condition existing as of the Lease commencement date or the
date that Lessee takes possession of the Premises, whichever is earlier subject
to all applicable zoning, municipal county and state laws, ordinances and
regulations governing and regulating the use of the Premises and any covenants
or restrictions of record and accepts this Lease subject thereto and to all
matters disclosed thereby and by any exhibits attached hereto. Lessee
acknowledges that neither Lessor nor Lessor's agent has made any representation
or warranty as to the present or future suitability of the Premises for the
conduct of Lessee's business.
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<PAGE>
7. Maintenance, Repairs and Alterations.
7.1 Lessor's Obligations. Subject to the provisions of Paragraphs 6, 7.2,
and 9 and except for damage caused by any negligent or intentional act or
omission of Lessee, Lessee's agents employees, or invitees In which event Lessee
shall repair the damage, Lessor, at Lessor's expense, shall keep in good order,
condition and repair the foundations, exterior walls and the exterior roof of
the Premises. Lessor shall not, however, be obligated to paint such exterior,
nor shall Lessor be required to maintain the interior surface of exterior walls,
windows, doors or plate glass. Lessor shall have no obligation to make repairs
under this Paragraph 7.1 until a reasonable time after receipt of written notice
of the need for such repairs. Lessee expressly waives the benefits of any
statute now or hereafter in effect which would otherwise afford Lessee the right
to make repairs at Lessor's expense or to terminate this Lease because of
Lessor's failure to keep the Premises in good order, condition and repair.
7.2 Lessee's Obligations.
(a) Subject to the provisions of Paragraphs 6, 7.1 and 9, Lessee at
Lessee's expense, shall keep in good order, condition and repair the Premises
and every part thereof (whether or not the damaged portion of the Premises or
the means of repairing the same are reasonably or readily accessible to Lessee)
including, without limiting the generality of the foregoing, all plumbing,
heating; air conditioning, (Lessee Shall procure and maintain, at Lessee's
expense an air conditioning system maintenance contract) ventilating, electrical
and lighting facilities and equipment within the Premises, fixtures, interior
walls and interior surface of exterior walls, ceilings, windows, doors, plate
glass, and skylights, located within the Premises at Lessee's option.
(b) If Lessee fails to perform Lessee's obligations under this Paragraph
7.2 or under any other paragraph of this Lease, Lessor may at Lessor's option
enter upon the Premises after 10 days prior written notice to Lessee (except In
the case of emergency, in which case no notice shall be required), perform such
obligations on Lessee's behalf and put the Premises in good order, condition and
repair, and the cost thereof together with interest thereon at the maximum rate
then allowable by law shall be due and payable as additional rent to Lessor
together with Lessee's next rental installment.
(c) On the last day of the term hereof, or on any sooner termination,
Lessee shall surrender the Premises to Lessor in the same condition as received,
ordinary wear and tear excepted, clean and free of debris. Lessee shall repair
any damage to the Premises occasioned by the installation or removal or its
trade fixtures, furnishings and equipment. Notwithstanding anything to the
contrary otherwise stated in this Lease, Lessee shall leave the air lines, power
panel, electrical distribution systems, lighting fixtures, space heaters, air
conditioning, plumbing and fencing on the premises in good operating condition.
7.3 Alterations and Additions.
(a) Lessee shall not, without Lessor's prior written consent make any
alterations, improvements, additions, or utility installations in, on or about
the Premises, except for nonstructural alterations not exceeding $2,500 in
cumulative costs during the term of this Lease. In any event whether or not in
excess of $2,500 in cumulative cost, Lessee shall make no change or alteration
to the exterior of the Premises nor the exterior of the building(s) on the
Premises without Lessor's prior written consent. As used in this Paragraph 7.3
the term "Utility Installation" shall mean carpeting, window coverings, air
lines, power panels, electrical distribution systems, lighting fixtures, space
heaters, air conditioning, plumbing, and fencing. Lessor may require that Lessee
remove any or all of said alterations, improvements, additions or Utility
Installations at the expiration of the term. and restore the Premises to their
prior condition. Lessor may require Lessee to provide Lessor, at Lessee's sole
cost and expense, a lien and completion bond In an amount equal to one and
one-half times the estimated cost of such Improvements, to insure Lessor against
any liability for mechanic's and materialmen's liens and to insure completion of
the work. Should Lessee make any alterations, improvements, additions or Utility
Installations without the prior approval of Lessor, Lessor may require that
Lessee remove any or all of the same.
(b) Any alterations, improvements, additions or Utility Installations in,
or about the Premises that Lessee shall desire to make and which requires the
consent of the Lessor shall be presented to Lessor in written form with proposed
detailed plans. If Lessor shall give its consent, the consent shall be deemed
conditioned upon Lessee acquiring a permit to do so from appropriate
governmental agencies, the furnishing of a copy thereof to Lessor prior to the
commencement of the work and the compliance by Lessee of all conditions of said
permit in a prompt and expeditious manner.
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(c) Lessee shall pay, when due, all claims for labor or materials furnished
or alleged to have been furnished to or for Lessee at or for use in the
Premises, which claims are or may be secured by any mechanics' or materialmen's
lien against the Premises or any interest therein. Lessee shall give Lessor not
less than ten (10) days notice prior to the commencement of any work in the
Premises, and Lessor shall have the right to post notices of non-responsibility
in or on the Premises as provided by law. It Lessee shall, In good faith,
contest the validity of any such lien, claim or demand, then Lessee shall, at
its sole expense defend itself and Lessor against the same and shall pay and
satisfy any such adverse judgment that may be rendered thereon before the
enforcement thereof against the Lessor or the Premises, upon the condition that
it Lessor shall require, Lessee shall furnish to Lessor a surety bond
satisfactory to Lessor in an amount equal to such contested lien claim or demand
Indemnifying Lessor against liability for the same and holding the Premises free
from the effect of such lien or claim. In addition, Lessor may require Lessee to
pay Lessor's attorneys fees and costs in participating in such action it Lessor
shall decide it is to its best interest to do so.
(d) Unless Lessor requires their removal, as set forth in paragraph 7.3(a),
all alterations, improvements, additions and Utility Installation (whether or
not such Utility Installations constitute trade fixtures of Lessee), which may
be made on the Premises, shall become the property of Lessor and remain upon and
be surrendered with the Premises at the expiration of the term, Notwithstanding
the provisions of this Paragraph 7.3 (d). Lessee's machinery and equipment,
other than that which is affixed to the Premises so that it cannot be removed
without material damage to the Premises, shall remain the property of Lessee and
may be removed by Lessee subject to the provisions of Paragraph 7.2(c).
8. Insurance; Indemnity.
8.1 Liability Insurance - Lessee. Lessee shall, at Lessee's expense, obtain
and keep in force during the term of this Lease a policy of Combined Single
Limit Bodily Injury and Property Damage Insurance insuring Lessee and Lessor
against any liability arising out of the use, occupancy or maintenance of the
Premises and all other areas appurtenant thereto. Such insurance shall be in an
amount not less than $500,000 per occurrence. The policy shall insure
performance by Lessee of the indemnity provisions of this Paragraph B. The
limits of said insurance shall not, however, limit the liability of Lessee
hereunder.
8.2 Liability Insurance - Lessor. Lessor shall obtain and keep in force
during the term of this Lease a policy of Combined Single Limit Bodily Injury
and Property Damage Insurance. Insuring Lessor, but not Lessee, against any
liability arising out of the ownership, use, occupancy or maintenance of the
Premises and all areas appurtenant thereto in an amount not less than $500,000
per occurrence.
8.3 Property Insurance. Lessor shall obtain and keep in force during the
term of this Lease a policy or policies of insurance covering loss or damage to
the Premises, but not Lessee's fixtures, equipment or tenant improvements in an
amount not to exceed the full replacement value thereof, as the same may exist
from time to time, providing protection against all perils included within the
classification of tire, extended coverage, vandalism, malicious mischief, flood
(in the event same is required by a lender having a lien on the Premises)
special extended perils ("all risk", as such term is used in the insurance
industry) but not plate glass insurance. In addition, the Lessor shall obtain
and keep in force, during the term of this Lease, a policy of rental value
insurance covering a period of one year with loss payable to Lessor, which
insurance shall also cover all real estate taxes and insurance costs for said
period. "Earthquake".
8.4 Payment of Premium Increase.
(a) Lessee shall pay to Lessor, during the term hereof, in addition to the
rent, the amount of any increase in premiums for the insurance required under
Paragraphs 8.2 and 8.3 over and above such premiums paid during the Base Period,
as hereinafter defined, whether such premium increase shall be the result of the
nature of Lessee's occupancy, any act or omission of Lessee, requirements of the
holder of a mortgage or deed of trust covering the Premises, increased valuation
of the Premises, or general rate increases. In the event that the Premises have
been occupied previously, the words "Base Period" shall mean the last twelve
months of the prior occupancy. In the event that the Premises have never been
previously occupied, the premiums during the "Base Period" shall be deemed to be
the lowest premiums reasonably obtainable for said insurance assuming the most
nominal use of the Premises. Provided, however, In lieu of the Base Period, the
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parties may insert a dollar amount at the end of this sentence which figure
shall be considered as the insurance premium for the Base Period: $12,470. In no
event, however, shall Lessee be responsible for any portion of the premium cost
attributable to liability Insurance coverage in excess of $1,000,000 procured
under paragraph 8.2.
(b) Lessee shall pay any such premium Increases to Lessor within 30 days
after receipt by Lessee of a copy of the premium statement or other satisfactory
evidence of the amount due. If the insurance policies maintained hereunder cover
other improvements in addition to the Premises, Lessor shall also deliver to
Lessee a statement of the amount of such increase attributable to the Premises
and showing in reasonable detail, the manner in which such amount was computed.
If the term of this Lease shall not expire concurrently with the expiration of
the period covered by such insurance, Lessee's liability for premium increases
shall be prorated on an annual basis.
(c) If the Premises are part of a larger building, then Lessee shall not be
responsible for paying any increase In the property Insurance premium caused by
the acts or omissions of any other tenant of the building of which the Premises
are a part.
8.5 Insurance Policies. Insurance required hereunder shall be in companies
holding a "General Policyholders Rating" of at least B plus. or such other
rating as may be required by a lender having a lien on the Premises, as set
forth in the most current issue of "Best's Insurance Guide". Lessee shall
deliver to Lessor copies of policies of liability insurance required under
Paragraph 8.1 or certificates evidencing the existence and amounts of such
insurance. No such policy shall be cancelable or subject to reduction of
coverage or other modification except at least thirty (30) days' prior written
notice to Lessor. Lessee shall, at least thirty (30) days prior to the
expiration of such policies, furnish Lessor with renewals or "binders" thereof,
or Lessor may order such insurance and charge the cost thereof to Lessee, which
amount shall be payable by Lessee upon demand. Lessee shall not do or permit to
be done anything which shall invalidate the insurance policies referred to in
Paragraph 8.3
8.6 Waiver of Subrogation. Lessee and Lessor each hereby release and
relieve the other, and waive their entire right of recovery against the other
for loss or damage arising out of or incident to the perils insured against
under paragraph 8.3, which perils occur in, on or about the Premises, whether
due to the negligence of Lessor or Lessee or their agents, employees,
contractors and/or invitees. Lessee and Lessor shall, upon obtaining the
policies of insurance required hereunder, give notice to the insurance carrier
or carriers that the foregoing mutual waiver of subrogation is contained in this
Lease.
8.7 Indemnity. Lessee shall indemnify and hold harmless Lessor from and
against any and all claims arising from Lessee's use of the Premises, or from
the conduct of Lessee's business or from any activity, work or things done,
permitted or suffered by Lessee in or about the Premises or elsewhere and shall
further indemnify and hold harmless Lessor from and against any and all claims
arising from any breach or default in the performance of any obligation on
Lessee's part to be performed under the terms of this Lease. or arising from any
negligence of the Lessee. or any of Lessee's agents. contractors, or employees,
and from and against all costs, attorney's fees, expenses and liabilities
incurred in the defense of any such claim or any action or proceeding brought
thereon; and in case any action or proceeding as brought against Lessor by
reason of any such claim, Lessee upon notice from Lessor shall defend the same
at Lessee's expense by counsel satisfactory to Lessor. Lessee as a material part
of the consideration to Lessor, hereby assumes all risk of damage to property or
1I jury to persons, In, upon or about the Premises arising from any cause and
Lessee hereby waives all claims in respect thereof against Lessor.
8.8. Exemption of Lessor from Liability. Lessee hereby agrees that Lessor
shall not be liable for injury to Lessee's business or any loss of income
therefrom or for damage to the goods. wares, merchandise or other property of
Lessee, Lessee's employees, invitees, customers, or any ether person in or about
the Premises, nor shall Lessor be liable for injury to the person of Lessee,
Lessee's employees. agents or contractors, whether such damage or Injury Is
caused by or results from tire, steam, electricity. gas. water or rain, or from
the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether the said damage or injury results from conditions arising upon
the Premises or upon other portions of the building of which the Premises are a
part. or from ether sources or places and regardless of whether the cause of
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such damage or injury or the means of repairing the same is inaccessible to
Lessee. Lessor shall not be liable for any damages arising from any act or
neglect of any other tenant, if any, of the building in which the Premises are
located.
9. Damage or Destruction.
9.1 Definitions.
(a) "Premises Partial Damage" shall herein mean damage or destruction to
the Premises to the extent that the cost of repair is less than 50% of the fair
market value of the Premises immediately prior to such damage or destruction.
"Premises Building Partial Damage" shall herein mean damage or destruction to
the building of which the Premises are a part to the extent that the cost of
repair; is less than 50% of the fair market value of such building as a whole
immediately prior to such damage or destruction.
(b) "Premises Total Destruction" shall herein mean damage or destruction to
the Premises to the extent that the cost of repair is 50% or more of the fair
market value of the Premises immediately prior to such damage or destruction.
"Premises Building Total Destruction" shall herein mean damage or destruction to
the building of which the Premises are a part to the extent that the cost of
repair is 50% or more of the fair market value of such building as a whole
immediately prior to such damage or destruction.
(c) "Insured Loss" shall herein mean damage or destruction which was caused
by an event required to be covered by the Insurance described in paragraph 8.
9.2 Partial Damage -Insured Loss. Subject to the provisions of paragraphs
9.4, 9.5 and 9.6, if at any time during the term of this Lease there is damage
which is not an Insured Loss and which falls into the classification of Premises
Partial Damage or Premises Building Partial Damage, then Lessor shall. at
Lessor's sole cost, repair such damage, but not Lessee's fixtures, equipment or
tenant improvements, as soon as reasonably possible and this Lease shall
continue in full force and effect.
9.3 Partial Damage - Uninsured Loss. Subject to the provisions of
Paragraphs 9.4, 9.5 and 9.6, if at any time during the term of this Lease there
is damage which is not an Insured Loss and which falls within the classification
of Premises Partial Damage or Premises Building Partial Damage, unless caused by
a negligent or willful act of Lessee (in which event Lessee shall make the
repairs at Lessee's expense), Lessor may at Lessor's option either (i) repair
such damage as soon as reasonably possible at Lessor's expense, in which event
this Lease shall continue in full force and effect or (ii) give written notice
to Lessee within thirty (30) days after the date of the occurrence of such
damage of Lessor's intention to cancel and terminate this Lease, as of the date
of the occurrence of such damage. In the event Lessor elects to give such notice
of Lessor's intention to cancel and terminate this Lease, Lessee shall have the
right within ten (10) days after the receipt of such notice to give written
notice to Lessor of Lessee's intention to repair such damage at Lessee's
expense, without reimbursement from Lessor, in which event this Lease shall
continue in full force and effect, and Lessee shall proceed to make such repairs
as soon as reasonably possible. If Lessee does not give such notice within such
10-day period this Lease shall be canceled and terminated as of the date of the
occurrence of such damage.
9.4 Total Destruction. If at any time during the term of this Lease there
is damage whether or not an Insured Loss, (including destruction required by any
authorized public authority). which falls into, the classification of Premises
Total Destruction or Premises Building Total Destruction, this Lease shall
automatically terminate as of the date of such total destruction.
9.5 Damage Near End of Term.
(a) If at any time during the last six months of the term of this Lease
there is damage, whether or not an Insured Loss, which falls within the
classification of Premises Partial Damage, Lessor may at Lessor's option cancel
and terminate this Lease as of the date of occurrence of such damage by giving
written notice to Lessee of Lessor's election to do so within 30 days after the
date of occurrence of such damage.
(b) Notwithstanding paragraph 9.5( a), in the event that Lessee has an
option to extend or renew this Lease, and the time within which said option may
be exercised has not yet expired. Lessee shall exercise such option, if it is to
be exercised at all, no later than 20 days after the occurrence of an Insured
Loss falling within the classification of Premises Partial Damage during the
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last six months of the term of this Lease. If Lessee duly exercises such option
during said 20 day period, Lessor shall, at Lessor's expense, repair such damage
as soon as reasonably possible and this Lease shall continue in full force and
effect. If Lessee fails to exercise such option during said 20 day period, then
Lessor may at Lessor's option terminate and cancel this Lease as of the
expiration of said 20 day period by giving written notice to Lessee of Lessor's
election to do so within 10 days after the expiration of said 20 day period,
notwithstanding any term or provision In the grant of option to the contrary.
9.6 Abatement of Rent; Lessee's Remedies.
(a) In the event of damage described in paragraphs 9.2 or 9.3, and Lessor
or Lessee repairs or restores the Premises pursuant to the provisions of this
Paragraph 9, the rent payable hereunder for the period during which such damage,
repair or restoration continues shall be abated in proportion to the degree to
which Lessee's use of the Premises is impaired. Except for abatement of rent, it
any, Lessee shall have no claim against Lessor for any damage suffered by reason
of any such damage, destruction, repair or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises under
the provisions of this Paragraph 9 and shall not commence such repair or
restoration within so days after such obligations shall accrue, Lessee may at
Lessee's option cancel and terminate this Lease by giving Lessor written notice
of Lessee's election to do so at any time prior to the commencement of such
repair or restoration. In such event this Lease shall terminate as of the date
of such notice.
9.7 Termination-Advance Payments. Upon termination of this Lease pursuant
to this Paragraph 9, an equitable adjustment shall be made concerning advance
rent and any advance payments made by Lessee to Lessor. Lessor shall, in
addition, return to Lessee so much of Lessee's security deposit as has not
theretofore been applied by Lessor.
9.8 Waiver. Lessor and Lessee waive the provisions of any statutes which
relate to termination of leases when leased property is destroyed and agree that
such event shall be governed by the terms of this Lease.
10. Real Property Taxes.
10.1 Payment of Tax Increase. Lessor shall pay the real property tax, as
defined in paragraph 10.3, applicable to the Premises provided, however, that
Lessee shall pay in addition to rent, the amount, if any, by which real property
taxes applicable to the Premises increase over the fiscal real estate tax year
1996, 1997. Such payment shall be made by Lessee within thirty (30) days after
receipt of Lessor's written statement setting forth the amount of such increase
and the computation thereof. If the term of this Lease shall not expire
concurrently with the expiration of the tax fiscal year, Lessee's liability for
increased taxes for the last partial lease year shall be prorated on an annual
basis.
10.2 Additional Improvements. Notwithstanding paragraph 10.1 hereof, Lessee
shall pay to Lessor upon demand therefor the entirety of any increase in real
property tax it assessed solely by reason of additional improvements placed upon
the Premises by Lessee or at Lessee's request.
10.3 Definition of "Real Property Tax". As used herein the term "real
property tax" shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed on the Premises by any authority having the direct or
indirect power to tax, including any city, state or federal government, or any
school, agricultural, sanitary, tire, street, drainage or other improvement
district thereof, as against any legal or equitable interest of Lessor in the
Premises or in the real property of which the Premises are a part, as against
Lessor's right to rent or other income therefrom, and as against Lessor's
business of leasing the Premises. The term "real property tax" shall also
include any tax, fee, levy, assessment or charge (i) in substitution of,
partially or totally, any tax, fee, levy, assessment or charge hereinabove
included within the definition of "real property tax," or (ii) the nature of
which was hereinbefore included within the definition of "real property tax," or
(iii) which is imposed for a service or right not charged prior to June 1, 1978,
or, if previously charged, has been increased since June 1, 1978 or (iv) which
is imposed as a result of a transfer, either partial or total, of Lessor's
Interest in the Premises or which is added to a tax or charge hereinbefore
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included within the definition of real property tax by reason of such transfer,
or (v) which is imposed by reason of this transaction, any modifications or
changes hereto, or any transfers hereof.
10.4 Joint of Assessment. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the real property taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be determined by Lessor from the respective valuations
assigned in the assessor's work sheets or such other information as may be
reasonably available. Lessor's reasonable determination thereof, in good faith,
shall be conclusive.
10.5 Personal Property Taxes.
(a) Lessee shall pay prior to delinquency all taxes assessed against and
levied upon trade fixtures, furnishings, equipment and all other personal
property of Lessee contained in the Premises or elsewhere. When possible, Lessee
shall cause said trade fixtures, furnishings, equipment and all other personal
property to be assessed sod billed separately from the real property of Lessor.
(b) If any of Lessee's said personal properly shall assessed with Lessor's
real property, Lessee shall pay Lessor the taxes attributable to Lessee within
10 days after receipt of a written statement setting forth the taxes applicable
to Lessee's property.
11. Utilities. Lessee shall pay for all gas, heat, light, power, telephone and
other utilities and services supplied to the Premises, together with any taxes
thereon. If any such services are not separately metered to Lessee, Lessee shall
pay a reasonable proportion to be determined by Lessor of all charges jointly
metered with other premises.
12. Assignment and Subletting.
12.1 Lessor's Consent Required. Lessee shall not voluntarily or by
operation of law assign. transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Lessee's interest in this Lease or in the Premises,
without Lessor's prior written consent, which Lessor shall not unreasonably
withhold. Lessor shall respond to Lessee's request for consent hereunder in a
timely manner and any attempted assignment, transfer, mortgage, encumbrance or
subletting without such consent shall be void, and shall constitute a breach of
this Lease.
12.2 Lessee Affiliate. Notwithstanding the provisions of paragraph 12.1
hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which controls, is controlled by or
is under common control with Lessee, or to any corporation resulting from the
merger or consolidation with Lessee, or to any person or entity which acquires
all the assets of Lessee as a going concern of the business that is being
conducted on the Premises, provided that said assignee assumes, in full, the
obligations of Lessee under this Lease. Any such assignment shall not, in any
way, affect or limit the liability of Lessee under the terms of this Lease even
if after such assignment or subletting the terms of this Lease are materially
changed or altered without the consent of Lessee, the consent of whom shall not
be necessary.
12.3 No Release of Lessee. Regardless of Lessor's consent, no subletting or
assignment shall release Lessee of Lessee's obligation or alter the primary
liability of Lessee to pay the rent and to perform all other obligations to be
performed by Lessee hereunder. The acceptance of rent by Lessor from any other
person shall not be deemed to be a waiver by Lessor of any provision hereof.
Consent to one assignment or subletting shall not be deemed consent to any
subsequent assignment or subletting. In the event of default by any assignee of
Lessee or any successor of Lessee in the performance of any of the terms hereof,
Lessor may proceed directly against Lessee without the necessity of exhausting
remedies against said assignee. Lessor may consent to subsequent assignments or
subletting of this Lease or amendments or modifications to this Lease with
assignees of Lessee, without notifying Lessee, or any successor of Lessee, and
without obtaining its or their consent thereto and such action shall not relieve
Lessee of liability under this Lease.
12.4 Attorney's Fees. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting or if
Lessee shall request the consent of Lessor for any act Lessee proposes to do
then Lessee shall pay Lessor's reasonable attorneys fees incurred in connection
therewith, such attorneys fees not to exceed $350.00 for each such request.
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13. Default; Remedies
13.1 Defaults. The occurrence of any one or more of the following events
shall constitute a material default and breach of this Lease by Lessee:
(a) The vacating or abandonment of the Premises by Lessee.
(b) The failure by Lessee to make any payment of rent or any other payment
required to be made by Lessee hereunder, as and when due where such failure
shall continue for a period of three days after written notice thereof from
Lessor to Lessee. In the event that Lessor serves Lessee with a Notice to Pay
Rent or Quit pursuant to applicable Unlawful Detainer statutes such Notice to
Pay Rent or Quit shall also constitute the notice required by this subparagraph.
(c) The failure by Lessee to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by Lessee,
other than described in paragraph (b) above, where such failure shall continue
for a period of 30 days after written notice thereof from Lessor to Lessee;
provided, however, that if the nature of Lessee's default Is such that more than
30 days are reasonably required for its cure, then Lessee shall not be deemed to
be in default if Lessee commenced such cure within said 30-day period and
thereafter diligently prosecutes such cure to completion.
(d) (i) The making by Lessee of any general arrangement or assignment for
the benefit of creditors; (ii) Lessee becomes a "debtor" as defined in 11 U.S.C.
ss.101 or any successor statute thereto (unless, in the case of a petition filed
against Lessee, the same is dismissed within 60 days), (iii) the appointment of
a trustee or receiver to take possession of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where possession
is not restored to Lessee within 30 days; or (iv) the attachment, execution or
other judicial seizure of substantially all of Lessee's assets located at the
Premises or of Lessee's interest in this Lease, where such seizure is not
discharged within 30 days. Provided, however, in the event that any provision of
this paragraph 13.1 (d) is contrary to any applicable law, such provision shall
be of no force or effect.
(e) The discovery by Lessor that any financial statement given to Lessor by
Lessee, any assignee of Lessee, any subtenant of Lessee, any successor in
interest of Lessee or any guarantor of Lessee's obligation hereunder, and any of
them, was materially false.
13.2 Remedies. In the event of any such material default or breach by
Lessee. Lessor may at any time thereafter, with or without notice or demand and
without limiting Lessor in the exercise of any right or remedy which Lessor may
have by reason of such default or breach:
(a) Terminate Lessee's right to possession of the Premises by any lawful
means, in which case this Lease shall terminate and Lessee shall immediately
surrender possession of the Premises to Lessor. In such event Lessor shall be
entitled to recover from Lessee all damages incurred by Lessor by reason of
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Lessee's default including, but not limited to, the cost of recovering
possession of the Premises; expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorney's fees, and any
real estate commission actually paid; the worth at the time of award by the
court having jurisdiction thereof of the amount by which the unpaid rent for the
balance of the term after the time of such award exceeds the amount of such
rental loss for the same period that Lessee proves could be reasonably avoided;
that portion of the leasing commission paid by Lessor pursuant to Paragraph 15
applicable to the unexpired term of this Lease.
(b) Maintain Lessee's right to possession in which case this Lease shall
continue in effect whether or not Lessee shall have abandoned the Premises. In
such event Lessor shall be entitled to enforce all of Lessor's rights and
remedies under this Lease, including the right to recover the rent as it becomes
due hereunder.
(c) Pursue any other remedy now or hereafter available to Lessor under the
laws or judicial decisions of the stale wherein the Premises are located. Unpaid
installments of rent and other unpaid monetary obligations of Lessee under the
terms of this Lease shall bear interest from the date due at the maximum rate
then allowable by law.
13.3 Default by Lessor. Lessor shall not be in default unless Lessor fails
to perform obligations required of Lessor within a reasonable time. but in no
event later than thirty (30) days after written notice by Lessee to Lessor and
to the holder of any first mortgage or deed of trust covering the Premises whose
name and address shall have theretofore been furnished to Lessee in writing
specifying wherein Lessor has failed to perform such obligation; provided,
however that if the nature of Lessor's obligation is such that more than thirty
(30) days are required for performance then Lessor shall not be in default if
Lessor commences performance within such 30-day period and thereafter diligently
prosecutes the same to completion.
13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee
to Lessor of rent and other sums due hereunder will cause Lessor to incur costs
not contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include. but are not limited to, processing
and accounting charges, and late charges which may be imposed on Lessor by the
terms of any mortgage or trust deed covering the Premises. Accordingly, if any
installment of rent or any other sum due from Lessee shall not be received by
Lessor or Lessor's designee within ten (10) days after such amount shall be due,
then, without any requirement for notice to Lessee. Lessee shall pay to Lessor a
late charge equal to 10% of such overdue amount. The parties hereby agree that
such late charge represents a fair and reasonable estimate of the costs Lessor
will incur by reason of late payment by Lessee. Acceptance of such late charge
by Lessor shall in no event constitute a waiver of Lessee's default with respect
to such overdue amount, nor prevent Lessor from exercising any of the other
rights and remedies granted hereunder. In the event that a late charge is
payable hereunder, whether or not collected, for three (3) consecutive
installments of rent, then rent shall automatically become due and payable
quarterly in advance, rather than monthly, notwithstanding paragraph 4 or any
other provision of this Lease to the contrary.
13.5 Impounds. In the event that a late charge is payable hereunder,
whether or not collected, for three (3) Installments of rent or any other
monetary obligation of Lessee under the terms of this Lease, Lessee shall pay to
Lessor, if Lessor shall so request in addition to any other payments required
under this Lease, a monthly advance installment, payable at the same time as the
monthly rent, as estimated by Lessor, for real property tax and insurance
expenses on the Premises which are payable by Lessee under the terms of this
Lease. Such fund shall be established to insure payment when due, before
delinquency, of any or all such real properly taxes and insurance premiums. If
the amounts paid to Lessor by Lessee under the provisions of this paragraph are
insufficient to discharge, the obligations of Lessee to pay such real property
taxes and Insurance premiums as the same become due, Lessee shall pay to Lessor,
upon Lessor's demand, each additional sums necessary to pay such obligations.
All moneys paid to Lessor under this paragraph may be intermingled with other
moneys of Lessor and shall not bear interest. In the event of a default in the
obligations of Lessee to perform under this Lease, then any balance remaining
from funds paid to Lessor under the provisions of this paragraph may, at the
option of Lessor, be applied to the payment of any monetary default of Lessee in
lieu of being applied to the payment of real property tax and insurance
premiums.
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14. Condemnation. If the Premises or any portion thereof are taken under the
power of eminent domain, or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more then 10% of the floor area of the
building on the Premises, or more than 25% of the land area of the Premises
which is not occupied by any building, is taken by condemnation, Lessee may, at
Lessee's option, to be exercised in writing only within ten ( 10) days after
Lessor shall have given Lessee written notice of such taking (or in the absence
of such notice, within ten ( 10) days after the condemning authority shall have
taken possession) terminate this Lease as of the date the condemning authority
takes such possession. If Lessee does not terminate this Lease in accordance
with the foregoing, this Lease shall remain in full force and effect as to the
portion of the Premises remaining, except that the rent shall be reduced in the
proportion that the floor area of the building taken bears to the total floor
area of the building situated on the Premises. No reduction of rent shall occur
if the only area taken is that which does not have a building located thereon.
Any award for the taking of all or any part of the Premises under the power of
eminent domain or any payment made under threat of the exercise of such power
shall be the property of Lessor, whether such award shall be made as
compensation for diminution in value of the leasehold or for or the taking of
the fee, or as severance damages; provided, however, that Lessee shall be
entitled to any award for loss of or damage to Lessee's trade fixtures and
removable personal property. In the event that this Lease is not terminated by
reason of such condemnation, Lessor shall to the extent of severance damages
received by Lessor in connection with such condemnation, repair any damage to
the Premises caused by such condemnation except to the extent that Lessee has
been reimbursed therefore by the condemning authority. Lessee shall pay any
amount in excess of such severance damages required to complete such repair.
15. Broker's Fee.
(a) Upon execution of this Lease by both parties, Lessor shall pay to N/A
Licensed real estate broker(s), a fee as set forth in a separate agreement
between Lessor and said broker(s), or in the event there is no separate
agreement between Lessor and said broker(s) the sum of $ N/A, for brokerage
services rendered by said broker(s) to Lessor in this transaction.
(b) Lessor further agrees that if Lessee exercises any Option as defined in
paragraph 39.1 of this Lease, which is granted to Lessee under this Lease, or
any subsequently granted option which is substantially similar to an Option
granted to Lessee under this Lease, or if Lessee acquires any rights to the
Premises or other premises described in this Lease which are substantially
similar to what Lessee would have acquired had an Option herein granted to
Lessee been exercised, or if Lessee remains in possession of the Premises after
the expiration of the term of this Lease after having failed to exercise an
Option, or if said broker(s) are the procuring cause of any other lease or sale
entered into between the parties pertaining to the Premises and/or any adjacent
property in which Lessor has an interest, then as to any of said transactions,
Lessor shall pay said broker(s) a fee in accordance with the schedule of said
broker(s) in effect at the time of execution of this Lease.
(c) Lessor agrees to pay said fee not only on behalf of Lessor but also on
behalf of any person, corporation, association, or other entity having an
ownership interest in said real property or any part thereof, when such fee is
due hereunder. Any transferee of Lessor's interest in this Lease whether such
transfer is by Agreement or by operation of law, shall be deemed to have assumed
Lessor's obligation under this Paragraph 15. Said broker shall be a third party
beneficiary of the provisions of this Paragraph 15.
16. Estoppel Certificate.
(a) Lessee shall at any time upon not less than ten (10) days prior written
notice from Lessor execute, acknowledge and deliver to Lessor a statement in
writing (i) certifying that this Lease is unmodified and in full force and
effect (or, if modified, stating the nature of such modification and certifying
that this Lease, as so modified, is in full force and effect) and the date to
which the rent and other charges are paid in advance, it any, and (ii)
acknowledging that there are not, to Lessee's knowledge, any uncured defaults on
the part of Lessor hereunder, or specifying such defaults if any are claimed.
Any such statement may be conclusively relied upon by any prospective purchaser
or encumbrances of the Premises.
(b) At Lessor's option Lessee's failure to deliver such statement within
such time shall be a material breach of this Lease or shall be conclusive upon
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Lessee (i) that this Lease is in full force and effect, without modification
except as may be represented by Lessor, (ii) that there are no uncured defaults
in Lessors performance. and (iii) that not more than one months rent has been
paid in advance or such failure may be considered by Lessor as a default by
Lessee under this Lease.
(c) If Lessor desires to finance, refinance, or sell the Premises, or any
part thereof, Lessee hereby agrees to deliver to any lender or purchaser
designated by Lessor such financial statements of Lessee as may be reasonably
required by such lender or purchaser. Such statements shall include the past
three years' financial statements of Lessee. All such financial statements shall
be received by Lessor and such lender or purchaser in confidence and shall be
used only for the purposes herein set forth.
17. Lessor's Liability. The term "Lessor" as used herein shall mean only the
owner or owners at the time in question of the fee title or a Lessee's interest
in a ground lease of the Premises, and except as expressly provided In Paragraph
15, in the event of any transfer of such title or interest, Lessor herein named
(and in case of any subsequent transfers then the grantor) shall be relieved
from and alter the date of such transfer of all liability as respects Lessor's
obligations thereafter to be performed, provided that any funds in the hands of
Lessor or the then grantor at the times of such transfer. in which Lessee has an
interest, shall be delivered to the grantee. The obligations contained in this
Lease to be performed by Lessor shall, subject as aforesaid, be binding on
Lessor's successors and assigns, only during their respective periods of
ownership.
18. Severability. This invalidity of any provision of this Lease as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. Interest on Past-due Obligations. Except as expressly herein provided, any
amount due to Lessor not paid when due shall bear interest at the maximum rate
then allowable by law from the date due. Payment of such interest shall not
excuse or cure any default by Lessee under this Lease, provided, however, that
interest shall not be payable on late charges incurred by Lessee nor on any
amounts upon which late charges are paid by Lessee.
20. Time of Essence. Time is of the essence.
21. Additional Rent. Any monetary obligations of Lessee to Lessor under the
terms of this Lease shall be deemed to be rent.
22. Incorporation of Prior Agreements; Amendments. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No prior
agreement or understanding pertaining to any such matter shall be effective.
This Lease may be modified in writing only, signed by the parties in interest at
the time of the modification. Except as otherwise stated in this Lease, Lessee
hereby acknowledges that neither the real estate broker listed in Paragraph 15
hereof nor any cooperating broker on this transaction nor the Lessor or any
employees or agents of any of said persons has made any oral or written
warranties or representations to Lessee relative to the condition or use by
Lessee of said Premises and Lessee acknowledges that Lessee assumes all
responsibility regarding the Occupational Safety Health Act, the legal use and
adaptability of the Premises and the compliance thereof with all applicable laws
and regulations in effect during the term of this Lease except as otherwise
specifically stated in this Lease.
23. Notices. Any notice required or permitted to be given hereunder shall be in
writing and may be given by personal delivery or by certified mail, and if given
personally or by mail, shall be deemed sufficiently given It addressed to Lessee
or to Lessor at the address noted below the signature of the respective parties,
as the case may be. Wither party may by notice to the other specify a different
address for notice purposes except that upon Lessee's taking possession of the
Premises, the Premises shall constitute Lessee's address for notice purposes. A
copy of all notices required or permitted to be given to Lessor hereunder shall
be concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate by notice to Lessee.
24. Waiver. No waiver by Lessor or any provision hereof shall be deemed waiver
of any other provision hereof or of any subsequent breech by Lessee of the same
or any other provision. Lessor's consent to, or approval of any act; shall not
be deemed to render unnecessary the obtaining of Lessor's consent to or approval
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of any subsequent act by Lessee. The acceptance of rent hereunder by Lessor
shall not be a waiver of any preceding breech by Lessee of any provision hereof,
other than the failure of Lessee to pay the particular rent so accepted,
regardless of Lessor's knowledge of such preceding breech at the time of
acceptance of such rent.
25. Deleted
26. Holding Over. If Lessee, with Lessor's consent, remains in possession of the
Premises or any part thereof after the expiration of the term hereof such
occupancy shall be a tenancy from month to month upon all the provisions of this
Lease pertaining to the obligations of Lessee, but all options and rights of
first refusal, if any, granted under the terms of this Lease shall be deemed
terminated and be of no further effect during said month to month tenancy. Rent
during any hold over period shall be subject to 50% increase over the rent due
during the last month prior to expiration of the Lease.
27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. Covenants and Conditions. Each provision of this Lease performable by Lessee
shall be deemed both a covenant and a condition.
29. Binding Effect; Choice of Law. Subject to any provisions hereof restricting
assignment or subletting by Lessee and subject to the provisions of Paragraph
11, this Lease shall bind the parties, their personal representatives,
successors and assigns. This Lease shall be governed by the laws of the State
herein the Premises are located.
30. Subordination.
(a) This Lease, at Lessor's option, shall be subordinate to any ground
lease, mortgage, deed of trust, or any other hypothecation or security now or
hereafter placed upon the real property of which the Premises are a part and to
any and all advances made on the security thereof and to all renewals,
modifications, consolidations, replacements and extensions thereof.
Notwithstanding such subordination, Lessee's right to quiet possession of the
Premises shall not be disturbed if Lessee is not in default and so long as
Lessee shall pay the rent and observe and perform all of the provisions of this
Lease, unless this Lease is otherwise terminated pursuant to its terms. it any
mortgagee, trustee or ground Lessor shall elect to have this Lease prior to the
lien of its mortgage, deed of trust or ground lease, and shall give written
notice thereof to Lessee, this Lease shall be deemed prior to such mortgage,
deed of trust, or ground lease, whether this Lease is dated prior or subsequent
to the date of said mortgage, deed of trust or ground lease or the date of
recording thereof.
Lessee agrees to execute any documents required to effectuate an attornment, a
subordination or to make this Lease prior to a lien of any mortgage, deed of
trust or ground lease, as the case may be. Lessee's failure to execute such
documents within 10 days after written demand shall constitute a material
default by Lessee hereunder, or, at Lessor's option, Lessor shall execute such
documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee does hereby
make, constitute and irrevocably appoint Lessor as Lessee's attorney-in-fact and
in Lessee's name, place and stead, to execute such documents in accordance with
this paragraph 30(b).
31. Attorney's Fees. It silkier party or the broker named herein brings an
action to enforce the terms whereof or declare rights hereunder, the prevailing
party in any such action, on trial or appeal, shall be entitled to his
reasonable attorney's fees to be paid by the losing party as fixed by the count.
The provisions of this paragraph shall inure to the benefit of the broker named
herein who seeks to enforce a right hereunder.
32. Lessors Access. Lessor and Lessor's agents shall have the right to enter the
Premises at reasonable times for the purpose of inspecting the same, showing the
same to prospective purchasers, lenders, or lessees, and making such
alterations, repairs, improvements or additions to the Premises or lo the
building of which they are a part as Lessor may deem necessary or desirable.
Lessor may at any time place on or about the Premises any ordinary "For Sale"
signs and Lessor may at any time during the last 120 days of the term hereof
place on or about the Premises any ordinary "For Lease" signs, all without
rebate of rent or liability to Lessee.
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33. Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. Signs. Lessee shall not place any sign upon the Premises without Lessor's
prior written consent.* (*see Addendum)
35. Merger. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor. shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing sub
tenancies or may, at the option of Lessor, operate as an assignment to Lessor of
any or all of such sub tenancies.
36. Consents. Except for paragraph 33 hereof, wherever in this Lease the consent
of one party is required to an act of the other party, such consent shall not be
unreasonably withheld.
37. Guarantor. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
38. Quiet Possession. Upon Lessee paying the rent for the Premises and observing
and performing all of the covenants, conditions and provisions on Lessee's part
to be observed and performed hereunder, Lessee shall have quiet possession of
the Premises for the entire term hereof subject to all of the provisions of this
Lease. The individuals executing this Lease on behalf of Lessor represent and
warrant to Lessee that they are fully authorized and legally capable of
executing this Lease on behalf of Lessor and that such execution is binding upon
all parties holding an [ownership interest in the Premises.
39. 0ptions. *On terms which may be mutually agreeable to Lessor and Lessee and
at prevailing market rates.
39.1 Definition. As used in this paragraph the word "Options" has the
following meaning: (1) the right or option to extend the term of this Lease or
to renew this Lease
39.2 Options Personal. Each Option granted to Lessee in this Lease are
personal to Lessee and may not be exercised or be assigned, voluntarily or
involuntarily, by or to any person or entity other than Lessee, provided,
however, the Option may be exercised by or assigned to any Lessee affiliate as
defined in paragraph 12.2 of this Lease. The Options herein granted to Lessee
are not assignable separate and apart from this Lease.
39.3 Multiple Options. In the event that Lessee has any multiple options to
extend or renew this Lease a later option cannot be exercised unless the prior
option to extend or renew this Lease has been so exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option, notwithstanding any
provision in the grant of Option to the contrary, (i) during the time commencing
from the date Lessor gives to Lessee a notice of default pursuant to paragraph
13.1(b) or 13.1(c) and continuing until the default alleged in said notice of
default is cured, or (ii) during the period of time commencing on the day, after
a monetary obligation to Lessor is due from Lessee and unpaid (without any
necessity for notice thereof to Lessee) continuing until the obligation is paid,
or (iii) at any time after an event of default described in paragraphs 13.1 (a),
13.1 (d), or 13.1 (e) (without any necessity of Lessor to give notice of such
default to Lessee), or (iv) in the event that Lessor has given to Lessee three
or more notices of default under paragraph 13.1(b), where a late charge becomes
payable under paragraph 13.4 for each of such defaults, or paragraph 13.1 (c),
whether or not the defaults are cured, during the 12 month period prior to the
time that Lessee intends to exercise the subject Option.
(b) The period of time within which an Option may be exercised shall not be
extended or enlarged by reason of Lessee's inability to exercise an Option
because of the provisions of paragraph 39.4(a)
(c) All rights of Lessee under the provisions of an Option shall terminate
and be of no further force or effect, notwithstanding Lessee's due and timely
exercise of the Option, if, after such exercise and during the term of this
Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee for a
period of 30 days after such obligation becomes due (without any necessity of
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Lessor to give notice thereof to Lessee), or (ii) Lessee fails to commence to
cure a default specified in paragraph 13.1(c) within 30 days after the date that
Lessor gives notice to Lessee of such default and/or Lessee fails thereafter to
diligently prosecute said cure to completion, or (iii) Lessee commits a default
described In paragraph 13.1(a) 13.1(d) or 13.1(e) (without any necessity of
Lessor to give notice of such default to Lessee), or (iv) Lessor gives to Lessee
three or more notices of default under paragraph 13.1(b), where a late charge
becomes payable under paragraph 13.4 for each such default, or paragraph
13.1(c), whether or not the defaults are cured.
40. Multiple Tenant Building. In the event that the Premises are part of a
larger building or group of buildings then Lessee agrees that it will abide by,
keep and observe all reasonable rules and regulations which Lessor may make from
time to time for the management, safety. care, and cleanliness of the building
and grounds, the parking of vehicles and the preservation of good order therein
as well as for the convenience of other occupants and tenants of the building.
The violations of any such rules and regulations shall be deemed a material
breach of this Lease by Lessee.
41. Security Measures. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of Lessee, its agents and
invitees from acts of third parties.
42. Easements. Lessor reserves to itself the right, from time to time. to grant
such easements, rights and dedications that Lessor deems necessary or desirable,
and to cause the recordation of Parcel Maps and restrictions, so long as such
easements, rights, dedications, Maps and restrictions do not unreasonably
interfere with the use of the Premises by Lessee. Lessee shall sign any of the
aforementioned documents upon request of Lessor and failure to do so shall
constitute a material breach of this Lease.
43. Performance Under Protest. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one party to the other under the provisions
hereof, the party against whom the obligation to pay the money Is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment. and there shall survive the right on the part
of said party to institute suit for recovery of such sum. If it shall be
adjudged that there was no legal obligation on the part of said party to pay
such sum or any part thereof, said party shall be entitled to recover such sum
or so much thereof as it was not legally required to pay under the provisions of
this Lease.
44. Authority. It Lessee is a corporation, trust, or general or limited
partnership, each individual executing this Lease on behalf of such entity
represents and warrants that he or she is duly authorized to execute and deliver
this Lease on behalf of said entity. If Lessee is a corporation. trust or
partnership, Lessee shall, within thirty (30) days after execution of this
Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
45. Conflict. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
the handwritten provisions.
46. Addendum. Attached hereto is an addendum or addenda containing paragraphs 1
through 31, and 1 through 7 which constitutes a part of this Lease and the
following documents incorporated herein:
EXHIBIT "A" -SITE PLAN
EXHIBIT "B" - UNIT PLAN
EXHIBIT "C" - OPTION TO RENEW
RECORDING OF THIS LEASE PROHIBITED
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM
AND PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
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IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS MADE BY
THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKER OR
ITS AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY. LEGAL EFFECT, OR TAX
CONSEQUENCES OF THIS LEASE OR THE TRANSACTION RELATING THERETO; THE PARTIES
SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN LEGAL COUNSEL AS TO THE LEGAL AND
TAX CONSEQUENCES OF THIS LEASE.
The parties hereto have executed this Lease at the place on the dates
specified immediately adjacent to their respective signatures.
Executed at Westlake Village Industrial Park
on July 17, 1996
Address: 31304 Via Colinas, Unit 101
Westlake Village, CA 91362
LESSOR
- ------
By: Mid Valley Management Company, a California Corporation
Managing Agent
/S/ Barbara Sellinger
- ----------------------------------------
By: Barbara Sellinger, Authorized Agent
LESSEE
- ------
SYNTHONICS INCORPORATED
A CALIFORNIA CORPORATION
/S/ Charles S. Palm
- -----------------------------
By: Charles Palm, President
/S/ George Turner
- -----------------------------
By: George Turner, Secretary
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[WESTLAKE VILLAGE INDUSTRIAL PARK SITE PLAN]
Exhibit "A"
<PAGE>
[WESTLAKE VILLAGE INDUSTRIAL PARK]
31324 Via Colinas, Suites 106/107
Approximately 2424 Square Feet
Exhibit "B"
<PAGE>
OPTION TO RENEW
Provided Lessee has never been in default in any of the agreements,
covenants, terms or conditions of this Lease, Lessee shall have the Option to
Renew the term of this Lease for ONE (1) ONE YEAR term(s) following the
expiration of the initial term (herein called "renewal term") provided written
notice is delivered to Lessor at least six (6) months before the expiration of
the initial term of this Lease (or, as to any successive renewals, written
notice to Lessor at least six (6) months prior to the expiration of the
immediately preceding term). The terms and conditions of this Lease shall remain
in full force and effect during the renewal teen, except that:
1. The monthly rent shall be TWO THOUSAND SIX HUNDRED EIGHTEEN AND 00/100
($2,618.00). However, in no event will the monthly rent during the renewal term
be less than the monthly rent for the last month of the initial term or any
extensions thereto. If the renewal term is greater than one (1) year, the rent
for the first year of the renewal term shall be at a fixed rate; thereafter, on
each yearly anniversary of the renewal term, the rent shall be increased as set
forth in the Addendum to Option to Renew. If successive options are granted,
this Option to Renew shall apply to each renewal term.
2. Lessee shall accept the Premises "as is" and "with all faults" and
Lessor has no obligation to improve same in any way.
3. The security deposit shall be increased in direct proportion to each and
every rent increase. Promptly upon Lessee's receipt of written notification from
Lessor as to the rent applicable to such renewal term, at Lessor's direction,
Lessor may request that Lessee pay to Lessor the rent for the first month of the
renewal term and the amount of any increase in security deposit.
4. In the event that Lessee has multiple options to extend or renew this
Lease, a later option cannot be exercised unless prior option to extend or renew
this Lease has been exercised. This option to extend is personal to the original
Lessee and is not transferable or assignable in any manner whatsoever.
5. Lessee shall have no other right to extend the term beyond the renewal
term.
6. That in the event Lessor has prepared a new or revised Lease Agreement
covering the subject business or industrial complex, then, in that event Lessee
shall execute a new Lease Agreement for the extended term and said new Lease
Agreement shall be applicable and operative during the extended option period.
7. If Lessee is in default on the date of giving the option notice or at
any time prior to the commencement of the renewal term, the option notice shall
be totally ineffective and this Lease shall expire at the end of the initial
term.
The parties hereto have executed this Option to Renew on the date set forth
below:
LESSOR: LESSEE:
- ------- -------
Simi Valley Plaza, LLC, by SYNTHONICS INCORPORATED
Mid Valley Management Company A California Corporation
A California Corporation
Managing Agent
/S/ Charles S. Palm
---------------------------------
By: Charles Pal, President
/S/ Barbara Sellinger /S/ George M. Turner
- ------------------------------ ---------------------------------
By: Barbara Sellinger By: George Turner, Secretary
Authorized Agent
Dated: July 17, 1996 Dated:
Exhibit "C"
<PAGE>
ADDENDUM I
THIS ADDENDUM is attached to and Integrated as a part of that certain Lease
dated JULY 8, 1996 by and between WESTLAKE VILLAGE INDUSTRIAL PARK, Lessor, and
SYNTHONICS INCORPORATED, A CALIFORNIA CORPORATION Lessee and constitutes
additional Covenants, Conditions and Agreements contained herein, which Addendum
shall prevail In the event of any conflict between the Covenants, Conditions and
Agreements contained herein and those In said Lease.
RULES AND REGULATIONS
ACCEPTANCE OF LEASED PREMISES:
1. Lessee accepts the Premises (as well as the Improvements thereon and the
facilities appurtenant thereto) In their present condition and acknowledges that
the Premises (as well as the improvements thereon and facilities appurtenant
thereto) are in good, clean, safe and tenantable condition as of the date of
this Lease. Lessee further represents to Lessor that the Premises have been
Inspected by Lessee and that he/she has been assured by means independent of
Lessor or any Agent of Lessor regarding truth of all facts material to the Lease
and that the Premises are being Leased by the Lessee as a result of his/her
Inspection and Investigation and not as a result of any representations by
Lessor or any Agent of Lessor. Lessee's failure to return the Unit Inspection
"Check-List" accompanying the Lease as provided by Lessor further acknowledges
Lessee's acceptance of the Premises as stated herein.
PROTECTION OF PREMISES:
2. Lessee assumes any and all responsibility for protecting its Premises from
theft, robbery, vandalism and pilferage, and holds Lessor free and harmless from
any responsibility or obligation in connection therewith, which includes keeping
doors locked and other means of entry to keep Premises closed.
REFURBISHING FEE AND KEY DEPOSIT:
3. Lessee agrees to pay to Lessor a non-refundable refurbishing fee of $0.00*
(*waived) and a key deposit of $40.00* (*previously paid)
ASSIGNMENT AND SUBLETTING:
4. Tenant's Application (Assignment and Sublease). Lessee shall be obligated to
notify Lessor In writing of Lessee's intent to Assign, Encumber, or Sublease the
subject Premises not less than thirty (30) days I before the proposed
Subletting. This notification shall Include the name of the proposed Assignee or
Sublessee, information concerning the financial responsibility of the proposed
Assignee or Sublessee, and the terms of the proposed Assignment or Subletting.
Lessor may, within thirty (30) days of receipt of such written notice, request
additional information required by Lessor concerning the proposed Assignee's or
Sublessee's financial responsibility and Lessor, at its option, may elect one of
the following alternatives in conjunction with the proposed Assignment and
Subletting:
(a) Consent to such proposed Assignment, Encumbrance or Sublease;
(b) Refuse to grant such consent, which consent shall not be unreasonably
withheld, which refusal shall be in accordance with the Industry standards
in Southern California relating to a similar kind of Leasehold; or
(c) Elect to terminate this Lease in the event Lessee desires to proceed
with said Assignment or Subletting without Lessor's consent, provided that
Lessee shall remain responsible and obligated to Lessor for all monetary
and non-monetary obligations through the date of termination, or in the
case of a partial Sublease, terminate this Lease as to the portion of the
Premises proposed to be Sublet.
(d) The following transactions, and/or transfers, shall be deemed
Assignments for purposes of the Leasehold Agreement. To wit:
A. (1) A transfer by operation of law or otherwise, of Tenant's
Interest in this Lease; or
(2) A transfer of any percentage interest in Tenant (whether
stock, partnership interest, or otherwise) in a single
transaction or a related series of transactions; or
Addendum I - Page 1
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(3) Any increase In the amount of issued and/or outstanding
shares of capital stock or any Corporate Tenant and/or the
creation of one or more additional classes of capital stock of
any Corporate Tenant, In a single transaction or a related series
of transactions, with the result that the beneficial and record
ownership In and to such Tenant shall no longer be identically
held In the same proportion by the beneficial and record owners
of the capital stock of such Corporate Tenant as of the date the
Tenant executed this Lease; or
(4) If a Tenant is a corporation, and a dissolution, merger,
consolidation or other reorganization of the Tenant.
B. Upon the execution of this Lease and upon each succeeding
anniversary date, or at any sooner time requested by the
Landlord, Tenant shall deliver to Landlord a statement, certified
as being true and correct and verified by the Corporate
Secretary, showing the names of all existing share holders of
record and their respective ownership Interests as of that date.
C. Whenever reference is made in this Article to a Corporate Tenant,
the same obligations and restrictions shall apply to any
permitted Corporate Assignee entitled to occupy the demised
Premises.
Without limiting Lessor's ground for disapproval, Lessor's disapproval shall be
deemed reasonable if it is based on Lessor's reasonable analysis of (a) the
proposed Assignee's or Sublessee's credit, character and business or
professional standing, (b) that the Assignee or Sublessor's use and occupancy of
the Premises will not be consistent with the Lease Agreement, and (c) Assignees
or Sublessee's proposed intensity of use is not consistent with the existing use
by Lessee. Lessor shall require as a condition of the Assignment or Subletting
that the rent payable by such Assignee or Sublessee at the then current the then
published rental rate or the Premises or comparable Premises, and that the
existing Lessee waive any right to participate in any rental increase or other
benefit derived from said Assignment or Subletting. That the rent to be paid is
no less than the then current base rent under this Lease and that the Assignee
or Sublessee remit directly to Lessor on a monthly basis all monies due to
Lessee by said Assignee or Sublessee.
4.1 Fees for Review.
If Lessee shall request to Assign, Transfer, Pledge, Encumber or Sublet
this Lease or any interest therein, Lessee shall pay to Lessor a
non-refundable fee for Lessor's time and processing efforts and for
expenses incurred by Lessor in connection with reviewing such transaction
(Including any administrative expenses for Lessors Property Manager). The
amount of such non-refundable fee shall be the sum of $300.00 or may be
reasonably amended or changed by Lessor. Lessee shall pay such fee to
Lessor within live (5) days after written request therefore, and said
payment shall be a precondition to Lessor's requirement to review and
consider any Assignment or Sublease.
4.2 Collection of Rent by Sublessor.
Any Lease payment or other sums received by Lessee or any other person in
connection with this Lease shall be conclusively presumed to have been paid
by Lessee or on Lessee's behalf. If, as a result of any proposed Assignment
or Sublease, Lessee receives rent or other consideration, either initially
or over the term of the Assignment or Sublease, in excess of the rent
called for hereunder, or, in the case of the Sublease of a portion of the
Premises, in excess of the rent allocable to such portion, Lessee shall pay
to Lessor as additional rent hereunder, all of the excess of each such
payment of rent or other consideration received by Lessee promptly after
its receipt.
MAINTENANCE:
(5) The Lease Agreement provided, however, that Lessor shall not be liable for
any damages to Lessee or the Property of Lessee resulting from Lessor's failure
to make any repairs required by this section, unless written notice of the need
for such repairs has been given to Lessor by Lessee and Lessor has failed for a
period of thirty (30) days after receipt of notice (unless prevented by causes
not the fault of Lessor) to commence making the required repairs.
Addendum I - Page 2
<PAGE>
5.1 The provisions of the Lease Agreement notwithstanding, Lessee shall
repair at Lessee's expense all damage to the Premises resulting from acts
of vandalism, malicious mischief, burglary and other acts of Lessee, its
Employees and Invitees and other third parties (including, without
limitation, damage to exterior walls, exterior roofs, vents, overhead
doors, etc.).
5.2 Pursuant to the Lease Agreement, the cost to be charged hereunder shall
include an additional administrative cost of twenty-five percent (25%) as
additional rent to be paid by Lessee with the next rental payment.
5.3 In addition to the Lease Agreement, upon termination of Lessee's
tenancy, all keys shall he delivered to Lessor and any and all Personal
Property left in the Premises at said termination shall become the Property
of Lessor. Lessor shall have the right to dispose of the Property in any
manner which at its sole election it claims appropriate. Lessee waives,
releases and forever discharges Lessor from any and all claims, liability
and expense with respect to such Personal Property, including the right to
account for any proceeds of sale.
UNDER THE INFLUENCE:
6. Lessor reserves the right to exclude or expel from the Premises any person
who, in Lessor's Judgment, is intoxicated or under the influence of liquor,
drugs or other abusive substances, or who is otherwise in violation of any Rules
and Regulations of the Project.
FOUL, NOXIOUS GAS OR SUBSTANCE AND ANIMALS:
7. Lessee shall not use or permit to be used in the Premises any foul, noxious
gas or substance; or permit or allow the Premises to be occupied or used in a
manner offensive or objectionable to Lessor or other occupants of the Building
by reason of noise, odors or vibrations; nor shall Lessee bring into or keep in
or about the Premises any birds or animals (except seeing eye dogs when
accompanied by their masters).
ROOF ACCESS:
8. Neither Lessee, Lessee's Agents, Contractors, Employees or Invitees shall
enter upon the roof of the Premises (except in the case of an emergency) for any
purpose whatsoever without first receiving Lessor's written consent, which shall
not be unreasonably withheld.
8.1 If the Lessee, Lessee's Agent's, Contractors, Employees or Invitees
shall enter upon the roof of said Premises, whether with or without the
consent of Lessor, then the Lessee specifically indemnifies and agrees to
hold Lessor harmless from any and all claims, actions or causes of action
resulting from injuries incurred to any of said individuals or any other
Person or Property, caused by or as a result of their entering upon the
roof of said Premises.
8.2 In the event that Lessor grants written permission to the Lessee or any
of the persons set-forth above to have roof access, said consent shall be
expressly on the condition that each time said Lessee or those persons
designated by Lessee to enter upon the roof that they first execute a
written Letter Agreement provided by Lessor (a) expressly indemnifying and
holding Lessor free and harmless from any and all damages caused by said
individuals to the Leasehold Premises, (b) Indemnifying Lessors from any
personal injury damages caused in connection therewith, (c) provide Lessor
with a $200.00 deposit or such other sum as Lessor may hereinafter set for
every penetration upon the roof, with the express authorization to permit
Lessor to seal around all roof cuts and to charge the deposit for the
actual cost thereof and with the express understanding that at such time as
the Lessee vacates the subject Premises, that all equipment installed
thereon by Lessee shall be removed (unless there is an Agreement in writing
by and between Lessor and Lessee to the contrary). Lessor's Roofer shall be
responsible for making any and all roof repairs required by said removal,
and Lessee shall be responsible for all charges incurred in connection
therewith. Lessor shall have the express authorization to charge Lessee's
deposit for all costs in connection therewith, and (d) at Lessor'e
election, secure a Performance and Material and Labor Bond from Contractor
in the amount of one and one-half times the cost of said improvement;
making the Lessor an additional insured and beneficiary.
Addendum I - Page 3
<PAGE>
8.3 Lessee shall be required to submit reasonably detailed final plans and
specifications and working drawings of the proposed alteration or
alterations and the name or its Contractor at least thirty (30) days before
the date it intends to commence the alterations. Drawings shall include,
but not be limited to, the disclosure of the size. weight and type of
installation to be placed upon the roof.
8.4 Lessee's Contractor shall provide Lessor with Certificates of
Insurance, and at the election of Lessor, name the Lessee as an additional
insured.
CANVASING AND SOLICITATION:
9. Canvasing, soliciting and distribution of hand bills or other written
material, and peddling in the Project is prohibited; each Tenant shall cooperate
to prevent same.
AUCTION ON PREMISES:
10. Lessee shall not conduct or permit to be conducted any sale by auction or
liquidation (going out of business sale) on said Premises.
WORK AREAS:
11. Lessee shall not be permitted to work in the parking lot or loading door
areas. All work must be confined within the Leased Premises.
SIGNAGE:
12. Lessee shall not place or permit to be placed any projecting sign, marquee,
decoration, or awning on said Premises (a) without the written consent of
Lessor; which consent shall not be unreasonably withheld. All signs which are
permitted shall be conforming to the Lessor's Project and shall be maintained by
Lessee at its sole expense. Lessee, upon the request of Lessor, shall
immediately remove any sign or decoration which Lessee has placed or permitted
to be placed in, on or about the Premises of which, in the sole option and
discretion of Lessor, is objectionable or offensive; and if Lessee fails to do
so, Lessor may enter upon said Premises and remove said item and charge the cost
thereof to Lessee. Lessee shall not place or permit to be placed upon any
sidewall, rear wall, window, or roof any sign, advertisement, or notice without
the written consent of Lessor, which consent shall only be given where the
proposed sign, advertisement, or notice complies with the specifications of
size, shape, design, color or material established by Lessor and which are
applicable to all Tenants of Lessor's Business Complex.
WINDOWS AND WINDOW COVERINGS:
13. Lessee shall not place any window coverings upon the Leasehold Premises
(e.g. curtains, draperies, blinds, etc.) without Lessor's written consent, which
consent shall not be unreasonably withheld and provided the proposed window
covering complies with the specifications established by Lessor and which are
applicable to all Tenants of Lessor in the Business Complex.
13.1 Lessee shall keep the glass windows free of dirt and stains and shall
clean windows on a frequent and regular basis.
LESSEE'S ALARM SYSTEMS:
14. If Lessee desires to install an alarm system, all equipment must be
installed inside Lessee's unit so as not to be visible and shall otherwise
comply to the standards set by Lessor for all alarm systems contained in the
Business Complex. All alarm systems must be approved by Lessor. When equipment
is removed, the Premises must be restored to its original condition by Lessee.
Only one alarm sticker per unit placed on Lessee's door Is permitted, with the
exception that corner units may also have a second sticker on the bottom of the
side glass window.
Addendum I - Page 4
<PAGE>
EXTERIOR DAMAGE BY LESSEE:
15. During the Lease Term and at expiration (or early termination) of this
Lease, if Lessee dirties, soils, or damages the exterior of Lessor's Business
Complex, Lessee will be responsible for the repair of this damage. If Lessee
fails to repair the damage which Lessee causes within five {5) days of such
occurrence, then Lessor may make such repairs and bill Lessee for the cost of
such repair plus an administrative cost of an additional twenty-five (25%)
percent.
RUBBISH REMOVAL
16. No rubbish, containers or debris are to be left outside of Lessee's unit.
All refuse is to be placed in designated trash bins. Any debris is subject to
immediate removal by Lessor at Lessee's expense. This rule applies to pallets as
well. Lessee shall not place in any trash box or receptacle any material which
cannot be disposed of in the ordinary and customary manner of trash and garbage
disposal. .All garbage and refuse disposal shall be made in accordance with
directions issued from time-to-time by Lessor. Lessee will pay for the removal
of trash and debris created, produced or resulting from Lessee's activities
where the volume of such trash and debris exceeds two cubic yards per week.
Lessor shall have the option to contract for a single trash removal service for
the entire Complex.
TOXIC MATERIALS:
17. Lessee, at its sole cost, shall comply with all laws relating to the
storage, use and disposal of hazardous, toxic or radioactive matter, including
those materials identified in Sections 66680 or Title 22 of the California
Administrative Code, Division 4, Chapter 30 ("Title 22") as they may be Amended
from time-to-time (Collectively "Toxic Materials"). If Lessee does store, use or
dispose of any Toxic Materials, Lessee shall notify Lessor in writing at least
ten (10) days prior to their first appearance on the Premises. Lessee shall be
solely responsible for, and shall defend, indemnify, and hold Lessor, its Agents
and Contractors harmless from and against all claims, costs and liabilities,
including attorneys' fees and costs arising out of or in connection with its
storage, use and disposal of Toxic Materials. If the presence of Toxic Materials
on the Premises caused or permitted by Lessee results in contamination greater
than the levels established by any Governmental Agency having jurisdiction over
such contamination, then Lessee shall promptly take any and all action necessary
to clean-up such contamination whether such clean-up is required by law or as a
condition to the issuance or continuing effectiveness of any Governmental
approval which relates to the use of the Premises. At any time prior to the
expiration of the Lease Term, Lessee shall have the right to conduct appropriate
tests of water and soil and to deliver to Lessor the results of such tests to
demonstrate that no contamination in excess of permitted levels has occurred as
a result of Lessee's use of the Premises. Lessee shall further be solely
responsible for, and shall defend, indemnify and hold Lessor, its Agents and
Contractors harmless from and against all claims, costs and liabilities,
including attorneys' fees and costs, arising out of or in connection with any
removal, clean-up and the restoration work and materials required hereunder to
return the Premises and any other Property of whatever nature to their condition
existing prior to the appearance of the Toxic Materials and/or contamination of
the Premises or such Property, as the case may be Lessee's obligations hereunder
shall survive the termination of the Lease.
RENT ESCALATIONS:
18. Lessee agrees to pay to Lessor in advance, at such places as may be
designated from time-to-time by Lessor, without deduction or offset. Lessor
agrees to accept as Rent for the Leased Premises the following monthly Rental
Payment Schedule for the term of this Lease:
SEPTEMBER 1, 1996 THROUGH AUGUST 31, 1997 = $2,254.00 PER MONTH
SEPTEMBER 1, 1997 THROUGH AUGUST 31, 1998 = $2,376.00 PER MONTH
SEPTEMBER 1, 1998 THROUGH AUGUST 31, 1999 = $2,497.00 PER MONTH
NAME AND ADDRESS OF PREMISES:
19. Lessor reserves the right, exercisable with sixty (60) days notice and
without liability to Lessee, to change the name and address of the Premises.
Said sixty (60) days notice shall conclusively be deemed reasonable notice to
Lessee.
Addendum I - Page 5
<PAGE>
ADDRESS FOR RENT PAYMENTS:
20. Lessee's payments of rent and other amounts due, shall be considered to have
been received by Lessor only when received in person or by mail at: Mid Valley
Management Company, P.O. Box 60800, Los Angeles, CA 90060-0800. Rental Payments
will not be accepted at any of Lessor's Leasing Offices.
LATE CHARGES AND RETURNED CHECKS:
21. Rent is due on the first of the month. If not received by the tenth of the
month, a ten percent (10%) late charge on each delinquent payment will be added.
A ten percent (10%) late charge will also be added on all checks returned unpaid
by the bank. If more than two (2) checks are returned, Lessee must thereafter
pay by cashier's check, and Lessor shall have as an additional remedy the right
to terminate the Lease.
NO PERSONAL OBLIGATION:
22. The obligations of lessor (which shall hereinafter include its Principals)
under this Lease do not constitute personal obligations of Lessor. Lessee shall
look solely to the Real Estate that is the subject of this Lease and to no other
assets of Lessor for satisfaction of any liability with respect to this Lease
and will not seek recourse against the Lessor herein nor against any or all of
Lessor's personal assets for such satisfaction.
HEADINGS:
23. The Titles and Holdings of the various sections of this Addendum are
intended solely for the convenience of reference only and are not intended to
explain, modify or place any construction or any of the provisions of this
Addendum.
CHANGES IN RULES AND REGULATIONS:
24. Lessor reserves the right by written notice to Lessee to rescind, alter or
waive any Rule or Regulation prescribed for Lessor's Business Complex at any
time when, in Lessor's judgment, it is necessary, desirable, proper and in the
best interest of Lessor's Business Complex and its Tenants. Lessee agrees to be
bound by any changes, revisions or modifications.
24.1 Lessor further reserves the right to make such other Rules and
Regulations as in its judgment may be necessary for the safety, care and
cleanliness of the Premises and for the preservation of good order therein.
Lessee agrees to abide by all such Rules and Regulations hereinabove stated
and any additional Rules and Regulations which are adopted.
WAIVER OF RULES AND REGULATIONS:
25. Lessor may waive any one or more of these Rules and Regulations for the
benefit of Lessee or any other Tenant, but no such (a) waiver by Lessor to a
particular Tenant shall be construed as a waiver of such Rules and Regulations
in favor of Lessee or any other Tenant nor prevent Lessor from thereafter
enforcing any such Rules and Regulations against any or all of the Tenants of
the Premises (b) any such waiver shall be deemed temporary in nature and
cancelable at will by Lessor, and Lessee specifically acknowledges the right of
Lessor to rescind said waiver at its sole election and discretion.
NON-DISCRIMINATION AND NON-SEGREGATION COVENANT:
26. Lessee herein covenants by and for himself or herself his or her heir,
executors, administrators, assignee, and for all persons claiming under or
through him or her. This Lease is made and accepted upon and subject to the
following conditions:
(a) That there shall be no discrimination against or segregation of any
person or group of persons on account of race, color, creed, religion, sex,
marital status national origin or ancestry, in the Leasing, Subleasing,
transferring, use, occupancy, tenure and enjoyment of the Premises herein
Leased; nor shall Lessee himself, or any person claiming under or through
him or her, establish or permit any such practice or practice of
discrimination and/or segregetion with reference to the selection, location
number, use and occupancy of Lessees, Tenants, Sublessees, Sub-tenants,
Assignees and/or Vendees in the Premises herein Leased.
Addendum I - Page 6
<PAGE>
OFFER TO LEASE PREMISES:
27. Preparation of this Lease by Lessor or Lessor's Agent and submission of same
to Lessee shall not be deemed an offer to Lessee to Lease. This Lease shall
become binding upon Lessor and Lessee only when fully executed by both Parties.
28. It is hereby agreed by Lessee, that Lessee is not permitted to wallpaper or
paint within 31324 Via Colinas, Units 106/107 without Lessor's expressed written
permission. If permission is granted by Lessor, Lessee is required to restore
the wall surface areas, with like materials, to the same condition as they were
prior to the execution of this Lease.
29. Lessor agrees at Lessors' cost to complete the following tenant
improvements:
A. Replace all carpeting and pad throughout suites with carpeting
and pad pursuant to park standards.
B. Strip and wax all tile floors.
C. Move door in 12' x 16' room to open inward from reception area.
D. Remove door from 12' x 11' office that opens into rear open area.
E. Expand 7' x 12' room by eliminating the corridor between the 7' x
12' and the 12' x 16' rooms.
F. Close openings between Unit 105 and Unit 106.
30. Lessee is currently in possession of 31368 Via Colinas, Unit 106 at Westlake
Village Industrial Park, under the Lease dated FEBRUARY 9, 1995. Lessor and
Lessee agree that as of the commencement date under this Lease, this Lease shall
supersede and effectively terminate the rights and obligations of Lessor and
Lessee under that certain Lease dated FEBRUARY 9, 1995 (herein called "Prior
Lease").
31. Provided Lessee is entitled to a refund of security deposit and key deposit
under the "Prior Lease", Lessor agrees to transfer and apply any such refund
amount to applicable move-in costs for the premises located at: 31324 Via
Colinas, Units 106/107 (herein called "Premises"), which move-in costs are due
and payable on or prior to the commencement date. Security deposit balance in
excess of Lease requirements and/or costs due will be refunded to Lessee.
AGREED AND ACCEPTED: AGREED AND ACCEPTED:
LESSOR: LESSEE:
- ------- -------
Westlake village industrial park SYNTHONICS INCORPORATED
By Mid Valley Management Company A California Corporation
A California Corporation
Managing Agent
/S/ Charles S. Palm
---------------------------------
By: Charles Pal, President
/S/ Barbara Sellinger /S/ George M. Turner
- ------------------------------ ---------------------------------
By: Barbara Sellinger By: George Turner, Secretary
Authorized Agent
Addendum I - Page 7
<PAGE>
ADDENDUM I CONTINUED
PARKING RULES AND REGULATIONS
PERMITTED AND PROHIBITED PARKING
1. Parking is permitted in designated striped areas only. All other Vehicle not
parked in such areas are subject to being towed away at Lessee's expense (22658
CVC). Parking is prohibited.
(a) In areas not striped for parking;
(b) In aisles;
(c) Where "No Parking" or "Handicap" signs are posted;
(d) On ramp;
(e) In areas outside warehouse doors which are restricted to loading and
unloading only. This is a fire lane and must not be blocked;
(f) In specifically assigned and reserved spaces to others than Lessee; and
(g) In such other areas as may be designated by Lessor, its Agents, Lessee
or Licensee.
OVERNIGHT STORAGE OF VEHICLES OR TRAILERS
2. There will be no overnight storage of Vehicles or Trailers in the parking
lot. Vehicles used and moved on a daily basis are exempt exempt.
DAMAGED VEHICLES
3. There will be no storage of wrecked or damaged Vehicles at any time.
DIRECTIONAL SIGNS AND ARROWS
4. Al1 directional signs and arrows must be observed.
SPEED LIMIT
5. The speed limit shall be five (5) miles per hour.
RESPONSIBILITY FOR LOCKED VEHICLES AND DAMAGES
6. Every Lessee is requested to park and lock his/her own Vehicle. All
responsibility for damage to Vehicles to be repaired is assumed by Authorized
Users. Lessee shall repair or cause to be repaired at its sole cost and expense
any and all damage to the Project Parking Facility or any put thereof caused by
Lessee, its Authorized Users, Invitees or Guests, or resulting from Vehicles of
each of them, Lessee specifically waives any claim against Lessor arising out of
damage to said Vehicles.
COMMON AREA PARKING:
7. Lessee shall be entitled to park in common with other Tenants of Lessor In
the parking area for the specific use as described in the Leasehold. Lessee
specifically waives any claim against Lessor arising out of damage to said
Vehicles. Lessee agrees not to overburden the parking facilities and agrees to
cooperate with Lessor and other Tenants in the use of parking facilities. Lessor
reserves the right in its absolute discretion to determine whether parking
facilities are becoming crowded and in such an event, to allocate parkinq,
spaces among Lessee and of other Tenants in the event allocation is deemed
necessary by Lessor, Lessee shall be entitled to the use of no more than FIVE
(5) parking spaces. Lessee hereby agrees not to occupy or permit its Employees,
Customers or its invitees to occupy more than the number of spaces specified
above; nor to park anywhere other than parking stalls assigned and designated as
such by painted signs, parking lines and parking bumpers
AGREED AND ACCEPTED: AGREED AND ACCEPTED:
LESSOR: LESSEE:
- ------- -------
Westlake village industrial park SYNTHONICS INCORPORATED
By Mid Valley Management Company A California Corporation
A California Corporation
Managing Agent
/S/ Charles S. Palm
---------------------------------
By: Charles Pal, President
/S/ Barbara Sellinger /S/ George M. Turner
- ------------------------------ ---------------------------------
By: Barbara Sellinger By: George Turner, Secretary
Authorized Agent
<PAGE>
NOTICE OF LEASE ASSIGNMENT
Premises: 31324 VIA COLINAS, UNITS 106/l07 Westlake Village Industrial
Park, Lease dated JULY 8, 1996 between E & L WESTLAKE INDUSTRIAL, a California
general partnership, Landlord, and SYNTHONICS INCORPORATED, A CALIFORNIA
CORPORATION, Tenant.
This is to notify you that in accordance with the terms of an Assignment of
Leases which was recorded in the Official Records of Los Angeles County,
California on September 14. 1995, there has been duly assigned by the
undersigned to Metropolitan Life Insurance Company, a New York corporation,
whose address is 101 Lincoln Centre Drive, Sixth Floor, Foster City, California
94404-1121, the entire interest of the Landlord in the above mentioned Lease.
The Assignment of Leases sets forth the following provisions:
"2. Assignor irrevocably authorizes and directs the lessees and any
successors to the respective interests of the lessees, upon receipt of any
written request of Assignee stating that a default exists in the payments due
under, or in the performance of any of the terms, covenants or conditions of the
Deed of Trust or the Note, to pay to Assignee the rents due and to become due
under the Leases. Assignor agrees that the lessees shall have the right to rely
upon any such statement and request by Assignee, that the lessees shall pay such
rents to Assignee without any obligation or right to inquire as to whether such
default actually exists and notwithstanding any notice from or claim of Assignor
to the contrary, and that Assignor shall have no right or claim against the
lessees for any such rents so paid by the lessees to Assignee. Upon the curing
of all defaults, Assignee shall give written notice thereof to the lessees and
thereafter, until the receipt of any further similar written requests of
Assignee, if any, the lessees shall pay the rents to Assignor. It is understood
and agreed that neither the assignment of income, rents, issues, profits and
proceeds to Assignee nor the exercise by Assignee of any of its rights or
remedies under this Assignment shall be deemed to make Assignee a
"mortgagee-in-possession" or otherwise responsible or liable in any. manner with
respect to the Property or the use, occupancy, enjoyment or operation of all or
any portion thereof, unless and until Assignee, in person or by agent, assumes
actual possession thereof, nor shall appointment of a receiver for the Property
by any court at the request of Assignee or by agreement with Assignor or the
entering into possession of the Property or any part thereof by such receiver be
deemed to make Assignee a "mortgagee-in-possession" or otherwise responsible or
liable in any manner with respect to the Property or the use, occupancy,
enjoyment or operation of all or any portion thereof."
You are further notified that all rental payments under your Lease shale
continue to be paid as heretofore in accordance with the terms of your Lease
unless you are otherwise notified in writing by Metropolitan Life Insurance
Company.
Your attention is also particularly called to the following matters;
1. Under the provisions of such Assignment, and the Deed of Trust referred
to therein, it is expressly provided that unless the written consent of
Metropolitan Life Insurance Company is first obtained, no cancellation,
surrender, or modification of the Lease may be made and no rentals shall be paid
other than as now provided in the Lease or in such modification of the Lease as
may receive the written approval of Metropolitan Life Insurance Company.
2. The interest of the Landlord in the Lease has been assigned to
Metropolitan Life Insurance Company solely as security for the purposes
specified in such Assignment and Metropolitan Life Insurance Company assumes no
duty, liability, or obligation under the Lease or any extension or renewal of
the Lease either by virtue of such Assignment or by any subsequent receipt or
collection of rents under the Assignment.
Very truly yours,
E & L WESTLAKE INDUSTRIAL,
A California general partnership
Exhibit 10.9
-------------
STANDARD OFFICE LEASE-GROSS
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. Basic Lease Provisions ("Basic Lease Provisions")
1.1 Parties: This Lease. dated, for reference purposes only, August 15,I996
is made by and between The Evelyn L. Mattoon Trust ,(herein called "Lessor") and
Joseph Maher doing business under the name of Christopher Raphael Marketing
Design, (herein called "Lessee").
1.2 Premises: Suite Number(s) 203 2nd floors, consisting of approximately
1,692 useable feet, more or less, as defined in paragraph 2 and as shown on
Exhibit "A" hereto (the "Premises").
1.3 Building: Commonly described as being located at 30423 Canwood Street
in the City of Agoura Hills County of Los Angeles, State of California as more
particularly described in Exhibit A hereto. and as defined in paragraph 2.
1.4 Use Offices of graphic design firm and consulting firm subject to
paragraph 6.
1.5 Term four (4) years commencing September 15, 1996 ("Commencement Date")
and ending September 14, 2000 as defined in paragraph 3.
1.6 Base Rent: two thousand thirty & 40/100 ($2,030.40) per month, payable
on the 1st day of each month, on October 15, 1996, Lessee shall pay to Lessor
$1,113.45 for rent for October 15, 1996 to October 31, 1996.
1.7 Base Rent Increase: On September 15, 1998 and September 15, 1999 the
monthly base rent payable under paragraph 1.6 above shall be adjusted as
provided in Addendum - Paragraph 50.
1.8 Rent Paid Upon Execution: two thousand thirty & 40/100 ($2,030.40) for
September 15, 1996 through October 14, 1996.
1.9 Security Deposit: two thousand eighty & 40/100 ($2,080.40).
1.10 Lessee's Share of Operating Expense Increase: 0% as defined in
paragraph 4.2.
2. Premises, Parking and Common Areas.
2.1 Premises: The Premises area portion of a building, herein sometimes referred
to as the "Building" identified in paragraph 13 of the Basic Lease Provisions.
"Building" shall include adjacent parking structures used in connection
therewith. The Premises, the Building. the Common Areas, the land upon which the
same are located, along with all other buildings and improvements thereon or
thereunder. are herein collectively referred to as the "Office Building
Project". Lessor hereby leases to Lessee and Lessee leases from Lessor for the
term, at the rental. and upon all of the conditions set forth herein the real
property referred to in the Basic Lease Provisions, paragraph 1.2. as the
"Premises", including rights to the Common Area as herein specified.
2.2 Vehicle Parking: So long as Lessee is not in default, and subject to
the rules and regulations attached hereto, and as established by Lessor from
time to time, Lessee shall be entitled to use 6 parking spaces in the Office
Building Project.
2.2.1. If Lessee commits, permits or allows any of the prohibited
activities described in the Lease or the rules then in effect, then Lessor
shall have the right. without notice, in addition to such other rights and
remedies that it may have. to remove or tow away the vehicle involved and
charge the cost to Lessee, which cost shall be immediately payable upon
demand by Lessor.
2.2.2 The monthly parking rate per parking space will be $N/A per month at
the commencement of the term of this Lease, and is subject to change upon
five (5) days prior written notice to Lessee. Monthly parking fees shall be
payable one month in advance prior to the first day of each calendar month.
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2.3 Common Areas-Definition. The term "Common Areas" is defined as all
areas and facilities outside the Premises and within the exterior for boundary
line of the Office Building Project that are provided and designated by the
Lessor from time to time for the general non-exclusive use of Lessor, Lessee and
of other lessees of the Office Building Project and their respective employees.
suppliers. shippers, customers and invitees. including, but not limited to
common entrances, lobbies, corridors, stairways and stairwells, public restroom,
elevators, escalators, parking areas to the extent but otherwise prohibited by
this Lease, loading and unloading areas, trash areas, roadways. sidewalks,
walkways, parkways, ramps, driveways. landscaped areas and decorative walls.
2.4 Common Areas-Rules and Regulations. Lessee agrees to abide by and
conform to the rules and regulations attached hereto as Exhibit 8 with respect
to the Office Building Project and Common Areas, and to cause its employees,
suppliers, shippers, customers. and invitees to so abide and conform. Lessor or
such other person(s) as Lessor may appoint shall have the exclusive control and
management of the Common Areas and shall have the right, from time to time, to
modify, amend and enforce said rules and regulations. Lessor shall not be
responsible to Lessee for the noncompliance with said rules and regulations by
other lessees, their agents, employees and invitees of the Office Building
Project.
2.5 Common Areas-Changes. Lessor shall have the right, in Lessor's sole
discretion, from time to time:
(a) To make changes to the Building interior and exterior and Common Areas,
including. without limitation, changes in the location. size, shape. number, and
appearance thereof, including but not limited to the lobbies, windows,
stairways, air shafts, elevators, escalators, restroom, driveways, entrances.
parking spaces, parking areas, loading and unloading areas, ingress, egress,
direction of traffic, decorative walls, landscaped areas and walkways; provided.
however, Lessor shall at all times provide the parking facilities required by
applicable law;
(b) To close temporarily any of the Common Areas for maintenance purposes
so long as reasonable access to the Premises remains available;
(c) To designate other land end Improvements outside the boundaries of the
Office Building Project to be a part of the Common Areas. provided that such
other land and Improvements have a reasonable and functional relationship to the
Office Building Project;
(d) To add additional buildings and Improvements to the Common Areas;
(e) To use the Common Areas while engaged in making additional
improvements. repairs or alterations to the Office Building Project of any
portion thereof;
(f) To do and perform such other acts and make such other changes In, to or
with respect to tile Common Areas and Office Building Project as Lessor may, in
the exercise of sound business judgment deem to be appropriate.
3. Term.
3.1 Term. The term and Commencement Date of this Lease shall be as
specified in paragraph 1.5 of the Basic Lease Provisions.
3.2 Delay in Possession. Notwithstanding said Commencement Date, if for any
reason Lessor cannot deliver possession of the Premises to Lessee on said date
and subject to paragraph 3.2.2, Lessor shall not be subject to any liability
therefor, nor shall such failure affect the validity of this Lease or the
obligations of Lessee hereunder or extend the term hereof; but, in such case,
Lessee shall not be obligated to pay rent of perform any other obligation of
Lessee under the terms of this Lease, except as may be otherwise provided in
this Lease, until possession of the Premises is tendered to Lessee, as
hereinafter defined: provided, however, that if Lessor shall not have delivered
possession of the Premises within sixty (60) days following said Commencement
Date, as the same may be extended under the terms of a Work Letter executed by
Lessor and Lessee, Lessee may, at Lessee's option by notice in writing to Lessor
within ten (10) days thereafter, cancel this Lease in which event the parties
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shall be discharged from all obligations hereunder: provided. however, that, as
to Lessee's obligations, Lessee first reimburses Lessor for all costs incurred
for Non-Standard Improvements and, as to Lessor's obligations, Lessor shall
return any money previously deposited by Lessee (less any offsets due Lessor for
Non-Standard Improvements); and provided further, that if such written notice by
Lessee is not received by Lessor within said ten (10) day period, Lessee's right
to cancel this Lease hereunder shall terminate and be of no further force or
effect.
3.2 1 Possession Tendered - Defined. Possession of the Premises shall
be deemed tendered to Lessee ("Tender Of Possession") when (1) the
improvements to be provided by Lessor under this Lease are substantially
completed, (2) the Building utilities are ready for use in the Premises,
(3) Lessee has reasonable access to the Premises, and (4) ten (10) days
shall have expired following advance written notice to Lessee of the
occurrence of the matters described in (1), (2) and (3), above of this
paragraph 3.2.1.
3.2.2 Delays Caused by Lessee. There shall be no abatement of rent.
and the sixty (60) day period following the Commencement Date before which
Lessee's right to cancel this Lease accrues under paragraph 3.2, shall be
deemed extended to the extent of any delays caused by acts or omissions of
Lessee, Lessee's agents. employees and contractors.
3.3 Early Possession. If Lessee occupies the Premises prior to said
Commencement Date, such occupancy shall be subject to all provisions of this
Lease, such occupancy shall not change the termination date. and Lessee shall
pay rent for such occupancy.
3.4 Uncertain Commencement. In the event Commencement of the Lease term is
defined as the completion of the improvements, Lessee and Lessor shall execute
an amendment to this Lease establishing the date of Tender of Possession (as
defined in paragraph 3.2.1) at the actual taking of Possession by Lessee,
whichever first occurs. as the Commencement Date.
4. Rent
4.1 Base Rent. Subject to adjustment as hereinafter provided in paragraph
4.3, and except as may be otherwise expressly provided in this Lease, Lessee
shall pay to Lessor the Base Rent for the Premises set forth in paragraph 1.6 of
the Basic Lease Provisions, without offset or deduction. Lessee shall pay Lessor
upon execution hereof the advance Base Rent described in paragraph 18 of the
Basic Lease Provisions. Rent for any period during the term hereof which is for
less than one month shall be prorated based upon the actual number of days of
the calendar month involved. Rent shall be payable in lawful money of the United
States to Lessor at the address stated herein or to such other persons or at
such other places as Lessor may designate in writing.
4.2 Deleted
4.3 Rent Increase. See Addendum
4.3.1 Shall be adjusted by the increase, if any, in the Consumer Price
Index of the Bureau of Labor Statistics of the Department of Labor for All
Urban Consumers, (1967=100), "All Items," for the city nearest the location
of the Building, herein referred to as "C.P.I.," since the date of this
Lease.
4.3.2 The monthly Base Rent payable pursuant to paragraph 4.3.1 shall
be calculated as follows: the Base Rent payable for the first month of the
term of this Lease, as set forth in paragraph 4.1 of this Lease shall be
multiplied by a fraction the numerator of which shall be the C PI of the
calendar month in during which the adjustment is to take effect, and the
denominator of which shall be the C.P.I. for the calendar month in which
the Base rent be less than the Base Rent payable for the month immediately
preceding the date for the rent adjustment.
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4.3.4 Lessee shall continue to pay the rent at the rate previously in
effect until the increase, if any, is determined, within five (5) days
following the date on which the increase is determined, Lessee shall make
such payment to Lessor as will bring the increased rental current,
commencing with the effective date of such increase through the date of any
rental installments then due. Thereafter the rental shall be paid at the
increased rate.
4.3.5 At such time as the amount of any change in rental required by
this Lease is known or determined, Lessor and Lessee shall execute an
amendment to this Lease selling forth such change.
5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof the
security deposit set forth in paragraph 1.9 of the Basic Lease Provisions as
security for Lessee's faithful performance of Lessee's obligations hereunder. If
Lessee fails to pay rent or other charges due hereunder or otherwise defaults
with respect to any provision of this Lease, Lessor may use, apply or retain all
or any portion of said deposit for the payment at any rent or other charge in
default for the payment of any other sum to which Lessor may become obligated by
reason of Lessee's default. or to compensate Lessor for any loss or damage which
Lessor may suffer thereby. If Lessor so uses or applies ail or any portion of
said deposit. Lessee shall within ten (10) days alter written demand therefor
deposit cash with Lessor in an amount sufficient to restore said deposit to the
full amount then required of Lessee. If the monthly Base Rent shall, from time
to time, increase during the term of this Lease, Lessee shall, at the time of
such increase, deposit with Lessor additional money as a security deposit so
that the total amount of the security deposit held by Lessor shall at all times
bear the same proportion to the then current Base Rent as the initial security
deposit bears 10 the initial Base Sent set forth in paragraph 1.6 of the Basic
Lease Provisions. Lessor shall not be required to keep said security deposit
separate from its general accounts. If Lessee performs all of Lessee s
obligations hereunder, said deposit, or so much thereof as has not heretofore
been applied by Lessor, shall be returned. without payment of interest or other
increment for its use, to Lessee (or at Lessor's option, to the last assignee,
if any, of Lessee's interest hereunder) at the expiration of the term hereof and
after Lessee has vacated the Premises. No trust relationship is created herein
between Lessor and Lessee with respect to said Security Deposit.
6. Use.
6.1 Use. The Premises shall be used and occupied only for the purpose set
forth in paragraph 1.4 at the Basic Lease Provisions or any other use which is
reasonably comparable to that use and for no other purpose.
6.2 Compliance with Law
(a) Lessor warrants to Lessee that the Premises, in the state existing on
the date that the Lease term commences, but without regard to alterations or
improvements made by Lessee or the use for which Lessee will occupy the
Premises, does not violate any covenants or restrictions of record, or any
applicable building code, regulation or ordinance in effect on such Lease term
Commencement Date. In the event it is determined that this warranty has been
violated, then it shall be the obligation of the Lessor. after written notice
from Lessee, to promptly, at Lessor's sole cost and expense. rectify any such
violation.
(b) Except as provided in paragraph 6.2(a) Lessee shall, at Lessee's
expense, promptly comply with all applicable statutes ordinances, rules,
regulations. orders, covenants and restrictions of record, and requirements of
any fire insurance underwriters or rating bureaus, now in effect or which may
hereafter come into effect, whether or not they reflect a change in policy from
that now existing. during the term or any part of the term hereof, relating in
any manner to the Premises and the occupation and use by Lessee of the Premises.
Lessee shall conduct its business in a lawful manner and shall not use or permit
the use of the Premises or the Common Areas in any manner that will tend to
create waste or a nuisance of shall tend to disturb other occupants of the
Office Building Project.
6.3 Condition of Premises.
(a) Lessor shall deliver the Premises to Lessee in a clean condition on the
Lease Commencement Dale (unless Lessee is already in possession) and Lessor
warrants to Lessee that the plumbing, lighting. air conditioning. and heating
system in the Premises shall be in good operating condition. In the event that
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it is determined that this warranty has been violated. then it shall be the
obligation of Lessor, after receipt of written notice train Lessee selling forth
with specificity the nature of the violation, to promptly, at Lessor's sole
cost, rectify such violation.
(b) Except as otherwise provided in (his Lease, Lessee hereby accepts the
Premises and the Office Building Project in their condition existing as of the
Lease Commencement Dale or the date that Lessee takes possession of the
Premises, whichever is earlier, subject to all applicable zoning. municipal,
county and state laws, ordinances and regulations governing and regulating the
use of the Premises, and any easements. covenants or restrictions of record, and
accepts this Lease subject thereto and to all matters disclosed thereby and by
any exhibits attached hereto. Lessee acknowledges that it has satisfied itself
by its own independent investigation that the Premises are suitable for its
intended use, and that neither Lessor nor Lessor's agent or agents has made any
representation or warranty as to the present or future suitability of the
Premises. Common Areas, or Office Building Project for the conduct of Lessee's
business.
7. Maintenance, Repairs, Alterations and Common Area Services.
7.1 Lessor's Obligations. Lessor shall keep the Office Building Project,
including the Premises, interior and exterior walls. roof, and common areas. and
the equipment whether used exclusively for the Premises or in common with other
premises. in good condition and repair: provided. however, Lessor shall not be
obligated to paint, repair of replace wall coverings or to repair or replace any
improvements that are not ordinarily a part of the Building or are above then
Building standards. Except as provided in paragraph 9.5. there shall be no
abatement of rent or liability of Lessee an account of any injury or
interference with Lessees business with respect to any improvements, alterations
or repairs made by Lessor to the Office Building Project or any part thereof.
Lessee expressly waives the benefits of any statute now or hereafter in effect
which would otherwise afford Lessee the right to make repairs at Lessor's
expense of to terminate this Lease because of Lessor's failure to keep the
Premises in good order condition and repair.
7.2 Lessee's Obligations.
(a) Notwithstanding Lessor s obligation to keep the Premises in good
condition and repair, Lessee shall be responsible for payment of the cost
thereof to Lessor as additional rent for that portion of the cost of any
maintenance and repair of the Premises, or any equipment (wherever located) that
serves only Lessee or the Premises, to the extent such cost is attributable to
causes beyond normal wear and tear Lessee shall be responsible for the cost of
painting, repairing or replacing wall coverings. and to repair or replace any
Premises improvements that are not ordinarily a part of the Building or that are
above then Building standards Lessor may. at its option. upon reasonable notice,
elect to have Lessee perform any particular such maintenance or repairs the cost
of which is otherwise Lessee's responsibility hereunder.
(b) On the last day of the term hereof, or on any sooner termination,
Lessee shall surrender the Premises to Lessor in the same condition as received,
ordinary wear and tear excepted, clean and free of debris. Any damage or
deterioration of the Premises shall not be deemed ordinary wear and tear lithe
same could have been prevented by good maintenance practices by Lessee. Lessee
shall repair any damage to the Premises occasioned by the installation or
removal of Lessee's trade fixtures. alterations, furnishings and equipment.
Except as otherwise stated in this Lease, Lessee shall leave the air lines,
power panels. electrical distribution systems. lighting fixtures, air
conditioning, window coverings, wall coverings, carpets, wall panelling,
ceilings and plumbing on the Premises and in good operating condition.
7.3 Alterations and Additions.
(a) Lessee shall not, without Lessor's prior written consent make any
alterations, improvements, additions, Utility Installations or repairs in. on of
about the Premises, or the Office Building Project. As used in this paragraph
7.3 the term "Utility Installation" shall mean carpeting. window and well
coverings, power panels, electrical distribution systems, lighting fixtures, air
conditioning, plumbing, and telephone and telecommunication wiring and
equipment. At the expiration of the term, Lessor may require the removal of any
or all of said alterations, improvements, additions or Utility Installations,
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and the restoration of the Premises and the Office Building Project to their
prior condition at Lessee's expense. Should Lessor permit Lessee to make its own
alterations. improvements, additions or Utility Installations, Lessee shall use
only such contractor as has been expressly approved by Lessor, and Lessor may
require Lessee to provide Lessor, at Lessee's sole cost and expense, a lien and
completion bond in an amount equal to one and one-half times the estimated cost
of such improvements, to insure Lessor against any liability for mechanic's and
materialmen's liens and to insure completion of the work. Should Lessee make any
alterations, improvements, additions or Utility Installations without the prior
approval of Lessor, or use a contractor not expressly approved by Lessor, Lessor
may. at any time during the term of this Lease, require that Lessee remove any
part or all of the same.
(b) Any alterations, improvements, additions or Utility Installations in or
about the Premises or the Office Building Project that Lessee shall desire to
make shall be presented to Lessor in written form, with proposed detailed plans.
It Lessor shall give its consent to Lessee's making such alteration,
improvement, addition or Utility Installation, the consent shall be deemed
conditioned upon Lessee acquiring a permit to do so from the applicable
governmental agencies, furnishing a copy thereof to Lessor prior to the
commencement of the work. and compliance by Lessee with all conditions of said
permit in a prompt and expeditious manner.
(c) Lessee shall pay. when due, all claims for labor or materials furnished
or alleged to have been furnished to or for Lessee at or for use In the
Premises, which claims are or may be secured by any mechanic's or materialmen's
lien against the Premises, the Building or the Office Building Project, or any
interest therein.
(d) Lessee shall give Lessor not less than ten (10) days notice prior to
the commencement of any work in the Premises by Lessee and Lessor shall have the
right to post notices of non-responsibility in or on the Premises or the
Building as provided by law. If Lessee shall, in good faith, contest the
validity of any such lien, claim or demand, then Lessee shall, at its sole
expense defend itself and Lessor against the same and shall pay and satisfy any
such adverse judgment that may be rendered thereon before the enforcement
thereof against the Lessor or the Premises, the Building or the Office Building
Project, upon the condition that if Lessor shall require, Lessee shall furnish
to Lessor a surety bond satisfactory to Lessor in an amount equal to such
contested lien claim or demand indemnifying Lessor against liability for the
same and holding the Premises, the Building and the Office Building Project free
from the effect of such lien or claim. In addition, Lessor may require Lessee to
pay Lessor's reasonable attorneys' fees and costs in participating in such
action if Lessor shall decide it is to Lessor's best interest so to do.
(e) All alterations, improvements. additions and Utility Installations
(whether or not such Utility Installations constitute trade fixtures of Lessee),
which may be made to the Premises by Lessee, including but not limited to, floor
coverings, paneling, doors, drapes, built-ins, moldings, sound attenuation, and
lighting and telephone or communication systems, conduit, wiring and outlets,
shall be made and done in a good and workmanlike manner and of good and
sufficient quality and materials and shall be the property of Lessor and remain
upon and be surrendered with the Premises at the expiration of the Lease term,
unless Lessor requires their removal pursuant to paragraph 7.3(a). Provided
Lessee is not in default, notwithstanding the provisions of this paragraph
7.3(e). Lessee's personal properly and equipment, other than that which is
affixed to the Premises so that it cannot be removed without material damage to
the Premises or the Building. and other than Utility Installations, shall remain
the property of Lessee and may be removed by Lessee subject to the provisions of
paragraph 7.2.
(f) Lessee shall provide Lessor with as-built plans and specifications for
any alterations, improvements, additions or Utility Installations.
7.4 Utility Additions. Lessor reserves the right to install new or
additional utility facilities throughout the Office Building Project for the
benefit of Lessor or Lessee. or any other lessee of the Office Building Project,
including, but not by way of limitation, such utilities as plumbing, electrical
systems, communication systems, and fire protection and detection systems, so
long as such installations do not unreasonably interfere with Lessee's use of
the Premises.
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8. Insurance; Indemnity.
8.1 Liability Insurance-Lessee. Lessee shall, at Lessee's expense, obtain
and keep in force during the term of this Lease a policy of Comprehensive
General Liability insurance utilizing an Insurance Services Office standard form
with Broad Form General Liability Endorsement (GL0404), or equivalent, in an
amount of not less than $1,000,000 per occurrence of bodily injury and properly
damage combined or in a greater amount as reasonably determined by Lessor and
shall insure Lessee with Lessor as an additional insured against liability
arising out of the use, occupancy or maintenance of the Premises. Compliance
with the above requirement shall not, however, limit the liability of Lessee
hereunder.
8.2 Liability Insurance-Lessor. Lessor shall obtain and keep in force
during the term of this Lease a policy of Combined Single Limit Bodily Injury
and Broad Form Property Damage Insurance, plus coverage against such other risks
Lessor deems advisable from time to time, insuring Lessor but not Lessee against
liability arising out of the ownership, use, occupancy or maintenance of the
Office Building Project in an amount not less than 1,000,000.00 per occurrence.
8.3 Property Insurance-Lessee. Lessee shall, at Lessee's expense, obtain
and keep in force during the term at this Lease for the benefit of Lessee,
replacement cost fire and extended coverage insurance, with vandalism and
malicious mischief, sprinkler leakage and earthquake sprinkler leakage
endorsements, in an amount sufficient to cover not less than 100% of the full
replacement cost, as the same may exist from time to time, of all of Lessee's
personal property, fixtures, equipment and tenant improvements.
8.4 Property Insurance-Lessor. Lessor shall obtain and keep in force during
the term of this Lease a policy or policies of insurance covering loss or damage
to the Office Building Project improvements, but not Lessee's personal property,
fixtures, equipment or tenant improvements, in the amount of the full
replacement cost thereof, as the same may exist from time to time, utilizing
Insurance Services Office standard form, or equivalent, providing projection
against all perils included within the classification of fire, extended
coverage, vandalism, malicious mischief, plate glass, and such other perils as
Lessor deems advisable or may be required by a lender having a lien on the
Office Building Project. In addition, Lessor shall obtain and keep in force,
during the term of this Lease, a policy of rental value insurance covering a
period of one year, with loss payable to Lessor, which insurance shall also
cover all Operating Expenses for said period. Lessee will not be named in any
such policies carried by Lessor and shall have no right to any proceeds
therefrom. The policies required by these paragraphs 8.2 and 8.4 shall contain
such deductibles as Lessor or the aforesaid lender may determine. In the event
that the Premises shall suffer an insured loss as defined in paragraph 9.1(f)
hereof, the deductible amounts under the applicable insurance policies shall be
deemed an Operating Expense. Lessee shall not do or permit to be done anything
which shall invalidate the insurance policies carried by Lessor. Lessee shall
pay the entirety of any increase in the property insurance premium for the
Office Building Project over what it was immediately prior to the commencement
of the term of this Lease if the increase is specified by Lessor's insurance
carrier as being caused by the nature of Lessee's occupancy or any act or
omission of Lessee.
8.5 Insurance Policies. Lessee shall deliver to Lessor copies of liability
insurance policies required under paragraph 8.1 or certificates evidencing the
existence and amounts of such insurance within seven (7) days after the
Commencement Date of this Lease. No such policy shall be cancelable or subject
to reduction of coverage or other modification except after thirty (30) days
prior written notice to Lessor. Lessee shall. at least thirty (30) days prior to
the expiration of such policies, furnish Lessor with renewals thereof.
8.6 Waiver of Subrogation. Lessee and Lessor each hereby release and
relieve the other, and waive their entire right of recovery against the other,
for direct or consequential loss or damage arising out of or incident to the
perils covered by property insurance carried by such party. whether due to the
negligence of Lessor or Lessee or their agents, employees, contractors and/or
invitees. If necessary all property insurance policies required under this Lease
shall be endorsed to so provide.
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8.7 lndemnity. Lessee shall indemnify and hold harmless Lessor and its
agents, Lessor's master or ground lessor, partners and lenders, from and against
any and all claims for damage to the person or property of anyone or any entity
arising from Lessee's use of the Office Building Project, or from the conduct of
Lessee's business or from any activity, work or things done, Permitted or
suffered by Lessee in or about the Premises or elsewhere and shall further
indemnify and hold harmless Lessor from and against any and all claims, costs
and expenses arising from any breach or default in the performance of any
obligation on Lessee's part to be performed under the terms of this Lease, or
arising from any act of omission of Lessee, or any of Lessee's agents,
contractors, employees, or invitees, and from and against all costs, attorney's
fees, expenses and liabilities incurred by Lessor as the result of any such use,
conduct, activity, work, things done, permitted or suffered, breach, default or
negligence, and in dealing reasonably therewith, including but not limited to
the defense or pursuit of any claim or any action or proceeding involved
therein; and in case any action or proceeding be brought against Lessor by
reason of any such matter, Lessee upon notice from Lessor shall defend the same
at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor
shall cooperate with Lessee in such defense. Lessor need not have first paid any
such claim in order to be so indemnified. Lessee, as a material part of the
consideration to Lessor, hereby assumes all risk of damage to property of Lessee
or injury to persons, in, upon or about the Office Building Project arising from
any cause and Lessee hereby waives all claims in respect thereof against Lessor.
8.8 Exemption of Lessor from Liability. Lessee hereby agrees that Lessor
shall not be liable for injury to Lessee's business or any loss of income
therefrom or for loss of or damage to the goods, wares, merchandise or other
properly of Lessee, Lessee's employees, invitees, customers, or any other person
in or about the Premises or the Office Building Project. nor shall Lessor be
liable for injury to the person of Lessee, Lessee's employees, agents or
contractors, whether such damage or injury is caused by or results from theft,
fire, steam, electricity, gas, water or rain, or from the breakage, leakage,
obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing,
air conditioning or lighting fixtures, or from any other cause, whether said
damage or injury results from conditions arising upon the Premises or upon other
portions of the Office Building Project, or from other sources or places, or
from new construction or the repair, alteration or improvement of any part of
the Office Building Project, or of the equipment, Fixtures or appurtenances
applicable thereto, and regardless of whether the cause of such damage or injury
or the means of repairing the same is inaccessible, Lessor shall no( be liable
for any damages arising from any act or neglect of any other lessee, occupant or
user of the Office Building Project, nor from the failure of Lessor to enforce
the provisions of any other lease of any other lessee of the Office Building
Project.
8.9 No Representation of Adequate Coverage. Lessor makes no representation
that the limits or forms of coverage of insurance specified in this paragraph 8
are adequate to cover Lessee's property or obligations under this Lease.
9. Damage or Destruction.
9.1 Definitions.
(a) "Premises Damage" shall mean if the Premises are damaged or destroyed
to any extent.
(b) "Premises Building Partial Damage" shall mean if the Building of which
the Premises are a part is damaged or destroyed to the extent that the cost to
repair is less than fifty percent (50%) of the then Replacement Cost of the
building.
(c) "Premises Building Total Destruction" shall mean if the Building of
which the Premises are a part is damaged or destroyed 10 the extent that the
cost to repair Is fifty percent 950%) or more of the then Replacement Cost of
the Building.
(d) "Office Building Project Buildings" shall mean all of the buildings on
the Office Building Project site.
(e) "Office Building Project Buildings Total Destruction" shall mean if the
Office Building Project Buildings are damaged or destroyed to the extent that
the cost of repair is fifty percent (50%) or more of the then Replacement Cost
of the Office Building Project Buildings.
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(f) "Insured Loss" shall mean damage or destruction which was caused by an
event required to be covered by the insurance described in paragraph 8. The fact
that an Insured Loss has a deductible amount shall not make the loss an
uninsured loss.
(g) "Replacement Cost" shall mean the amount of money necessary to be spent
in order to repair or rebuild the damaged area to the condition that existed
immediately prior to the damage occurring, excluding all improvements made by
lessees, other than those installed by Lessor at Lessee's expense.
9.2 Premises Damage; Premises Building Partial Damage.
(a) Insured Loss: Subject to the provisions of paragraphs 9.4 and 9.5, if
at any time during the term of this Lease there is damage which is an Insured
Loss and which tons into the classification of either Premises Damage or
Premises Building Partial Damage, then Lessor shall, as soon as reasonably
possible and to the extent the required materials and labor are readily
available through usual commercial channels, at Lessor's expense, repair such
damage (but not Lessee's fixtures, equipment or tenant improvements originally
paid for by Lessee) to its condition existing at the time of the damage, and
this Lease shall continue in full force and effect.
(b) Uninsured Loss: Subject to the provisions of paragraphs 9.4 and 9.5, if
at any time during the term of this Lease there is damage which is not an
Insured Loss and which falls within the classification of Premises Damage or
Premises Building Partial Damage, unless caused by a negligent of willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense, which
damage prevents Lessee from making any substantial use of the Premises. Lessor
may at Lessor's option either (i) repair such damage as soon as reasonably
possible at Lessor's expense, in which event this Lease shall continue in full
force and effect, or (ii) give written notice to Lessee within thirty (30) days
after the date of the occurrence of such damage of Lessor's intention to cancel
and terminate this Lease as of the date of the occurrence of such damage, in
which event this Lease shall terminate as of the date of the occurrence of such
damage.
9.3 Premises Building Total Destruction; Office Building Project Total
Destruction. Subject to the Provisions of paragraphs 9.4 and 9.5, if at any time
during the term of this Lease there is damage, whether or not it is an Insured
Loss, which falls into the classifications of either (i) Premises Building Total
Destruction. or (ii) Office Building Project Total Destruction, then Lessor may
at Lessor's option either (i) repair such damage or destruction as soon as
reasonably possible at Lessor's expense (to the extent the required materials
are readily available through usual commercial channels) to its condition
existing at the time of the damage, but not Lessee's fixtures, equipment or
tenant improvements, and this Lease shall continue in full force and effect, or
(iii) give written notice to Lessee within thirty (30) days after the date of
occurrence of such damage of Lessor's intention to cancel and terminate this
Lease, in which case this Lease shall terminate as of the date of the occurrence
of such damage.
9.4 Damage Near End of Term.
(a) Subject to paragraph 9.4(b). it at any time during the last twelve (12)
months of the term of this Lease there is substantial damage to the Premises,
Lessor may at Lessor's option cancel and terminate this Lease as of the date of
occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within 30 days after the date of occurrence of such damage.
(b) Notwithstanding paragraph 9.4(a), in the event that Lessee has an
option to extend or renew this Lease, and the time within which said option may
be exercised has not yet expired, Lessee shall exercise such option. if it is to
be exercised at all, no later than twenty (20) days after the occurrence of an
Insured Loss falling within the classification of Premises Damage during the
last twelve (12) months of the term of this Lease. If Lessee duly exercises such
option during said twenty (20) day period. Lessor shall. at Lessor's expense,
repair such damage, but not Lessee's fixtures, equipment or tenant improvements,
as soon as reasonably possible and this Lease shall continue in full force and
effect. If Lessee fails to exercise such option during said twenty (20) day
period. then Lessor may at Lessor's option terminate and cancel this Lease as of
the expiration of said twenty (20) day period by giving written notice to Lessee
of Lessor's election to do so within ten (10) days after the expiration of said
twenty (20) day period, notwithstanding any term or provision in the grant of
option to the contrary.
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9.5 Abatement of Rent; Lessee's Remedies.
(a) In the event Lessor repairs or restores the Building or Premises
pursuant to the Provisions of this paragraph 9, and any part of the Premises are
not usable (including loss of use due to loss of access or essential services),
the rent payable hereunder (including Lessee's Share of Operating Expense
lncrease) for the period during which such damage, repair or restoration
Continues shall be abated, provided (1) the damage was not the result of the
negligence of Lessee. and (2) such abatement shall only be to the extent the
operation and profitability of Lessee's business as operated from the Premises
is adversely affected. Except for said abatement of rent, if any, Lessee shall
have no claim against Lessor for any damage suffered by reason of any such
damage. destruction. repair or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises or the
Building under the provisions of this Paragraph 9 and shall not commence such
repair or restoration within ninety (90) days after such occurrence, or if
Lessor shall not complete the restoration and repair within six (6) months after
such occurrence, Lessee may at Lessee's option cancel and terminate this Lease
by giving Lessor written notice of Lessee's election to do so at any time prior
to the commencement or completion, respectively. of such repair or restoration.
In such event this Lease shall terminate as of the date of such notice.
(c) Lessee agrees to cooperate with Lessor in connection with any such
restoration and repair, including but not limited to the approval and/or
execution of plans and specifications required.
9.6 Termination-Advance Payments. Upon termination of this Lease pursuant
to this Paragraph 9, an equitable adjustment shall be made concerning advance
rent and any advance payments made by Lessee to Lessor. Lessor shall, in
addition, return to Lessee so much of Lessee's security deposit as has not
theretofore been applied by Lessor.
9.7 Waiver. Lessor and Lessee waive the provisions of any statute which
relate to termination of leases when leased property is destroyed and agree that
such event shall be governed by the terms of this Lease.
10. Real Property Taxes.
10.1 Payment of Taxes. Lessor shall pay the real property tax, as defined
in Paragraph 10.3, applicable to the Office Building Project subject to
reimbursement by Lessee of Lessee's Share of such taxes in accordance with the
provisions of paragraph 4.2, except as otherwise provided in paragraph 10.2.
10.2 Additional Improvements. Lessee shall not be responsible for paying
any increase in real property tax specified in the tax assessor's records and
work sheets as being caused by additional improvements placed upon the Office
Building Project by other lessees or by Lessor for the exclusive enjoyment of
any other lessee. Lessee shall, however. pay to Lessor at the time that
Operating Expenses are payable under paragraph 4.2(c) the entirety of any
increase in real property tax if assessed solely by reason of additional
improvements placed upon the Premises by Lessee or at Lessee's request.
10.3 Definition of "Real Property Tax." As used herein, the term "real
property tax" shall include any form of real estate tax or assessment. general,
special, ordinary or extraordinary and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed on the Office Building Project or any portion thereof
by any authority having the direct or indirect power to tax, including any city,
county, state or federal government, or any school, agricultural, sanitary,
fire, street, drainage or other improvement district thereof, as against any
legal or equitable Interest of Lessor in the Office Building Project or in any
portion thereof, as against Lessor's right to rent of other income therefrom,
and as against Lessor's business of leasing the Office Building Project. The
term "real property tax" shall also include any tax, fee, levy, assessment or
charge (i) in substitution of, partially or totally, any tax, fee, levy.
assessment or charge hereinabove included within the definition of "real
property tax", or (ii) the nature of which was hereinbefore included within the
definition of "real property tax", or (iii) which is imposed for a service or
right not charged prior to June 1, 1978, or, if previously charged, has been
increased since June 1, 1978, or (iv) which is imposed as a result of a change
in ownership, as defined by applicable local statutes for property tax purposes,
of the Office Building Project or which is added to a tax or charge hereinbefore
included within the definition of real properly tax by reason of such change of
ownership, or (v) which is imposed try reason of this transaction, any
modifications or changes hereto, or any transfers hereof.
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10.4 Joint Assessment. If the Improvements or property, the taxes for which
are to be paid separately by Lessee under paragraph 10.2 or 10.5 are not
separately assessed, Lessee's portion of that tax shall be equitably determined
by Lessor from the respective valuations assigned in the assessor's work sheets
or such other information which may include the cost of construction) as may be
reasonably available. Lessor's reasonable determination thereof, in good faith,
shall be conclusive.
10.5 Personal Property Taxes.
(a) Lessee shall pay prior to delinquency all taxes assessed against and
levied upon trade fixtures, furnishings, equipment and an other personal
properly of Lessee contained in the Premises or elsewhere.
(b) If any of Lessee's said personal property shall be assessed with
Lessor's real property, Lessee shall Pay to Lessor the taxes attributable to
Lessee within ten (10) days after receipt of a written statement setting forth
the taxes applicable to Lessee's property.
11. Utilities.
11.1 Services Provided by Lessor. Lessor shall provide healing,
ventilation, air conditioning as reasonably required, reasonable amounts of
electricity for normal lighting and office machines, water for reasonable and
normal drinking and lavatory use and replacement ballast for standard overhead
fixtures.
11.2 Services Exclusive to Lessee. Lessee shall pay for all water. gas,
heat, light. power, telephone and other utilities and services specially or
exclusively supplied and/or metered exclusively to the Premises or to Lessee,
together with any taxes thereon. If any such services are not separately metered
to the Premises, Lessee shall pay at Lessor's option, either Lessee's Share or a
reasonable proportion to be determined by Lessor charges jointly metered with
other premises in the Building.
11.3 Hours of Service. Said services and utilities shall be provided during
generally accepted business days and hours or such other days or hours as may
hereafter be set forth. Utilities and services required at other times shall be
subject to advance request and reimbursement by Lessee to Lessor of the cost
thereof.
11.4 Excess Usage by Lessee. Lessee shall not make connection to the
utilities except by or through existing outlets arid shall not install or use
machinery or equipment in or about the Premises that uses excess water, lighting
or power, or suffer or permit any act that causes extra burden upon the
utilities or services, including but not limited to security services, over
standard office usage for the Office Building Project. Lessor shall require
Lessee to reimburse Lessor for any excess expenses or costs that may arise out
of a breach of this subparagraph by Lessee. Lessor may, in its sole discretion,
install at Lessee's expense supplemental equipment and/or separate metering
applicable to Lessee's excess usage or loading.
11.5 Interruptions. There shall be no abatement of rent and Lessor shall
not be liable in any respect whatsoever for the inadequacy, stoppage,
interruptions, or discontinuance of any utility or service due to riot, strike,
labor dispute, breakdown, accident, repair or other cause beyond Lessor's
reasonable control or in cooperation with governmental request or directions.
12. Assignment and Subletting.
12.1 Lessor's Consent Required. Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Lessee's interest in the Lease or in the Premises,
without Lessor's prior written consent, which Lessor shall not unreasonably
withhold. Lessor shall respond to Lessee's request for consent hereunder in a
timely manner and any attempted assignment, transfer, mortgage, encumbrance or
subletting without such consent shall be void, and shall constitute a material
default and breach of this Lease without the need for notice to Lessee under
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paragraph 13.1 "Transfer" within the meaning of this paragraph 12 shall include
the transfer or transfers aggregating: (a) if Lessee is a corporation, more than
twenty-five percent (25%) of the voting stock of such corporation, or (b) if
Lessee is a partnership, more than twenty-five percent (25%) of the profit and
loss participation in such partnership.
12.2 Lessee Affiliate. Notwithstanding the provisions of paragraph 12.1
hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which controls, is controlled by or
is under common control with Lessee, or to any corporation resulting from the
merger or consolidation with Lessee, or to any person or entity which acquires
all the assets of Lessee as a going concern of the business that is being
conducted on the Premises, all of which are referred to as "Lessee Affiliate",
provided that before such assignment shall be effective, (a) said assignee shall
assume, in full, the obligations of Lessee under this Lease and (b) Lessor shall
be given written notice of such assignment and assumption. Any such assignment
shall not, in any way, affect or limit the liability of Lessee under the terms
of this Lease even if after such assignment or subletting the terms of this
Lease are materially changed or altered without the consent of Lessee, the
consent of whom shall not be necessary.
12.3 Terms and Conditions Applicable to Assignment and Subletting.
(a) Regardless of Lessor's consent, no assignment or subletting shall
release Lessee of Lessee's obligations hereunder or alter the Primary liability
of Lessee to pay the rent and other sums due Lessor hereunder including Lessee's
Share of Operating Expense Increase, and to perform all other obligations to be
performed by Lessee hereunder.
(b) Lessor may accept rent from any person other than Lessee pending
approval or disapproval of such assignment.
(c) Neither a delay in the approval or disapproval of such assignment or
subletting, nor the acceptance of rent, shall constitute a waiver or estoppel of
Lessor's right to exercise its remedies for the breach of any of the terms or
conditions of this paragraph 12 or this Lease.
(d) If Lessee's obligations under this Lease have been guaranteed by third
parties, then an assignment or sublease, and Lessor's consent thereto shall not
be effective unless said guarantors give their written consent to such sublease
and the terms thereof.
(e) The consent by Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the sublessee. However,
Lessor may consent to subsequent sublettings and assignments of the sublease or
any amendments or modifications thereto without notifying Lessee or anyone else
liable on the Lease or sublease and without obtaining their consent and such
action shall not relieve such persons from liability under this Lease or said
sublease: however, such persons shall not be responsible to the extent any such
amendment or modification enlarges or increases the obligations of the Lessee or
sublessee under this Lease or such sublease.
(f) In the event of any default under this Lease, Lessor may proceed
directly against Lessee, any guarantors or any one else responsible for the
performance of this Lease, including the sublessee, without first exhausting
Lessor's remedies against any other person or entity responsible therefor to
Lessor, or any security held by Lessor or Lessee.
(g) Lessor's written consent to any assignment or subletting of the
Premises by Lessee shall not constitute an acknowledgment that no default then
exists under this Lease of the obligations to be Performed by Lessee nor shall
such consent be deemed a waiver of any then existing default, except as may be
otherwise stated by Lessor at the time.
(h) The discovery of the fact that any financial statement relied upon by
Lessor in giving its consent to an assignment or subletting was materially false
shall, at Lessor s election, render Lessor's said consent null and void.
12.4 Additional Terms and Conditions Applicable to Subletting. Regardless
of Lessor's consent, the following terms and conditions shall apply to any
subletting by Lessee of all or any part of the Premises and shall be deemed
included in all subleases under this Lease whether or not expressly incorporated
therein:
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(a) Lessee hereby assigns and transfers to Lessor all of Lessee's interest
in all rentals and income arising from any sublease heretofore or hereafter made
by Lessee, and Lessor may collect such rent and income and apply same toward
Lessee's obligations under this Lease, provided, however, that until a default
shall occur in the performance of Lessee's Obligations under this Lease, Lessee
may receive, collect and enjoy the rents accruing under such sublease. Lessor
shall not, by reason of this or any other assignment of such sublease to Lessor
nor by reason of the collection of the rents from a sublessee, be deemed liable
to the sublessee for any failure of Lessee to perform and comply with any of
Lessee's obligations to such sublessee under such sublease. Lessee hereby
irrevocably authorizes and directs any such sublessee, upon receipt of a written
notice from Lessor stating that a default exists in the performance of Lessee's.
obligations under this Lease, to pay to Lessor the rents due and to become due
under the sublease. Lessee agrees that such sublessee shall have the right to
rely upon any such statement and request from Lessor and that such sublessee
shall pay such rents to Lessor without any obligation or right to inquire as to
whether such default exists and notwithstanding any notice from or claim, from
Lessee to the contrary. Lessee shall have no right or claim against said
sublessee or Lessor for any such rents so paid by said sublessee to Lessor.
(b) No sublease entered into by Lessee shall be effective unless and until
it has been approved in writing by Lessor. In entering into any sublease, Lessee
shall use only such form of sublessee as is satisfactory to Lessor, and once
approved by Lessor, such sublease shall not be changed or modified without
Lessor's prior written consent. Any sublease shall, by reason of entering into a
sublease under this Lease, be deemed, for the benefit of Lessor, to have assumed
and agreed to conform and comply with each and every obligation herein to be
performed by Lessee other than such obligations as are contrary to or
inconsistent with provisions contained in a sublease to which Lessor has
expressly consented in writing.
(c) In the event Lessee shall default in the performance of its obligations
under this Lease, Lessor at its option and without any obligation to do so, may
require any sublessee to attorn to Lessor, in which event Lessor shall undertake
the obligations of Lessee under such sublease from the time of the exercise of
said option to the termination of such sublease; provided, however, Lessor shall
not be liable for any prepaid rents or security deposit paid by such sublessee
to Lessee or for any other prior defaults of Lessee under such sublease.
(d) No sublessee shall further assign or sublet all or any part of the
Premises without Lessor's prior written consent.
(e) With respect to any subletting to which Lessor has consented, Lessor
agrees to deliver a copy of any notice of default by Lessee to the sublessee.
Such sublessee shall have the right to cure a default of Lessee within three (3)
days after service of said notice of default upon such sublessee, and the
sublessee shall have a right of reimbursement and offset from and against Lessee
for any such defaults cured by the sublessee.
12.5 Lessor's Expenses. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting or if
Lessee shall request the consent of Lessor for any act Lessee proposes to do
then Lessee shall pay Lessor's reasonable costs and expenses incurred in
connection therewith, including attorneys, architects, engineers or other
consultant fees.
12.6 Conditions to Consent. Lessor reserves the right to condition any
approval to assign or sublet upon Lessors determination that (a) the proposed
assignee or sublessee shall conduct a business on the Premises of a quality
substantially equal to that of Lessee and consistent with the general character
of the other occupants of the Office Building Project and not in violation of
any exclusives or rights then held by other tenants. and (b) the proposed
assignee or sublessee be at least as financially responsible as Lessee was
expected to be at the time of the execution of this Lease or of such assignment
or subletting, whichever is greater.
13. Default; Remedies.
13.1 Default. The occurrence of any one or more of the following events
shall constitute a material default of this Lease by Lessee:
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(a) The vacation or abandonment of the Premises by Lessee. Vacation of the
Premises shall include the failure to occupy the Premises for a continuous
period of sixty (60) days or more, whether or not the rent is paid.
(b) The breach by Lessee of any of the covenants, conditions or provisions
of paragraphs 7.3(a), (b) or (d) (alterations), 12.1 (assignment or subletting),
13.1(a) (vacation or abandonment), 13.1(e) (insolvency), 13.1(f) (false
statement, 16(a) (estoppel certificate), 30(b) (subordination), 33 (auctions),
or 41.1 (easements), all of which are hereby deemed to be material, non-curable
defaults without the necessity any notice by Lessor to Lessee thereof.
(c) The failure by Lessee to make any payment of rent or any other payment
required to be made by Lessee hereunder, as and when due, where such failure
shall continue for a period of three (3) days after written notice thereof from
Lessor to Lessee. In the event the event the Lessor serves Lessee with a Notice
to Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes such
Notice to Pay Rent or Quit shall also constitute the notice required by this
subparagraph.
(d) The failure by Lessee to observe or perform any of the covenants.
conditions or provisions of this Lease to be observed or performed by Lessee
other than those referenced in subparagraphs (b) and (c), above, where such
failure shall continue for a period of thirty (30) days after written notice
thereof from Lessor to Lessee; provided, however, that if the nature of Lessee's
noncompliance is such that more than thirty (30) days are reasonably required
for its cure, then Lessee shall not be deemed to be in default if Lessee
commenced such cure within said thirty (30) day period and thereafter diligently
pursues such cure to completion. To the extent permitted by law, such thirty
(30) day notice shall constitute the sole and exclusive notice required to be
given to Lessee under applicable Unlawful Detainer statutes.
(e) (i) The making by Lessee of any general arrangement of general
assignment for the benefit of creditors; (ii) Lessee becoming a "debtor" as
defined in 11 U. S. C ss.101 or any successor statute thereto (unless, in the
case of a petition filed against Lessee, the same is dismissed within sixty (60)
days; (iii) the appointment of a trustee of receiver to take possession of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where possession is not restored to Lessee within thirty
(30) days; or (iv) the attachment, execution or other judicial seizure of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease. where such seizure is not discharged within thirty (30)
days. In the event that any provision of this paragraph 13.1(e) is contrary to
any applicable law, such provision shall be of no force or effect.
(f) The discovery by Lessor that any financial statement given to Lessor by
Lessee, or its successor in interest or by any guarantor of Lessee's obligation
hereunder, was materially false.
13.2 Remedies. In the event of any material default or breach of this Lease
by Lessee, Lessor may at any time thereafter, with or without notice or demand
and without limiting Lessor in the exercise of any right or remedy which Lessor
may have by reason of such default:
(a) Terminate Lessee's right to possession of the Premises by any lawful
means, in which case this Lease and the term hereof shall terminate and Lessee
shall immediately surrender possession of the Premises to Lessor. In such event
Lessor shall be entitled to recover from Lessee all damages incurred by Lessor
by reason of Lessee's default including, but not limited to. the cost of
recovering possession of the Premises; expenses of reletting, including
necessary renovation and alteration of the Premises; reasonable attorneys fees,
and any real estate commission actually paid; the worth at the time of award by
the court having jurisdiction thereof of the amount by which the unpaid rent for
the balance of the term after the time of such award exceeds the amount of such
rental loss for the same period that Lessee proves could be reasonably avoided;
that portion of the leasing commission paid by Lessor pursuant to paragraph 15
applicable to the unexpired term of this Lease.
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(b) Maintain Lessee's right to possession in which case this Lease shall
continue in effect whether or not Lessee shall have vacated or abandoned the
Premises. In such event Lessor shall be entitled to enforce all of Lessor's
rights and remedies under this Lease, including the right to recover the rent as
it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to Lessor under the
laws or judicial decisions of the state wherein the Premises are located. Unpaid
installments of rent and other unpaid monetary obligations of Lessee under the
terms of this Lease shall bear interest from the date due at the maximum rate
then allowable by law
13.3 Default by Lessor. Lessor shall not be in default unless Lessor fails
to perform obligations required of Lessor within a reasonable [line. but in no
even (later than thirty (30) days after written notice by Lessee to Lessor and
to the holder of any first mortgage or deed of trust covering the Premises whose
name and address shall have theretofore been furnished to Lessee in writing,
specifying wherein Lessor has failed to perform such obligation; provided.
however, that if the nature of Lessor's obligation is such that more than thirty
(30) days are required for performance then Lessor shall not be in default if
Lessor commences performance within such 30-day period and thereafter diligently
pursues the same to completion.
13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee
to Lessor of Base Rent, Lessee's Share of Operating Expense Increase or other
sums due hereunder will cause Lessor to incur costs not contemplated by this
Lease, the exact amount of which will be extremely difficult to ascertain. Such
costs include, but are not limited to, processing and accounting charges, and
late charges which may be imposed on Lessor ,he terms of any mortgage or trust
deed covering the Office Building Project. Accordingly, if any installment of
Base Rent, Operating Expense Increase, or any other sum due from Lessee shall
not be received by Lessor or Lessor's designee within ten (10) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to 6% of such overdue amount The parties
hereby agree that such late charge represents a fair and reasonable estimate of
the costs Lessor will incur by reason of late payment by Lessee. Acceptance of
such late charge by Lessor shall in no event constitute a waiver of Lessee's
default with respect to such overdue amount, nor prevent Lessor from exercising
any of the other rights and remedies granted hereunder.
14. Condemnation. If the Premises or any portion thereof or the Office Building
Project are taken under the power of eminent domain, or sold under the threat of
the exercise of said power (all of which are herein called "condemnation"), this
Lease shall terminate as to the part so taken as of the date the condemning
authority takes title or possession, whichever first occurs; provided that if so
much of the Premises or the Office Building Project are taken by such
condemnation as would substantially and adversely affect the operation and
profitability of Lessee's business conducted from the Premises. Lessee shall
have the option, to be exercised only in writing within thirty (30) days after
Lessor shall have given Lessee written notice of such taking (or in the absence
of such notice, within thirty (30) days after the condemning authority shall
have taken possession). to terminate this Lease as of the date the condemning
authority takes such possession. If Lessee does not terminate this Lease in
accordance with the foregoing, this Lease shall remain in full force and effect
as to the portion of the Premises remaining, except that the rent and Lessee's
Share of Operating Expense increase shall be reduced in the proportion that the
floor area of the Premises taken bears to the total floor area of the Premises.
Common Areas taken shall be excluded from the Common Areas usable by Lessee and
no reduction of rent shall occur with respect thereto or by reason thereof.
Lessor shall have the option in its sole discretion to terminate this Lease as
of the taking of possession by the condemning authority, by giving written
notice to Lessee Of such election within thirty (30) days alter receipt of
notice of a taking by condemnation of any part of the Premises or the Office
Building Project. Any award for the taking of all or any part of the Premises or
the Office Building Project under the Power of eminent domain or any Payment
made under threat of the exercise of such power shall be the property of Lessor,
whether such award shall be made as compensation lot diminution in value of the
leasehold or for the taking of the fee or as severance damages; provided,
however, that Lessee shall be entitled to any separate award for loss of or
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damage to Lessee's trade fixtures, removable personal property and unamortized
tenant improvements that have been paid for by Lessee. For that purpose the cost
of such improvements shall be amortized over the original term of this Lease
excluding any options. In the event that this Lease is not terminated by reason
of such condemnation, Lessor shall to the extent of severance damages received
by Lessor in connection with such condemnation. repair any damage to the
Premises caused by such condemnation except to the extent that Lessee has been
reimbursed therefor by the condemning authority. Lessee shall pay any amount in
excess of such severance damages required to complete such repair.
15. Broker's Fee.
(a) The brokers involved in this transaction are DAUM Commercial Real
Estate Services "listing broker" and DAUM Commercial Real Estate Services as
"cooperating broker," licensed real estate broker(s). A "cooperating broker" is
defined as any broker other than the listing broker entitled to a share to a
share of any commission arising under this Lease. Upon execution of this Lease
by both parties, Lessor shall pay to said brokers jointly. or in such separate
shares as they may mutually designate in writing. a lee as set forth in a
separate agreement between Lessor and said broker(s), the sum of per separate
agreement for brokerage services rendered by said broker(s)
(b) Deleted.
(c) Lessee and Lessor each represent and warrant to the other that neither
has had any dealings with any person, firm, broker or finder (other than the
person(s), if any, whose names are set forth in paragraph 15(a), above) in
connection with the negotiation of this Lease and/or the consummation of the
transaction contemplated hereby, and no other broker or other person, firm or
entity is entitled to any commission or finder's fee in connection with said
transaction and Lessee and Lessor do each hereby Indemnify and hold the other
harmless from and against any costs, expenses, attorneys' fees or liability for
compensation or charges which may be claimed by any such unnamed broker, finder
or other similar party by reason of any dealings or actions of the indemnifying
party.
16. Estoppel Certificate.
(a) Each party (as "responding party") shall at any time upon not less than
ten (10) days prior written notice from the other party ("requesting party")
execute, acknowledge and deliver to the requesting party a statement in writing
(i) certifying that this Lease is unmodified and in full force and effect (or,
if modified, stating the nature of such modification and certifying that this
Lease, as so modified, is in full force and effect and the date to which the
rent and other charges are paid in advance, if any, and (ii) acknowledging that
there are not, to the responding party's knowledge any uncured defaults on the
part of the requesting party, or specifying such defaults it any are claimed.
Any such statement may be conclusively relied upon by any prospective purchaser
or encumbrance of the Office Building Project or at the business of Lessee.
(b) At the requesting party's option, the failure to deliver such statement
within such time shall be a material default of this Lease by the Deny who is to
respond. without any further notice to such party or it shall be conclusive upon
such party that (i) this Lease is in full force and effect, without modification
except as may be represented by the requesting party, (ii) there are no uncured
defaults in the requesting party's performance, and (iii) if Lessor is the
requesting party. not more than one month's rent has been paid in advance.
(c) If Lessor desires to finance, refinance, or sell the Office Building
Project, or any part thereof, Lessee hereby agrees to deliver to any lender or
purchaser designated by Lessor such financial statements of Lessee as may be
reasonably required by such lender or purchaser. Such statements shall include
the past three (3) years financial statements of Lessee. All such financial
statements shall be received by Lessor and such lender or purchases in
confidence and shall be used only for the purposes herein set forth.
17. Lessor's Liability. The term "Lessor" as used herein shall mean only the
owner or owners, at the time in question. of the fee title or a lessee's
interest in a ground lease of the Office Building Project, and except as
expressly provided in paragraph 15. in the event of any transfer of such title
or interest, Lessor herein named (and in case of any subsequent transfers then
the grantor) shall be relieved from and after the date of such transfer of all
liability as respects Lessor's obligations thereafter to be performed, provided
that any funds in the hands of Lessor or the then grantor at the time of such
transfer, in which Lessee has an interest, shall be delivered to the grantee.
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The obligations contained in this Lease to be performed by Lessor shall, subject
as aforesaid, be binding on Lessor's successors and assigns, only during their
respective periods of ownership.
18. Severability. The invalidity of any provision of this Lease as determined by
a court of competent jurisdiction shall in no way affect the validity of any
other provision hereof.
19. Interest on Past-due Obligations. Except as expressly herein provided, any
amount due to Lessor not paid when due shall bear interest at the maximum rate
then allowable by law or judgments from the date due. Payment of such interest
shall not excuse or cure any default by Lessee under this Lease; provided,
however, that interest shall not be payable on late charges incurred by Lessee
nor on any amounts upon which late charges are paid by Lessee.
20. Time of Essence. Time is of the essence with respect to the obligations to
be performed under this Lease.
21. Additional Rent. All monetary obligations of Lessee to Lessor under the
terms of this Lease, including but not limited to Lessee's Share of Operating
Expense Increase and any other expenses payable by Lessee hereunder shall be
deemed to be rent.
22. Incorporation of Prior Agreements; Amendments. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No prior
or contemporaneous agreement or understanding pertaining to any such matter
shall be effective. This Lease may be modified in writing only, signed by the
parties in interest at the time of the modification. Except as otherwise stated
in this Lease, Lessee hereby acknowledges that neither the real estate broker
listed in paragraph 15 hereof nor any cooperating broker on the transaction nor
the Lessor or any employee or agents of any of said persons has made any oral or
written warranties or representations to Lessee relative to the condition or use
by Lessee at the Premises or the Office-Building Project and Lessee acknowledges
that Lessee assumes all responsibility regarding the Occupational Safety Health
Act, the legal use and adaptability of the Premises and the compliance thereof
with all applicable laws and regulations in effect during the term of this
Lease.
23. Notices. Any notice required or permitted to be given hereunder shall be in
writing and may be given by personal delivery or by certified or registered
mail, and shall be deemed sufficiently given if delivered or addressed to Lessee
at to Lessor at the address noted below of adjacent to the signature of the
respective parties, as the case may be. Mailed notices shall be deemed given
upon actual receipt at the address required, or forty-eight hours following
deposit in the mail, postage prepaid, whichever first occurs. Either party may
by notice to the other specify a different address for notice purposes except
that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for notice purposes. A copy of all notices required
or permitted to be given to Lessor hereunder shall be concurrently transmitted
to such party or parties at such addresses as Lessor may from time to time
hereafter designate by notice to Lessee.
24. Waivers. No waiver by Lessor of any provision hereof shall be deemed a
waiver of any other provision hereof or at any subsequent breach by Lessee of
the same or any other provision. Lessor's consent to, or approval of, any act
shall not be deemed to render unnecessary the obtaining a( Lessor's consent to
or approval of any subsequent act by Lessee. The acceptance of rent hereunder by
Lessor shall not be a waiver of any preceding breach by Lessee of any provision
hereof. other than the failure of Lessee to pay the particular rent so accepted,
regardless of Lessor's knowledge of such preceding breach at the time at
acceptance at such rent.
25. Recording. Either Lessor or Lessee shall, upon request at the other execute,
acknowledge and deliver to the other a "short form" memorandum of this Lease for
recording purposes.
26. Holding Over. If Lessee, with Lessor's consent, remains in possession of the
Premises or any Part thereof after the expiration of the term hereof, such
occupancy shall be a tenancy from month to month upon all the provisions of this
Lease pertaining to the obligations of Lessee, except that the rent payable
shall be 125% of the rent payable immediately preceding the termination date of
this Lease, and all Options, if any, granted under the terms at this Lease shall
be deemed terminated and be of no further effect during said month to month
tenancy.
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27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. Covenants and Conditions. Each provision of this Lease performable by Lessee
shall be deemed both a covenant and a condition.
29. Binding Effect; Choice of Law. Subject to any provisions hereof restricting
assignment or subletting by Lessee and subject to the provisions of paragraph
11, this Lease shall bind the parties. their personal representatives,
successors and assigns. This Lease shall be governed by the laws of the State
where the Office Building Project is located and any litigation concerning this
Lease between the parties hereto shall be initiated in the county in which the
Office Building Project is located.
30. Subordination.
(a) This Lease, and any Option or right of first refusal granted hereby, at
Lessor's option, shall be subordinate to any ground lease, mortgage, deed of
trust, or any other hypothecation or security now or hereafter placed upon the
Office Building Project and to any and all advances made on security thereof,
and to all renewals, modifications, consolidations, replacements and extensions
thereof. Notwithstanding such subordination, Lessee's right to quiet possession
of the Premises shall not be disturbed if Lessee is not in default and so long
as Lessee shall pay the rent and observe and perform all of the provisions of
this Lease, unless this Lease is otherwise terminated pursuant to its terms. If
any mortgagee, trustee or ground lessor shall elect to have this Lease and any
Options granted hereby prior to the lien of its mortgage, deed of trust or
ground lease, and shall give written notice thereof to Lessee, this Lease and
such Options shall be deemed prior to such mortgage, deed of trust or ground
lease, whether this Lease or such Options are dated prior or subsequent to the
date of said mortgage, deed of trust or ground lease or the date of recording
thereof.
(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination, or to make this Lease or any Option granted herein
prior to the lien of any mortgage, deed of trust or ground lease, as the case
may be. Lessee's failure to execute such documents within ten (10) days after
written demand shall constitute a material default by Lessee hereunder without
further notice to Lessee or, at Lessor's option. Lessor shall execute such
documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee does hereby
make, constitute and irrevocably appoint Lessor as Lessee's attorney-in-fact and
in Lessee's name, place and stead, to execute such documents in accordance with
this paragraph 30(b).
31. Attorneys' Fees.
31.1 If either party or the broker(s) named herein bring an action to
enforce the terms hereof or declare rights hereunder, the prevailing party in
any such action, trial or appeal thereon. shall be entitled to his reasonable
attorneys' fees to be paid by the losing party as fixed by the court in the same
or a separate suit, and whether or not such action is pursued to decision or
judgment. The provisions of this paragraph shall inure to the benefit of the
broker named herein who seeks to enforce a right hereunder.
31.2 The attorneys' fee award shall not be computed in accordance with any
court fee schedule, but shall be such as to fully reimburse all attorneys'
reasonably incurred in good faith.
31.3 Lessor shall be entitled to reasonable attorneys' fees and all other
costs and expenses incurred in the preparation and service of notice of default
and consultations in connection therewith, whether or not a legal transaction is
subsequently commenced in connection with such default.
32. Lessor's Access.
32.1 Lessor and Lessor's agents shall have the right to enter the Premises
at reasonable times for the purpose of inspecting the same, performing any
services required of Lessor, showing the same to prospective purchasers,
lenders, or lessees, taking such safety measures, erecting such scaffolding or
other necessary structures, making such alterations, repairs, improvements or
additions to the Premises or to the Office Building Project as Lessor may
reasonably deem necessary or desirable and the erecting, using and maintaining
of utilities, services, pipes and conduits through the Premises and/or other
premises as long as there is no material adverse effect to Lessee's use of the
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Premises. Lessor may at any time, place on or about the Premises or the Building
any ordinary "For Sale" signs and Lessor may at any time during the last 120
days of the term hereof place on or about the Promises any ordinary "For Lease"
signs.
32.2 All activities of Lessor pursuant to this paragraph shall be without
abatement of rent, nor shall Lessor have any liability to Lessee for the same.
32.3 Lessor shall have the right to retain keys to the Premises and to
unlock a if doors in or upon the Premises other than to files, vaults and sales,
and in the case of emergency to enter the Premises by any reasonably appropriate
means, and any such entry shall not be deemed a forceable or unlawful entry or
detainer of the Premises or an eviction. Lessee waives any charges for damages
or injuries or interference with Lessee's property or business in connection
therewith.
33. Auctions. Lessee shall not conduct, nor permit to be conducted. either
voluntarily or involuntarily, any auction upon the Premises or the Common Areas
without first having obtained Lessor's Prior written consent. Notwithstanding
anything to the contrary in this Lease, Lessor shall not be obligated to
exercise any standard of reasonableness in determining whether to grant such
consent. The holding of any auction on the Premises or Common Areas in violation
of this paragraph shall constitute a material default of this Lease.
34. Signs. Lessee shall not place any sign upon the Premises or the Office
Building Project without Lessor's prior written consent. Under no circumstances
shall Lessee place a sign on any roof of the Office Building Project.
35. Merger. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option at Lessor, operate as an assignment to Lessor
of any or all of such subtenancies.
36. Consents. Except for paragraphs 33 (auctions) and 34 (signs) hereof,
wherever in this Lease the consent of one party is required to an act of the
other party such consent shall not be unreasonably withheld or delayed.
37. Guarantor. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
38. Quiet Possession. Upon Lessee paying the rent for the Premises and observing
and performing all of the covenants, conditions and provisions on Lessee's part
to be observed and performed hereunder, Lessee shall have quiet possession of
the Premises for the entire term hereof subject to all of the Provisions of this
Lease. The individuals executing this Lease on behalf of Lessor represent and
warrant to Lessee that they are fully authorized and legally capable of
executing this Lease on behalf of Lessor and that such execution is binding upon
all parties holding an ownership interest in the Office Building Project.
39. Options.
39.1 Definition. As used in this paragraph the word "Option" has the
following meaning: (1) the right or option to extend the term of this Lease or
to renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (2) the option of right of first refusal to lease the
Premises or the right of first offer to lease the Premises or the right of first
refusal to lease other space within the Office Building Project or other
property of Lessor or the right of first offer to lease other space within the
Office Building Project or other property of Lessor; (3) the right or option to
purchase the Premises or the Office Building Project, or the right of first
refusal to purchase the Premises or the Office Building Project or the right of
first offer to purchase the Premises or the Office Building Project, or the
right or option to purchase other property of Lessor, or the right of first
refusal to purchase other property of Lessor or the right of first offer to
purchase other property of Lessor.
39.2 Options Personal. Each Option granted to Lessee in this Lease is
personal to the original Lessee and may be exercised only by the original Lessee
while occupying the Premises who does so without the intent of thereafter
assigning this Lease or subletting the Premises or any portion thereof and may
not be exercised or be assigned, voluntarily or involuntarily, by or to any
person or entity other than Lessee; provided, however, that an Option may be
exercised by or assigned to any Lessee Affiliate as defined in paragraph 12.2 of
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<PAGE>
this Lease. The Options, if any. herein granted to Lessee are not assignable
separate and apart from this Lease, nor may any Option be separated from this
Lease in any manner, either by reservation or otherwise.
39.3 Multiple Options. In the event that Lessee has any multiple options to
extend or renew this Lease a later option cannot be exercised unless the prior
option to extend or renew this Lease has been so exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option, notwithstanding any
provision in the grant of Option to the contrary, (i) during the time commencing
from the date Lessor gives to Lessee a notice of default pursuant to Paragraph
13.1(c) or 13.1(d) and continuing until the noncompliance alleged in said notice
of default is cured, or (ii) during the period of time commencing on the day
after a monetary obligation to Lessor is due from Lessee and unpaid (without any
necessity for notice thereof to Lessee) and continuing until the obligation is
paid. or (iii) in the event that Lessor has given to Lessee three or more
notices of default under paragraph 13.1(c), or paragraph 13.1(d), whether or not
the defaults are cured, during the 12 month period of time immediately prior to
the time that Lessee attempts to exercise the subject Option, (iv) if Lessee has
committed any non-curable breach, including, without limitation those described
in paragraph 13.1(b), or is otherwise in default of any of the terms, covenants
or conditions of this Lease.
(b) The period of time within which an Option may be exercised shall not be
extended or enlarged by reason of Lessee's inability to exercise an Option
because of the provisions of paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall terminate
and be of no further force or effect, notwithstanding Lessee's due and timely
exercise of the Option, if, after such exercise and during the term of this
Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee for a
period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessee fails to
commence to cure a default specified in Paragraph 13.1(d) within thirty (30)
days after the date that Lessor gives notice to Lessee of such default and/or
Lessee fails thereafter to diligently prosecute said cure to completion, or
(iii) Lessor gives to Lessee three or more notices of default under paragraph
13.1(c), or paragraph 13.1(d), whether or not the defaults are cured, or (iv) if
Lessee has committed any non-curable breach, including without limitation those
described in paragraph 13.1(b), or is otherwise in default of any of the terms,
covenants and conditions of this Lease.
40. Security Measures-Lessor's Reservations.
40.1 Lessee hereby acknowledges that Lessor shall have no obligation
whatsoever to provide guard service or other security measures for the benefit
of the Premises or the Office Building Project. Lessee assumes all
responsibility for the protection of Lessee, its agents. and invitees and the
property of Lessee and of Lessee's agents and invitees from acts of third
parties. Nothing herein contained shall prevent Lessor, at Lessor's sole option,
from providing security protection for the Office Building Project or any part
thereof, in which event the cost thereof shall be included within the definition
of Operating Expenses, as set forth in paragraph 4.2(b).
40.2 Lessor shall have the following rights:
(a) To change the name, address or title of the Office Building Project or
building in which the Premises are located upon not less than 90 days prior
written notice;
(b) To, at Lessee's expense, provide and install Building standard graphics
on the door of the Premises and such portions of the Common Areas as Lessor
shall reasonably deem appropriate;
(c) To permit any lessee the exclusive right to conduct any business long
as such exclusive does not conflict with any rights expressly given herein;
(d) To place such signs, notices or displays as Lessor reasonably deems
necessary or advisable upon the roof, exterior of the buildings or the Office
Building Project on pole signs in the Common Areas;
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40.3 Lessee shall not:
(a) Use a representation (photographic or otherwise) of the Building or the
Office Building Project or their name(s) in connection with Lessee's business;
(b) Suffer or permit anyone, except in emergency, to go upon the roof of
the Building.
41. Easements.
41.1 Lessor reserves to itself the right, from time to time, to grant such
easements, rights and dedications that Lessor deems necessary or desirable, and
to cause the recordation of Parcel Maps and restrictions. so long as such
easements, rights, dedications, maps and restrictions do not unreasonably
interfere with the use of the Premises by Lessee. Lessee shall sign any of the
aforementioned documents upon request of Lessor and failure to do so shall
constitute a material default of this Lease by Lessee without the need for
further notice to Lessee.
41.2 The obstruction of Lessee's view, air, or light by any structure
erected in the vicinity of the Building, whether by Lessor or third parties,
shall in no way affect this Lease or impose any liability upon Lessor.
42. Performance Under Protest. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one party to the other under the provisions
hereof, the party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment, and there shall survive the right on the part
of said party to institute suit for recovery of such sum. If it shall be
adjudged that there was no legal obligation on the part of said party to pay
such sum or any part thereof, said party shall be entitled to recover such sum
or so much thereof as it was not legally required to pay under the provisions of
this Lease.
43. Authority. If Lessee is a corporation, trust, or general or limited
partnership, Lessee, and each individual executing this Lease on behalf of such
entity represent and warrant that such individual is duly authorized to execute
and deliver this Lease on behalf of said entity. If Lessee is a corporation,
trust or partnership, Lessee shall, within thirty (30) days after execution of
this Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
44. Conflict. Any conflict between the printed provisions, Exhibits or Addenda
of this Lease and the typewritten or handwritten provisions, if any, shall be
controlled by the typewritten or handwritten provisions, if any, shall be
controlled by the typewritten or handwritten provisions.
45. No Offer. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to Lessee to lease.
This Lease shall become binding upon Lessor and Lessee only when fully executed
by both parties.
46. Lender Modification. Lessee agrees to make such reasonable modifications to
this Lease as may be reasonably required by an institutional lender in
connection with the obtaining of normal financing or refinancing of the Office
Building Project.
47. Multiple Parties. If more than one person or entity is named as either
Lessor or Lessee herein, except as otherwise expressly provided herein, the
obligations of the Lessor or Lessee herein shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee,
respectively.
49. Attachments. Attached hereto are the following documents which constitute a
part of this Lease:
Addendum
Exhibit "A" (Floor Plan)
Exhibit "B" (Rules & Regulations)
Exhibit "C" (Hazardous Substance & ADA Disclosure)
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LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR SUBMISSION TO YOUR
ATTORNEY FOR HIS APPROVAL, NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKER OR ITS
AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX
CONSEQUENCES OF THIS LEASE OR THE TRANSACTION RELATING THERETO; THE PARTIES
SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN LEGAL COUNSEL AS TO THE LEGAL AND
TAX CONSEQUENCES OF THIS LEASE.
LESSOR LESSEE
- ------
The Evelyn L. Mattoon Trust Joseph R. Maher
/S/ Evelyn L. Mattoon /S/ Joseph R. Maher
- ---------------------------- ---------------------------------
By: Evelyn L. Mattoon By: Joseph R. Maher, an individual
Executed at Marcus, Iowa 51035 Executed at Agoura Hills, CA 91301
On 08/19/96 on 08/15/96
Address: P.O. Box 338 Address: 4778 Gondola Dr.
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<PAGE>
[STANDARD OFFICE LEASE FLOOR PLAN]
Exhibit A
<PAGE>
RULES AND REGULATIONS FOR
STANDARD OFFICE LEASE
Dated: August 15, 1996
By and Between The Evelyn L. Mattoon Trust (Lessor) and Joseph Maher (Lessee)
GENERAL RULES
1. Lessee shall not suffer or permit the obstruction of any Common Areas,
including driveways, walkways and stairways.
2. Lessor reserves the right to refuse access to any persons Lessor in good
faith judges to be a threat to the safety, reputation, or property of the Office
Building Project and its occupants.
3. Lessee shall not make or permit any noise or odors that annoy or
interfere with other lessees or persons having business within the Office
Building Project.
4. Lessee shall not keep animals or birds within the Office Building
Project, and shall not bring bicycles, motorcycles of other vehicles into areas
not designated as authorized for same.
5. Lessee shall not make, suffer or permit litter except in appropriate
receptacles for that purpose.
6. Lessee shall not alter any lock or install new or additional locks or
bolts.
7. Lessee shall be responsible for the inappropriate use of any toilet
rooms, plumbing or other utilities. No foreign substances of any kind are to be
inserted therein.
8. Lessee shall not deface the walls, partitions or other surfaces of the
premises or Office Building Project.
9. Lessee shall not suffer or permit any thing in or around the Premises or
Building that causes excessive vibration or floor loading in any part of the
Office Building Project.
10. Furniture, significant freight and equipment shall be moved into or out
of the building only with the Lessor's knowledge and consent, and subject to
such reasonable limitations, techniques and timing, as may be designated by
Lessor. Lessee shall be responsible for any damage to the Office Building
Project arising from any such activity.
11. Lessee shall not employ any service or contractor for services or work
to be performed in the Building, except as approved by Lessor.
12. Lessor reserves the right to close and lock the Building on Saturdays,
Sundays and legal holidays, and on other days between the hours of 9:00 PM. and
7:00 AM. of the following day. If Lessee uses the Premises during such periods,
Lessee shall be responsible for securely locking any doors if may have opened
for entry.
13. Lessee shall return all keys at the termination of its tenancy and
shall be responsible for the cost or replacing any keys that are lost.
14. No window coverings, shades or awnings shall be installed or used by
Lessee.
15. No Lessee, employee or invitee shall go upon the roof of the Building.
16. Lessee shall not suffer or permit smoking or carrying of lighted cigars
or cigarettes in areas reasonably designated by Lessor or by applicable
governmental agencies as non-smoking areas.
17. Lessee shall not use any method of heating or air conditioning other
than as provided by Lessor.
Exhibit B - Page 1
<PAGE>
18. Lessee shall not install, maintain or operate any vending machines upon
the Premises without Lessor's written consent.
19. The Premises shall not be used for lodging or manufacturing, cooking or
food preparation.
20. Lessee shall comply with all safety. fire protection and evacuation
regulations established by Lessor or any applicable governmental agency.
21. Lessor reserves the right to waive any one of these rules or
regulations. and/or as to any particular Lessee, and any such waiver shall not
constitute a waiver of any other rule or regulation or any subsequent
application thereof to such Lessee.
22. Lessee assumes all risks from theft or vandalism and agrees to keep its
Premises locked as may be required.
23. Lessor reserves the right to make such other reasonable rules and
regulations as it may from time to time deem necessary for the appropriate
operation and safety of the Office Building Project and its occupants. Lessee
agrees to abide by these and such rules and regulations.
PARKING RULES
1. Parking areas shall be used only for parking by vehicles no longer than
full size, passenger automobiles herein called "Permitted Size Vehicles."
Vehicles other than Permitted Size Vehicles are herein referred to as "Oversized
Vehicles."
2. Lessee shall not permit or allow any vehicles that belong to or are
controlled by Lessee or Lessee's employees, suppliers. shippers, customers, or
invitees to be loaded, unloaded. or parked in areas other than those designated
by Lessor for such activities.
3. Parking stickers or Identification devices shall be the properly of
Lessor and be returned to Lessor by the holder thereof upon termination of the
holder's parking privileges. Lessee will pay such replacement charge as is
reasonably established by Lessor for the loss of such devices.
4. Lessor reserves the right to refuse the sale of monthly identification
devices to any person or entity that willfully refuses to comply with the
applicable rules, regulations, laws and/or agreements.
5. Lessor reserves the right to relocate all or a part of parking spaces
from floor to floor, within one floor. and/or to reasonably adjacent offsite
location(s), and to reasonably allocate them between compact and standard size
spaces, as long as the same complies with applicable laws. ordinances and
regulations.
6. Users of the parking area will obey all posted signs and park only in
the areas designated for vehicle parking.
7. Unless otherwise instructed. every person using the parking area is
required to park and lock his own vehicle. Lessor will not be responsible for
any damage to vehicles, injury to persons or loss of property, all of which
risks are assumed by the party using the parking area.
8. Validation, if established, will be permissible only by such method or
methods as Lessor and/or its licensee may establish at rates generally
applicable to visitor parking.
9. The maintenance, washing, waxing or cleaning of vehicles in the parking
structure or Common Areas is prohibited.
10. Lessee shall be responsible for seeing that all of its employees,
agents and invitees comply with the applicable parking rules, regulations, laws
and agreements.
11. Lessor reserves the right to modify these rules and/or adopt such other
reasonable and non-discriminatory rules and regulations as it may deem necessary
for the proper operation of the parking area.
12. Such parking use as is herein provided is intended merely as a license
only and no bailment is intended or shall be created hereby.
Exhibit B - Page 2
<PAGE>
Hazardous Substances
&
American Disabilities Act
Notice to Owners, Buyers and Tenants Regarding Hazardous Substances and
Underground Storage Tanks
Comprehensive Federal, state and local regulations have recently been enacted to
control the use, storage, handling, clean-up, removal and disposal of hazardous
and toxic wastes and substances. Extensive legislation has also been adopted
with regard to underground storage tanks. As real estate licensees, we are not
experts in the area of hazardous substances and we encourage you to consult with
your legal counsel with respect to your rights and liabilities with regard to
hazardous substances laws and regulations and to obtain technical advice with
regard to the use, storage, handling, clean-up, removal or disposal of hazardous
substances from professionals, such as a civil engineer, geologist or other
persons with experience in these matters to advise you concerning the property.
We also encourage you to review the past uses of the property, which may provide
information as to the likelihood of the existence of hazardous substances or
storage tanks on the properly.
DAUM Commercial Real Estate Services will disclose any knowledge it actually
possesses with respect to the existence of hazardous substances or underground
storage tanks on the property. DAUM Commercial Real Estate Services has not made
any investigations or obtained reports regarding the property, unless so
indicated in a separate document signed by DAUM Commercial Real Estate Services.
DAUM Commercial Real Estate Services makes no representation or warranty
regarding the existence or non-existence of hazardous substances or underground
storage tanks on the property.
With regard to the sale of real property, recently enacted California Health and
Safety Code Section 25359.7 provides that any owner of non-residential real
property who knows, or has reasonable cause to believe, that any release of
hazardous substances has come to be located on or beneath real property, shall,
prior to the sale of real property, give written notice of that condition to the
buyer of the real property. Failure of the owner to provide written notice when
required shall subject the owner to actual damages and other remedies provided
by the law. In addition, where the owner has actual knowledge of the presence of
any hazardous substance and knowingly and willfully fails to provide written
notice to the buyer, the owner is liable for a civil penalty not to exceed
$5,000 for each separate violation.
With regard to leases of real properly, Section 25359.7 of the California Health
and Safety Code provides that any lessee of real property who knows, or has
reasonable cause to believe, that any release of hazardous substances has come
to be located on or beneath the real property shall, upon discovery by the
lessee of the presence or suspected presence of a hazardous substance release,
give notice of that condition to the owner of the real property. Failure of the
lessee to provide written notice as required to the owner shall make the lease
voidable at the discretion of the owner. The Health and Safety Code provides
that if the lessee has actual knowledge of the presence of any hazardous
substance release and knowingly or willfully fails to provide written notice as
required to the owner, the lessee is liable for a civil penalty not to exceed
$5000 for each violation.
As used in this notice, the term "hazardous substances" is used in the broadest
sense and includes all hazardous and toxic materials, substances, or waste as
defined by applicable Federal, state and local laws and regulations and
includes, but is not limited to petroleum products, paints and solvents, PCBs,
asbestos, pesticides and other substances. Hazardous substances may be found on
any type of real property, improved or unimproved, occupied or vacant.
Notice to Owners, Buyers and Tenants Regarding the "Americans with Disabilities
Act"
<PAGE>
Legislation known as the "Americans with Disabilities Act" ("ADA") was recently
adopted and may affect The Property and/or its intended use. As real estate
licensees, we are not experts in the legal or technical aspects of ADA as it may
pertain to you. We encourage you to consult your legal counsel, architect and/or
other professionals with appropriate experience with regard to your rights or
obligations for compliance with ADA.
DAUM Commercial Real Estate Services makes no representation or warranty
regarding the compliance or non-compliance of The Property under ADA.
/s/ Joseph R. Maher Dated: 8/15/96
- ---------------------------------
By: Joseph R. Maher
/S/ Evelyn Dated: 8/19/96
- ---------------------------------
By: Evelyn L. Mattoon
<PAGE>
ADDENDUM TO THE OFFICE LEASE - GROSS
DATED AUGUST 15,1996 BY AND BETWEEN
THE EVELYN L. MATTOON TRUST (LESSOR)
AND
JOSEPH MAHER (LESSEE)
50. Re: Paragraph 1.7 & Paragraph 4.3:
Following is the base rent increase schedule that shall be in effect during the
term of the lease:
September 15, 1998 $2,115.00 per month
September 15, 1999 $2,199.60 per month
51. Re: Paragraph 11 (Utilities):
Lessee acknowledges that Lessee is responsible for establishing an account with
Southern California Edison Company for electric service to the premises. Lessee
acknowledges that janitorial service to the suite is Lessee's responsibility.
52. Expansion:
If Lessee requires additional space during the term of this Lease and Lessee is
not in default or breach of the Lease as defined in Paragraph 13 and Paragraph
39.4; with written notice to Lessor, Lessor shall give Lessee First Fight of
Refusal on any space Lessor owns or manages (except Suite 138) in tile office
building project; Lessee shall have five (5) business days to respond to such
notice on whether Lessee wishes to exercise such right. This notice by Lessor
shall be given when Lessor is notified that such premises will be coming
available, prior to the space being put up for lease on the "open market".
53. Termination:
In the event Lessor cannot provide increased space to meet Lessee's requirements
for expansion, and provided Lessee is not in default or breach, according to
Paragraph 13 and Paragraph 39.4; with ninety (90) days prior written notice,
Lessor shall release Lessee from the remaining obligations of the Lease upon
receipt by Lessor of the following:
1) Payment of any unamortized Tenant Improvement costs.
2) Payment of any unamortized real estate brokerage commission paid for
purposes of explanation and clarification, "unamortized" as used above
shall mean the total dollars paid out by Lessor divided by forty eight (48)
months and multiplied by the remaining months left on the Lease term.
3) Lessee's signing of agreement to forfeit Security Deposit held by
Lessor.
Lessee shall leave the space in broom clean condition upon termination.
54. Lessee acknowledges that the premises is a no-smoking property and will not
permit visitors or employees to smoke in the premises.
55. Tenant Improvements:
Lessor at Lessor's sole cost shall remodel the suite; such remodel shall include
the following scope of work:
A) Construct a new demising wall to separate Suite 203 from Suite 201.
Close up interior opening in office # 1.
B) Demolish existing wall in office #3; build two (2) new offices (shown as
#4 and #5) along west side of suite.
C) Close up door and interior window in office #6
D) Install a six foot (6') counter with a sink and cold running water in
office #7. Floor to be vinyl
E) Install Lessor's standard carpeting with black top-set base through
suite.
<PAGE>
F) Remove wallpaper in reception office and open up doorways into hall.
Clean oak wainscoting in reception office.
G) One (1) window in office #5 shall have present tinting removed and new
tinting applied.
H) All HVAC, HVAC grills, mini-blinds shall be cleaned and in proper
working order. All fluorescent light tubes shall be in proper working
order. All ceiling tiles shall be clean and free of cracks.
56. Possession:
Lessee shall have access and possession for installation of telephone, computer
lines and furniture and other equipment seven (7) days prior to occupancy.
LESSOR LESSEE
- -------- --------
The Evelyn L. Mattoon Trust Joseph R. Maher
/S/ Evelyn L. Mattoon /S/ Joseph R. Maher
- ------------------------------ ----------------------------------
By: Evelyn L. Mattoon By: Joseph R. Maher, an individual
Exhibit 10.10
-------------
DELL FINANCIAL SERVICES
LEASE NO: 004591649-001
FULL LEGAL NAME OF LESSEE BILLING ADDRESS, CITY, STATE, ZIP CODE
FED ID/SOC NUMBER
SYNTHONICS TECHNOLOGIES INC. 31324 VIA COLINAS, STE 106
THOUSAND OAKS, CA 91362
LEASE TERM (MONTHS) 36
MONTHLY RENT PAYMENT $183.89 Subject to Applicable Tax
MONTHLY PERSONAL
PROPERTY MGMT FEE $4.56 Subject to Applicable Tax
DOCUMENTATION FEE $55.00 Subject to Applicable Tax
TYPE OF BUSINESS: COMMITMENT FEE (MUST ACCOMPANY LEASE)
- ----------------- ------------------------------------
XX Corporation 2 Advance Rent Payments = $367.78
____ Proprietorship Applicable Taxes = $ 26.66
____ Limited Liability Company Total = $394.44
____ General Partnership
____ Limited Partnership
____ Limited Liability Partnership *Advance rent payments are applied
____ Not for Profit in the following order: first, last
____ Municipality and then in the reverse order due.
EQUIPMENT LOCATION: GENERAL EQUIPMENT DESCRIPTION/SUPPLIER:
---------------------------------------
See Attachment A
GUARANTOR (IF ANY): GUARANTOR (IF ANY):
FED ID/SOC SEC NUMBER FED ID/SOC SEC NUMBER
END OF LEASE PURCHASE OPTION:
--------------------------------------
10% Acquisition Cost
TERMS AND CONDITIONS OF LEASE
The undersigned Lessee agrees to rent from Lessor and Lessor agrees to rent
the above described equipment and/or computer software (the "Equipment") subject
to all of the terms and conditions herein (the "Lease"). Lessee hereby warrants
and represents that the Equipment will be used primarily for business purposes
and not for personal, family or household purposes and not for personal, family
or household purposes.
LESSOR DISCLAIMS ANY WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING
WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR ANY
PARTICULAR PURPOSE WITH RESPECT TO THE EQUIPMENT. LESSOR HEREBY ASSIGNS ALL
WARRANTIES MADE TO LESSOR BY SUPPLIER AND/OR MANUFACTURER TO LESSEE, AND LESSEE
AGREES THAT ALL CLAIMS OF ANY KIND RELATING TO THE EQUIPMENT SHALL BE MADE
AGAINST SUPPLIER AND/OR MANUFACTURER. THIS LEASE IS NON-CANCELABLE, THE
OBLIGATION TO PAY ALL RENT PAYMENTS AND OTHER AMOUNTS PAYABLE UNDER THIS LEASE
IS ABSOLUTE AND UNCONDITIONAL, DESPITE ANY DISSATISFACTION WITH THE EQUIPMENT
FOR ANY REASON, SHALL NOT BE AFFECTED BY ANY EVENT OR CIRCUMSTANCE, AND SHALL BE
PAID BY LESSEE IRRESPECTIVE OF ANY RIGHT OF OFF-SET, COUNTERCLAIM, RECOUPMENT,
DEFENSE OR OTHER RIGHT WHICH LESSEE MAY HAVE AGAINST LESSOR, THE MANUFACTURER OR
SUPPLIER OF THE EQUIPMENT OR ANY OTHER THIRD PARTY.
Page 1
<PAGE>
Equipment shall be deemed accepted for purposes of this Lease five (5)
business days after shipment.
1. Term; Rent: The term of the Lease ("Lease Term") shall commence five (5)
business days after shipment (the "Commencement Date"). Lessee agrees to pay
Lessor or its assignees during the Lease Term, in U.S. Dollars, at an address to
be provided by Lessor, the total Rent Payments ("Rent Payments") as specified
herein. The first Rent Payment is due on the Commencement Date, and subsequent
Rent Payments are due on the same date of each month thereafter (or the last day
of the month if there is no such date). Lessee hereby authorizes Lessor to
adjust the Rent Payment by not more than 15% if the actual Acquisition Cost
(which is all amounts Lessor has paid or will pay in connection with the
purchase, delivery, and installation of the equipment, including any trade-up
and buy-out amounts) differs from the estimated Acquisition Cost. If any Rent
Payment or other amount payable to Lessor is not paid within 5 (5) days after
the due date thereof, Lessee shall pay to Lessor interest on any such late
payment from the due date thereof until payment at a rate of 18% per annum or,
if less, the highest interest rate permitted by applicable law. At the end of
the Lease Term, this Lease will automatically renew for additional three-month
periods on the same terms and conditions (including the same monthly Rent
Payments) unless Lessee gives Lessor ninety (90) days written notice prior to
the expiration of the Lease Term or any three-month renewal term and returns the
Equipment to the Lessor as provided herein.
2. Selection and Ordering of Equipment: Lessee shall select the type and
quantity of the Equipment subject to this Lease. If Lessee has entered into a
purchase agreement with any supplier, Lessee hereby assigns all right, title and
interest in such purchase agreement to Lessor effective prior to the passages of
title from supplier to Lessee.
3. Location; Use; Maintenance: Except for mobile Equipment (e.g. laptop
computers), Lessee shall use the Equipment solely at the location specified in
the Lease, or if none is specified, at Lessee's billing address set forth in the
Lease, and the Equipment shall not be moved without Lessor's prior written
consent. Lessee shall, at its expense, maintain the Equipment in good repair
condition, and functional order, shall not use the Equipment unlawfully or
unsafely and shall not alter the Equipment without Lessor's prior written
consent. Lessor, its assignees and agents shall have the right to inspect the
Equipment at the premises where the Equipment is located. Lessee shall use the
computer software in accordance with the software license agreement.
4. Title; Personal Property; Filing: The Equipment is, and shall at all
times remain, the property of Lessor, and Lessee shall have no right, title or
interest therein or thereto except as expressly set forth in this Lease. Lessee
grants Lessor a purchase money security interest in the Equipment and shall keep
the Equipment free from any and all liens, encumbrances and claims, except those
created by Lessor, and shall do or permit any act or thing whereby Lessor's
title of rights may be encumbered or impaired. So long as Lessee is not in
Default hereunder, Lessor agrees not to interfere with Lessee's quiet use and
enjoyment of the Equipment during the Lease Term or any renewal term. The
Equipment is and shall at all times remain, personal property notwithstanding
that the Equipment or any part thereof may now be or hereafter become in any
manner affixed or attached to real property or any improvements thereof. All
additions or improvements to the Equipment of any kind or nature ,made by Lessee
shall become component parts thereof, and title shall immediately vest in Lessor
and be governed by the terms of this Lease. Lessee will, if requested, at its
expense, furnish a landlord or mortgagee waiver with respect to the Equipment in
form satisfactory to Lessor. Lessee hereby appoints Lessor its attorney-in-fact
to prepare, execute and sign any instrument or financing statement necessary to
protect Lessor's interest in the Equipment, to sign the name of Lessee with the
same force and effect as if signed by Lessee and to file the same at the proper
location or locations. Lessee further agrees, if Lessor so requests, to execute
any instrument or financing statement necessary to protect Lessor's interest in
the Equipment and to pay a one-time Documentation Fee to cover Lessor's costs
for such filing and other documentation costs.
Page 2
<PAGE>
5. Loss or Damage: Lessee assumes and shall bear the entire risk of loss,
theft, destruction or damage of or to the Equipment or any item thereof ("Loss
or Damage") from any cause whatsoever, whether or not covered by insurance, from
time to time the Equipment is delivered to a carrier for shipment to Lessee
until its return to Lessor, and no such loss or damage shall result in a
termination of Lessee's obligations under this Lease. Lessee shall promptly
notify Lessor, and, at the option of Lessor, shall (1) at Lessee's expense,
repair the affected items of Equipment to the satisfaction of Lessor, or (2) at
Lessee's expense, and to the satisfaction of Lessor replace the affected items
of Equipment with similar or like equipment in good condition and repair and of
similar manufacture and equal or greater capacity and capability, with clear
title thereto in Lessor; or (3) make payment to Lessor in an amount equal to the
sum of (i) all Rent Payments on all the Equipment or other amounts past due
(plus interest thereon) or currently owed to Lessor under this Lease, including
unpaid taxes and (ii) all future Rent Payments that would accrue over the
remaining Lease Term plus the estimated fair market value of all of the
Equipment at the end of the Lease Term, such sum to be discounted to present
value at a discount rate equal to the lesser of six (6) percent of the latest 1
year Treasury Note rate, or if required under applicable law, the lowest
effective discount rate allowable under applicable law ("Discount Rate"). Upon
Lessor's receipt of such payment, Lessee shall be entitled to whatever interest
Lessor may have in the Equipment, as-is-where-is, without any warranty, express
or implied, including warranty of merchantability or fitness for any particular
purpose.
6. Insurance: Lessee shall provide, maintain and pay for (a) insurance
against the loss or theft of or damage to the Equipment, for the full
replacement value thereof, naming Lessor (and/or such other person designated by
Lessor) as a loss payee and (b) public liability and property damage insurance
naming Lessor (and/or such other person designated by Lessor) as an additional
insured. All insurance shall be in a form and amount and with companies
satisfactory to Lessor and shall contain the insurer's agreement to give thirty
(30) days written notice to Lessor before cancellation or material change of the
policy. Upon Lessor's request, Lessee shall deliver the policies or copies
thereof or certificates of insurance to Lessor (and/or such other person
designated by Lessor). If Lessee fails to provide or maintain such insurance,
Lessor shall have the right, but shall not be obligated to obtain such insurance
and in such event, Lessee shall repay to Lessor the cost thereof with the next
Rent Payment (not reduced by any amount paid to Lessor as refund or commission).
Lessor reserves the right to terminate any insurance coverage it may obtain and
Lessor may allow any such insurance coverage to lapse without liability to
Lessee. Lessee hereby appoints Lessor its attorney-in-fact to make claims for,
receive payment of, and execute and endorse all documents, checks, or drafts for
loss or damage under any insurance policies.
7. Taxes: Lessee shall pay or reimburse Lessor for all charges taxes
(local, state and federal), fines or penalties which may now or hereafter be
imposed or levied upon the sale, purchase, ownership, leasing or use of the
Equipment, excluding taxes on Lessor's net income. Lessor may, at its option,
charge Lessee a liquidated monthly personal property management fee, to be added
to Rent Payments owed under this Lease.
8. Return: upon expiration of the Lease Term if not renewed or purchase, or
upon demand by Lessor pursuant to paragraph 11 hereof, Lessee, at its expense,
shall return the Equipment (including but not limited to original software,
media, documentation, manuals, cables, power cords, keys, etc.) in good repair
and operable condition, ordinary wear and tear excepted, to such place or on
board such carrier, freight prepaid, packed for shipping as Lessor may specify.
Lessee shall immediately pay to Lessor any cost of replacement or repair. Should
Lessee fail to comply with the provisions described above, the term of the Lease
shall be extended as outlined in paragraph 1.
9. Purchase Option: Unless otherwise provided for, if no Default shall have
occurred and be continuing end of this Lease shall not have been earlier
terminated, Lessee shall be entitled, at its option, upon written notice to
Lessor at least ninety (90) days prior to the end of the Lease Term or any
Page 3
<PAGE>
renewal term, to purchase from Lessor all, but not less than all, of the
Equipment at the end of such term for the amount of the purchase options set
forth above which if it's the then fair market value of the Equipment shall be
as determined by Lessor, based on the value which would be obtained in an arm's
length transaction between an informed and willing buyer and an informed and
willing seller under no compulsion to sell. On the date of such purchase, Lessee
shall pay to Lessor the full purchase price for the Equipment in cash (plus any
taxes levied thereon) and Lessor shall sell the Equipment to Lessee,
AS-IS-WHERE-IS, WITHOUT ANY WARRANTY, EXPRESS OR IMPLIED, WHATSOEVER, INCLUDING
WITHOUT LIMITATION, WARRANTY OF MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR
PURPOSE.
10. Assignability: (a) Without Lessor's prior written consent, Lessee shall
not (1) assign, transfer, pledge, hypothecate or otherwise dispose of this
Lease, any of the Equipment, or any interest therein; or (2) sublet or lend any
of the Equipment or permit any of the Equipment to be used by anyone other than
Lessee or Lessee's employees. Any buyer of all Lessee's assets shall, without
further action, assume the obligations under this Lease. (b) Lessor may sell or
assign this Lease or the Equipment or grant a security interest in the Equipment
in whole or part without notice to Lessee, and Lessor's purchaser, assignee or
secured party may then sell or assign this Lease or the Equipment or grant a
security interest in the Equipment in whole or part without notice to Lessee,
and Lessor's purchaser, assignee or secured party may then sell or assign this
Lease or the Equipment or the security interest without notice to Lessee. Each
such purchaser, assignee or secured party shall have all the rights but none of
the obligations of Lessor under this Lease. Lessee shall recognize such sales,
assignments and/or security agreements and shall not assert against the
purchasers, assignees and/or secured parties any defense, counter-claim or
offset Lessee may have against Lessor. Subject to the foregoing, this Lease
inures to the benefit of and is binding upon the heirs, legatees, personnel
representatives, successors and assigns of the parties hereto.
11. Default and Remedies: (a) Lessee shall be in Default ("Default") if (1)
Lessee fails to pay any Rent Payment or any other amount due under this Lease
within five (5) days after the same becomes due and payable; (2) Lessee fails to
make any payments on any lease or indebtedness of Lessee to Lessor arising
independently of this Lease. In each case within five (5) days after the same
becomes due and payable; (3) Lessee fails to perform or observe any term or
covenant contained in this Lease; (4) Lessee or any Guarantor becomes insolvent
(however defined) ceases business as a going concern, makes an assignment for
the benefit of creditors, causes a petition of receivership or in a bankruptcy
to be filed or have the same filed against it (including a petition for
reorganization or an arrangement), dies or is judicially declared incompetent:
(5) Lessee or any Guarantor has made or furnished to Lessor any warranty,
representation or statement which is proven to have been false in any material
respect when made or furnished; (6) Lessee attempts to sell or encumber the
Equipment, or suffers any levy, seizure or attachment to be made thereof or
thereon; or (7) Lessee commits or fails to commit any act which results in
jeopardizing the rights of Lessor or causes Lessor to deem itself insecure as to
its rights, (b) If Lease is in Default. Lessor, with or without notice to
Lessee, shall have the right to exercise concurrently or separately, and without
any election of remedies to be deemed made, the following remedies: (1) declare
all Rent Payments due hereunder immediately due and payable: (2) terminate this
Lease; (3) without incurring any liability to Lessee, enter upon Lessee's
premises and without any court order or other process of law remove the
Equipment with or without notice to the Lessee; (4) sell or lease the Equipment
at public auction or by private sale or lease; (5) bring an action for damages
or pursue any other remedy available at law or equity. (c) Whether or not Lessor
exercise any of its rights described in this paragraph 11, Lessor may recover
from Lessee as liquidated damages, and not as a penalty, a sum equal to: (1) all
unpaid Rent Payments including unpaid taxes (together with interest thereon) due
up to the date of delivery of the Equipment to Lessor; plus (2) all expenses of
any kind incurred by Lessor as a result of Lessee's Default including cost of
recovery, repair, storage, renting and sale, and attorneys' fees and costs; plus
(3) all unpaid rent Payments due and to become due after the date of surrender
of the Equipment to Lessor, together with the estimated fair market value of the
Equipment both discounted to present value at the Discount Rate; minus (4) the
proceeds (if any) received or to be received upon re-lease (discounted to
present value at the Discount Rate) or actual sale of the Equipment or any item
Page 4
<PAGE>
thereof as determined by Lessor which determination shall be conclusive. Lessee
understands that there can be no assurance that Lessor will be able to re-lease
or sell the Equipment or any item thereof in such circumstances.
12. Indemnity: Lessee shall indemnify, protect and hold harmless Lessor and
its employees, agents and assigns from and against all liabilities (including
negligence, tort, and strict liability), claims, costs (including attorneys'
fees and expenses), actions, suits and proceedings of every kind, arising out of
or in connection with this Lease or the Equipment.
13. Choice of Law; Arbitration: THIS AGREEMENT SHALL BE GOVERNED BY THE
INTERNAL LAWS OF ILLINOIS. Any claim or controversy, including any contract or
tort claim, between or among Lessor, Lessee or any Guarantor related to this
Lease, but excluding any claim or controversy related to the Equipment or
manufacturer warranties shall be determined by binding arbitration in accordance
with Title 9 of the U.S. Code and the Commercial Arbitration Rules of the
American Arbitration Association. All statutes otherwise applicable shall apply.
Judgment upon the arbitration award may be entered in any court having
jurisdiction. This paragraph shall not apply, in the event Lessee or Guarantor
Defaults, to Lessor's right to obtain possession of the Equipment and to bring
suit for any amounts due. This Lease is made in interstate commerce.
14. Finance Lease: Lessee hereby agrees that this Lease is a "finance
lease" as defined by Article 2A of the Illinois Commercial Code, that is Lessee
acknowledges that (1) Lessor did not select manufacture or supply the Equipment,
but did purchase the Equipment for lease to Lessee; and (2) Lessor has given
Lessee the name of the supplier of the Equipment. Lessee may have rights and
warranties under the supply contracts for the Equipment and Lessee may contact
the supplier of the Equipment for a description of those rights and warranties.
To the extent permitted by applicable law, Lessee hereby waives any and all
rights and remedies conferred upon a lessee by Article 2A.
15. Miscellaneous: All of the covenants required of Lessee under this Lease
shall survive the expiration of termination of this Lease to the extent required
for their full observances and performance. This Lease constitutes the entire
agreement between Lessor and Lessee and is irrevocable for the Lease Term and
for the aggregate Rent Payments herein-above reserved, and it shall not be
amended, altered, or changed except by a written agreement signed by the parties
hereto. All notices under this Lease shall be in writing and shall be deemed to
have been duly given on the date of receipted delivery of four (4) business days
after they are mailed to the respective address herein set forth or to such
other address as the parties may hereafter substitute by written notice. Time is
of the essence in this Lease. Any failure of Lessor to require strict
performance by Lessee or any waiver by Lessor of any provision hereof shall not
be construed as a consent or waiver of any other breach of the same or any
provision. If any portion of this Lease is deemed invalid, it shall not affect
the balance of this Lease.
BY SIGNING THIS LEASE, LESSEE ACKNOWLEDGES THAT IT HAS READ AND UNDERSTANDS THE
TERMS AND CONDITIONS ON THE FIRST, SECOND AND THIRD PAGES OF THIS LEASE. LESSEE
REPRESENTS AND WARRANTS THAT THE INFORMATION IN ANY APPLICATION, STATEMENT,
TRADE REFERENCE OR FINANCIAL REPORT SUBMITTED TO LESSOR IS TRUE AND CORRECT AND
UNDERSTANDS THAT ANY MATERIAL MISREPRESENTATION SHALL CONSTITUTE A DEFAULT
HEREUNDER. LESSEE FURTHER REPRESENTS AND WARRANTS THAT LESSEE HAS FULL POWER AND
AUTHORITY TO EXECUTE AND DELIVER THIS LEASE AND PERFORM ITS OBLIGATIONS
HEREUNDER, THAT THIS LEASE IS A VALID AND BINDING OBLIGATION OF LESSEE
ENFORCEABLE AGAINST LESSEE IN ACCORDANCE WITH ITS TERMS AND THAT THE PERSON
EXECUTING THIS LEASE ON BEHALF OF LESSEE IS DULY AUTHORIZED TO DO SO BY ALL
NECESSARY ACTION ON THE PART OF LESSEE.
LESSEE: LESSOR:
- ------------------------------------ -----------------------------------
SYNTHONICS TECHNOLOGIES INC Dell Financial Services L.P.
P.O. Box 811550
Chicago, IL 60681-1550
(800) 955-3355
FAX (512) 728-9091
/s/ F. Michael Budd
- ------------------------------------ -----------------------------------
By: F. Michael Budd SIGNATURE
Its: President & CEO
Date: 11/26/97 Date:
Page 5
<PAGE>
LEASE NO: 004591649-001
LEASE AGREEMENT
ATTACHMENT A
Attached hereto and apart hereof lease NO: 004591649-001 between DELL Financial
services L.P. as Lessor and SYNTHONICS TECHNOLOGIES INC as Lessee
LESSEE: LESSOR:
- ------------------------------------ -----------------------------------
SYNTHONICS TECHNOLOGIES INC Dell Financial Services L.P.
P.O. Box 811550
Chicago, IL 60681-1550
(800) 955-3355
FAX (512) 728-9091
/s/ F. Michael Budd
- ------------------------------------ -----------------------------------
By: F. Michael Budd SIGNATURE
Its: President & CEO
Date: 11/26/97 Date:
Equipment Location:
- ------------------
31324 VIA COLINAS, STE 106, THOUSAND OAKS, CA 91362
General Equipment Description Supplier:
- --------------------------------------
Dell Order # 134359967
Description Quantity
- -------------------------------------- ----------------------------------
INSPIRON M233XT, 13.3" XGA, 16MB, CD 1
NO MODEM OPTION, ALL NBKS TIED 1
64MB SDRAM, 1 DIM, INSP, FACT 1
64MB SDRAM, 1 DIM, INSP, FACT 1
LI-ION SECONDARY BATTERY, 40 WHR, INSP, FACT 1
11/20X CD-ROM, 680M, INT, INSP, FACT 1
4.0GB HD, 12.5 MM, INSP, FACT 1
MICROSOFT IE4.0, FACT 1
MS IIE4.0, CD, UPGRADE, NON-INSTALLED 1
WINDOWS 95 W/CD 1
PORT RPD RESP, INIT, INCLUDED 1
MS OFFICE PRO 97/BSHELF, CD, FAC, US, LAT 1
NO WARRANTY, YRS 2 & 3, L1 1
All other terms and conditions of the lease shall remain unchanged
Exhibit 10.11
-------------
DELL FINANCIAL SERVICES
LEASE NO: 004591649-002
FULL LEGAL NAME OF LESSEE BILLING ADDRESS, CITY, STATE, ZIP CODE
FED ID/SOC NUMBER
SYNTHONICS TECHNOLOGIES INC. 31324 VIA COLINAS, STE 106
THOUSAND OAKS, CA 91362
LEASE TERM (MONTHS) 36
MONTHLY RENT PAYMENT $157.46 Subject to Applicable Tax
MONTHLY PERSONAL
PROPERTY MGMT FEE $2.71 Subject to Applicable Tax
DOCUMENTATION FEE $55.00 Subject to Applicable Tax
TYPE OF BUSINESS: COMMITMENT FEE (MUST ACCOMPANY LEASE)
- ----------------- ------------------------------------
XX Corporation 0 Advance Rent Payments = $.00
____ Proprietorship Applicable Taxes = $.00
____ Limited Liability Company Total = $.00
____ General Partnership
____ Limited Partnership
____ Limited Liability Partnership *Advance rent payments are applied
____ Not for Profit in the following order: first, last
____ Municipality and then in the reverse order due.
EQUIPMENT LOCATION: GENERAL EQUIPMENT DESCRIPTION/SUPPLIER:
---------------------------------------
See Attachment A
GUARANTOR (IF ANY): GUARANTOR (IF ANY):
FED ID/SOC SEC NUMBER FED ID/SOC SEC NUMBER
END OF LEASE PURCHASE OPTION:
--------------------------------------
10% Acquisition Cost
TERMS AND CONDITIONS OF LEASE
The undersigned Lessee agrees to rent from Lessor and Lessor agrees to rent
the above described equipment and/or computer software (the "Equipment") subject
to all of the terms and conditions herein (the "Lease"). Lessee hereby warrants
and represents that the Equipment will be used primarily for business purposes
and not for personal, family or household purposes and not for personal, family
or household purposes.
LESSOR DISCLAIMS ANY WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING
WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR ANY
PARTICULAR PURPOSE WITH RESPECT TO THE EQUIPMENT. LESSOR HEREBY ASSIGNS ALL
WARRANTIES MADE TO LESSOR BY SUPPLIER AND/OR MANUFACTURER TO LESSEE, AND LESSEE
AGREES THAT ALL CLAIMS OF ANY KIND RELATING TO THE EQUIPMENT SHALL BE MADE
AGAINST SUPPLIER AND/OR MANUFACTURER. THIS LEASE IS NON-CANCELABLE, THE
OBLIGATION TO PAY ALL RENT PAYMENTS AND OTHER AMOUNTS PAYABLE UNDER THIS LEASE
IS ABSOLUTE AND UNCONDITIONAL, DESPITE ANY DISSATISFACTION WITH THE EQUIPMENT
FOR ANY REASON, SHALL NOT BE AFFECTED BY ANY EVENT OR CIRCUMSTANCE, AND SHALL BE
PAID BY LESSEE IRRESPECTIVE OF ANY RIGHT OF OFF-SET, COUNTERCLAIM, RECOUPMENT,
DEFENSE OR OTHER RIGHT WHICH LESSEE MAY HAVE AGAINST LESSOR, THE MANUFACTURER OR
SUPPLIER OF THE EQUIPMENT OR ANY OTHER THIRD PARTY.
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Equipment shall be deemed accepted for purposes of this Lease five (5)
business days after shipment.
1. Term; Rent: The term of the Lease ("Lease Term") shall commence five (5)
business days after shipment (the "Commencement Date"). Lessee agrees to pay
Lessor or its assignees during the Lease Term, in U.S. Dollars, at an address to
be provided by Lessor, the total Rent Payments ("Rent Payments") as specified
herein. The first Rent Payment is due on the Commencement Date, and subsequent
Rent Payments are due on the same date of each month thereafter (or the last day
of the month if there is no such date). Lessee hereby authorizes Lessor to
adjust the Rent Payment by not more than 15% if the actual Acquisition Cost
(which is all amounts Lessor has paid or will pay in connection with the
purchase, delivery, and installation of the equipment, including any trade-up
and buy-out amounts) differs from the estimated Acquisition Cost. If any Rent
Payment or other amount payable to Lessor is not paid within 5 (5) days after
the due date thereof, Lessee shall pay to Lessor interest on any such late
payment from the due date thereof until payment at a rate of 18% per annum or,
if less, the highest interest rate permitted by applicable law. At the end of
the Lease Term, this Lease will automatically renew for additional three-month
periods on the same terms and conditions (including the same monthly Rent
Payments) unless Lessee gives Lessor ninety (90) days written notice prior to
the expiration of the Lease Term or any three-month renewal term and returns the
Equipment to the Lessor as provided herein.
2. Selection and Ordering of Equipment: Lessee shall select the type and
quantity of the Equipment subject to this Lease. If Lessee has entered into a
purchase agreement with any supplier, Lessee hereby assigns all right, title and
interest in such purchase agreement to Lessor effective prior to the passages of
title from supplier to Lessee.
3. Location; Use; Maintenance: Except for mobile Equipment (e.g. laptop
computers), Lessee shall use the Equipment solely at the location specified in
the Lease, or if none is specified, at Lessee's billing address set forth in the
Lease, and the Equipment shall not be moved without Lessor's prior written
consent. Lessee shall, at its expense, maintain the Equipment in good repair
condition, and functional order, shall not use the Equipment unlawfully or
unsafely and shall not alter the Equipment without Lessor's prior written
consent. Lessor, its assignees and agents shall have the right to inspect the
Equipment at the premises where the Equipment is located. Lessee shall use the
computer software in accordance with the software license agreement.
4. Title; Personal Property; Filing: The Equipment is, and shall at all
times remain, the property of Lessor, and Lessee shall have no right, title or
interest therein or thereto except as expressly set forth in this Lease. Lessee
grants Lessor a purchase money security interest in the Equipment and shall keep
the Equipment free from any and all liens, encumbrances and claims, except those
created by Lessor, and shall do or permit any act or thing whereby Lessor's
title of rights may be encumbered or impaired. So long as Lessee is not in
Default hereunder, Lessor agrees not to interfere with Lessee's quiet use and
enjoyment of the Equipment during the Lease Term or any renewal term. The
Equipment is and shall at all times remain, personal property notwithstanding
that the Equipment or any part thereof may now be or hereafter become in any
manner affixed or attached to real property or any improvements thereof. All
additions or improvements to the Equipment of any kind or nature ,made by Lessee
shall become component parts thereof, and title shall immediately vest in Lessor
and be governed by the terms of this Lease. Lessee will, if requested, at its
expense, furnish a landlord or mortgagee waiver with respect to the Equipment in
form satisfactory to Lessor. Lessee hereby appoints Lessor its attorney-in-fact
to prepare, execute and sign any instrument or financing statement necessary to
protect Lessor's interest in the Equipment, to sign the name of Lessee with the
same force and effect as if signed by Lessee and to file the same at the proper
location or locations. Lessee further agrees, if Lessor so requests, to execute
any instrument or financing statement necessary to protect Lessor's interest in
the Equipment and to pay a one-time Documentation Fee to cover Lessor's costs
for such filing and other documentation costs.
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5. Loss or Damage: Lessee assumes and shall bear the entire risk of loss,
theft, destruction or damage of or to the Equipment or any item thereof ("Loss
or Damage") from any cause whatsoever, whether or not covered by insurance, from
time to time the Equipment is delivered to a carrier for shipment to Lessee
until its return to Lessor, and no such loss or damage shall result in a
termination of Lessee's obligations under this Lease. Lessee shall promptly
notify Lessor, and, at the option of Lessor, shall (1) at Lessee's expense,
repair the affected items of Equipment to the satisfaction of Lessor, or (2) at
Lessee's expense, and to the satisfaction of Lessor replace the affected items
of Equipment with similar or like equipment in good condition and repair and of
similar manufacture and equal or greater capacity and capability, with clear
title thereto in Lessor; or (3) make payment to Lessor in an amount equal to the
sum of (i) all Rent Payments on all the Equipment or other amounts past due
(plus interest thereon) or currently owed to Lessor under this Lease, including
unpaid taxes and (ii) all future Rent Payments that would accrue over the
remaining Lease Term plus the estimated fair market value of all of the
Equipment at the end of the Lease Term, such sum to be discounted to present
value at a discount rate equal to the lesser of six (6) percent of the latest 1
year Treasury Note rate, or if required under applicable law, the lowest
effective discount rate allowable under applicable law ("Discount Rate"). Upon
Lessor's receipt of such payment, Lessee shall be entitled to whatever interest
Lessor may have in the Equipment, as-is-where-is, without any warranty, express
or implied, including warranty of merchantability or fitness for any particular
purpose.
6. Insurance: Lessee shall provide, maintain and pay for (a) insurance
against the loss or theft of or damage to the Equipment, for the full
replacement value thereof, naming Lessor (and/or such other person designated by
Lessor) as a loss payee and (b) public liability and property damage insurance
naming Lessor (and/or such other person designated by Lessor) as an additional
insured. All insurance shall be in a form and amount and with companies
satisfactory to Lessor and shall contain the insurer's agreement to give thirty
(30) days written notice to Lessor before cancellation or material change of the
policy. Upon Lessor's request, Lessee shall deliver the policies or copies
thereof or certificates of insurance to Lessor (and/or such other person
designated by Lessor). If Lessee fails to provide or maintain such insurance,
Lessor shall have the right, but shall not be obligated to obtain such insurance
and in such event, Lessee shall repay to Lessor the cost thereof with the next
Rent Payment (not reduced by any amount paid to Lessor as refund or commission).
Lessor reserves the right to terminate any insurance coverage it may obtain and
Lessor may allow any such insurance coverage to lapse without liability to
Lessee. Lessee hereby appoints Lessor its attorney-in-fact to make claims for,
receive payment of, and execute and endorse all documents, checks, or drafts for
loss or damage under any insurance policies.
7. Taxes: Lessee shall pay or reimburse Lessor for all charges taxes
(local, state and federal), fines or penalties which may now or hereafter be
imposed or levied upon the sale, purchase, ownership, leasing or use of the
Equipment, excluding taxes on Lessor's net income. Lessor may, at its option,
charge Lessee a liquidated monthly personal property management fee, to be added
to Rent Payments owed under this Lease.
8. Return: upon expiration of the Lease Term if not renewed or purchase, or
upon demand by Lessor pursuant to paragraph 11 hereof, Lessee, at its expense,
shall return the Equipment (including but not limited to original software,
media, documentation, manuals, cables, power cords, keys, etc.) in good repair
and operable condition, ordinary wear and tear excepted, to such place or on
board such carrier, freight prepaid, packed for shipping as Lessor may specify.
Lessee shall immediately pay to Lessor any cost of replacement or repair. Should
Lessee fail to comply with the provisions described above, the term of the Lease
shall be extended as outlined in paragraph 1.
9. Purchase Option: Unless otherwise provided for, if no Default shall have
occurred and be continuing end of this Lease shall not have been earlier
terminated, Lessee shall be entitled, at its option, upon written notice to
Lessor at least ninety (90) days prior to the end of the Lease Term or any
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renewal term, to purchase from Lessor all, but not less than all, of the
Equipment at the end of such term for the amount of the purchase options set
forth above which if it's the then fair market value of the Equipment shall be
as determined by Lessor, based on the value which would be obtained in an arm's
length transaction between an informed and willing buyer and an informed and
willing seller under no compulsion to sell. On the date of such purchase, Lessee
shall pay to Lessor the full purchase price for the Equipment in cash (plus any
taxes levied thereon) and Lessor shall sell the Equipment to Lessee,
AS-IS-WHERE-IS, WITHOUT ANY WARRANTY, EXPRESS OR IMPLIED, WHATSOEVER, INCLUDING
WITHOUT LIMITATION, WARRANTY OF MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR
PURPOSE.
10. Assignability: (a) Without Lessor's prior written consent, Lessee shall
not (1) assign, transfer, pledge, hypothecate or otherwise dispose of this
Lease, any of the Equipment, or any interest therein; or (2) sublet or lend any
of the Equipment or permit any of the Equipment to be used by anyone other than
Lessee or Lessee's employees. Any buyer of all Lessee's assets shall, without
further action, assume the obligations under this Lease. (b) Lessor may sell or
assign this Lease or the Equipment or grant a security interest in the Equipment
in whole or part without notice to Lessee, and Lessor's purchaser, assignee or
secured party may then sell or assign this Lease or the Equipment or grant a
security interest in the Equipment in whole or part without notice to Lessee,
and Lessor's purchaser, assignee or secured party may then sell or assign this
Lease or the Equipment or the security interest without notice to Lessee. Each
such purchaser, assignee or secured party shall have all the rights but none of
the obligations of Lessor under this Lease. Lessee shall recognize such sales,
assignments and/or security agreements and shall not assert against the
purchasers, assignees and/or secured parties any defense, counter-claim or
offset Lessee may have against Lessor. Subject to the foregoing, this Lease
inures to the benefit of and is binding upon the heirs, legatees, personnel
representatives, successors and assigns of the parties hereto.
11. Default and Remedies: (a) Lessee shall be in Default ("Default") if (1)
Lessee fails to pay any Rent Payment or any other amount due under this Lease
within five (5) days after the same becomes due and payable; (2) Lessee fails to
make any payments on any lease or indebtedness of Lessee to Lessor arising
independently of this Lease. In each case within five (5) days after the same
becomes due and payable; (3) Lessee fails to perform or observe any term or
covenant contained in this Lease; (4) Lessee or any Guarantor becomes insolvent
(however defined) ceases business as a going concern, makes an assignment for
the benefit of creditors, causes a petition of receivership or in a bankruptcy
to be filed or have the same filed against it (including a petition for
reorganization or an arrangement), dies or is judicially declared incompetent:
(5) Lessee or any Guarantor has made or furnished to Lessor any warranty,
representation or statement which is proven to have been false in any material
respect when made or furnished; (6) Lessee attempts to sell or encumber the
Equipment, or suffers any levy, seizure or attachment to be made thereof or
thereon; or (7) Lessee commits or fails to commit any act which results in
jeopardizing the rights of Lessor or causes Lessor to deem itself insecure as to
its rights, (b) If Lease is in Default. Lessor, with or without notice to
Lessee, shall have the right to exercise concurrently or separately, and without
any election of remedies to be deemed made, the following remedies: (1) declare
all Rent Payments due hereunder immediately due and payable: (2) terminate this
Lease; (3) without incurring any liability to Lessee, enter upon Lessee's
premises and without any court order or other process of law remove the
Equipment with or without notice to the Lessee; (4) sell or lease the Equipment
at public auction or by private sale or lease; (5) bring an action for damages
or pursue any other remedy available at law or equity. (c) Whether or not Lessor
exercise any of its rights described in this paragraph 11, Lessor may recover
from Lessee as liquidated damages, and not as a penalty, a sum equal to: (1) all
unpaid Rent Payments including unpaid taxes (together with interest thereon) due
up to the date of delivery of the Equipment to Lessor; plus (2) all expenses of
any kind incurred by Lessor as a result of Lessee's Default including cost of
recovery, repair, storage, renting and sale, and attorneys' fees and costs; plus
(3) all unpaid rent Payments due and to become due after the date of surrender
of the Equipment to Lessor, together with the estimated fair market value of the
Equipment both discounted to present value at the Discount Rate; minus (4) the
proceeds (if any) received or to be received upon re-lease (discounted to
present value at the Discount Rate) or actual sale of the Equipment or any item
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thereof as determined by Lessor which determination shall be conclusive. Lessee
understands that there can be no assurance that Lessor will be able to re-lease
or sell the Equipment or any item thereof in such circumstances.
12. Indemnity: Lessee shall indemnify, protect and hold harmless Lessor and
its employees, agents and assigns from and against all liabilities (including
negligence, tort, and strict liability), claims, costs (including attorneys'
fees and expenses), actions, suits and proceedings of every kind, arising out of
or in connection with this Lease or the Equipment.
13. Choice of Law; Arbitration: THIS AGREEMENT SHALL BE GOVERNED BY THE
INTERNAL LAWS OF ILLINOIS. Any claim or controversy, including any contract or
tort claim, between or among Lessor, Lessee or any Guarantor related to this
Lease, but excluding any claim or controversy related to the Equipment or
manufacturer warranties shall be determined by binding arbitration in accordance
with Title 9 of the U.S. Code and the Commercial Arbitration Rules of the
American Arbitration Association. All statutes otherwise applicable shall apply.
Judgment upon the arbitration award may be entered in any court having
jurisdiction. This paragraph shall not apply, in the event Lessee or Guarantor
Defaults, to Lessor's right to obtain possession of the Equipment and to bring
suit for any amounts due. This Lease is made in interstate commerce.
14. Finance Lease: Lessee hereby agrees that this Lease is a "finance
lease" as defined by Article 2A of the Illinois Commercial Code, that is Lessee
acknowledges that (1) Lessor did not select manufacture or supply the Equipment,
but did purchase the Equipment for lease to Lessee; and (2) Lessor has given
Lessee the name of the supplier of the Equipment. Lessee may have rights and
warranties under the supply contracts for the Equipment and Lessee may contact
the supplier of the Equipment for a description of those rights and warranties.
To the extent permitted by applicable law, Lessee hereby waives any and all
rights and remedies conferred upon a lessee by Article 2A.
15. Miscellaneous: All of the covenants required of Lessee under this Lease
shall survive the expiration of termination of this Lease to the extent required
for their full observances and performance. This Lease constitutes the entire
agreement between Lessor and Lessee and is irrevocable for the Lease Term and
for the aggregate Rent Payments herein-above reserved, and it shall not be
amended, altered, or changed except by a written agreement signed by the parties
hereto. All notices under this Lease shall be in writing and shall be deemed to
have been duly given on the date of receipted delivery of four (4) business days
after they are mailed to the respective address herein set forth or to such
other address as the parties may hereafter substitute by written notice. Time is
of the essence in this Lease. Any failure of Lessor to require strict
performance by Lessee or any waiver by Lessor of any provision hereof shall not
be construed as a consent or waiver of any other breach of the same or any
provision. If any portion of this Lease is deemed invalid, it shall not affect
the balance of this Lease.
BY SIGNING THIS LEASE, LESSEE ACKNOWLEDGES THAT IT HAS READ AND UNDERSTANDS THE
TERMS AND CONDITIONS ON THE FIRST, SECOND AND THIRD PAGES OF THIS LEASE. LESSEE
REPRESENTS AND WARRANTS THAT THE INFORMATION IN ANY APPLICATION, STATEMENT,
TRADE REFERENCE OR FINANCIAL REPORT SUBMITTED TO LESSOR IS TRUE AND CORRECT AND
UNDERSTANDS THAT ANY MATERIAL MISREPRESENTATION SHALL CONSTITUTE A DEFAULT
HEREUNDER. LESSEE FURTHER REPRESENTS AND WARRANTS THAT LESSEE HAS FULL POWER AND
AUTHORITY TO EXECUTE AND DELIVER THIS LEASE AND PERFORM ITS OBLIGATIONS
HEREUNDER, THAT THIS LEASE IS A VALID AND BINDING OBLIGATION OF LESSEE
ENFORCEABLE AGAINST LESSEE IN ACCORDANCE WITH ITS TERMS AND THAT THE PERSON
EXECUTING THIS LEASE ON BEHALF OF LESSEE IS DULY AUTHORIZED TO DO SO BY ALL
NECESSARY ACTION ON THE PART OF LESSEE.
LESSEE: LESSOR:
- ------------------------------------ -----------------------------------
SYNTHONICS TECHNOLOGIES INC Dell Financial Services L.P.
P.O. Box 811550
Chicago, IL 60681-1550
(800) 955-3355
FAX (512) 728-9091
/s/ F. Michael Budd
- ------------------------------------ -----------------------------------
By: F. Michael Budd SIGNATURE
Its: President & CEO
Date: 5/22/98 Date:
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LEASE NO: 004591649-002
LEASE AGREEMENT
ATTACHMENT A
Attached hereto and apart hereof lease NO: 004591649-002 between DELL Financial
services L.P. as Lessor and SYNTHONICS TECHNOLOGIES INC as Lessee
LESSEE: LESSOR:
- ------------------------------------ -----------------------------------
SYNTHONICS TECHNOLOGIES INC Dell Financial Services L.P.
P.O. Box 811550
Chicago, IL 60681-1550
(800) 955-3355
FAX (512) 728-9091
/s/ F. Michael Budd
- ------------------------------------ -----------------------------------
By: F. Michael Budd SIGNATURE
Its: President & CEO
Date: 5/22/98 Date:
Equipment Location:
- ------------------
31324 VIA COLINAS, STE 106, THOUSAND OAKS, CA 91362
General Equipment Description Supplier:
- --------------------------------------
Dell Order # 161205919
Description Quantity
- -------------------------------------- ----------------------------------
INSPIRON M233XT, 13.3" XGA, 16MB, CD 1
NO MODEM OPTION, ALL NBKS TIED 1
64MB 1DIMM, 64MB 1 DIMM, 144TOTAL, INSP, FACT 1
LI-ION SECONDARY BATTERY, 40WHR, INSP, FACT 1
10/24X CDROM, 680M, INSP, FACT 1
6.4GB HD, 12.5MM, INSP, FACT 1
MICROSOFT IE4.0, FACT 1
W98, ELIGIBILITY, XPS, INSP, AMF, FACT 1
WINDOWS 95 W/CD 1
PORT RPD RESP, INIT, INCLUDED 1
MS OFFICE PRO97/BSHELF, CDWD, FAC, US, 13000 1
NO WARRANTY, YRS 2 & 3, L1 1
All other terms and conditions of the lease shall remain unchanged
Exhibit 10.12
-------------
AMERICORP FINANCIAL INC.
South Adams Road
Birmingham, MI 48009
(248) 723-4500
LEASE 5976-2
DESCRIPTION OF LEASED EQUIPMENT SCHEDULE OF PAYMENTS
- ------------------------------- ---------------------------------
See Schedule A 36 MONTHLY PAYMENTS OF $285.75
PAYABLE AT SIGNING OF THE LEASE
___ SECURITY DEPOSIT
X OTHER 1st and 36th AMOUNT $571.50
---
EQUIPMENT LOCATION: (if other than below)
Dear Lessee, we have written this Lease in plain language because we want you to
fully understand its terms. For purposes of clarity, the terms "You" and "Your"
mean the lessee and the terms "We", "Us" and "Our" mean the lessor.
1. Lease Terms. In consideration of our purchase of the Equipment selected
by you, we hereby lease to you and you hereby lease from us the equipment listed
above and on any attached schedule (hereinafter the "Equipment"), on the terms
and conditions set forth herein. This Lease will be accepted by us on the date
signed below by an authorized representative of ours. Any Advance Payment by you
shall be held as security for your performance of this Lease and shall not be
deemed an acceptance by us. YOU CANNOT CANCEL THIS LEASE AFTER WE HAVE ACCEPTED
IT.
2. NET FINANCE LEASE. YOU AGREE THAT YOU ARE UNCONDITIONALLY OBLIGATED TO
PAY ALL RENT AND OTHER AMOUNTS DUE FOR THE ENTIRE LEASE TERM NO MATTER WHAT
HAPPENS, EVEN IF THE EQUIPMENT IS DAMAGED OR DESTROYED, IF IT IS DEFECTIVE OR IF
YOU CAN NO LONGER USE IT. YOU ARE NOT ENTITLED TO SET-OFF AGAINST RENT OR ANY
OTHER AMOUNTS DUE TO US OR TO ANYONE TO WHOM WE TRANSFER THIS LEASE, WHETHER
YOUR CLAIM ARISES OUT OF THIS LEASE, ANY STATEMENT BY US, OUR LIABILITY OR
SUPPLIER'S OR MANUFACTURER'S LIABILITY, STRICT LIABILITY, NEGLIGENCE, OR
OTHERWISE. THIS LEASE IS A FINANCE LEASE AS DEFINED IN ARTICLE 2A OF THE UNIFORM
COMMERCIAL CODE. YOU HAVE SELECTED THE EQUIPMENT AND THE SUPPLIER BASED ON YOUR
OWN JUDGMENT AND ARE FULLY SATISFIED THEREWITH. YOU MAY HAVE RIGHTS UNDER THE
PURCHASE CONTRACT FROM THE SUPPLIER WHOM YOU HAVE CHOSEN AND SHOULD CONTACT THE
SUPPLIER FOR A DESCRIPTION OF ANY SUCH RIGHTS. YOU UNDERSTAND THAT WE ARE NOT AN
AGENT OF THE SUPPLIER.
3. WAIVER OF WARRANTIES. WE MAKE NO WARRANTY, EXPRESS OR IMPLIED, AS TO ANY
MATTER WHATSOEVER, INCLUDING THE CONDITION OF THE EQUIPMENT, ITS
MERCHANTABILITY, ITS FITNESS FOR PARTICULAR PURPOSE, ITS DURABILITY OR
SUITABILITY. YOU LEASE THE EQUIPMENT AS IS. AND WITH ALL FAULTS. WE SHALL IN NO
EVENT BE LIABLE FOR CONSEQUENTIAL, INCIDENTAL, OR SPECIAL DAMAGES. IF THE
EQUIPMENT IS NOT PROPERLY INSTALLED, DOES NOT OPERATE AS REPRESENTED OR
WARRANTED BY SUPPLIER, OR IS UNSATISFACTORY FOR ANY REASON, YOU SHALL MAKE ANY
CLAIM SOLELY AGAINST SUPPLIER AND SHALL CONTINUE TO PAY US ALL RENTS AND OTHER
AMOUNTS DUE UNDER THIS LEASE. YOU WAIVE ALL RIGHTS AND REMEDIES UNDER SECTIONS
508 TO 522 OF ARTICLE 2A OF THE UNIFORM COMMERCIAL CODE OR COMPARABLE PROVISIONS
OF APPLICABLE LAW, WHICH SUCH WAIVER INCLUDES YOUR RIGHT TO: (i) CANCEL OR
REPUDIATE THIS LEASE; (ii) REJECT OR REVOKE ACCEPTANCE OF THE EQUIPMENT; (iii)
RECOVER DAMAGES FROM US; and (iv) GRANT A SECURITY INTEREST IN ANY EQUIPMENT IN
YOUR POSSESSION.
NO SALESPERSON OR OWNER IS AUTHORIZED TO CHANGE ANY TERM OF THIS LEASE. YOU
HAVE NOT RELIED ON ANY STATEMENTS WE OR OUR EMPLOYEES HAVE MADE. WE WILL NOT BE
LIABLE FOR ANY DELAY IN DELIVERY OR INSTALLATION. WE HAVE NOT MADE AND DO NOT
MAKE ANY REPRESENTATION OR WARRANTY OF ANY KIND, DIRECT OR INDIRECT.
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4. Your Warranties to Us. You and any guarantor represent and warrant to
us:
A. You have read and understand this Lease
B. You authorized us to insert in this Lease the serial numbers and
other identification data of the Equipment.
C. The Equipment will be used for business purposes only and not for
any persons, family, or household purposes.
D. The financial information and other statements provided to us are
accurate and correct and will be updated upon our request during
the term of the Lease.
E. You have the authority to enter into this Lease, have authorized
the person(s) executing it and certify that all signatures are
genuine, that this Lease and any Guaranty do not breach the
provisions of any law or regulation or any agreement to which you
or Guarantor is a party.
F. You have selected the Equipment and Supplier and are fully
satisfied therewith.
G. You will pay all costs normally paid in a net lease, including
taxes, insurance, shipping, repairs, and collection costs.
5. ASSIGNMENTS. YOU SHALL NOT SELL, ASSIGN, SUBLEASE, OR PERMIT A LIEN ON
THIS LEASE, THE EQUIPMENT, ANY ACCESSORIES ATTACHED THERETO OR ANY INTEREST
HEREIN. We may assign the Lease and ownership of the Equipment without notice to
you. You agree that our assignee will have all or our rights under this Lease
and title to the Equipment, but will have not obligations hereunder. You agree
that our assignee will not be subject to any claims that you may have against us
or any third party and you shall not assert any defense, counterclaim, or
set-off against our assignee.
6. Operation and Maintenance of Equipment. You are solely responsible for
the installation, operation, and maintenance of the Equipment. You will keep the
Equipment in good working condition and repair, at your expense, and will
operate and maintain the Equipment in compliance with all laws relating to its
possession, use, or maintenance and in the manner intended by the Supplier and
in compliance with and in a manner to keep the Equipment covered by all
applicable manufacturer's and supplier' maintenance contracts, warranties, and
manuals. You will not make any modification, alteration, or addition to the
Equipment, other than normal operating repairs, without our prior written
consent. All alterations shall be our property. You will allow us access to the
Equipment at any location at any reasonable time to inspect same.
7. Lease Payments. You understand that time is of the essence. You will pay
all lease payments, plus other charges provided herein and applicable taxes, in
advance on the dates designated by us. The term of the Lease shall commence and
the first rent payment shall be due on the date the Equipment is delivered to
you. Rent is thereafter due on the same day of each month or at such a time as
we may designate in writing. You must pay the rent and other sums due hereunder
even if you are dissatisfied with the Equipment or have a claim regarding It.
You authorize us to adjust lease payments up to twenty percent (20%) in the
event the actual total cost of the Equipment is different than our estimate.
Payments will be made at such place as we may from time to time designate in
writing. You agree that we may apply any payment made to any amounts owing us at
our sole discretion, whether such payment application has been designated by you
or not. If this Lease does not commence for any reason, you agree that we will
keep any advance payment made. You authorize us to insert the Commencement Date
for all purposes of the Lease, the serial numbers of the Equipment, and other
information into this Lease.
8. Return of Equipment. At the termination of the Lease, you will, at your
expense, immediately crate, insure, and ship the Equipment and operating manuals
to a destination designated by us, in as good a condition as received, less
normal wear and tear. You will pay us an amount equal to the monthly lease
payment for any month, or part thereof, from the date of termination of the
Lease until the Equipment is received by us as provided herein.
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9. Ownership and Title. We are the sole owner of the Equipment and no title
or right shall pass to you during the Lease term. You understand that we own all
residual rights to the Equipment. We may inspect the Equipment at any location
and affix markings on the Equipment (or, at our request, you agree to do so)
indicating we are the owner and you will not remove such markings. You will list
the Equipment as "Leased Equipment" on your personal property tax return. The
Equipment will not be affixed to realty and you will, at our request, obtain
such owner and/or mortgagee waivers as we request. You will maintain the
Equipment so that it may be removed from any realty or building without damage.
10. Taxes, Assessments, and Fees. You agree to pay licensing and
registration fees for the Equipment and all excise taxes, sales and use taxes,
personal property taxes, and all other taxes, assessments, fees and penalties
which may be levied, assessed and/or imposed by any governmental entity during
the term of this Lease arising from the acquisition, ownership, leasing, rental,
sale, purchase, possession, or use of the Equipment, whether due before or after
the termination of this Lease; to show the Equipment as leased equipment. On
your personal property tax returns, and upon our request, you shall pay to us,
in advance and/or at the times requested by us, the taxes which we anticipate
will be due or assessed on the Equipment during the lease term. You shall
reimburse us upon demand for any amount expended for such charges, taxes,
assessments, fees, or penalties paid by us hereunder, plus any amount due under
Section 15 hereunder. You agree to reimburse us for reasonable costs incurred in
collecting any charges, taxes, assessments, or fees for which you are liable
hereunder. Your obligations to pay such taxes which are due or assessed during
the lease term shall survive the expiration of this Lease. You authorize us to
file financing statements without your signature with respect to the Equipment
and if a signature is required by law, you hereby appoint us as your
attorney-in-fact to execute such financing statements. For purposes of any
filing, you hereby grant us a security interest in all payments receivable and
the Equipment, and all your interest therein, and all proceeds and products
thereof.
11. Risk of Loss Insurance. You assume the entire risk of loss, theft, and
damage to the Equipment until redelivery to us at the expiration of the Lease,
whether or not covered by insurance. No such loss will relieve you of your
obligations hereunder. You will, at your own expense, keep the Equipment fully
insured against loss in such amounts as are acceptable to us, but in no event
for less than the unpaid balance of the Lease payments plus the then current
fair market value of the Equipment. If you do not provide us with acceptable
insurance, we may, but are not required to, purchase such insurance for you and
add a charge to the payments which will include the premium cost, costs
associated with effecting the insurance and a carrying charge of one and one
half percent (1-1/2%) per month on the unpaid premium cost or the rate allowed
by applicable law, whichever is lower. You also agree to maintain public
liability, personal injury, and property damage insurance in amounts acceptable
to us. All insurance shall be with companies acceptable to us and shall name us
or, if directed by us, our assignee as additional insured and sole loss payee.
Each policy shall provide that the insurance cannot be invalidated against us by
any act, omission, or neglect by you and cannot be modified or canceled without
thirty (30) days prior written notice to us. You will furnish us with
satisfactory evidence of the insurance coverage required hereunder. All proceeds
from such insurance shall be applied, at our option, toward the replacement or
repair of the equipment or the payment of your obligations hereunder. You
appoint us as your attorney-in-fact to make claim for, receive payment of, and
execute and endorse all documents, checks, or drafts for loss, damage, or return
premium under any such insurance policy.
12. Indemnity. We are not responsible for and you shall be responsible for
arid indemnify and hold us, and any assignee of ours, harmless against all
claim, damages, losses, liabilities, injuries to persons or property and
expenses (including attorneys' fees) arising or resulting from the ownership,
manufacture, selection, transportation, installation, maintenance, use,
possession, operation (regardless of where, how, and by whom) control or
condition (whether or not latent or discoverable), delivery or return of the
Equipment. This indemnification continues even after the termination of the
Lease term.
Page 3
<PAGE>
13. Default. You will be in default of this Lease if any of the following
occur: (a) You fail to pay any lease payment, or any other sums hereunder when
due and such failure continues for five (5) days; (b) you breach any term,
condition, warranty, or representation of this Lease or any other agreement
between us; (c) you or any Guarantor become insolvent, assign your assets for
the benefit of your creditors, enter into (voluntarily or involuntarily) any
proceeding in bankruptcy or receivership or breach any term of any loan or
credit agreement; (d) you or any Guarantor dies, merges, transfers a majority of
its stock or assets, or ceases doing business; or (e) you or any Guarantor gives
us reasonable cause to be insecure about your ability to perform your respective
obligations under this Lease.
14. Remedies. Upon any default, we shall have the right to: (a) accelerate
all sums under the Lease and require that you pay, as compensation for our loss
and not as a penalty, all unpaid rents for the remainder of the Lease term
(which we will discount to their present value at a discount rate of six (6%)
percent) plus all other amounts due, including all expenses in enforcing our
rights, plus the fair market value of similar equipment of like age, and/or (b)
retake immediate possession of the Equipment without any court order or other
process of law and for such purpose you agree that we may enter upon any
premises where the Equipment may be and remove it with or without notice and
without being liable to you in any suit or action or other proceedings and we
may, at our option, sell or re-lease the Equipment at any public or private sale
for cash or on credit and you will be liable for the expense incurred in the
repossession, recovery, storage, repair, sale, release, and courts cost, in
addition to any arrears in rent and the balance of the lease payments and other
sums charged hereunder, together with reasonable attorney's fees, provided,
however, that we will credit you with the net proceeds of disposition, if any,
of the Equipment, and/or (c) require you to return the Equipment to us as
provided herein, and/or (d) pursue any other remedy that we may have under law
or equity. You agree to pay us all costs of enforcing our rights, including
reasonable attorney fees which are stipulated to be in the minimum amount of at
lease twenty percent (20%) of the remaining balance of all rental payments plus
all of our actual costs. Our rights shall be cumulative, and if we take action
upon one it shall not preclude us from any other rights or remedies hereunder or
at law or equity to which we may be entitled. All sums above are immediately due
and payable. You remain liable for any loss, destruction, or injury to the
Equipment until the Equipment is resumed in the manner herein provided. The
provisions of this Lease are severable and shall not be affected or impaired if
any one provision is held unenforceable, invalid, or illegal.
15. Late Charge. If any payment due under this Lease is not paid when due,
you will pay a late charge to us equal to ten percent (10%) of each late payment
or Fifteen Dollars ($15.00) whichever is greater, plus interest upon each late
payment calculated at the rate of one and three-quarters percent (1.75%) per
month, or any part thereof, commencing one month after the due date of such late
payment. These charges shall apply only when permitted by law and, if greater
than allowed, shall be reduced to the maximum rate allowed by applicable law.
16. Reimbursement. You agree that we have the right, but not the obligation
to perform such acts and incur such expenses as we deem necessary, in our sole
discretion, for the protection and preservation of the Equipment, including the
payment of taxes, insurance, or maintenance costs. Any amounts so paid or
incurred by us shall be at your expense and shall be immediately due from you to
us. Additionally, you agree that you shall pay us interest at the higher of one
and three quarters percent (1.75%) per month or the maximum applicable legal
rate from the date advanced.
17. Michigan Law. THIS AGREEMENT SHALL BE CONSTRUED, GOVERNED, INTERPRETED,
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE Of MICHIGAN AND SHALL BE
DEEMED TO BE FULLY AND SOLELY EXECUTED, PERFORMED AND/OR OBSERVED IN THE STATE
OF MICHIGAN. THE PARTIES HERETO EXPRESSLY CONSENT TO PERSONAL JURISDICTION OF
THE STATE OF MICHIGAN IN ANY ACTION OR PROCEEDING BROUGHT IN ANY COURT THEREIN,
STATE OR FEDERAL, ARISING FROM OR ALLEGING FACTS ARISING FROM THE TRANSACTIONS
CONTEMPLATED HEREIN. YOU AND ANY GUARANTOR HEREBY EXPRESSLY WAIVE ANY RIGHT TO A
TRIAL BY JURY IN ANY ACTION OR PROCEEDING ARISING HEREUNDER OR UNDER THE
GUARANTY.
18. Service of Process. You and any Guarantor agree that service of process
for any action or proceeding shall be valid if mailed by certified mail, return
receipt requested, with delivery directed to you, Guarantor or your registered
agent, as the case may be.
Page 4
<PAGE>
19. Entire Agreement. This Lease contains our entire agreement and
supersedes any conflicting provisions of any order or other agreement. Except
for the insertion of data as provided herein, this Lease may not be amended or
modified except by a writing signed by you and an authorized officer of ours.
20. Financial Statements. For purposes of filing, you grant us a security
interest in your rights in the Equipment and all products and proceeds thereof,
including insurance proceeds. You agree to sign all financing statements which
we may require. You authorize us to file financing statements regarding the
Equipment without your signature and if a signature is required by law, you
hereby appoint us as your attorney-in-fact to execute all financing statements
and you will pay us the cost of preparing and filing such statements.
21. Severability. In the event any provision herein is in conflict with and
unenforceable under applicable law, such provision shall be deemed inoperable
only to the extent of such conflict and shall be deemed modified only to the
extent necessary to be enforceable. In the event this Lease is determined to
include interest payments higher than allowed by law, then any excess interest
shall be applied to the repayment of principal and, in such event, interest will
be charged at the highest rate allowed by law. We will not charge or receive and
you will not pay interest in excess of the legal rate.
CERTIFICATE OF ACCEPTANCE OF LEASED EQUIPMENT
We hereby certify that all of the Equipment referred to in the Lease has been
delivered to and has been received by the Lessee, that the Equipment is in all
respects satisfactory to the Lessee, and that the Equipment is accepted by
Lessee for all purposes under the Lease.
SYNTHONICS TECHNOLOGIES, INC. ACCEPTED BY: AMERICORP FINANCIAL, INC.
Lessor at Birmingham, Michigan
/s/ F. Michael Budd /S/ Stephen Sambor
- ----------------------------------- -------------------------------------
By: F. Michael Budd By: Stephen Sambor
Its: President Its: Vice President
Date: June 19, 1998 Commencement Date: June 19, 1998
LESSEE FULL LEGAL NAME: Synthonics Technologies, Inc.
Billing Address: 31324 Via Colinas
Suite 106
Westlake Village, Los Angles County, CA 91362
TELEPHONE NUMBER: (818) 707-6000
SYNTHONICS TECHNOLOGIES, INC.
/s/ F. Michael Budd
- -----------------------------------
By: F. Michael Budd
Its: President
Page 5
<PAGE>
Americorp Financial, Inc.
877 South Adams Road
Birmingham, MI 48009
Tel: (248) 723-4500/(800) 233-1574
Fax: (248) 723-4501
SCHEDULE A
Schedule Forming Part of Lease # 5976-2 between Americorp Financial, Inc.,
Lessor, and Synthonics Technologies, Inc., dated June 19, 1998.
QTY DESCRIPTION OF EQUIPMENT SERIAL NO.
- -------- ---------------------------- --------------
1 EPSON ELP7000XB APM084067C
1 EPSON 35/7000 SOFT TRVL CASE
LESSEE: Synthonics Technologies, Inc. LESSOR: Americorp Financial, Inc.
/s/ F. Michael Budd /S/ Stephen Sambor
- ----------------------------------- -------------------------------------
By: F. Michael Budd By: Stephen Sambor
Its: President Its: Vice President
Date: June 19, 1998 Commencement Date: June 19, 1998
Exhibit 10.13
-------------
SANWA LEASING CORPORATION
Lease Agreement
Lease #: ____________
Lessee: CHRISTOPHER RAPHAEL MARKETING DESIGN
Terms and Equipment - See Equipment Schedule attached to and made a part hereof
1. LEASE AGREEMENT; PAYMENTS: We agree to lease to you and you agree to
lease from us the equipment ("Equipment") listed below or identified in any
attached equipment schedule ("Equipment Schedule"). You promise to pay to us the
lease payments according to the terms of the payment schedule shown on the
Equipment Schedule hereto.
2. GENERAL TERMS; PAYMENT ADJUSTMENTS; EFFECTIVENESS: You agree to all the
terms and conditions on all signed pages of this Lease. This Lease is a complete
and exclusive statement of our agreement. The Equipment will not be used for
personal, family or household purposes. If the Equipment cost varies from the
estimate, you agree that we may adjust the Lease payment accordingly upward or
downward up to twenty percent (20%). You acknowledge receipt of a copy of this
Lease and acknowledge that you have selected the Equipment and reviewed the
supply contract under which we will obtain the equipment. THIS LEASE IS NOT
BINDING ON US AND WILL NOT COMMENCE UNTIL WE ACCEPT IT IN OUR TROY MICHIGAN
OFFICE. You appoint us as your attorney-in-fact to execute, deliver and record
financing statements on your behalf to show our interest in the Equipment. You
agree that we are authorized without notice to you to supply missing information
or correct obvious errors in this Lease. Any security deposit you have given us
may be used by us to cover any costs or losses we may suffer due to your default
of this Lease.
3. LATE / OTHER CHARGES: If any payment is not made when due, you agree to
pay a late charge at the rate of 15 % of such late payment or $25, whichever is
greater, and each month thereafter, a finance charge of one and three-quarter
percent (1 3/4%) on any unpaid balance. You also agree to pay $25 for each
collection call made by us and pay $25 for each returned check. You also agree
to pay a documentation fee of $35.
4. RENEWAL: After the original Lease term expires, this Lease automatically
renews for successive one (1) month terms unless you send us written notice that
you do not want it to renew at least sixty (60) days before the end of any term.
5. EQUIPMENT OWNERSHIP: We are and shall remain the sole owner of the
Equipment. You agree to keep the Equipment free from liens and encumbrances.
6. NO WARRANTIES: We are leasing the Equipment to you "AS IS", WITH NO
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE. We assign to you for the term of this Lease
any transferable manufacturer or supplier warranties. We are not liable to you
for any breach of those warranties. You agree that upon your acceptance of the
Equipment, you will have no set-offs or counter-claims against us.
7. MAINTENANCE; USE; INSTALLATION: You are responsible for installation and
maintenance of, and for any damage to, the Equipment. You must maintain and use
the Equipment in compliance with all laws and regulations. If the Equipment
malfunctions, is damaged, lost or stolen, you agree to continue to make all
payments due under this Lease.
8. EQUIPMENT LOCATION: You will keep the Equipment only at the address
shown on the Equipment SCHEDULE hereto, and you will not move it from that
address without our prior written consent.
9. INSURANCE: Until this Lease is paid in full and the Equipment has been
returned to us, you will: 1) keep the Equipment insured for its full replacement
value against all types of loss, including theft, and name us as loss payee;
and, 2) provide and maintain an acceptable general public liability insurance
policy. If you do not provide us with acceptable evidence of insurance, we may,
but will have no obligation to, obtain insurance for you and add a charge to
your monthly payments which will include the premium cost and related costs.
Page 1 of 5
<PAGE>
10. LIABILITY: WE ARE NOT RESPONSIBLE FOR ANY LOSSES OR INJURIES TO YOU OR
ANY THIRD PARTIES CAUSED BY THE EQUIPMENT OR ITS USE. You agree to reimburse us
for and to defend us against any claims for losses or injuries caused by the
Equipment and any costs or attorney fees relative to those claims.
11. TAXES/PERSONAL PROPERTY TAX FEES: You agree to show the Equipment as
"leased property" on all personal property tax returns. You agree to pay us all
personal property tax assessed against the Equipment or at our sole election we
may opt to charge you a liquidated monthly personal property tax fee. We will
advise you in writing of your personal property tax fee. You agree to reimburse
us for applicable sales and/or use tax and all other taxes, fees, fines and
penalties which may be imposed, levied or assessed by any federal, state or
local government or agency which relate to this Lease, the Equipment or its use
12. ASSIGNMENT: YOU MAY NOT SELL, PLEDGE, TRANSFER, ASSIGN OR SUBLEASE THE
EQUIPMENT OR THIS LEASE. We may sell, assign or transfer this Lease and/or the
Equipment. The now owner will have the same rights that we have, but you agree
you will not assert against the now owner any claims, defenses or set-offs that
you may have against us or any supplier.
13. DEFAULT /DAMAGES: If you fail to make any Lease payment when due or
otherwise default on this Lease, we may accelerate the remaining balance due on
the Lease and demand the immediate return of the Equipment to us. If you do not
return the Equipment to us within ten (10) days of our notice of your default,
you will also pay a liquidated Equipment charge equal to anticipated lease-and
residual value of the Equipment. We may also use any remedies available to us
under the Uniform Commercial Code or any other applicable law. You agree to pay
our attorney's fees at 25 % of the amount you owe, plus all actual costs,
including all costs of any Equipment repossession. You agree that we have no
duty to mitigate any damages to us caused by your default. You waive any notice
of our repossession or disposition of the Equipment. By repossessing any
Equipment, we do not waive our rights to collect the balance due on the Lease.
We will not be responsible to you for any consequential or incidental damages.
Our delay or failure to enforce our rights under this Lease will not prevent us
from doing so at a later time.
14. CHOICE OF LAW; JURISDICTION; VENUE; NON-JURY TRIAL: You and any
Guarantor agree that this Lease will be deemed fully executed and performed in
the State of Michigan and will be governed by Michigan law. You and any
Guarantor expressly agree to: (A) BE SUBJECT TO THE PERSONAL JURISDICTION OF THE
STATE OF MICHIGAN; (B) ACCEPT VENUE IN ANY FEDERAL OR STATE COURT IN MICHIGAN,
AND (C) WAIVE ANY RIGHT TO TRIAL BY JURY. Any Lease charges which exceed the
amount allowed by law shall be reduced to the maximum allowed.
15. FINANCE LEASE; AMENDMENTS: THIS LEASE IS A *FINANCE LEASE UNDER THE
UNIFORM COMMERCIAL CODE AS ADOPTED IN MICHIGAN ("UCC"). THIS LEASE MAY NOT BE
AMENDED EXCEPT BY A WRITING WHICH WE HAVE SIGNED. YOU WAIVE ANY AND ALL RIGHTS
AND REMEDIES YOU MAY HAVE UNDER UCC 2A-508 THROUGH 2A-522. INCLUDING ANY RIGHT
TO: (A) CANCEL THIS LEASE; (B) REJECT TENDER OF T HE EQUIPMENT; (C) REVOKE
ACCEPTANCE OF THE EQUIPMENT; (D) RECOVER DAMAGES FOR ANY BREACH OF WARRANTY; AND
(E) MAKE DEDUCTIONS OR SET-OFFS, FOR ANY REASON, FROM AMOUNTS DUE US UNDER THIS
LEASE. IF ANY PART OF THIS LEASE IS INCONSISTENT WITH UCC 2A, THE TERMS OF THIS
LEASE WILL GOVERN.
16. EQUIPMENT RETURN: At the end of the Lease term, you will immediately
crate, insure and ship the Equipment, in good working condition, to us by means
we designated, with all expenses to be prepaid by you. If you fail to return the
Equipment to us as agreed, you shall pay to Lessor 1 1/2 times the regular Lease
payment for any month or partial month from the end of the term until the
Equipment is returned. You will be responsible for any damage to the Equipment
during shipping.
17. SAVINGS: It any provision of this Lease is unenforceable, invalid or
illegal, the remaining provisions will continue to be effective.
Page 2 of 5
<PAGE>
18. FAX LEASE: If you transmit this Lease to us by fax, the fax version of
this Lease, as received by us, shall constitute the original Lease and shall be
binding on you as if it were manually signed. We may treat and rely upon any fax
version of this Lease as the signed original. However, no fax version of this
lease shall become effective and binding against us until manually signed by us
in our Michigan office. If you elect to sign and transmit this Lease by fax, you
waive notice of our acceptance of the Lease, and waive receipt of a copy of the
accepted Lease.
IMPORTANT: NEITHER THE SUPPLIER NOR ANY SALESPERSON ARE THE LESSOR'S AGENT.
THEIR STATEMENTS WILL NOT AFFECT THE RIGHTS OR OBLIGATIONS PROVIDED IN THIS
LEASE.
THIS LEASE MAY NOT BE CANCELED.
Accepted in Troy, Michigan, on ___________19_____
CHRISTOPHER RAPHAEL MARKETING SANWA LEASING CORPORATION
(Lessee) (Lessor)
By: /s/ Joseph R. Maher By: ____________________________
- ------------------------
Joseph R. Maher Print name: _____________________
Title: Owner Title: __________________________
Date: 2/5/96 Date: __________________________
Page 3 of 5
<PAGE>
UNCONDITIONAL GUARANTY
In this guaranty, I or ME means Guarantor(s), and YOU means SANWA LEASING
CORPORATION.
I have read and understand Lease number 152384 and Schedule A thereto (the
"Lease"), between you, as lessor, and CHRISTOPHER RAPHAEL MARKETING DESIGN, as
Lessee, and expressly incorporate the lease and its terms, conditions, consents
and waivers into this Guaranty. If Lessee fails to make any Lease payment when
due or otherwise defaults on the Lease, I agree to immediately pay you in
accordance with the default provisions of the Lease and will perform all other
obligations of Lessee under the Lease. I also agree that if you later modify or
alter the terms or conditions of the lease with the Lessee, I waive notice of
any modifications and understand that I will be responsible for those payments
and obligations. You do not have to notify me if the Lessee is in default. I
will reimburse you for all expenses and attorney fees you incur in enforcing any
of your rights against the Lessee or me. I agree that you may treat any
telefacsimile of this Guaranty bearing my signature as a binding original. I
CONSENT TO MICHIGAN: LAW, JURISDICTION OVER MY PERSON, AND VENUE IN ANY MICHIGAN
COURT AND WAIVE ANY TRIAL BY JURY IN ANY MATTER RELATING TO THE LEASE, THIS
GUARANTY OR THE EQUIPMENT.
I understand that I may transmit this Unconditional Guaranty to you by fax, and
that the fax version of this Unconditional Guaranty, as received by you, will
constitute an original guaranty and be binding upon me as if it were manually
signed and delivered to you. You may rely upon any fax version of this
Unconditional Guaranty and treat any such fax version as a duly signed original,
which I have delivered to you. I waive notice of acceptance of any fax version
of this Unconditional Guaranty and waive receipt of any copy thereof.
Dated: 2/5/96
Personal Guaranty
Signature (Do not title):/S/ Joseph R. Maher
Print name: Joseph R. Maher
Page 4 of 5
<PAGE>
SCHEDULE A LGI Reference # 10148139
Lessee: CHRISTOPHER RAPHAEL MARKETING DESIGN
Mailing Address: 31194 LA BAYA DRIVE SUITE 202 THOUSAND OAKS CA 91362
Equipment Address: 31194 LA BAYA DRIVE SUITE 202 THOUSAND OAKS CA 91362
Supplier: COMPUSA - OXNARD 2241 NORTH ROSE AVENUE OXNARD, CA 93030
Months Monthly Pay Tax Total
36 $367.60 $0.00 $367.60 Monthly Payment
$735.20 Security Deposit due and payable with first payment.
Equipment
--------------
1 APPLE MAC 1 MONITOR 1 PRINTER
1 SOFTWARE
LESSEE CHRISTOPHER RAPHAEL MARKETING DESIGN Subtotal: $9,485.66
BY: /s/ Joseph R. Maher Freight: 0.00
Print Name: Joseph R. Maher Tax: 782.57
Title: Owner Total: $10,268.23
Date: 2/5/96
Page 5 of 5
Exhibit 10.14
-------------
AT & T Capital Corporation Lease Agreement
TO OUR VALUED CUSTOMER: This lease has been written in "Plain English". When we
use the words you and your in this Lease, we mean you, our customer, which is
the Lessee indicated below. When we use the words we, as and our in this lease,
we mean the lessor, AT&T Capital Leasing Services, Inc. Our address is P. O. Box
9104, Framingham, MA 01701.
CUSTOMER INFORMATION:
Lessee Name
- -----------
Synthonics Technologies, Inc.
Billing Street Address/City/County/State/Zip: Phone Number:
- -------------------------------------------- -------------
31324 Via Colinas #106 818-991-9021
Westlake Village, CA 91362
Approval Number: 003866952 Lease # _________________
Customer #0000000 Federal Tax ID #
SUPPLIER INFORMATION
Supplier Name
- -------------
Omnidata ("SUPPLIER")
Street Address/City/State/Zip Supplier Phone
- ----------------------------- --------------
2500 Townsgate Rd, Unit 1, Westlake Village, CA 91361 805-371-4400
EQUIPMENT
DESCRIPTION Quantity Make Model Serial Number
- ------------------------------------------------------------------------------
Please See Attached Equipment Addendum
END OF LEASE PURCHASE OPTION: Fair Market Value
TERM AND LEASE PAYMENT SCHEDULE
- -------------------------------
Lease Term Lease Payment Additional Provisions
24 MONTHS $2266.00*
You agree to pay us at the time you sign this lease:
A. Total Advance Lease payment: 2 (Months) = $4,532.00
B. Sales /use tax on Advance Lease Payment = $ 373.90
C. One - Time Documentation Fee = $ 100.00
D. Total A + B + C = $5,005.90
If more thin one lease payment is required in advance, the additional
amount will be applied at the end of the original term.
*Plus Applicable Taxes
INSURANCE & TAXES
- -----------------
You are required to provide and maintain insurance related to the Equipment, and
to pay any property use or other taxes related to this lease or Equipment. (See
Sections 4 and 6 on this Lease). If you are tax-exempt, you agree to furnish us
with satisfactory evidence of your exemption.
Page 1 of 6
<PAGE>
TERMS AND CONDITIONS
- --------------------
BY SIGNING THIS LEASE: (i) YOU ACKNOWLEDGE THAT YOU HAVE READ AND UNDERSTAND THE
TERMS AND CONDITIONS OF THIS LEASE, (ii) YOU AGREE THAT THIS LEASE IS A NET
LEASE THAT YOU CANNOT TERMINATE OR CANCEL, YOU HAVE AN UNCONDITIONAL OBLIGATION
TO MAKE ALL PAYMENTS DUE UNDER THIS LEASE. AND YOU CANNOT WITHHOLD SET OFF OR
REDUCE SUCH PAYMENTS FOR ANY REASON, (iii) YOU WILL USE THE EQUIPMENT ONLY FOR
BUSINESS PURPOSES (iv) YOU WARRANT THAT THE PERSON SIGNING THIS LEASE FOR YOU
HAS THE AUTHORITY TO DO SO AND TO GRANT THE POWER OF ATTORNEY SET FORTH IN
SECTION I OF THIS LEASE (v) YOU CONFIRM THAT YOU DECIDED TO ENTER INTO THIS
LEASE RATHER THAN PURCHASE THE EQUIPMENT FOR THE TOTAL CASH PRICE AND (vi) YOU
AGREE THAT THIS LEASE WILL 13E GOVERNED BY THE LAWS OF THE COMMONWEALTH OF
MASSACHUSETTS AND YOU CONSENT TO THE JURISDICTION OF ANY COURT LOCATED WITHIN
MASSACHUSETTS. YOU AND WE EXPRESSLY WAIVE ANY RIGHTS TO A TRIAL BY JURY. YOU
AGREE THAT (i) YOU HAVE HAD A SUFFICIENT OPPORTUNITY TO READ AND REVIEW THE
TERMS OF EACH PROVISION OF THIS LEASE AND REVIEW THE SAME WITH YOUR COUNSEL If
YOU DEEM SUCH REVIEW NECESSARY, (ii) THAT YOU HAVE RECEIVED EACH OF THE FIVE (5)
PAGES OF THIS LEASE AND THAT SUCH PAGES ARE CLEAR AND LEGIBLE AND (iii) THAT
THIS LEASE IS COMPLETE AND THAT NONE OF THE PROVISIONS ARE MISSING OR ILLEGIBLE.
YOU ACKNOWLEDGE THAT WE ARE RELYING ON YOUR REPRESENTATION THAT THIS LEASE IS
COMPLETE AND LEGIBLE.
AT&T CAPITAL LEASING SERVICES SYNTHONICS TECHNOLOGIES INC
- ----------------------------- ---------------------------
LESSOR LESSEE
/s/ F. Michael Budd
- ------------------------------- ---------------------------------
Authorized Signature By: F. Michael Budd, President
Authorized Signature
_______________________________ Date: 11/26/97
Print Name & Title Date
DELIVERY AND ACCEPTANCE
DELIVERY AND ACCEPTANCE CERTIFICATE
By signing below, you, the Lessee, agree:
A) That all equipment described in the lease identified below ("Equipment") has
been delivered, inspected, installed and is unconditionally and irrevocably
accepted by you as satisfactory for all purposes of the lease;
and
B) That we, AT&T Capital Leasing Services, Inc., are authorized to purchase the
Equipment and start billing you under the lease.
Lease Number: __________________ Customer Number: _______________
Synthonics Technologies, Inc.
Lessee Name
- --------------------------------------
Authorized Signature
- --------------------------------------
Title Date
Page 2 of 6
<PAGE>
1. LEASE; DELIVERY AND ACCEPTANCE. You agree to lease the equipment described on
the first page of this lease agreement (collectively, "Equipment") on the terms
and conditions &hewn set forth in this lease ("Lease"). If you have entered into
any purchase or Supply contract ("Supply Contract') with any Supplier, you
assign to us your rights under such Supply Contract, but none of your
obligations (other than the obligation to pay for the Equipment if it is
accepted by you as stated below and you timely deliver to us such documents and
assurances as we request). If you have not entered into a Supply Contract, you
authorize us to enter into a Supply Contract on your behalf. You will arrange
for the delivery of the Equipment to you. When you receive the Equipment, you
agree to inspect it to determine if it is in good working order. This Lease will
begin on the date when the Equipment is delivered to you and the Equipment will
be deemed irrevocably accepted by you upon the earlier of a) the delivery to us
or a signed Delivery and Acceptance Certificate (if requested by us), or b) 10
days after delivery of the Equipment to you if previously you have not given
written notice to us of your non-acceptance. The first Least Payment is due on
or before the date the Equipment is delivered to you. The remaining Lease
Payments will be due on the day of each subsequent month lot such other time
period specified in this Lease) designated by us. You will make all payments
required under this Lease to us at such address as we may specify in writing.
You authorize us to adjust the Law Payment by not more (than 15% if the actual
Total Cash Price (which is all amounts we have paid in connection with the
purchase, delivery and installation of die Equipment, including tiny trade-up
and buy-out amounts) differs from the estimated Total Cash Price. If any Lease
Payment or other amount payable under this Lease is not paid within 10 days of
its due date, you will pay us a late charge not to exceed 7% of each late
payment (or such lesser rate as is the maximum rate allowable under applicable
law).
2. NO WARRANTIES. We are leasing the Equipment to you "AS-IS". YOU ACKNOWLEDGE
THAT WE DO NOT MANUFACTURE THE EQUIPMENT. WE DO NOT REPRESENT THE MANUFACTURER
OR THE SUPPLIER, AND YOU HAVE SELECTED THE EQUIPMENT AND SUPPLIER BASED UPON
YOUR OWN JUDGMENT. WE MAKE NO WARRANTIES, EXPRESS OR IMPLIED, INCLUDING
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR OTHERWISE.
YOU AGREE THAT REGARDLESS OF CAUSE. WE ARE NOT RESPONSIBLE FOR AND YOU WILL NOT
MAKE ANY CLAIM AGAINST US FOR ANY DAMAGES, WHETHER CONSEQUENTIAL, DIRECT,
SPECIAL, OR INDIRECT. YOU AGREE THAT NEITHER SUPPLIER NOR ANY SALESPERSON,
EMPLOYEE OR AGENT OF SUPPLIER IS OUR AGENT OR HAS ANY AUTHORITY TO SPEAK FOR US
OR TO BIND US IN ANY WAY. We transfer to you for the term of this Lease any
warranties made by the manufacturer or Supplier under a Supply Contract.
3. EQUIPMENT LOCATION; USE AND REPAIR; RETURN. You will keep and use the
Equipment only at the Equipment Location shown on the first page of this Lease.
You may not move the Equipment without our pilot written consent. At your own
cost and expense, you will keep the Equipment eligible for any manufacturer's
certification and in compliance with all applicable laws and in good condition,
except for ordinary wear and tear. You will not make any alterations, additions
or replacements to the Equipment without our prior written consent. All
alterations, additions or replacements will become part of the Equipment and our
property at no cost or expense to us. We may inspect the Equipment at any
reasonable time. Unless you purchase the Equipment in accordance with this
Lease, at the end of this Lease you will immediately return the Equipment to us,
in as good condition as when you received it, except for ordinary wear and tear,
to any place in the United States that we tell you. You will pay all expenses of
deinstalling, crating and shipping, and you will insure the Equipment for its
full replacement value during shipping.
4. TAXES AND FEES. You will pay when due, either directly or to us upon our
demand, all taxes, fines and penalties relating to this Lease or the Equipment
that are now or in the future assessed or levied by any slate, local or
government authority. We will file all personal property tax use or other tax
returns (unless we notify you otherwise in writing) and you agree to pay us a he
for making such ratings. We do not have to contest any taxes, fines or
penalties. You will pay estimated property taxes with each Lease Payment or
annually, as invoiced.
5. LOSS OR DAMAGE. As between you and us, you are responsible for any loss,
theft, destruction of, or damage to, the Equipment (collectively "Loss") from
any cause at all, whether or riot insured, until it is delivered to us at the
end of this Lease. You are required to make all Lease Payments even if there is
a Loss. You must notify us in writing immediately of any Loss. Then, at our
option, you will either (a) repair the Equipment so that it is in good condition
and working order, eligible for any manufacturer's certification, or (b) pay us
die amounts specified in Section 9(b) below.*
Page 3 of 6
<PAGE>
6. INSURANCE. You will provide and maintain A your own expense (a) property
insurance against the loss, theft, damage or destruction to the Equipment for
its full replacement value, naming us as lost payee, and (b) public liability
and third party property insurance, naming us as in additional insured. You will
give us certificates of other evidence of such insurance when requested. Such
insurance will be in a form, amount and with companies acceptable 10 us, and
will provide that we will be given 30 days advance notice of any cancellation or
material change of such insurance. If you do not give us evidence of insurance
acceptable to us, we have the right, but not the obligation to obtain insurance
covering our interest in the Equipment for the term of this Lease. Including any
renewal of extensions, from an insurer of our choice, including an insurer that
is our affiliate. We may add the costs of acquiring and maintaining such
insurance, and our fees for our services in placing and maintaining such
insurance (collectively, "Insurance Charge") to the amounts due from you under
this Lease. You will pay the insurance Charge in equal installments allocated to
the remaining Lease Payments. If we purchase insurance, you will cooperate with
our insurance agent with respect to the placement of insurance and the
processing of claims. Nothing in this Lease will create an insurance
relationship of any type between us and any other prison. You acknowledge that
we are not required to secure or maintain any insurance, and we will not be
liable to you if we terminate any insurance coverage that we arrange. If we
replace or renew any insurance coverage, we are not obligated to provide
replacement or renewal coverage under the same terms, costs, limits, or
conditions as the previous coverage.
7. TITLE; RECORDING. We true the owner of and will hold title to the Equipment.
You will keep the Equipment free of all liens and encumbrances. Unless the
Purchase Option price shown on the first page of this Lease is $1.00, you agree
that this transaction is a true lease. However, if this transaction is deemed to
be a lease intended for security, you grant us a purchase money security
interest in (he Equipment (including any replacement, substitutions, additions.
attachments and proceeds). You will deliver to us signed financing statements or
other documents we request to protect our interest in the Equipment. YOU
AUTHORIZE US TO FILE A COPY OF THIS LEASE AS A FINANCING STATEMENT AND APPOINT
US OR OUR DESIGNEE AS YOUR ATTORNEY-IN-FACT TO EXECUTE AND FILE, ON YOUR BEHALF.
FINANCING STATEMENTS COVERING THE EQUIPMENT.
8. DEFAULT. Each of the following is a "Default" under this Lease; (a) you fail
to pay any Lease Payment or any other payment within 10 days of its due date (b)
you do not perform any of your other obligations under this Lease or in any
other agreement with us or with any of our affiliates and this failure continues
for 10 days after we have notified you of it, (c) you become insolvent, you
dissolve or are dissolved, or you assign your assets for the benefit of your
creditors. or enter (voluntarily or involuntarily) any bankruptcy or
reorganization proceeding; (d) any guarantor of this Lease dies, does nor
perform its obligations under the guaranty, or becomes subject to one of the
events listed in clause (c) above.
9. REMEDIES. If a Default occurs, we may do one or more of the following: (a) we
may cancel of terminate this Least or any or all other agreements that we have
entered into with you; (b) we may require you to immediately pay us, as
compensation for lots of our bargain and not as a penalty, a sum equal to (i)
the present value of all unpaid Lease Payments for the remainder of the term
plus the present value or our anticipated residual interest in the Equipment,
each discounted at 5% per year, compounded monthly, plus (ii) all other amounts
due or (hat become duo under this Lease; (c) we may require you to deliver the
Equipment to us as set forth in Section 3; (d) we or our agent may peacefully
repossess the Equipment without court order and you will not make any claims
against us for damages or trespass of any other reason; and (c) we may exercise
any other right or remedy available at law or in equity. You agree to pay all of
our costs of enforcing our rights against you, including reasonable attorneys'
fees. If we take possession of the Equipment, we agree to sell or otherwise
dispose of it with of without notice, T a public or private sale. and to apply
the net proceeds (after we have deducted all cost related to the sale or
disposition of the Equipment) to the amounts that you owe us. You agree that if
notice of sale is required by law to be given 10 days notice shall constitute
reasonable notice. You will remain responsible for any amounts that are due
after we have applied such net proceeds.
10. FINANCE LEASE STATUS. You agree that if Article 2A-Leases of the Uniform
Commercial Code applies in this Lease, this Lease will be considered a "finance
lease" as the term is defined in Article 2A. By signing this Lease, you agree
that either (a) you have reviewed, approved. and received. a copy of the Supply
Page 4 of 6
<PAGE>
Contract at (b) that we have informed you of the identity of the Supplier, that
you may have rights under the Supply Contract, and that you may contact the
Supplier for a description of those rights. TO THE EXTENT PERMITTED BY
APPLICABLE LAW, YOU WAIVE ANY AND ALL RIGHTS AND REMEDIES CONFERRED UPON A
LESSEE BY ARTICLE 2A.
11. ASSIGNMENT. YOU MAY NOT ASSIGN, SELL, TRANSFER OR SUBLEASE THE EQUIPMENT OR
YOUR INTEREST IN THIS LEASE. We may, without notifying you, sell. assign, or
transfer this Lease and our rights to the Equipment. You agree that the new
owner will have the same rights and benefits that we have now under this Lease
but not our obligations. The rights of the new owner will not be subject to any
claims, defenses or set-off that you may have against us. NO BROKER, AGENT OR
OTHER THIRD PARTY IS AUTHORIZED TO ASSIGN ANY OF OUR RIGHTS UNDER THIS LEASE.
ANY SUCH ASSIGNMENT MY BE EFFECTED SOLELY BY US.
12. PURCHASE OPTION; AUTOMATIC RENEWAL If no Default has occurred and is
continuing under this Lease, you will have the option at the end of the original
or any renewal term to purchase all (but not less than all) or the Equipment At
the Purchase Option price shown on the first page of this Lease, plus any
applicable taxes. Unless the Purchase Option price is $1.00, you must give us at
least 30 days written notice before the end of the original term of this Lease
that you will purchase the Equipment or that you will return the Equipment to
us. If you do not give us such written notice or if you do not purchase or
deliver the Equipment in accordance with the terms and conditions of this Lease,
the Lease will automatically renew for an additional 12 - month term and
thereafter renew for successive one month terms unlit you deliver the Equipment
to us. During such renewal(s) the Lease Payment will remain the same. We may
cancel an automatic renewal term by sending you written notice 10 days prior to
such renewal term. If the Fair Market Value Purchase Option has been selected,
we will use out reasonable judgment to determine the Equipment's fair market
value. If you do not Agree with our determination of the Equipment's fair market
value, the fair market value (on a retail basis) will be determined at your
expense by an independent appraiser selected by us. Upon payment of the Purchase
Option price, we shall transfer our interest in the Equipment to you "AS IS,
WHERE IS" without any representation or warranty whatsoever And this Lease will
terminate.
13. INDEMNIFICATION. You we responsible for any losses, damages, penalties,
claims, suits and actions (collectively, "Claims"), whether based on a theory of
strict liability or otherwise caused by or related to (a) the manufacture,
installation, ownership, use, lease, possession, or delivery, of the Equipment
or (b) any defects of the Equipment. You agree to reimburse us for and if we
request. to defend us against any Claims.
14. CREDIT INFORMATION. YOU AUTHORIZE US OR ANY OF OUR AFFILIATES TO OBTAIN
CREDIT BUREAU REPORTS, AND MAKE OTHER CREDIT INQUIRIES THAT WE DETERMINE ARE
NECESSARY. ON WRITTEN REQUEST. WE WILL INFORM YOU WHETHER WE 14AVE REQUESTED A
CONSUMER CREDIT REPORT AND THE NAME AND ADDRESS OF ANY CONSUMER CREDIT REPORTING
AGENCY THAT FURNISHED A REPORT. YOU ACKNOWLEDGE THAT WITHOUT FURTHER NOTICE WE
MAY USE OR REQUEST ADDITIONAL CREDIT BUREAU REPORTS TO UPDATE OUR INFORMATION 60
LONG AS YOUR OBLIGATIONS TO US ARE OUTSTANDING.
15. MISCELLANEOUS. You agree that the terms and conditions contained in this
Least make up the entire agreement between you and us regarding the lease of the
Equipment. This Lease is not binding on us until we sign it. Any change in any
of the terms and conditions of this Lease must be in writing and signed by us.
You agree. however, that we are authorized. without notice to you, to supply
missing information or correct obvious errors in this Lease. If we delay or fail
to enforce any of our rights under this Lease, we will still be able to enforce
those rights at a later time. All notices shall be given in writing by the party
sending the notice and shall be effective when deposited in the U.S. Mail.
addressed to the party receiving the notice at its address shown on the first
page of this Lease (or to any other address specified by that party in writing)
with postage prepaid. All of our rights and indemnities will survive the
termination of this Lease. It is the express intent of the parties, not to
violate any applicable usury laws or to exceed the maximum amount of time price
differential or interest as applicable, permitted to be charged or collected by
applicable law, and any such excess payment will be applied to Lease Payments in
inverse order of maturity, and any remaining excess will be refunded to you. If
you do not perform any of your obligations under this Lease, we have the right
but not the obligation, to take any action or pay any amounts that we believe we
necessary to protect our interests. You agree to reimburse us immediately upon
our demand for any such amounts that we pay. If more than one Lessee his signed
this Lease, each of you agree that your liability is joint and several.
Page 5 of 6
<PAGE>
PERSONAL GUARANTY
THIS PERSONAL GUARANTY CREATES SPECIFIC LEGAL OBLIGATIONS. When we use the words
you and your in this Personal Guaranty, we mean the Personal Guarantor(s)
indicated below. When we use the words we, us and our in this Personal Guaranty,
we mean AT&T Capital Leasing Services, Inc.
In consideration of our entering into the lease agreement identified
above ("Lease"), you unconditionally and irrevocably guarantee to us. our
successors and assigns the prompt payment and performance of all obligations of
the Customer Identified above ("Lessee") under the Lease. You agree that this is
a guaranty of payment and not of collection, and that we can proceed directly
against you without first proceeding against the Lessee or against the equipment
covered by the Lease. You waive all defenses and notices, including those of
protest, presentment and demand. You agree that we can renew. extend or
otherwise modify the terms or the Lease and you will be bound by such changes.
If the Lessee defaults under the Lease, you will immediately perform all
obligations of the Lessee under the Lease, including, but not limited to, paying
all amounts due under the Lease. You will pay to us all expenses (including
attorneys' fees) incurred by us in enforcing our rights against you or the
Lessee. This is a continuing guaranty which will not be discharged or affected
by your death and will bind your heirs and personal representatives. You waive
any rights to seek repayment from the Lessee until we have been paid in full for
all amounts owed by the Lessee under the Lease. If more than one personal
guarantor has signed this Personal Guaranty, each of you agree that your
liability is joint and several. You authorize us or any of our affiliates to
obtain credit bureau reports regarding your personal credit, and make other
credit inquiries that we determine are necessary.
THIS PERSONAL GUARANTY IS GOVERNED BY THE LAWS OF THE COMMONWEALTH OF
MASSACHUSETTS. YOU CONSENT TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL
COURT LOCATED WITHIN MASSACHUSETTS. YOU EXPRESSLY WAIVE ANY RIGHT TO A TRIAL BY
JURY.
NOT APPLICABLE NOT APPLICABLE
- ------------------------------- -------------------------------
Personal Guarantor Personal Guarantor
- ------------------------------- -------------------------------
Print Name Print Name
Date: _________________________ Date: _______________________
Page 6 of 6
<PAGE>
ADDENDUM - SCHEDULE A
TO LEASE AGREEMENT NO.
SYNTHONICS TECHNOLOGIES, INC.
This Addendum is made part of the Lease agreement ("Agreement") identified
above, by and between Synthonics; Technologies, Inc. and AT&T Capital Leasing
Services, Inc. ("Leasing Services"). Capitalized terms used but not defined will
have the same meaning given to them in the Agreement.
Omnidata, 2500 Townsgate Rd, Unit 1, Westlake Village, CA 91361
Telephone (805) 371-4400
(1) System 1 Computers (3) System 2 Computers (2) System 3 Computers
- ---------------------- ---------------------- ------------------------
200 MHZ (MMX) 166MHZ INTEL INTEL P11 266MHZ
64MB RAM EDO 32MB RAM INTEL PORTLAND FX 512KB MB
WESTERN DIGITAL 3.2gb HDD WESTERN DIGITAL 3.2gb HDD 128MB RAM
DIAMOND MM FIRE 2MB 3D DIAMOND VGA 16 MB ELSA GLORIA VC
GL 1000 PRO 8MB VGA 17" PANASONIC.27 4GB ATA IDE HDO
17" PANASONIC.27 MON NETWORK CARD 17" PANASONIC.27
NETWORK CARD 512KB CACHE NETWORK CARD
512KB CACHE 24x TOSHIBA CDROM 24x TOSHIBA CDROM
24X TOSHIBA CDROM SONY 3.5"FDD SONY 3.5"FDD
SONY 3.5" WIN 95 OEM WINDOWS NT
WIN 95 OEM MS MOUSE MS MOUSE
MS MOUSE FUJ 4725 KB FUJ 4725 KB
FUJ 4725 KB MIDTOWER 230W ATX FF TOWER 25OW
MIDTOWER 23OW
**System 1. (1) Jeff Van Dam's System - with MSNATRL KB, 64MBRAM, SB64 SOUND
AND CL SPEAKERS
(2) w/o MMK, w/ 128MBRAM, ENHANCED KB PwerMac G3 W/64mb 4 mbSGRAM
upgrade + AV17"
PowerMac G3 W/64mb 4mbSCRAM upgrade + AV17
Server:
- -------
Full tower 25OW, (2) Seagate 9gb SCSI HDD, Adaptec SCSI Controller, HP Surestore
24gb DAT + Media, (2) 100BT NIC, (1) 10BT NIC, 33.6 U.S.R Modem, 15" CTX MON,
INTEL 200MMX CPU, TX 512CACHE, FDD 1.44 Sony, Enhanced Fujitsu KB, 64Mbram, PS2
Mouse, 2MR VGA, Windows NT SVR
Communications Software: Additional Software
- ------------------------------------ -----------------------------
Microsoft Exchange Server 25clt Adobe PhotoShop 4.0 PCv
Microsoft Exchange Internet Connector Autodesk Multimedia 3D Studio MAX
Symantec PC An)rwhere32 7.5 host & remote Quark Express 4.0
Adobe Illustrator 7.0 Mac
Additional Hardware Adobe Photoshop 4.0 Mac
- ------------------------------------ 3D Studio R4
100BT HUB
(9pcs.) 280 VA UPS
(1 pc.) 1000VA APC UPS
Linocolor Saphir Ultra Scanner
3Com Impact TM IQ xtrnl ISDN Modem
Cables/Connectors Networking
BY SIGNING BELOW. YOU CERTIFY THAT YOU HAVE RECEIVED AND REVIEWED THIS PAGE AND
THAT EACH OF THE PROVISIONS SET FORTH ON THIS PAGE IS CLEAR AND LEGIBLE.
This Addendum supplements and amends the Agreement only to the extent and in the
manner set forth, and in all other respects the Agreement will remain in full
force and effect.
AT&T Capital Leasing Services, Inc. Synthonics Technologies, Inc.
/s/ F. Michael Budd
----------------------------------
Title: ________________________ By: F.Michael Budd
Its: President and CEO
Date: ________________________
Date: 11/26/97
Exhibit 10.15
-------------
AT & T Capital Corporation Lease Agreement
TO OUR VALUED CUSTOMER: This lease has been written in "Plain English". When we
use the words you and your in this Lease, we mean you, our customer, which is
the Lessee indicated below. When we use the words we, as and our in this lease,
we mean the lessor, AT&T Capital Leasing Services, Inc. Our address is P. O. Box
9104, Framingham, MA 01701.
CUSTOMER INFORMATION:
Lessee Name
- -----------
Synthonics Technologies, Inc.
Billing Street Address/City/County/State/Zip: Phone Number:
- -------------------------------------------- -------------
31324 Via Colinas #106 818-991-9021
Westlake Village, CA 91362
Approval Number: 003871854 Lease # _________________
Customer #0000000 Federal Tax ID#
SUPPLIER INFORMATION
- --------------------
Supplier Name
- -------------
Beatty & Associates ("SUPPLIER")
Street Address/City/State/Zip Supplier Phone
- ----------------------------- --------------
2450 Tapo Street, #207, Simi Valley, CA 93063 805-579-0199
EQUIPMENT
DESCRIPTION Quantity Make Model Serial Number
- ------------------------------------------------------------------------------
1 Pentium li 300 Mhz
With all Related Items and Accessories
END OF LEASE PURCHASE OPTION: Fair Market Value
TERM AND LEASE PAYMENT SCHEDULE
- -------------------------------
Lease Term Lease Payment Additional Provisions
24 MONTHS $205.00*
You agree to pay us at the time you sign this lease:
A. Total Advance Lease payment: 1 (Months) = $205.91
B. Sales /use tax on Advance Lease Payment = $ 16.91
C. One - Time Documentation Fee = $100.00
D. Total A + B + C = $321.91
If more thin one lease payment is required in advance, the additional
amount will be applied at the end of the original term.
*Plus Applicable Taxes
INSURANCE & TAXES
- -----------------
You are required to provide and maintain insurance related to the Equipment, and
to pay any property use or other taxes related to this lease or Equipment. (See
Sections 4 and 6 on this Lease). If you are tax-exempt, you agree to furnish us
with satisfactory evidence of your exemption.
Page 1 of 7
<PAGE>
TERMS AND CONDITIONS
- --------------------
BY SIGNING THIS LEASE: (i) YOU ACKNOWLEDGE THAT YOU HAVE READ AND UNDERSTAND THE
TERMS AND CONDITIONS OF THIS LEASE, (ii) YOU AGREE THAT THIS LEASE IS A NET
LEASE THAT YOU CANNOT TERMINATE OR CANCEL, YOU HAVE AN UNCONDITIONAL OBLIGATION
TO MAKE ALL PAYMENTS DUE UNDER THIS LEASE. AND YOU CANNOT WITHHOLD SET OFF OR
REDUCE SUCH PAYMENTS FOR ANY REASON, (iii) YOU WILL USE THE EQUIPMENT ONLY FOR
BUSINESS PURPOSES (iv) YOU WARRANT THAT THE PERSON SIGNING THIS LEASE FOR YOU
HAS THE AUTHORITY TO DO SO AND TO GRANT THE POWER OF ATTORNEY SET FORTH IN
SECTION I OF THIS LEASE (v) YOU CONFIRM THAT YOU DECIDED TO ENTER INTO THIS
LEASE RATHER THAN PURCHASE THE EQUIPMENT FOR THE TOTAL CASH PRICE AND (vi) YOU
AGREE THAT THIS LEASE WILL BE GOVERNED BY THE LAWS OF THE COMMONWEALTH OF
MASSACHUSETTS AND YOU CONSENT TO THE JURISDICTION OF ANY COURT LOCATED WITHIN
MASSACHUSETTS. YOU AND WE EXPRESSLY WAIVE ANY RIGHTS TO A TRIAL BY JURY.
YOU HEREBY AGREE THAT, NOTWITHSTANDING ANY RULE OF EVIDENCE TO THE CONTRARY, IN
ANY HEARING, TRIAL OR PROCEEDING OF ANY KIND WITH RESPECT TO THIS LEASE, WE MAY
PRODUCE A FACSIMILE COPY OF THIS LEASE RATHER THAN THE ORIGINAL COPY THEREOF AND
THAT SUCH FACSIMILE COPY SHALL BE DEEMED TO BE THE ORIGINAL OF SUCH LEASE. TO
THE EXTENT (IF ANY) THAT THIS LEASE CONSTITUTES CHATTEL PAPER UNDER THE UNIFORM
COMMERCIAL CODE, NO SECURITY INTEREST IN THIS LEASE MAY BE CREATED THROUGH THE
TRANSFER AND POSSESSION OF ANY COPY OR COUNTERPART HEREOF EXCEPT THE COPY
STAMPED IN RED "LESSOR'S ORIGINAL". YOU AGREE THAT (i) YOU HAVE HAD A SUFFICIENT
OPPORTUNITY TO READ AND REVIEW THE TERMS OF EACH PROVISION OF THIS LEASE AND
REVIEW THE SAME WITH YOUR COUNSEL IF YOU DEEM SUCH REVIEW NECESSARY, (ii) THAT
YOU UNDERSTAND Tilt TERMS OF THIS LEASE, (iii) THAT YOU HAVE RECEIVED EACH OF
THE SIX (6) PAGES OF THIS LEASE AND THAT SUCH PAGES ARE CLEAR AND LEGIBLE AND
(iv) THAT THIS LEASE IS COMPLETE AND THAT NONE OF THE PROVISIONS ARE MISSING OR
ILLEGIBLE. YOU ACKNOWLEDGE THAT WE ARE RELYING ON YOUR REPRESENTATION THAT THIS
LEASE IS COMPLETE AND LEGIBLE. TO THE EXTENT THAT ANY PROVISIONS ARE MISSING OR
ILLEGIBLE YOU AGREE TO BE BOUND BY THE TERMS OF OUR STANDARD FORM LEASE (FAXABLE
VERSION) IN USE AT THE TIME YOU ENTERED INTO THIS LEASE.
AT&T CAPITAL LEASING SERVICES, INC. SYNTHONICS TECHNOLOGIES INC
- ----------------------------- ---------------------------
LESSOR LESSEE
/s/ F.Michael Budd
- ------------------------------- ---------------------------------
Authorized Signature By: F. Michael Budd, President
Authorized Signature
_______________________________ Date: 12/4/97
Print Name & Title Date
Page 2 of 7
<PAGE>
DELIVERY AND ACCEPTANCE
------------------------
DELIVERY AND ACCEPTANCE CERTIFICATE
By signing below, you, the Lessee, agree:
A) That all equipment described in the lease identified below ("Equipment") has
been delivered, inspected, installed and is unconditionally and irrevocably
accepted by you as satisfactory for all purposes of the lease;
and
B) That we, AT&T Capital Leasing Services, Inc., are authorized to purchase the
Equipment and start billing you under the lease.
AFTER COMPLETING THIS CERTIFICATE PLEASE FAX IT TO LEASING SERVICES AT (800)
952-3256. YOU AGREE THAT WE MAY TREAT AND RELY UPON ANY FAX VERSION OF THIS
CERTIFICATE AS THE SIGNED ORIGINAL.
Lease Number: __________________ Customer Number: 0000000
Synthonics Technologies, Inc.
- -----------------------------
Lessee Name
/s/ F.Michael Budd
- --------------------------------------
Authorized Signature
By: F. Michael Budd
Title: President & CEO Date: 12/4/97
Page 3 of 7
<PAGE>
1. LEASE; DELIVERY AND ACCEPTANCE. You agree to lease the equipment described on
the first page of this lease agreement (collectively, "Equipment") on the terms
and conditions &hewn set forth in this lease ("Lease"). If you have entered into
any purchase or Supply contract ("Supply Contract') with any Supplier, you
assign to us your rights under such Supply Contract, but none of your
obligations (other than the obligation to pay for the Equipment if it is
accepted by you as stated below and you timely deliver to us such documents and
assurances as we request). If you have not entered into a Supply Contract, you
authorize us to enter into a Supply Contract on your behalf. You will arrange
for the delivery of the Equipment to you. When you receive the Equipment, you
agree to inspect it to determine if it is in good working order. This Lease will
begin on the date when the Equipment is delivered to you and the Equipment will
be deemed irrevocably accepted by you upon the earlier of a) the delivery to us
or a signed Delivery and Acceptance Certificate (if requested by us), or b) 10
days after delivery of the Equipment to you if previously you have not given
written notice to us of your non-acceptance. The first Least Payment is due on
or before the date the Equipment is delivered to you. The remaining Lease
Payments will be due on the day of each subsequent month lot such other time
period specified in this Lease) designated by us. You will make all payments
required under this Lease to us at such address as we may specify in writing.
You authorize us to adjust the Law Payment by not more (than 15% if the actual
Total Cash Price (which is all amounts we have paid in connection with the
purchase, delivery and installation of die Equipment, including tiny trade-up
and buy-out amounts) differs from the estimated Total Cash Price. If any Lease
Payment or other amount payable under this Lease is not paid within 10 days of
its due date, you will pay us a late charge not to exceed 7% of each late
payment (or such lesser rate as is the maximum rate allowable under applicable
law).
2. NO WARRANTIES. We are leasing the Equipment to you "AS-IS". YOU ACKNOWLEDGE
THAT WE DO NOT MANUFACTURE THE EQUIPMENT. WE DO NOT REPRESENT THE MANUFACTURER
OR THE SUPPLIER, AND YOU HAVE SELECTED THE EQUIPMENT AND SUPPLIER BASED UPON
YOUR OWN JUDGMENT. WE MAKE NO WARRANTIES, EXPRESS OR IMPLIED, INCLUDING
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR OTHERWISE.
YOU AGREE THAT REGARDLESS OF CAUSE. WE ARE NOT RESPONSIBLE FOR AND YOU WILL NOT
MAKE ANY CLAIM AGAINST US FOR ANY DAMAGES, WHETHER CONSEQUENTIAL, DIRECT,
SPECIAL, OR INDIRECT. YOU AGREE THAT NEITHER SUPPLIER NOR ANY SALESPERSON,
EMPLOYEE OR AGENT OF SUPPLIER IS OUR AGENT OR HAS ANY AUTHORITY TO SPEAK FOR US
OR TO BIND US IN ANY WAY. We transfer to you for the term of this Lease any
warranties made by the manufacturer or Supplier under a Supply Contract.
3. EQUIPMENT LOCATION; USE AND REPAIR; RETURN. You will keep and use the
Equipment only at the Equipment Location shown on the first page of this Lease.
You may not move the Equipment without our pilot written consent. At your own
cost and expense, you will keep the Equipment eligible for any manufacturer's
certification and in compliance with all applicable laws and in good condition,
except for ordinary wear and tear. You will not make any alterations, additions
or replacements to the Equipment without our prior written consent. All
alterations, additions or replacements will become part of the Equipment and our
property at no cost or expense to us. We may inspect the Equipment at any
reasonable time. Unless you purchase the Equipment in accordance with this
Lease, at the end of this Lease you will immediately return the Equipment to us,
in as good condition as when you received it, except for ordinary wear and tear,
to any place in the United States that we tell you. You will pay all expenses of
deinstalling, crating and shipping, and you will insure the Equipment for its
full replacement value during shipping.
4. TAXES AND FEES. You will pay when due, either directly or to us upon our
demand, all taxes, fines and penalties relating to this Lease or the Equipment
that are now or in the future assessed or levied by any slate, local or
government authority. We will file all personal property tax use or other tax
returns (unless we notify you otherwise in writing) and you agree to pay us a he
for making such ratings. We do not have to contest any taxes, fines or
penalties. You will pay estimated property taxes with each Lease Payment or
annually, as invoiced.
5. LOSS OR DAMAGE. As between you and us, you are responsible for any loss,
theft, destruction of, or damage to, the Equipment (collectively "Loss") from
any cause at all, whether or riot insured, until it is delivered to us at the
end of this Lease. You are required to make all Lease Payments even if there is
a Loss. You must notify us in writing immediately of any Loss. Then, at our
option, you will either (a) repair the Equipment so that it is in good condition
and working order, eligible for any manufacturer's certification, or (b) pay us
die amounts specified in Section 9(b) below.*
Page 4 of 7
<PAGE>
6. INSURANCE. You will provide and maintain A your own expense (a) property
insurance against the loss, theft, damage or destruction to the Equipment for
its full replacement value, naming us as lost payee, and (b) public liability
and third party property insurance, naming us as in additional insured. You will
give us certificates of other evidence of such insurance when requested. Such
insurance will be in a form, amount and with companies acceptable 10 us, and
will provide that we will be given 30 days advance notice of any cancellation or
material change of such insurance. If you do not give us evidence of insurance
acceptable to us, we have the right, but not the obligation to obtain insurance
covering our interest in the Equipment for the term of this Lease. Including any
renewal of extensions, from an insurer of our choice, including an insurer that
is our affiliate. We may add the costs of acquiring and maintaining such
insurance, and our fees for our services in placing and maintaining such
insurance (collectively, "Insurance Charge") to the amounts due from you under
this Lease. You will pay the insurance Charge in equal installments allocated to
the remaining Lease Payments. If we purchase insurance, you will cooperate with
our insurance agent with respect to the placement of insurance and the
processing of claims. Nothing in this Lease will create an insurance
relationship of any type between us and any other prison. You acknowledge that
we are not required to secure or maintain any insurance, and we will not be
liable to you if we terminate any insurance coverage that we arrange. If we
replace or renew any insurance coverage, we are not obligated to provide
replacement or renewal coverage under the same terms, costs, limits, or
conditions as the previous coverage.
7. TITLE; RECORDING. We true the owner of and will hold title to the Equipment.
You will keep the Equipment free of all liens and encumbrances. Unless the
Purchase Option price shown on the first page of this Lease is $1.00, you agree
that this transaction is a true lease. However, if this transaction is deemed to
be a lease intended for security, you grant us a purchase money security
interest in (he Equipment (including any replacement, substitutions, additions.
attachments and proceeds). You will deliver to us signed financing statements or
other documents we request to protect our interest in the Equipment. YOU
AUTHORIZE US TO FILE A COPY OF THIS LEASE AS A FINANCING STATEMENT AND APPOINT
US OR OUR DESIGNEE AS YOUR ATTORNEY-IN-FACT TO EXECUTE AND FILE, ON YOUR BEHALF.
FINANCING STATEMENTS COVERING THE EQUIPMENT.
8. DEFAULT. Each of the following is a "Default" under this Lease; (a) you fail
to pay any Lease Payment or any other payment within 10 days of its due date (b)
you do not perform any of your other obligations under this Lease or in any
other agreement with us or with any of our affiliates and this failure continues
for 10 days after we have notified you of it, (c) you become insolvent, you
dissolve or are dissolved, or you assign your assets for the benefit of your
creditors. or enter (voluntarily or involuntarily) any bankruptcy or
reorganization proceeding; (d) any guarantor of this Lease dies, does nor
perform its obligations under the guaranty, or becomes subject to one of the
events listed in clause (c) above.
9. REMEDIES. If a Default occurs, we may do one or more of the following: (a) we
may cancel of terminate this Least or any or all other agreements that we have
entered into with you; (b) we may require you to immediately pay us, as
compensation for lots of our bargain and not as a penalty, a sum equal to (i)
the present value of all unpaid Lease Payments for the remainder of the term
plus the present value or our anticipated residual interest in the Equipment,
each discounted at 5% per year, compounded monthly, plus (ii) all other amounts
due or (hat become duo under this Lease; (c) we may require you to deliver the
Equipment to us as set forth in Section 3; (d) we or our agent may peacefully
repossess the Equipment without court order and you will not make any claims
against us for damages or trespass of any other reason; and (c) we may exercise
any other right or remedy available at law or in equity. You agree to pay all of
our costs of enforcing our rights against you, including reasonable attorneys'
fees. If we take possession of the Equipment, we agree to sell or otherwise
dispose of it with of without notice, T a public or private sale. and to apply
the net proceeds (after we have deducted all cost related to the sale or
disposition of the Equipment) to the amounts that you owe us. You agree that if
notice of sale is required by law to be given 10 days notice shall constitute
reasonable notice. You will remain responsible for any amounts that are due
after we have applied such net proceeds.
10. FINANCE LEASE STATUS. You agree that if Article 2A-Leases of the Uniform
Commercial Code applies in this Lease, this Lease will be considered a "finance
lease" as the term is defined in Article 2A. By signing this Lease, you agree
that either (a) you have reviewed, approved. and received. a copy of the Supply
Page 5 of 7
<PAGE>
Contract at (b) that we have informed you of the identity of the Supplier, that
you may have rights under the Supply Contract, and that you may contact the
Supplier for a description of those rights. TO THE EXTENT PERMITTED BY
APPLICABLE LAW, YOU WAIVE ANY AND ALL RIGHTS AND REMEDIES CONFERRED UPON A
LESSEE BY ARTICLE 2A.
11. ASSIGNMENT. YOU MAY NOT ASSIGN, SELL, TRANSFER OR SUBLEASE THE EQUIPMENT OR
YOUR INTEREST IN THIS LEASE. We may, without notifying you, sell. assign, or
transfer this Lease and our rights to the Equipment. You agree that the new
owner will have the same rights and benefits that we have now under this Lease
but not our obligations. The rights of the new owner will not be subject to any
claims, defenses or set-off that you may have against us. NO BROKER, AGENT OR
OTHER THIRD PARTY IS AUTHORIZED TO ASSIGN ANY OF OUR RIGHTS UNDER THIS LEASE.
ANY SUCH ASSIGNMENT MY BE EFFECTED SOLELY BY US.
12. PURCHASE OPTION; AUTOMATIC RENEWAL. If no Default has occurred and is
continuing under this Lease, you will have the option at the end of the original
or any renewal term to purchase all (but not less than all) or the Equipment At
the Purchase Option price shown on the first page of this Lease, plus any
applicable taxes. Unless the Purchase Option price is $1.00, you must give us at
least 30 days written notice before the end of the original term of this Lease
that you will purchase the Equipment or that you will return the Equipment to
us. If you do not give us such written notice or if you do not purchase or
deliver the Equipment in accordance with the terms and conditions of this Lease,
the Lease will automatically renew for an additional 12 - month term and
thereafter renew for successive one month terms unlit you deliver the Equipment
to us. During such renewal(s) the Lease Payment will remain the same. We may
cancel an automatic renewal term by sending you written notice 10 days prior to
such renewal term. If the Fair Market Value Purchase Option has been selected,
we will use out reasonable judgment to determine the Equipment's fair market
value. If you do not Agree with our determination of the Equipment's fair market
value, the fair market value (on a retail basis) will be determined at your
expense by an independent appraiser selected by us. Upon payment of the Purchase
Option price, we shall transfer our interest in the Equipment to you "AS IS,
WHERE IS" without any representation or warranty whatsoever And this Lease will
terminate.
13. INDEMNIFICATION. You we responsible for any losses, damages, penalties,
claims, suits and actions (collectively, "Claims"), whether based on a theory of
strict liability or otherwise caused by or related to (a) the manufacture,
installation, ownership, use, lease, possession, or delivery, of the Equipment
or (b) any defects of the Equipment. You agree to reimburse us for and if we
request. to defend us against any Claims.
14. CREDIT INFORMATION. YOU AUTHORIZE US OR ANY OF OUR AFFILIATES TO OBTAIN
CREDIT BUREAU REPORTS, AND MAKE OTHER CREDIT INQUIRIES THAT WE DETERMINE ARE
NECESSARY. ON WRITTEN REQUEST. WE WILL INFORM YOU WHETHER WE 14AVE REQUESTED A
CONSUMER CREDIT REPORT AND THE NAME AND ADDRESS OF ANY CONSUMER CREDIT REPORTING
AGENCY THAT FURNISHED A REPORT. YOU ACKNOWLEDGE THAT WITHOUT FURTHER NOTICE WE
MAY USE OR REQUEST ADDITIONAL CREDIT BUREAU REPORTS TO UPDATE OUR INFORMATION 60
LONG AS YOUR OBLIGATIONS TO US ARE OUTSTANDING.
15. MISCELLANEOUS. You agree that the terms and conditions contained in this
Least make up the entire agreement between you and us regarding the lease of the
Equipment. This Lease is not binding on us until we sign it. Any change in any
of the terms and conditions of this Lease must be in writing and signed by us.
You agree. however, that we are authorized. without notice to you, to supply
missing information or correct obvious errors in this Lease. If we delay or fail
to enforce any of our rights under this Lease, we will still be able to enforce
those rights at a later time. All notices shall be given in writing by the party
sending the notice and shall be effective when deposited in the U.S. Mail.
addressed to the party receiving the notice at its address shown on the first
page of this Lease (or to any other address specified by that party in writing)
with postage prepaid. All of our rights and indemnities will survive the
termination of this Lease. It is the express intent of the parties, not to
violate any applicable usury laws or to exceed the maximum amount of time price
differential or interest as applicable, permitted to be charged or collected by
applicable law, and any such excess payment will be applied to Lease Payments in
inverse order of maturity, and any remaining excess will be refunded to you. If
you do not perform any of your obligations under this Lease, we have the right
but not the obligation, to take any action or pay any amounts that we believe we
necessary to protect our interests. You agree to reimburse us immediately upon
our demand for any such amounts that we pay. If more than one Lessee his signed
this Lease, each of you agree that your liability is joint and several.
Page 6 of 7
<PAGE>
PERSONAL GUARANTY
THIS PERSONAL GUARANTY CREATES SPECIFIC LEGAL OBLIGATIONS. When we use the words
you and your in this Personal Guaranty, we mean the Personal Guarantor(s)
indicated below. When we use the words we, us and our in this Personal Guaranty,
we mean AT&T Capital Leasing Services, Inc.
In consideration of our entering into the lease agreement identified above
("Lease"), you unconditionally and irrevocably guarantee to us. our successors
and assigns the prompt payment and performance of all obligations of the
Customer Identified above ("Lessee") under the Lease. You agree that this is a
guaranty of payment and not of collection, and that we can proceed directly
against you without first proceeding against the Lessee or against the equipment
covered by the Lease. You waive all defenses and notices, including those of
protest, presentment and demand. You agree that we can renew. extend or
otherwise modify the terms or the Lease and you will be bound by such changes.
If the Lessee defaults under the Lease, you will immediately perform all
obligations of the Lessee under the Lease, including, but not limited to, paying
all amounts due under the Lease. You will pay to us all expenses (including
attorneys' fees) incurred by us in enforcing our rights against you or the
Lessee. This is a continuing guaranty which will not be discharged or affected
by your death and will bind your heirs and personal representatives. You waive
any rights to seek repayment from the Lessee9 until we have been paid in full
for all amounts owed by the Lessee under the Lease. If more than one personal
guarantor has signed this Personal Guaranty, each of you agree that your
liability is joint and several. You authorize us or any of our affiliates to
obtain credit bureau reports regarding your personal credit, and make other
credit inquiries that we determine are necessary.
THIS PERSONAL GUARANTY IS GOVERNED BY THE LAWS OF THE COMMONWEALTH OF
MASSACHUSETTS. YOU CONSENT TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL
COURT LOCATED WITHIN MASSACHUSETTS. YOU EXPRESSLY WAIVE ANY RIGHT TO A TRIAL BY
JURY.
NOT APPLICABLE NOT APPLICABLE
- ------------------------------- -------------------------------
Personal Guarantor Personal Guarantor
- ------------------------------- -------------------------------
Print Name Print Name
Date: _________________________ Date: _______________________
Page 7 of 7
Exhibit 10.16
-------------
EMPLOYMENT AGREEMENT
Effective Date: July 1,1996
EMPLOYMENT AGREEMENT initiated as of the day, month and year first written
above, but with an effective date established subject to any and all conditions
precedent contained herein, by and between
1. Columbine Financial Corporation (a Utah corporation) with offices
located at 31368 Via Colinas, Suite 106, Westlake Village, CA 91362,
hereinafter referred to as EMPLOYER, and
2. F. Michael Budd (an individual) residing at 743 Cedar Point Pl.,
Westlake Village, CA 91361, hereinafter referred to as EMPLOYEE.
Recitals
WHEREAS, EMPLOYER is, as of the date first written above, an underfunded company
with limited financial resources engaged in business activities that require
significant cash flows and financial resources in order to maintain the status
of an ongoing concern and in order to be successful in its business endeavors,
and
WHEREAS, EMPLOYEE represents that EMPLOYEE has considerable experience in
start-up business enterprises, and furthermore EMPLOYEE agrees to become bound
by this EMPLOYMENT AGREEMENT if and only if certain conditions precedent as
expressed herein are achieved, and
WHEREAS, both EMPLOYER and EMPLOYEE desire to continue the successful
development of Columbine Financial Corporation, its successors or assigns in a
manner that serves to produce benefits for equity shareholders of Columbine
Financial Corporation, its successors or assigns,
NOW, THEREFORE, in consideration of the promises hereof and the mutual covenants
and conditions hereinafter set forth, intending to be legally bound, hereby
agree as follows:
EMPLOYER employs the EMPLOYEE and EMPLOYEE accepts employment, upon terms,
conditions and covenants as follows:
Terms and Conditions
1. Effective Date of Agreement: The effective date shall be July 1, 1996.
2. Term: The term of employment shall be for the period starting as of the
effective date established herein and terminating at the end of the day, 31
December, 2000, unless terminated at an earlier date, subject to the terms
and conditions contained herein.
3. Base Salary: EMPLOYEE shall receive, for all services rendered, a base
salary of $240,000 per year, payable monthly and prorated for any
fractional month of employment. Any additional bonus or incentive
compensation shall be made pursuant to the terms and conditions of
appropriate bonus or incentive compensation agreements that may be issued
from time to time. Salary payments shall be subject to withholding and
other applicable deductions, as required by law. Base salary shall be
reviewed annually within 30 days of the anniversary date of this agreement
and adjusted based on EMPLOYER corporate performance and individual
performance as judged by the EMPLOYER'S compensation committee. Adjustments
to base salary shall not exceed 30% of the base salary in existence at the
time of review without the express written consent of a majority of the
Board of Directors. Base salary adjustments shall be based on performance
and become effective on the anniversary date of this agreement.
Page 1 of 7
<PAGE>
Payment of the first year of base salary in amounts exceeding $150,000 per
year shall be deferred until the first anniversary date of this agreement.
This deferment shall be in effect unless altered by mutual consent of both
parties and memorialized in written form.
Deferred payments will be made either (a) as a lump sum payment or (b) as
twelve equal monthly payments commencing on the anniversary date of this
agreement as determined by EMPLOYER. The only interest due and payable on
the deferred payment amount shall be that incurred on the unpaid balance
with said interest calculated at a rate of 7% per year, compounded monthly,
with in initiation date for the interest-due calculation commencing on the
first day of the thirteenth (13th) month of the anniversary date of this
agreement.
4. Stock Options: Upon commencing full-time employment, and subject to the
approval of the Board of Directors, EMPLOYEE shall receive options to
purchase up to 750,000 shares of Company stock at a purchase price of $0.50
per share or at a price established by the Board of Directors, as required
by law. These options are vested 20% upon date of hire and 20% per year
thereafter. Vested options may be exercised anytime over a period of ten
(10) years from date of hire.
All non-vested options are forfeited by EMPLOYEE upon termination of
employment with the EMPLOYER. Upon termination, the EMPLOYEE shall have
ninety (90) days from the last date of employment, to purchase any vested
options. All options not purchased after ninety (90) days will be returned
to the EMPLOYER by the EMPLOYEE and such options shall be considered null
and void.
5. Incentive Bonus: EMPLOYEE shall, upon the effective date of this Agreement.
participate in any existing or future qualified incentive bonus plan that
has been approved or subsequently shall be approved by the Board of
Directors of Columbine Financial Corporation.
6. Duties: The duties of EMPLOYEE shall be Chief Technical Officer of
Columbine Financial Corporation.
7. Full Time Engagement: The EMPLOYEE shall devote his full and entire time
and attention to the EMPLOYER'S business.
8. Trade Secrets: EMPLOYEE shall not, except in the normal performance of his
duties, divulge to any person, firm or firms, corporation or corporations,
any trade secret having to do with the business of EMPLOYER that shall come
to the knowledge of EMPLOYEE by reason of this Agreement and the
relationship of EMPLOYEE and EMPLOYER created by this Agreement, during the
term of this Agreement and for one ( 1) year after the termination of this
Agreement.
9. Work For Hire: EMPLOYEE agrees that all inventions, computer programs and
products created by EMPLOYEE either for use by EMPLOYER or which could be
used by EMPLOYER in furtherance of EMPLOYER'S business activity, which are
created or conceived during the course of employment by EMPLOYER, shall be
considered as Works Made For Hire and all rights to said Works shall and do
vest in EMPLOYER and shall be duly and appropriately assigned to EMPLOYER.
10. Facilities: EMPLOYEE shall have an office, facilities and services that are
suitable to the position and appropriate for the performance of EMPLOYEE'S
duties at the EMPLOYER'S offices cited above or at some other mutually
agreeable and suitable location.
11. Reimbursable Expenses: EMPLOYER shall reimburse EMPLOYEE for all reasonable
expenses incurred in the performance of Employee's business, e.g.
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<PAGE>
entertainment, travel, etc. Employee will be reimbursed upon submission of
an itemized account of such expenditures with receipts where practicable
and as required by law. Undocumented expenses shall not be considered
reimbursable expenses.
12. Medical Reimbursement Plan: As a part of the benefits due under this
EMPLOYMENT AGREEMENT, EMPLOYEE and his immediate family, shall receive, as
a part of the Executive Medical Reimbursement Plan of the EMPLOYER, a
EMPLOYER-paid preferred-provider health insurance plan. EMPLOYER agrees to
reimbursement for incidental and standard policy- deductible medical
expenses not paid by such plan, but in no case shall EMPLOYER be obligated
to reimburse for expenses exceeding the limits of the health insurance
policy or any deductible expenses exceeding 20% of incurred expenses. This
provision #12 is not required to become effective until and unless the
EMPLOYER has raised at least an additional $3 million in operating capital
from any non-debt generating mechanism, including but not limited to equity
sales, following the effective date of this Agreement.
13. Disability Income Plan: As a part of the benefits due under this EMPLOYMENT
AGREEMENT EMPLOYER shall purchase for the benefit of EMPLOYEE a disability
income policy in the maximum amount permitted by the insurance industry,
but such disability income policy is not required to exceed the actual base
salary income of EMPLOYEE. Such coverage shall be maintained by EMPLOYER
for as long as EMPLOYEE is in the employ of the EMPLOYER. This provision
#13 is not required to become effective until and unless the EMPLOYER has
raised at least an additional $3 million in operating capital from any
non-debt generating mechanism, including but not limited to equity sales,
following the effective date of this Agreement.
14. Failure to Perform: Notwithstanding any provision in this EMPLOYMENT
AGREEMENT to the contrary, if EMPLOYEE is unable to perform or is absent
from employment for a period of more than six calendar weeks, EMPLOYER may
terminate this EMPLOYMENT AGREEMENT, without further cause, and all
obligations of EMPLOYER hereunder shall terminate. Failure to perform shall
be determined solely by a majority vote of the Board of Directors. If such
Failure to Perform is caused by a health or disability problem then the
EMPLOYER will coordinate such termination with the waiting periods with the
Disability Income Plan mentioned if it is effective.
15. Termination and Severance: This EMPLOYMENT AGREEMENT may be terminated, at
will, at any time and without cause, by either party upon thirty (30) days
written notice to the other.
If EMPLOYER elects to terminate, EMPLOYER shall pay to EMPLOYEE severance
pay of twelve (12) months base salary, benefits and all accrued but unpaid
bonus plan compensation, subject to withholding and deductions. Severance
pay (including accrued bonus pay) shall be paid out in equal monthly
payments during the twelve months immediately following termination of
full-time employment with the EMPLOYER. The severance liability (including
accrued bonus pay) by the EMPLOYER is owed to the EMPLOYEE regardless of
EMPLOYEE'S status of employment with another company.
If EMPLOYEE elects to terminate, EMPLOYEE shall receive salary and benefits
up to the last day of employment and all accrued but unpaid bonus plan
compensation but no severance pay.
The severance liability of this provision #15, to the EMPLOYEE by EMPLOYER,
is valid only if the EMPLOYER successfully completes a major funding event
(i.e. Initial Public Offering, Venture Capital Funding, Over-the-Counter
Trading, etc.) that provides a minimum of $3,000,000 additional operating
capital from any non-debt generating mechanism, including but not limited
to equity sales, following the effective date of this Agreement.
Page 3 of 7
<PAGE>
16. Death of EMPLOYEE: In the event EMPLOYEE dies during the term of
Employment, EMPLOYER shall pay to EMPLOYEE's estate, as a death benefit,
all amounts and benefits which would have been due had the EMPLOYEE been
terminated, as of the date of death, by the EMPLOYER. EMPLOYER agrees to
purchase a term life policy paying death benefits equal to one year's base
salary in effect at the time of death, subject to the terms and conditions
of said term life policy.
17. Arbitration: Any controversy or claim arising out of, or relating to this
EMPLOYMENT AGREEMENT, or the breach thereof, shall be settled by
arbitration in the City of Pasadena, State of California, in accordance
with the then governing rules of the American Arbitration Association.
Judgment upon the award rendered by the arbitrator(s) may be entered in any
court of competent jurisdiction.
18. Notice: Any notice required to be given shall be either:
a) personally delivered, or
b) sent by US Postal Service, postage pre-paid, Certified Mail, Return
Receipt Requested
to the EMPLOYER at the place of employment and to the EMPLOYEE at the last
residence address given to and on file with the EMPLOYER.
19. No Waiver of Defaults: A waiver of a breach of any provision of this
EMPLOYMENT AGREEMENT shall not operate or be construed as a waiver of any
subsequent breach.
20. Assignment: The services of EMPLOYEE are personal and unique and therefore
EMPLOYEE may not assign this EMPLOYMENT AGREEMENT nor delegate the duties
and obligations hereunder except in the normal course of business.
21. Headings and Captions: The headings and captions contained in this
Agreement are for convenience purposes only and are not determinative nor
are they to be considered in construction of the terms or provisions
herein.
22. Force Majeure: Both parties agree that neither party shall not be liable
for: any
a) losses;
b) damage, including consequential damages;
c) detention;
d) delay or failure to perform in whole or in part resulting from causes
beyond the control of either party, including but not limited to: acts
of God; acts or omissions of either party; fires; strikes;
insurrections; riots; embargoes; delays in transportation; inability
to obtain supplies; or requirements or regulations of the United
States government or any other civil or military authority.
Delays or non-performance excused by this provision shall not excuse
payment of any amount due hereunder owed at the time of the occurrence.
23. Entire Agreement: With the sole exceptions of any Compromise Agreements by
and between F. Michael Budd and Synthonics Incorporated, dated prior to
this agreement, it is agreed between the parties hereto that there are no
other agreements or understandings between them relating to the subject
matter of this Agreement. This Agreement supersedes all other prior
agreements, oral or written, between the parties and is intended as a
complete and exclusive statement of the Agreement between the parties.
Neither this Agreement, nor its execution, have been induced by any
reliance, representation, stipulation, warranty, agreement or understanding
of any kind other than those herein expressed and those herein referenced
and hereto attached. No change or modification of this Agreement shall be
valid unless the same be in writing and signed by the parties.
Page 4 of 7
<PAGE>
INTENDING TO BE LEGALLY BOUND, the parties have executed this EMPLOYMENT
AGREEMENT as of the date last entered below.
Columbine Financial Corporation
/S/ Charles S. Palm
- ------------------------------ Date: 6/25/96
By: Charles S. Palm
Its: President
/S/ F. Michael Budd
- ------------------------------ Date: 6/25/96
F. Michael Budd - Employee
Page 5 of 7
<PAGE>
INCENTIVE COMPENSATION AGREEMENT
Effective Date: July 1,1996
This Agreement is made by and between
1. Columbine Financial Corporation (a Utah corporation) with offices
located at 31368 Via Colinas, Suite 106, Westlake Village, CA 91362,
hereinafter referred to as EMPLOYER, and
2. F. Michael Budd (an individual) residing at 31368 Via Colinas, Suite
106, Westlake Village, CA 91361, hereinafter referred to as EMPLOYEE.
and is to be construed and interpreted only as part of and subject to the terms
and conditions of the preceding EMPLOYMENT AGREEMENT to which this Agreement is
attached as an integral part.
Recitals
WHEREAS, EMPLOYER is, as of the date first written above, an underfunded company
with limited financial resources that must conserve operating capital, but
nevertheless desires to provide adequate compensation and incentives to EMPLOYEE
for the purpose of achieving aggressive revenue and profit projections, and
WHEREAS, EMPLOYEE recognizes and acknowledges EMPLOYER's need to conserve
capital, and
WHEREAS, both EMPLOYER and EMPLOYEE acknowledge and agree that an aggressive
reward and incentive compensation plan serves the best interests of both parties
as well as the interests of the equity holders of EMPLOYER by virtue of a
rapidly expanding and highly profitable business operation,
NOW, THEREFORE, in consideration of the promises hereof and the mutual covenants
and considerations set forth herein, the parties hereto, intending to be legally
bound, EMPLOYER and EMPLOYEE hereby agree as follows:
Terms and Conditions
Integral Part of Previous Agreement: This Agreement is to be interpreted as an
integral part of and subject to the terms and conditions, including all
conditions precedent, of the preceding and attached EMPLOYMENT AGREEMENT.
Board Approval Required: This Incentive Bonus Agreement is subject to approval
by a majority vote of the Board of Directors of Columbine Financial Corporation
and without such approval, as evidenced by an attached copy of a Resolution
passed by said Board, this agreement is null and void, and will be considered to
have never been valid for any purpose.
Page 6 of 7
<PAGE>
Incentive Bonus: In addition to EMPLOYEE'S regular base salary, EMPLOYEE shall
receive incentive compensation based on a fraction of total pre-tax profits
generated for Columbine Financial Corporation, its successors or assigns and all
affiliated subsidiaries as determined in accordance with generally accepted
accounting principles as applied to the Columbine Financial Corporation
Consolidated Financial Statements. The following table shall be used in
calculating the yearly incentive bonus:
Calendar Year Fraction of Pretax Profit
------------- ------------------------
1996 0.05
1997 0.04
1998 0.03
1999 0.02
2000 0.02
Calculation Examples: Examples of an incentive bonus payment calculation
follows, based on calendar years 1996 through 2000, assuming annual revenues of
$5M, $25M, $150M, $500M, $600M and pre-tax profits of $1.455M, $7.425M, $45.M,
$150M, and $180M, respectively:
Incentive Bonus = ($1.455M) x (0.05) = $ 72,750
Incentive Bonus = ($7.425M) x (0.04) = $ 297,000
Incentive Bonus = ($45M) x (0.03) = $1,350,000
Incentive Bonus = ($150M) x (0.02) = $3,000,000
Incentive Bonus = ($180M) x (0.02) = $3,600,000
Bonus Payment: All bonus moneys shall be determined by the EMPLOYER's
accountants and verified by independent auditors in accordance with generally
accepted accounting principles. Such additional compensation shall be
determined, and paid to Employee within ten (10) days after the fiscal year end
close is approved by an independent auditor with all payments subject to
withholding and other applicable deductions.
INTENDING TO BE LEGALLY BOUND, the parties hereto have caused this Incentive
Compensation Agreement to be executed as of the effective date of the preceding
and attached EMPLOYMENT AGREEMENT.
Columbine Financial Corporation
/S/ Charles S. Palm
- ------------------------------
By: Charles S. Palm
Its: President
/S/ F. Michael Budd
- ------------------------------
F. Michael Budd - Employee
Page 7 of 7
Exhibit 10.17
-------------
EMPLOYMENT AGREEMENT
Effective Date: July 1, 1996
EMPLOYMENT AGREEMENT initiated as of the day, month and year first written
above, but with an effective date established subject to any and all conditions
precedent contained herein, by and between
1. Columbine Financial Corporation (a Utah corporation) with offices
located at 31368 Via Colinas, Suite 106, Westlake Village, CA
91362, hereinafter referred to as EMPLOYER, and
2. Charles S. Palm (an individual) residing at 3819 Mainsail
Circle, Westlake Village, CA 91361, hereinafter referred to as
EMPLOYEE.
Recitals
WHEREAS, EMPLOYER is, as of the date first written above, an underfunded company
with limited financial resources engaged in business activities that require
significant cash flows and financial resources in order to maintain the status
of an ongoing concern and in order to be successful in its business endeavors,
and
WHEREAS, EMPLOYEE represents that EMPLOYEE has considerable experience in
start-up business enterprises, and furthermore EMPLOYEE agrees to become bound
by this EMPLOYMENT AGREEMENT if and only if certain conditions precedent as
expressed herein are achieved, and
WHEREAS, both EMPLOYER and EMPLOYEE desire to continue the successful
development of Columbine Financial Corporation, its successors or assigns in a
manner that serves to produce benefits for equity shareholders of Columbine
Financial Corporation, its successors or assigns,
NOW, THEREFORE, in consideration of the promises hereof and the mutual covenants
and conditions hereinafter set forth, intending to be legally bound, hereby
agree as follows:
EMPLOYER employs the EMPLOYEE and EMPLOYEE accepts employment, upon terms,
conditions and covenants as follows:
Terms and Conditions
1. Effective Date of Agreement: The effective date shall be July 1, 1996.
2. Term: The term of employment shall be for the period starting as of the
effective date established herein and terminating at the end of the day, 31
December, 2000, unless terminated at an earlier date, subject to the terms
and conditions contained herein.
3. Base Salary: EMPLOYEE shall receive, for all services rendered, a base
salary of $240,000 per year, payable monthly and prorated for any
fractional month of employment. Any additional bonus or incentive
compensation shall be made pursuant to the terms and conditions of
appropriate bonus or incentive compensation agreements that may be issued
from time to time. Salary payments shall be subject to withholding and
other applicable deductions, as required by law. Base salary shall be
reviewed annually within 30 days of the anniversary date of this agreement
and adjusted based on EMPLOYER corporate performance and individual
performance as judged by the EMPLOYER'S compensation committee. Adjustments
to base salary shall not exceed 30% of the base salary in existence at the
time of review without the express written consent of a majority of the
Board of Directors. Base salary adjustments shall be based on performance
and become effective on the anniversary date of this agreement.
Page 1 of 7
<PAGE>
Payment of the first year of base salary in amounts exceeding $150,000 per
year shall be deferred until the first anniversary date of this agreement.
This deferment shall be in effect unless altered by mutual consent of both
parties and memorialized in written form.
Deferred payments will be made either (a) as a lump sum payment or (b) as
twelve equal monthly payments commencing on the anniversary date of this
agreement as determined by EMPLOYER. The only interest due and payable on
the deferred payment amount shall be that incurred on the unpaid balance
with said interest calculated at a rate of 7% per year, compounded monthly,
with in initiation date for the interest-due calculation commencing on the
first day of the thirteenth (13th) month of the anniversary date of this
agreement.
4. Stock Options: Upon commencing full-time employment, and subject to the
approval of the Board of Directors, EMPLOYEE shall receive options to
purchase up to 750,000 shares of Company stock at a purchase price of $0.50
per share or at a price established by the Board of Directors, as required
by law. These options are vested 20% upon date of hire and 20% per year
thereafter. Vested options may be exercised anytime over a period of ten
(10) years from date of hire.
All non-vested options are forfeited by EMPLOYEE upon termination of
employment with the EMPLOYER. Upon termination, the EMPLOYEE shall have
ninety (90) days from the last date of employment, to purchase any vested
options. All options not purchased after ninety (90) days will be returned
to the EMPLOYER by the EMPLOYEE and such options shall be considered null
and void.
5. Incentive Bonus: EMPLOYEE shall, upon the effective date of this Agreement.
participate in any existing or future qualified incentive bonus plan that
has been approved or subsequently shall be approved by the Board of
Directors of Columbine Financial Corporation.
6. Duties: The duties of EMPLOYEE shall be Chief Technical Officer of
Columbine Financial Corporation.
7. Full Time Engagement: The EMPLOYEE shall devote his full and entire time
and attention to the EMPLOYER'S business.
8. Trade Secrets: EMPLOYEE shall not, except in the normal performance of his
duties, divulge to any person, firm or firms, corporation or corporations,
any trade secret having to do with the business of EMPLOYER that shall come
to the knowledge of EMPLOYEE by reason of this Agreement and the
relationship of EMPLOYEE and EMPLOYER created by this Agreement, during the
term of this Agreement and for one ( 1) year after the termination of this
Agreement.
9. Work For Hire: EMPLOYEE agrees that all inventions, computer programs and
products created by EMPLOYEE either for use by EMPLOYER or which could be
used by EMPLOYER in furtherance of EMPLOYER'S business activity, which are
created or conceived during the course of employment by EMPLOYER, shall be
considered as Works Made For Hire and all rights to said Works shall and do
vest in EMPLOYER and shall be duly and appropriately assigned to EMPLOYER.
10. Facilities: EMPLOYEE shall have an office, facilities and services that are
suitable to the position and appropriate for the performance of EMPLOYEE'S
duties at the EMPLOYER'S offices cited above or at some other mutually
agreeable and suitable location.
Page 2 of 7
<PAGE>
11. Reimbursable Expenses: EMPLOYER shall reimburse EMPLOYEE for all reasonable
expenses incurred in the performance of Employee's business, e.g.
entertainment, travel, etc. Employee will be reimbursed upon submission of
an itemized account of such expenditures with receipts where practicable
and as required by law. Undocumented expenses shall not be considered
reimbursable expenses.
12. Medical Reimbursement Plan: As a part of the benefits due under this
EMPLOYMENT AGREEMENT, EMPLOYEE and his immediate family, shall receive, as
a part of the Executive Medical Reimbursement Plan of the EMPLOYER, a
EMPLOYER-paid preferred-provider health insurance plan. EMPLOYER agrees to
reimbursement for incidental and standard policy deductible medical
expenses not paid by such plan, but in no case shall EMPLOYER be obligated
to reimburse for expenses exceeding the limits of the health insurance
policy or any deductible expenses exceeding 20% of incurred expenses. This
provision #12 is not required to become effective until and unless the
EMPLOYER has raised at least an additional $3 million in operating capital
from any non-debt generating mechanism, including but not limited to equity
sales, following the effective date of this Agreement.
13. Disability Income Plan: As a part of the benefits due under this EMPLOYMENT
AGREEMENT EMPLOYER shall purchase for the benefit of EMPLOYEE a disability
income policy in the maximum amount permitted by the insurance industry,
but such disability income policy is not required to exceed the actual base
salary income of EMPLOYEE. Such coverage shall be maintained by EMPLOYER
for as long as EMPLOYEE is in the employ of the EMPLOYER. This provision
#13 is not required to become effective until and unless the EMPLOYER has
raised at least an additional $3 million in operating capital from any
non-debt generating mechanism, including but not limited to equity sales,
following the effective date of this Agreement.
14. Failure to Perform: Notwithstanding any provision in this EMPLOYMENT
AGREEMENT to the contrary, if EMPLOYEE is unable to perform or is absent
from employment for a period of more than six calendar weeks, EMPLOYER may
terminate this EMPLOYMENT AGREEMENT, without further cause, and all
obligations of EMPLOYER hereunder shall terminate. Failure to perform shall
be determined solely by a majority vote of the Board of Directors. If such
Failure to Perform is caused by a health or disability problem then the
EMPLOYER will coordinate such termination with the waiting periods with the
Disability Income Plan mentioned if it is effective.
15. Termination and Severance: This EMPLOYMENT AGREEMENT may be terminated, at
will, at any time and without cause, by either party upon thirty (30) days
written notice to the other.
If EMPLOYER elects to terminate, EMPLOYER shall pay to EMPLOYEE severance
pay of twelve (12) months base salary, benefits and all accrued but unpaid
bonus plan compensation, subject to withholding and deductions. Severance
pay (including accrued bonus pay) shall be paid out in equal monthly
payments during the twelve months immediately following termination of
full-time employment with the EMPLOYER. The severance liability (including
accrued bonus pay) by the EMPLOYER is owed to the EMPLOYEE regardless of
EMPLOYEE'S status of employment with another company.
If EMPLOYEE elects to terminate, EMPLOYEE shall receive salary and benefits
up to the last day of employment and all accrued but unpaid bonus plan
compensation but no severance pay.
The severance liability of this provision #15, to the EMPLOYEE by EMPLOYER,
is valid only if the EMPLOYER successfully completes a major funding event
(i.e. Initial Public Offering, Venture Capital Funding, Over-the-Counter
Trading, etc.) that provides a minimum of $3,000,000 additional operating
Page 3 of 7
<PAGE>
capital from any non-debt generating mechanism, including but not limited
to equity sales, following the effective date of this Agreement.
16. Death of EMPLOYEE: In the event EMPLOYEE dies during the term of
Employment, EMPLOYER shall pay to EMPLOYEE's estate, as a death benefit,
all amounts and benefits which would have been due had the EMPLOYEE been
terminated, as of the date of death, by the EMPLOYER. EMPLOYER agrees to
purchase a term life policy paying death benefits equal to one year's base
salary in effect at the time of death, subject to the terms and conditions
of said term life policy.
17. Arbitration: Any controversy or claim arising out of, or relating to this
EMPLOYMENT AGREEMENT, or the breach thereof, shall be settled by
arbitration in the City of Pasadena, State of California, in accordance
with the then governing rules of the American Arbitration Association.
Judgment upon the award rendered by the arbitrator(s) may be entered in any
court of competent jurisdiction.
18. Notice: Any notice required to be given shall be either:
a) personally delivered, or
b) sent by US Postal Service, postage pre-paid, Certified Mail, Return
Receipt Requested
to the EMPLOYER at the place of employment and to the EMPLOYEE at the last
residence address given to and on file with the EMPLOYER.
19. No Waiver of Defaults: A waiver of a breach of any provision of this
EMPLOYMENT AGREEMENT shall not operate or be construed as a waiver of any
subsequent breach.
20. Assignment: The services of EMPLOYEE are personal and unique and therefore
EMPLOYEE may not assign this EMPLOYMENT AGREEMENT nor delegate the duties
and obligations hereunder except in the normal course of business.
21. Headings and Captions: The headings and captions contained in this
Agreement are for convenience purposes only and are not determinative nor
are they to be considered in construction of the terms or provisions
herein.
22. Force Majeure: Both parties agree that neither party shall not be liable
for: any
a) losses;
b) damage, including consequential damages;
c) detention;
d) delay or failure to perform in whole or in part resulting from causes
beyond the control of either party, including but not limited to: acts
of God; acts or omissions of either party; fires; strikes;
insurrections; riots; embargoes; delays in transportation; inability
to obtain supplies; or requirements or regulations of the United
States government or any other civil or military authority.
Delays or non-performance excused by this provision shall not excuse
payment of any amount due hereunder owed at the time of the occurrence
23. Entire Agreement: With the sole exceptions of any Compromise Agreements by
and between Charles S. Palm and Synthonics Incorporated, dated prior to
this agreement, it is agreed between the parties hereto that there are no
other agreements or understandings between them relating to the subject
matter of this Agreement. This Agreement supersedes all other prior
agreements, oral or written, between the parties and is intended as a
complete and exclusive statement of the Agreement between the parties.
Page 4 of 7
<PAGE>
Neither this Agreement, nor its execution, have been induced by any
reliance, representation, stipulation, warranty, agreement or understanding
of any kind other than those herein expressed and those herein referenced
and hereto attached. No change or modification of this Agreement shall be
valid unless the same be in writing and signed by the parties.
INTENDING TO BE LEGALLY BOUND, the parties have executed this EMPLOYMENT
AGREEMENT as of the date last entered below.
Columbine Financial Corporation
/S/ LeRoy K. Spears
------------------------------
By: LeRoy K. Spears
Its: Chairman
/S/ Charles S. Palm
------------------------------
Charles S. Palm - Employee
Page 5 of 7
<PAGE>
INCENTIVE COMPENSATION AGREEMENT
Effective Date: July 1,1996
This Agreement is made by and between
1. Columbine Financial Corporation (a Utah corporation) with offices
located at 31368 Via Colinas, Suite 106, Westlake Village, CA 91362,
hereinafter referred to as EMPLOYER, and
2. Charles S. Palm (an individual) residing at 3819 Mainsail Circle,
Westlake Village, CA 91361, hereinafter referred to as EMPLOYEE.
and is to be construed and interpreted only as part of and subject to the terms
and conditions of the preceding EMPLOYMENT AGREEMENT to which this Agreement is
attached as an integral part.
Recitals
WHEREAS, EMPLOYER is, as of the date first written above, an underfunded company
with limited financial resources that must conserve operating capital, but
nevertheless desires to provide adequate compensation and incentives to EMPLOYEE
for the purpose of achieving aggressive revenue and profit projections, and
WHEREAS, EMPLOYEE recognizes and acknowledges EMPLOYER's need to conserve
capital, and
WHEREAS, both EMPLOYER and EMPLOYEE acknowledge and agree that an aggressive
reward and incentive compensation plan serves the best interests of both parties
as well as the interests of the equity holders of EMPLOYER by virtue of a
rapidly expanding and highly profitable business operation,
NOW, THEREFORE, in consideration of the promises hereof and the mutual covenants
and considerations set forth herein, the parties hereto, intending to be legally
bound, EMPLOYER and EMPLOYEE hereby agree as follows:
Terms and Conditions
Integral Part of Previous Agreement: This Agreement is to be interpreted as an
integral part of and subject to the terms and conditions, including all
conditions precedent, of the preceding and attached EMPLOYMENT AGREEMENT.
Board Approval Required: This Incentive Bonus Agreement is subject to approval
by a majority vote of the Board of Directors of Columbine Financial Corporation
and without such approval, as evidenced by an attached copy of a Resolution
passed by said Board, this agreement is null and void, and will be considered to
have never been valid for any purpose.
Page 6 of 7
<PAGE>
Incentive Bonus: In addition to EMPLOYEE'S regular base salary, EMPLOYEE shall
receive incentive compensation based on a fraction of total pre-tax profits
generated for Columbine Financial Corporation, its successors or assigns and all
affiliated subsidiaries as determined in accordance with generally accepted
accounting principles as applied to the Columbine Financial Corporation
Consolidated Financial Statements. The following table shall be used in
calculating the yearly incentive bonus:
Calendar Year Fraction of Pretax Profit
------------- ------------------------
1996 0.05
1997 0.04
1998 0.03
1999 0.02
2000 0.02
Calculation Examples: Examples of an incentive bonus payment calculation
follows, based on calendar years 1996 through 2000, assuming annual revenues of
$5M, $25M, $150M, $500M, $600M and pre-tax profits of $1.455M, $7.425M, $45.M,
$150M, and $180M, respectively:
Incentive Bonus = ($1.455M) x (0.05) = $ 72,750
Incentive Bonus = ($7.425M) x (0.04) = $ 297,000
Incentive Bonus = ($45M) x (0.03) = $1,350,000
Incentive Bonus = ($150M) x (0.02) = $3,000,000
Incentive Bonus = ($180M) x (0.02) = $3,600,000
Bonus Payment: All bonus moneys shall be determined by the EMPLOYER's
accountants and verified by independent auditors in accordance with generally
accepted accounting principles. Such additional compensation shall be
determined, and paid to Employee within ten (10) days after the fiscal year end
close is approved by an independent auditor with all payments subject to
withholding and other applicable deductions.
INTENDING TO BE LEGALLY BOUND, the parties hereto have caused this Incentive
Compensation Agreement to be executed as of the effective date of the preceding
and attached EMPLOYMENT AGREEMENT.
Columbine Financial Corporation
/s/ F. Michael Budd
- -------------------------------
By: F. Michael Budd for
LeRoy K. Spears, Chairman
/S/ Charles S. Palm
- ------------------------------
Charles S. Palm - Employee
Page 7 of 7
Exhibit 10.18
-------------
First Colony Life Insurance Company
Lynchburg, Virginia 24505
A Stock Company
Will pay the Beneficiary the death proceeds as defined in this Policy. Payment
will be made after the following have been received at the home office:
* this Policy;
* due proof that the Insured died while this Policy was In force;
* a written claim for the death proceeds completed or) a form supplied by
the Company and
*an authorization, on a form supplied by the Company, from the Insured's
next of kin or other authorized person which will allow the Company to
obtain and disclose information concerning the Insured.
Any payment is subject to the provisions oil this page arid on the following
pages.
The consideration for this Policy is the application and payment of the Total
Initial Premium on or before policy delivery. Subsequent premiums are payable on
each Premium Due Date during the insured's lifetime.
The Owner may return this Policy within 20 days after its delivery. To return
this Policy, take it or mail it to the Company or to the agent through whom it
was purchased. Immediately upon delivery or mailing, this Policy will be deemed
void from the beginning. Any premium paid will be returned.
Signed at the home office at 700 Main Street, Lynchburg, Virginia, on the Date
of Issue.
/S/ Ronald V. Dolan /S/ David H. McMahan
- ------------------------------ ------------------------------
Ronald V. Dolan, President David H. McMahan, Secretary
GRADED PREMIUM LIFE POLICY
Insurance Payable at Death
See Schedule for Amount of Insurance and Premiums
Premiums Payable during Insured's Lifetime
Premium Subject to Change as Shown in Schedule
But Will Not Exceed Specified Maximum Premium
Cash Values Available as Shown in Schedule
Exchangeable on or before the Exchange Date
Non-participating - No Dividends
Insured: CHARLES S. PALM 5,005,232 Policy Number
Amount of
Insurance: 5,000,000 APRIL 28, 1997 Policy Date
Total
Initial Premium: $8,070.00 APRIL 28, 1997 Date of Issue
Page 1
<PAGE>
GENERAL PROVISIONS
THE CONTRACT. The entire contract consists of this Policy and the application. A
copy of the application was attached at issue. All statements made in the
application are, in the absence of fraud, deemed representations and not
warranties. No statement will void this Policy or be used in defense of a claim
unless it is contained in the application. Only the President, a Vice President,
or the Secretary of the Company can change or waive any provision of this
Policy. Any change or waiver must be made in writing.
POLICY DATE. Policy anniversaries, policy years, policy months, and Premium Due
Dates are determined from the Policy Date.
PREMIUM PAYMENTS. Each premium after the first is payable at the home office.
Payment may also be made to a Company agent in exchange for a receipt signed by
the President or Secretary of the Company and countersigned by the agent.
Each premium after the first is payable in advance. Any premium not paid
when due is in default. If a premium has not been paid by the end of the grace
period, this Policy will terminate as of the due date of such premium. Policy
termination is subject to the terms of this Policy.
As of any policy anniversary, the Owner may change the mode of premium
payment with the Company's consent. Written request must be filed at the home
office. The modes available are annual, semiannual, and quarterly. Premiums may
also be paid by automatic bank draft. Premiums are based on the rates then use
for the class to which the Insured belongs.
That portion of the premium paid for the period beyond the end of the
policy month of death will be paid to the Beneficiary.
No premiums will be refunded except as specifically stated in this Policy.
GRACE PERIOD. A grace period of 31 days is allowed for payment, without
interest, of any premium after the first. This Policy will stay in force during
that period. If the Insured dies during the grace period, the premium required
to keep this Policy in force to the end of the policy month of death will be
deducted from the proceeds.
REINSTATEMENT. This Policy may be re-instated unless:
1. it has been surrendered;
2. the period of extended term insurance has expired; or
3. the total loan under this Policy, including interest, has exceeded the
cash value.
To reinstate, the following must be received at the home office within five
years after default *in premium payment.
1. evidence of insurability satisfactory to the Company;
2. payment of all past-due premiums with interest calculated from their
respective Premium Due Dates at the Reinstatement interest rate shown in
the Schedule; and
3. payment or reinstatement of any policy loan including interest at the
Policy Loan interest rate shown in the Schedule.
After the application for reinstatement has been approved by the Company, this
Policy will be reinstated on the day the above conditions are satisfied.
OWNER AND BENEFICIARY. The designations of Owner and Beneficiary in the Schedule
remain in effect until changed by the Owner.
The Owner has all rights stated in this Policy. The Owner may amend this
Policy during the Insured's Lifetime with the Company's consent. The rights of
the Owner are subject to the rights of an irrevocable beneficiary.
The interest of a beneficiary terminates if that beneficiary dies before
the Insured. If no beneficiary survives at the Insured's death, payment will be
made to the Owner or the Owner's estate or successors.
Page 2
<PAGE>
CHANGE OF OWNER AND BENEFICIARY. The Owner may change the designations of Owner
and Beneficiary during the Insured's lifetime. Any change is subject to the
consent of an irrevocable beneficiary. Written notice of change must be riled at
the home office In a form acceptable to the Company. The new designation will
then take effect as of the date the Owner signed the notice. Such a change does
not affect any payment made or other action taken by the Company before the
notice is received.
Page 3
<PAGE>
This Policy is a legal contract between the Owner and First Colony Life
Insurance Company.
READ YOUR POLICY CARE FULLY.
TABLE OF CONTENTS
Page
Schedule - General Policy Information .................................. 5
Schedule - Table of Nonforfeiture Values ............................... 6
Schedule - Table of Premiums ........................................... 7
GENERAL PROVISIONS ..................................................... 2,8
The Contract .................................................. 2
Policy Date ................................................... 2
Premium Payments .............................................. 2
Grace Period .................................................. 2
Reinstatement ................................................. 2
Owner and Beneficiary ......................................... 2
Change of Owner & Beneficiary ................................. 3
Assignment .................................................... 8
Incontestability .............................................. 8
Misstatement .................................................. 8
Suicide ....................................................... 8
Payment of Proceeds ........................................... 8
Amount of Death Proceeds ...................................... 8
Non-Participating ............................................. 8
NONFORFEITURE PROVISIONS ............................................... 8
Nonforfeiture Options ......................................... 8
Net Cash Value ................................................ 8
Paid Up Insurance ............................................. 8
Extended Term Insurance ....................................... 8
Automatic Option .............................................. 8
Basis of Values ............................................... 9
Table of Nonforfeiture Values ................................. 9
POLICY LOANS ........................................................... 10
Cash Loan ..................................................... 10
Automatic Premium Loan Option ................................. 10
Deferral ...................................................... 10
Interest and Repayment ........................................ 10
EXCHANGE OPTION ........................................................ 11
SETTLEMENT OPTIONS ..................................................... 11,12
General Provisions ............................................ 11
Death of Payee ................................................ 11
First Installment ............................................. 12
Interest ...................................................... 12
Option 1 - Fixed Period ....................................... 12
Option 2 - Life Income with Installments Certain ............ 12
Option 3 - Interest ........................................... 12
Option 4 - Fixed Installments ................................ 12
Option 5 - Single Premium Annuity ............................. 12
Other Settlement Options ...................................... 12
Option 1 Table ................................................ 13
Option 2 Table ................................................ 13,14
Page 4
<PAGE>
S C H E D U L E
Benefit Annual Premium Premium Period
- -------------------------------------------------------------------------------
$5,000,000 Graded Premium Life $8,070.00* I year(s)
*Subsequent annual and maximum annual premiums are shown in the Table of
Premiums.
Interest Rates
Basis of Values - 5.5% a year, compounded annually
Reinstatement - 6.0% a year, compounded annually
Policy Loan - 7.4% a year, payable in advance
Mortality Table
Commissioners 1980 Standard Ordinary Smoker or Nonsmoker Mortality Table, Sex
Distinct, Age Nearest Birthday
REQUALIFICATION
APRIL 28, 2018 EXPIRY DATE
APRIL 28, 2007 Exchange Date
Premium
Due Dates: 28TH DAY OF APRIL OF EACH YEAR
Beneficiary: SYNTHONICS TECHNOLOGIES INC. PREFERRED Premium
NO NICOTINE USE Classification
Owner: SYNTHONICS TECHNOLOGIES INC. Age Nearest: 54 M Birthday
The Beneficiary and Owner are subject to change as Provided herein.
Insured: CHARLES S PALM
Amount of Insurance: $5,000,000 5,005,232 Policy Number
APRIL 28, 1997 Policy Date APRIL 28, 1997 Date of Issue
Total Initial Premium: $8,070.00
Page 5
<PAGE>
Table of Nonforfeiture Values
-------------------------------
<TABLE>
<CAPTION>
End of Attained Guaranteed Extended Term
Policy Age of Cash or Loan Paid-Up Insurance
Year Insured Value Insurance Years Days
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 - 37 55 - 91 $ 0.00 0 0 0
38 92 530,000.00 625,000 0 158
39 93 595,000.00 695,000 0 166
40 94 685,000.00 790,000 0 177
41 95 830,000.00 945,000 0 194
42 96 1,080,000.00 1,205,000 0 217
43 97 1,560,000.00 1,710,000 0 251
44 98 2,105,000.00 2,265,000 0 247
45 99 2,765,000.00 2,920,000 0 213
46 100 5,000,000.00 5,000,000 0 0
</TABLE>
This Policy provides for a later generation of cash values.
Page 6
<PAGE>
S C H E D U L E *CONTINUED* Pol. No 5,005,232
Table of Premiums
The Annual Premium is that premium which the Company anticipates will be payable
on the date shown. The Premiums payable are subject to change but will never
exceed the maximum annual premiums shown in this Table.
Any change in premium will be due to a re-evaluation by the Company of expected
future mortality, interest, expenses, and/or Persistency. The Company's past
experience will not be a factor in such change. Change will be applied uniformly
to a class of insureds. Class will be determined by 1. issue age and sex 2.
premium classification 3. amount of insurance and 4. the number of years the
insurance has been in force. The Company will mail notice of any such change in
premium. Premiums will not be changed more than once a year. Any change does not
alter the nonforfeiture values. No change in classification or premium will
occur on account of the deterioration of the insured's health.
Rider Premiums are included.
<TABLE>
<CAPTION>
Maximum Maximum
Policy Yr Annual Annual Policy Yr Annual Annual
Beginning Premium Premium Beginning Premium Premium
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
APRIL 28 APRIL 28
1997 $ 8,070.00 8,070.00 2022 $392,920.00 857,270.00
1998 11,720.00 11,720.00 2023 439,620.00 936,770.00
1999 15,370.00 15,370.00 2024 485,820.00 1,025,270.00
2000 19,420.00 19,420.00 2025 535,420.00 1,125,270.00
2001 23,470.00 23,470.00 2026 588,870.00 1,237,970.00
2002 27,220.00 27,220.00 2027 648,370.00 1,361,170.00
2003 31,270.00 31,270.00 2028 749,970.00 1,492,070.00
2004 35,370.00 35,370.00 2029 983,320.00 1,628,070.00
2005 39,570.00 39,570.00 2030 1,298,870.00 1,767,970.00
2006 43,820.00 43,820.00 2031 1,523,520.00 1,908,970.00
2007 55,570.00 190,270.00 2032 1,723,570.00 2,052,970.00
2008 69,270.00 211,370.00 2033 2,055,570.00 2,201,970.00
2009 83,620.00 234,070.00 2034 2,150,670.00 2,358,470.00
2010 101,670.00 258,670.00 2035 2,241,420.00 2,527,570.00
2011 120,370.00 285,070.00 2036 2,327,620.00 2,716,370.00
2012 138,770.00 313,870.00 2037 2,408,770.00 2,956,570.00
2013 149,770.00 346,370.00 2038 2,784,570.00 3,299,670.00
2014 164,320.00 383,170.00 2039 2,954,520.00 3,845,570.00
2015 179,770.00 425,670.00 2040 3,118,270.00 4,081,770.00
2016 200,570.00 474,470.00 2041 3,488,520.00 4,441,420.00
2017 223,820.00 529,270.00 2042 3,650,670.00 4,600,070.00
2018 250,070.00 588,070.00
2019 279,720.00 650,670.00
2020 313,270.00 716,470.00
2021 350,870.00 784,770.00
</TABLE>
Page 7
<PAGE>
GENERAL PROVISIONS (Continued)
ASSIGNMENT. The Company is not responsible for the validity or effect of any
assignment of this Policy. No assignment will bind the Company until it is
received at the home office.
INCONTESTABILITY. This Policy is not contestable, except for fraud, after it has
been in force during the Insured's lifetime for a period of two years from the
Date of Issue. This provision also applies to any rider providing additional
benefits which is included with this Policy on the Date of issue.
MISSTATEMENT. If the Insured's age or sex is misstated, any amount payable will
be adjusted to that amount which the premiums paid would have purchased based on
the correct information.
"Attained age" is the age shown in the Schedule plus the number of years,
including fractions, elapsed from the Policy Date.
SUICIDE. If the Insured, while sane or insane, dies by suicide within two years
after the Date of Issue, the death proceeds under this Policy will be an amount
equal to the premiums paid less any loan against this Policy.
PAYMENT OF PROCEEDS. Any payments by tile Company under this Policy will be made
from the home office. This Policy must be returned to the Company. Unless a
settlement option is elected, the proceeds will be paid in one sum.
AMOUNT OF THE DEATH PROCEEDS. The proceeds payable at the death of the Insured
will be:
1. the Amount of Insurance shown in tile Schedule subject to any adjustment
for misstatement; plus
2. that portion of the premium paid for the period beyond the end of the
policy month of death; less
3. any premium required to keep this Policy in force to the end of the
policy month of death; less
4. the amount of any policy loan. Any proceeds payable will also be
adjusted due to a successful contest of this Policy or for death as
provided in the Suicide provision.
NONPARTICIPATING. This Policy does not share in any distribution of surplus. No
dividends are payable.
NONFORFEITURE PROVISIONS
NONFORFEITURE OPTIONS. A nonforfeiture option may be elected by written request.
Such request must be received at the home office not later than 60 days after a
premium is due but not paid and before the Insured's death. The net cash value
is the cash value less any policy loan. The following options apply if this
Policy has a positive net cash value.
Net Cash Value. The Owner may surrender this Policy for its net cash value.
It may be surrendered only as of the date to which premiums were paid. The
amount payable upon surrender will be the net cash value on that date.
Payment may be deferred up to six months after request is received at the
home office.
Paid - Up Insurance. This Policy may be continued as level paid-up
insurance from the date of default, which is the date to which premiums
were paid. The amount will be that which the net cash value will provide
when applied as a net single premium at the Insured's attained age. This
paid-up insurance will be payable at the same time as the insurance under
this Policy. It will be subject to the applicable provisions of this
Policy.
Extended Term Insurance. This option is available if extended term
insurance values are shown in the Table of Nonforfeiture Values in the
Schedule. The Amount of Insurance less any policy loan will be continued in
force as level term 'insurance from the date of default. The period of such
term insurance will be that which the net cash value will provide when
applied as a net single premium at the Insured's attained age.
Page 8
<PAGE>
Automatic Option. This option applies if:
1. the unpaid premium has riot been paid by an automatic premium loan;
and
2. no option above has been elected.
When the grace period expires, this Policy will be continued as
extended term insurance, if available. Otherwise, the paid-up
insurance option will apply. The Owner may elect one of the other
available options within 60 days after the date to which premiums were
paid.
Paid-up or extended term insurance may be surrendered at any time for its
net cash value. This value is the net single premium at the Insured's attained
age for any benefits remaining under such insurance, less any policy loan made
after the date of default. A surrender within 30 days after a policy anniversary
will be for an amount not less than the value on such anniversary, less any loan
made since the anniversary.
BASIS OF VALUES. All calculations, including net single premium calculations,
are based on the mortality tables and rate of interest shown in the Schedule.
Death is assumed to occur at the end of the policy year. Riders are ignored when
determining nonforfeiture values under this Policy. Values are in no case less
than the minimum values required by the state in which this Policy was issued.
TABLE OF NONFORFEITURE VALUES. The values shown assume that no policy loan is
made and that premiums have been paid to the end of the policy year. If premiums
are paid for part of the year, values will be prorated.
Negative values are shown as zero in the Table. All calculations will use
the actual negative value.
Page 9
<PAGE>
POLICY LOANS
CASH LOAN. The Company will make a loan upon the sole security and assignment of
this Policy. The Owner may obtain the loan while this Policy is in force other
than as extended term insurance.
The loan value of this Policy is the cash value as of the next Premium Due
Date. For paid-up insurance, the loan value is the cash value at the end of the
current policy year. The amount advanced as a policy loan may not exceed the
loan value less:
1. the amount of any existing policy loan;
2. loan interest to the end of tile current policy year; and
3. any premium in default.
AUTOMATIC PREMIUM LOAN OPTION. This option may be elected in the application. It
may also be elected by written request received at the home office before the
end of the grace period for an unpaid premium. The Owner may revoke the election
by written request to the home office.
If elected, this option provides automatic payment of an unpaid premium by
policy loan. The loan will be made at tile end of the grace period. After two
consecutive premiums have been paid by loan, the Company may change to a less
frequent mode of premium payment if there is sufficient loan value.
If there is not sufficient value to advance the premium and interest for
the loan, no automatic premium loan will be made. The premium will be in
default. Any remaining value will be applied 'in accordance with the
Nonforfeiture Options provision.
While this Policy remains in force, the Owner may resume premium payments
at any time without furnishing evidence of insurability.
DEFERRAL. The Company may defer making a policy loan up to six months after
written request is received at the home office. However, a loan for payment of
premiums to the Company will not be deferred.
INTEREST AND REPAYMENT. Interest is payable annually in advance on each policy
anniversary. The Policy Loan interest rate is shown in the Schedule. Interest
not paid when due is added to the loan and bears interest at the same rate.
All or any part of a policy loan may be repaid while this Policy is in
force during the Insured's Lifetime. After policy lapse, loans made prior to the
end of the grace period may not be repaid unless this Policy is reinstated.
When the total loan including interest exceeds the cash value, this Policy
will terminate. Notice of termination will be mailed to the Owner and to any
assignee of record. Termination will be effective 31 days after the notice is
mailed.
Page 10
<PAGE>
EXCHANGE OPTION
While this Policy is in force, it may be exchanged for a new policy as of any
Premium Due Date on or before the Exchange Date shown in the Schedule. Evidence
is not required except that any riders included in the new policy will be
subject to satisfactory evidence of insurability.
To exchange this Policy, the Owner must:
1. submit written request to the home office; and
2. return this Policy to the home office. The Company will pay the net cash
value, if any, to the Owner. The policy date of the new policy will be the
date of exchange. The date of exchange is the Premium Due Date on which the
exchange is effective.
Except for Preferred and graded premium plans, the new policy may be on any
whole life or endowment plan:
1. offered by the Company on the date of exchange; and
2. with a premium per $1,000 which is higher than the premium per $1,000
for this Policy as of the date of exchange.
The amount of insurance of the new policy:
1. may not exceed the net amount at risk under this Policy on the date of
exchange; and
2. may not be less than the minimum for the plan selected. There will
always be at least one plan available for exchange. The net amount at risk
referred to above is the amount then in force less the cash value.
Using the Company's rates then in effect for the new policy, premiums will be
determined by:
1. the Insured's sex and age nearest birthday on the date of exchange; and
2. the premium classification of the new policy. The new policy will have
the same premium classification as this Policy, except when exchanging to a
plan that does not provide for the same premium classification as this
Policy. In such a case, the new policy will be classified as standard
unless this Policy is in a rated classification. Then the premium
classification of the new policy will be a rated classification.
SETTLEMENT OPTIONS
GENERAL PROVISIONS. Policy proceeds may be paid in a single sum or left with the
Company for payment under one or more of the following settlement options. The
amount applied under an option must be at least $2,000. The amount of each
payment under an option must be at least $50.
The Owner, with the consent of any irrevocable beneficiary, may elect or
revoke a settlement option at any time before the proceeds are payable. If no
settlement option election is then in effect, the payee may make an election.
Written notice of election or revocation must be filed at the home office in a
form satisfactory to the Company. The notice will then take effect as of the
date the Owner or payee signed the notice. An election does not affect any
payment made or other action taken by the Company before the notice is received.
A payee that is not a natural person may elect a settlement option only with the
Company's consent.
An assignee cannot elect any settlement option. Change of owner or
beneficiary automatically revokes any election in effect.
DEATH OF PAYEE. Unless otherwise specified, at the death of the last payee a
final payment will be made to the payee's estate. For Options 1 and 2, the final
payment will be the commuted value of the remaining unpaid installments certain.
Such value will be computed based on the rate of interest used in the
calculation of the payments. For Options 3 and 4, the final payment will be the
unpaid proceeds with any unpaid interest to the date of death of the payee.
Page 11
<PAGE>
FIRST INSTALLMENT. The first installment under Options 1, 2, and 4 is payable
on the effective date of the option. The effective date is:
1. the Premium Due Date on which the net cash value is payable,
2. the date of the Insured's death; or
3. any later date agreeable with the Company
INTEREST. The guaranteed interest rate for Options 1, 2, 3, and 4 is 2 1/2% a
year, compounded annually, Excess interest may be declared annually by the
Company.
OPTION 1. Fixed Period. Proceeds will be paid for a fixed period. The amount of
the payments is determined from the Option I Table.
OPTION 2. Life Income with Installments Certain. Proceeds will be paid in equal
installments throughout the certain period. After the certain period, payments
will continue to be made throughout the payee's lifetime. The amount and certain
period of the payments are determined from the Option 2 Table. At some ages the
same amount is payable for different periods certain. In such a case the Company
will assume that the longest period was chosen. Satisfactory proof of the
payee's age is required. The Company may require evidence that the payee is
living on the date of each payment.
OPTION 3. Interest. Interest on the proceeds will be paid in the manner agreed
upon when the option is elected.
OPTION 4. Fixed Installments. Proceeds will be paid in fixed installments at
regular intervals until proceeds, together with interest on the unpaid balance,
are exhausted.
OPTION 5. Single Premium Annuity. Proceeds will be used to purchase any single
premium annuity the Company offers at the time proceeds are applied. The annuity
payments will be 102% of the payments otherwise purchased by the single premium.
OTHER SETTLEMENT OPTIONS. Proceeds may be applied in any other mutually
agreeable manner.
Page 12
<PAGE>
SETTLEMENT OPTIONS (Continued)
OPTION 1 TABLE Fixed Period Installments
Installments for fixed number of years for each $1,000 of proceeds
<TABLE>
<CAPTION>
Term of
Installments Semi
Payments Annual Annual Quarterly Monthly
- -------------------------------------------------------------------------------
Years
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 $503.09 $252.32 $84.28
2 $506.17 254.65 127.72 42.66
3 341.60 171.85 86.19 28.79
4 259.33 130.47 65.44 21.86
5 210.00 105.65 52.99 17.70
6 177.12 89.11 44.69 14.93
7 153.65 77.30 38.77 12.95
8 136.07 68.45 34.33 11.47
9 122.40 61.58 30.88 10.32
10 111.47 56.08 28.13 9.38
15 78.80 39.64 19.88 6.64
20 62.58 31.48 15.79 5.27
25 52.95 26.64 13.36 4.46
30 46.61 23.45 11.76 3.93
</TABLE>
OPTION 2 TABLE - Life Income with Installments Certain
Monthly installments are shown for each $1,000 of proceeds.
Age is nearest birthday when the first installment is payable.
<TABLE>
<CAPTION>
Age No. of Months Certain
- -------------------------------------------------------------------------------
Male Female 60 120 180 240
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
12* $2.63 $2.63 $2.62 $2.61
13 2.64 2.64 2.63 2.63
14 2.66 2.66 2.65 2.65
10* 15 2.67 2.67 2.66 2.66
11 16 2.69 2.69 2.68 2.68
12 17 2.71 2.71 2.70 2.70
13 18 2.73 2.73 2.72 2.71
14 19 2.74 2.74 2.74 2.73
15 20 2.76 2.76 2.76 2.75
16 21 2.78 2.78 2.78 2.77
17 22 2.81 2.81 2.80 2.79
18 23 2.83 2.83 2.82 2.81
19 24 2.85 2.85 2.84 2.84
20 25 2.88 2.88 2.87 2.86
21 26 2.90 2.90 2.89 2.88
22 27 2.93 2.93 2.92 2.91
23 28 2.95 2.95 2.94 2.93
24 29 2.98 2.98 2.97 2.96
25 30 3.01 3.01 3.00 2.99
26 31 3.04 3.04 3.03 3.02
27 32 3.08 3.08 3.07 3.05
28 33 3.11 3.11 3.09 3.08
29 34 3.14 3.14 3.12 3.11
30 35 3.18 3.18 3.16 3.15
</TABLE>
- ------------------------------
*Also applies to younger ages
Page 13
<PAGE>
OPTION 2 TABLE - (Continued)
Life Income with Installments Certain
Monthly installments are shown for each $1,000 of proceeds.
Age is nearest birthday when the first installment is payable.
<TABLE>
<CAPTION>
Age No. of Months Certain
- -------------------------------------------------------------------------------
Male Female 60 120 180 240
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
31 36 3.22 3.22 3.20 3.18
32 37 3.27 3.26 3.24 3.22
33 38 3.31 3.30 3.28 3.25
34 39 3.36 3.34 3.32 3.29
35 40 3.40 3.39 3.36 3.33
36 41 3.45 3.43 3.41 3.37
37 42 3.50 3.48 3.45 3.41
38 43 3.55 3.53 3.50 3.45
39 44 3.61 3.59 3.55 3.50
40 45 3.66 3.64 3.60 3.54
41 46 3.72 3.70 3.65 3.59
42 47 3.78 3.76 3.71 3.64
43 48 3.85 3.82 3.77 3.69
44 49 3.92 3.88 3.82 3.74
45 50 3.99 3.95 3.88 3.79
46 51 4.06 4.02 3.95 3.84
47 52 4.14 4.09 4.01 3.90
48 53 4.22 4.17 4.08 3.95
49 54 4.31 4.25 4.15 4.01
50 55 4.40 4.33 4.22 4.07
51 56 4.49 4.42 4.29 4.12
52 57 4.59 4.50 4.37 4.18
53 58 4.69 4.60 4.44 4.24
54 59 4.80 4.69 4.52 4.30
55 60 4.91 4.79 4.60 4.36
56 61 5.02 4.90 4.69 4.41
57 62 5.15 5.01 4.77 4.47
58 63 5.28 5.12 4.86 4.53
59 64 5.42 5.23 4.94 4.59
60 65 5.56 5.35 5.03 4.64
61 66 5.72 5.48 5.12 4.70
62 67 5.87 5.61 5.21 4.75
63 68 6.04 5.74 5.30 4.80
64 69 6.22 5.87 5.39 4.85
65 70 6.40 6.01 5.48 4.90
66 71 6.59 6.16 5.56 4.94
67 72 6.79 6.30 5.65 4.98
68 73 7.00 6.45 5.73 5.02
69 74 7.23 6.60 5.82 5.05
70 75 7.46 6.76 5.90 5.09
71 76 7.70 6.91 5.97 5.12
72 77 7.95 7.07 6.05 5.14
73 78 8.22 7.23 6.12 5.17
74 79 8.50 7.38 6.18 5.19
75 80 8.78 7.54 6.24 5.20
76 81 9.08 7.69 6.30 5.22
77 82 9.40 7.84 6.35 5.23
78 83 9.72 7.98 6.39 5.24
79 84 10.05 8.13 6.43 5.25
80 85 10.39 8.26 6.47 5.26
and and
over over
</TABLE>
- ------------------------------
*Also applies to younger ages
GRADED PREMIUM LIFE POLICY
Insurance Payable at Death
See Schedule for Amount of Insurance and Premiums
Premiums Payable during Insured's Lifetime
Premium Subject to Change as Shown in Schedule
But Will Not Exceed Specified Maximum Premium
Cash Values Available as Shown in Schedule
Exchangeable on or before the Exchange Date
Nonparticipating - No Dividends
Page 14
<PAGE>
FIRST COLONY LIFE INSURANCE COMPANY
Lynchburg, Virginia
ENDORSEMENT
This Policy is amended to include the following additional section:
"REQUALIFICATION OPTION". The Owner may elect to requalify for a new
premium guarantee period in a new Graded Premium Life policy. Riders may be
included in the new policy subject to Company approval.
This Option may be elected to be effective as of a policy anniversary:
1. on or before the Requalification Expiry Date shown in the Schedule; and
2. on or after the later or the following:
the tenth policy anniversary; and
the anniversary at which premiums for this Policy are first scheduled
to increase annually as shown in the Table of Premiums.
To requalify, the Owner must:
1. file written request in a form acceptable to the Company at least 60
days prior to the policy anniversary on which this option is to be
effective;
2. return this Policy to the home office;
3. provide satisfactory evidence of the insurability of the Insured; and
4. pay the required premium.
Following Company approval, this Option will be effective on the policy
anniversary as of which it was elected.
The Company will issue the new Graded Premium Life policy at the Insured's
attained age. The Table of Premiums of the new policy will show the premiums for
the new guarantee period. The premiums for the new policy will be based on the
premium rates in use on the effective date of this Option.
The policy date of the new policy will be the effective date of this Option. The
contestability and suicide periods of the new policy will be measured from the
date specified in the new policy.
Other policy provisions will be the same as under this Policy except that this
Option will be unavailable after the Requalification Expiry Date."
/s/ David H. McMahan
--------------------
David H. McMahan
Page 15
<PAGE>
FIRST COLONY LIFE INSURANCE COMPANY
Lynchburg, Virginia
ENDORSEMENT
The provision of this Policy entitled "INCONTESTABILITY" under the heading
"GENERAL PROVISIONS" is hereby amended to read in its entirety as follows:
"This Policy is not contestable after it has been in force during the Insured's
lifetime for a period of two years from the Date of Issue. This provision also
applies to any rider providing additional benefits which is included with this
Policy on the Date of issue."
/s/ David H. McMahan
--------------------
David H. McMahan
Page 16
<PAGE>
FIRST COLONY LIFE INSURANCE COMPANY
Lynchburg, Virginia
ACCELERATED DEATH BENEFIT RIDER
This Rider provides for an accelerated payment of life insurance proceeds. It is
not intended or designed to provide health, nursing home, or long-term care
insurance. Receipt of an accelerated death benefit payment will reduce the death
proceeds of values provided by the Policy.
Disclosure: Receipt of an accelerated death benefit payment may be taxable. The
Owner of the Policy should seek assistance from a tax advisor before electing to
receive a payment.
BENEFIT
- -------
The Company will make an accelerated death benefit payment to the Owner of the
Policy subject to the provisions of this Rider. The requirements for payment
are:
the Owner's written request for an accelerated death benefit payment;
proof acceptable to the Company that the Owner is eligible for a payment
according to the terms of this Rider;
Written approval of payment from any irrevocable beneficiary; and
full release of any collateral assignment of the Policy except a collateral
assignment to the Company.
Payment will be made in a single sum. The Company will make only one accelerated
death benefit payment under this Rider.
The Company will not make an accelerated death benefit payment if:
it does not receive all of the requirements for payment as stated above at
its home office;
the Policy is being continued as extended term insurance on the date
payment is to be made; o there is less than one year remaining until any
expiry or maturity date for the Policy on the date payment is to be made;
or
the Policy is being contested or has been voided as the result of a
successful contest.
BENEFIT LIMITATIONS
- -------------------
The Owner requests the amount of accelerated death benefit subject to the
maximums stated below.
The maximum accelerated death benefit available for request is equal to the
difference between (1) and (2) below.
1. An amount equal to the lesser of (a) and (b) below:
(a) The sum of the following:
75% of the difference between the primary death benefit on the
date the Company approves payment of an accelerated death benefit
and the loan value on that date; and
the loan value on the date the Company approves payment of an
accelerated death benefit. (b) $500,000.
2. The amount of any policy loan, including interest, against the Policy.
The primary death benefit is the death benefit provided by the Policy and does
not include any accidental death benefits, the amount of the death benefit of
any riders, or any benefits payable because of the death of any person other
than the Insured. If the Policy provides for policy loans, loan value is defined
in the Policy; otherwise, loan value is defined to be zero.
The maximum aggregate amount of accelerated death benefit payments the Company
will make under all policies issued by the Company on the Insured's life is
$500,000.
Page 17
<PAGE>
ELIGIBILITY
- -----------
To be eligible to receive an accelerated death benefit payment, the Owner must
provide the following to the Company:
evidence acceptable to the Company that the, Insured is living and has a
life expectancy of six months or less; this evidence must include, but is
not limited to, certification by a physician approved by the Company who is
licensed to practice medicine in the United States or Canada and is acting
within the scope of that license;
evidence that election of this benefit is voluntary and without coercion on
the part of any third party, including any creditor or government agency;
and
evidence that only one of the Insureds is living if the ['obey is a last
survivor policy.
GENERAL PROVISIONS
- ------------------
Wherever used in this Rider, the term ""Policy" means the Policy to which this
Rider is attached. This Rider is a part of the Policy. Policy provisions apply
to this Rider except where modified by this Rider.
If the Policy is in a grace period at the time an accelerated death benefit
payment is made, the premium required to remove the Policy from the grace period
will be deducted from the payment.
The Owner will remain liable for any required premium payments under the Policy
after the Company makes an accelerated death benefit payment. After an
accelerated death benefit payment has been made, the amount of any premium
required to keep the Policy in force that is not paid or waived through the
Owner's exercise of a waiver benefit will be added to the hen,
There is no premium or cost of insurance charge for this Rider; however, an
administrative fee that will not exceed $250 will be deducted from the
accelerated death benefit prior to payment to the Owner.
Page 18
<PAGE>
EFFECT OF AN ACCELERATED DEATH BENEFIT PAYMENT
The accelerated death benefit will be treated as a hen against the primary death
benefit. This lien will limit the availability of' any surrender benefit and of
any future policy loans or partial withdrawals (surrenders) under the Policy,
they will be available only to the extent that values under the Policy exceed
the sum of the Hen amount and any outstanding policy loan. This lien will not
affect the death benefit of any rider attached to the Policy however.
The lien amount at any time will equal:
the amount of the accelerated death benefit payment made to the Owner; plus
the administrative fee; plus
the amount of any premium required to remove the Policy from the grace
period; plus
any unpaid premiums added to the lien, plus
accrued hen interest; less
any lien repayments.
Interest at the policy loan interest rate(s) stated in the Policy will be
charged on the portion of the lien amount equal to the difference between the
loan value and any outstanding policy loan. Interest will be charged on the
portion of the hen amount that exceeds this difference at a rate no greater than
the greater of:
the current yield on a 90-day treasury bill on the date of payment; and
the current maximum adjustable policy loan interest rate allowed by law on
the date of payment in the state in which the Policy was delivered.
After payment of the accelerated death benefit, the proceeds payable under the
Policy at the death of the Insured win equal:
the death proceeds as defined in the Policy; less
the lien amount as of the date of death.
TERMINATION
This Rider will terminate on the earliest of the following dates:
the date of maturity or termination of the Policy; and
the date the Owner's written request for termination of this Rider is
signed; the request must be received at the home office.
If at any time the lien amount equals or exceeds the death proceeds as defined
in the Policy, the Policy will terminate. Termination will occur 31 days after
the Company has mailed notice of termination to the last known address of the
Owner, unless all or part of the lien amount is repaid within 31 days after the
date the notice is mailed. The Company will accept a partial repayment only if
the death proceeds of the Policy would exceed the lien amount after application
of the partial repayment.
Page 19
Exhibit 21
-------------
SUBSIDIARIES OF SYNTHONICS TECHNOLOGIES, INC. (The "Company")
(1) Synthonics Incorporated, a California Corporation (Wholly-owned
subsidiary). Its primary focus since its founding has been to develop technology
that will have an extremely positive impact on any industry where success can be
enhanced by improving measurement accuracy, eliminating dangerous environments,
extending human vision capabilities, or replacing animation with realism.
Virtually all efforts to date have been focused on market research, technology
concept definition, technology design, and technology validation.
(2) Christopher Raphael Inc., a California Corporation. (Wholly-owned
subsidiary). The objective of Christopher Raphael is to solicit content
contracts with prominent customers that will display the content to large
audiences that, in turn will promote demand for the Company's software tools.
This subsidiary is capable of outputting 3D graphical content in many formats.
CD-ROMs, DVDs, kiosks, interactive websites, and asset databases are all within
Christopher Raphael's capabilities.
(3) SynthaScan (Wholly-owned subsidiary). This company has done some
preliminary development work on a 3D copier. At present, Synthonics is seeking
an alliance partner to supplement its own expertise in the development of the 3D
copier. Until a partner is secured, SynthaScan is not investing time or money on
any future development.
(4) Acuscape LLC, a California Limited Liability Company (Joint Venture
Partner). The Company owns a 30% joint venture equity interest in Acuscape.
Acuscape is headquarter in Glendale, CA, and is completing development of their
first product offering. Acuscape utilizes the Company's technologies in the
creation its own analysis and treatment planning software tools for medical
professionals.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1998 JAN-01-1997 JAN-01-1996
<PERIOD-END> SEP-30-1998 DEC-31-1997 DEC-31-1996
<CASH> 101,653 311,610 525,731
<SECURITIES> 0 0 0
<RECEIVABLES> 38,626 8,332 0
<ALLOWANCES> 0 0 0
<INVENTORY> 0 0 4,296
<CURRENT-ASSETS> 142,946 322,609 538,694
<PP&E> 248,489 240,968 180,854
<DEPRECIATION> (148,324) (116,434) (80,682)
<TOTAL-ASSETS> 460,119 655,092 691,589
<CURRENT-LIABILITIES> 1,105,231 347,499 195,012
<BONDS> 0 0 0
0 0 0
100,000 500,000 0
<COMMON> 199,483 178,234 159,020
<OTHER-SE> (944,595) (370,641) 337,557
<TOTAL-LIABILITY-AND-EQUITY> 460,119 655,092 691,589
<SALES> 179,947 417,574 208,224
<TOTAL-REVENUES> 179,947 417,574 208,224
<CGS> 105,740 264,850 53,816
<TOTAL-COSTS> 1,658,517 1,694,408 1,092,290
<OTHER-EXPENSES> 6,326 (26,073) (5,101)
<LOSS-PROVISION> (1,607,976) (1,576,899) (950,212)
<INTEREST-EXPENSE> (29,992) (9,142) (7,229)
<INCOME-PRETAX> 0 0 0
<INCOME-TAX> 0 (1,700) (800)
<INCOME-CONTINUING> 0 0 0
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (1,607,976) (1,578,599) (951,012)
<EPS-PRIMARY> (0.08) (0.10) (0.07)
<EPS-DILUTED> (0.08) (0.10) (0.07)
</TABLE>
