<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 21, 1997
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
TAG-IT PACIFIC, INC.
(Name of Small Business Issuer in its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 2759 95-4654481
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Classification Code Number) Identification No.)
Organization
</TABLE>
3820 SOUTH HILL STREET
LOS ANGELES, CALIFORNIA 90037
(213) 234-9606
(Address and Telephone Number of Principal Executive Offices)
3820 SOUTH HILL STREET
LOS ANGELES, CALIFORNIA 90037
(213) 234-9606
(Address of Principal Place of Business or Intended Principal Place of Business)
MARK DYNE, CHAIRMAN
TAG-IT PACIFIC, INC.
3820 SOUTH HILL STREET
LOS ANGELES, CALIFORNIA 90037
(213) 234-9606
(Name, Address and Telephone number of Agent for Service)
------------------------
COPIES TO:
MURRAY MARKILES, ESQ. LAWRENCE B. LOW, ESQ.
SCOTT D. GALER, ESQ. JAMES Y.M. WU, ESQ.
Troop Meisinger Steuber & Pasich, LLP Graham & James LLP
10940 Wilshire Boulevard One Maritime Plaza
Los Angeles, California 90024 San Francisco, CA 94111
(310) 824-7000 (415) 954-0200
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
------------------------
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER SHARE(2) PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $0.001 par value.............. 1,642,000 $8.50 $13,957,000 $4,230
</TABLE>
(1) Includes 192,000 shares of Common Stock issuable upon exercise of an option
granted to the Underwriters to cover over-allotments of shares, if any.
(2) Estimated solely for the purpose of calculating the registration fee under
Rule 457(a).
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION DATED OCTOBER 21, 1997
THIS PRELIMINARY PROSPECTUS AND THE INFORMATION CONTAINED HEREIN ARE SUBJECT TO
COMPLETION OR AMENDMENT. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY
BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
UNDER NO CIRCUMSTANCES SHALL THIS PRELIMINARY PROSPECTUS CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES, IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD
BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
SUCH JURISDICTION.
<PAGE>
1,450,000 SHARES
TAG-IT PACIFIC, INC.
COMMON STOCK
Of the 1,450,000 shares of common stock, par value $0.001 per share (the
"Common Stock"), offered hereby (the "Offering"), 1,280,000 shares are being
sold by Tag-It Pacific, Inc., (the "Company") and 170,000 shares are being sold
by a stockholder (the "Selling Stockholder"). See "Principal and Selling
Stockholders." The Company will not receive any proceeds from the sale of shares
by the Selling Stockholder. Prior to this Offering, there has been no public
market for the Common Stock. It is currently estimated that the initial public
offering price will be between $7.50 and $8.50 per share. See "Underwriting" for
a discussion of the factors to be considered in determining the initial public
offering price. Application has been made to list the Common Stock on the
American Stock Exchange under the symbol " ."
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 9 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
COMMON STOCK OFFERED HEREBY.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE UNDERWRITING
TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
Per Share......................................................... $ $ $
Total(3).......................................................... $ $ $
<CAPTION>
PROCEEDS TO
SELLING
STOCKHOLDER
<S> <C>
Per Share......................................................... $
Total(3).......................................................... $
</TABLE>
(1) Excludes additional compensation to the Underwriters in the form of warrants
granted to the Representative of the Underwriters to purchase 100,000 shares
of Common Stock, exercisable over a period of five years commencing one year
from the date of this Prospectus (the "Representative's Warrant"). In
addition, the Company and the Selling Stockholder have agreed to indemnify
the Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933, as amended (the "Securities Act").
(2) Before deducting estimated expenses of $915,000 payable by the Company,
including the Representative's non-accountable expense allowance, certain
consulting fees to be paid following the closing of the Offering and
expenses of the Selling Stockholder. See "Principal and Selling
Stockholders" and "Underwriting."
(3) The Company has granted the Underwriters a 45-day option to purchase up to
an additional 192,000 shares of Common Stock, solely to cover
over-allotments, if any (the "Over-Allotment Option"). If the Underwriters
exercise this option in full, the total Price to Public, Underwriting
Discounts and Commissions, Proceeds to Company and Proceeds to Selling
Stockholder will be $ , $ , $ and $ , respectively. See
"Underwriting."
------------------------
The shares of Common Stock are offered severally by the Underwriters named
herein, subject to prior sale, when, as and if delivered to and accepted by the
Underwriters, and subject to the right of the Underwriters to reject any order
in whole or in part and certain other conditions. It is expected that delivery
of the certificates for the Common Stock will be made against payment therefor
at the offices of Cruttenden Roth Incorporated, Irvine, California or through
the facilities of the Depository Trust Company, on or about December , 1997.
------------------------
[LOGO]
THE DATE OF THIS PROSPECTUS IS 1997
<PAGE>
[PICTURES]
INSIDE FRONT COVER OF PROSPECTUS:
Collage of customer logos.
2
<PAGE>
[PICTURES]
INSIDE FOLD OUT SPREAD (2 PAGES) OF PROSPECTUS:
Pictures of the following product groups:
Hang tags
Woven trims, metal jean buttons and labels
Specialty packaging and retail display fixtures
Stationery
Guess? stationery
Private label
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS.
3
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION, INCLUDING "RISK FACTORS" AND THE CONSOLIDATED FINANCIAL STATEMENTS
AND NOTES THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. THE STATEMENTS WHICH
ARE NOT HISTORICAL FACTS CONTAINED IN THIS PROSPECTUS ARE FORWARD-LOOKING
STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES, INCLUDING THOSE DESCRIBED UNDER
"RISK FACTORS." EXCEPT AS OTHERWISE INDICATED, ALL INFORMATION IN THIS
PROSPECTUS (I) GIVES EFFECT TO THE CONSUMMATION ON OCTOBER 17, 1997 OF THE
CONSOLIDATION, WHICH AS DESCRIBED UNDER "THE COMPANY," COMBINED THE COMPANY'S
SUBSIDIARIES UNDER A SINGLE HOLDING COMPANY, (II) REFLECTS THE CONVERSION INTO
SHARES OF COMMON STOCK OF A CONVERTIBLE PROMISSORY NOTE IN THE PRINCIPAL AMOUNT
OF $875,000 PAYABLE TO CERTAIN STOCKHOLDERS AT AN AVERAGE PRICE OF $2.28 PER
SHARE, (III) HAS BEEN ADJUSTED TO REFLECT THE CHANGE OF THE STATUS OF PACIFIC
TRIM & BELT, INC., A CALIFORNIA CORPORATION FROM AN S CORPORATION TO A C
CORPORATION FOR INCOME TAX PURPOSES, AND (IV) ASSUMES THAT THE UNDERWRITER'S
OVER-ALLOTMENT OPTION AND REPRESENTATIVE'S WARRANT ARE NOT EXERCISED.
THE COMPANY
Tag-It Pacific, Inc. (the "Company") is a single-source provider of complete
brand identity programs to manufacturers of fashion apparel and accessories as
well as specialty retailers and mass merchandisers. Such programs communicate a
certain lifestyle, consumer feeling or cohesive aesthetic presence for a given
product line or brand. The Company's programs allow its customers, such as
Guess?, Calvin Klein, Quiksilver, Carole Little, The Limited, Sony Signatures
and Warner Bros., as well as licensees of Yves Saint Laurent, Kenneth Cole,
Geoffrey Beene and Pierre Cardin, to outsource most aspects of a brand identity
program, including value-added design, manufacturing coordination, materials
procurement, assembly, finishing and distribution of creative packaging, tag,
and trim products. The Company designs and produces high quality paper, metal
and injection molded boxes, woven and leather labels, hanging and bar-coded
tags, metal jean buttons, and custom shopping bags. The Company also designs and
produces specialty private label and licensed stationery as well as related
accessories and backpacks. The Company designs approximately 70% of the products
it sells.
The majority of the Company's revenues are related to the apparel and
accessory markets, both of which are large and growing. The increasing number of
fashion-driven apparel and accessory producers and products has made it more
difficult for manufacturers to differentiate their products from those of
competitors. As a result, manufacturers of fashion-driven consumer products have
increased their emphasis on specialty packaging, value-added tags and other
promotional material in order to compete for consumer attention in the retail
environment. This emphasis on product differentiation has created strong demand
for creative image enhancements such as bright, colorful and otherwise highly
distinguishable and attractive logos, point-of-sale packaging and signage, tags
and labels. In addition, short product life cycles for fashion-driven items,
advances in printing and packaging technology, and the diverse geographic
locations of specialty packaging or printing vendors and apparel or accessory
manufacturers, combine to make the design and execution of complete brand
identity programs increasingly more complex. The difficulties associated with
executing a program which coordinates these many facets are creating demand for
the single source programs offered by the Company.
There are a large number of vendors with varying capabilities serving the
printing, packaging and trim markets. Apparel and accessory manufacturers often
find themselves consuming excessive time, effort and expenses attempting to
manage in-house brand identity programs and ship floor-ready packaged products
to retailers throughout the global marketplace. To take advantage of the large
expanding demand for, and address the increasingly complicated requirements of,
effective brand identity programs, the Company has positioned itself as a
fully-integrated single-source provider of complete brand identity programs with
creative design personnel, sales representatives, assembly workers, program
managers and global production and distribution coordinators in Los Angeles, New
York, Mexico and Hong Kong. Because specialty packaging or printing vendors are
usually specialized in limited product areas, management believes that
4
<PAGE>
the Company, with its innovative designs and its global manufacturing and
distribution coordination capabilities, is well positioned to become a
recognized single-source provider and a market leader.
The Company's growth strategy includes the following elements: (i) expand
its customer base by promoting its single-source solution and in-house design,
manufacturing and distribution coordination capabilities to major retailers and
manufacturers around the world, (ii) increase customer penetration by targeting
additional product lines within existing accounts, (iii) expand its market
programs and network of sales offices to cover all major apparel producing
centers, (iv) broaden its target customer base for logos, point-of-sale
packaging and signage, tags and labels to include cosmetics and specialty foods
manufacturers, (v) create a domestic woven label facility to capitalize on the
demand for rapid turnaround of samples and short-run production, (vi) pursue
private label opportunities, and (vii) remain opportunistic with respect to
strategic acquisitions.
The Company was formed to serve as the parent holding company for each of
Tag-It, Inc., a California corporation ("Tag-It"), Tag-It Printing & Packaging
Ltd., a BVI corporation ("Tag-It Hong Kong"), Tagit de Mexico, SA de CV, a
qualified Maquiladora ("Tag-It Mexico"), A.G.S. Stationery, Inc., a California
corporation ("AGS Stationery") and Pacific Trim & Belt, Inc., a California
corporation ("Pacific Trim") (collectively the "Subsidiaries").
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by:
The Company.................................... 1,280,000 shares
The Selling Stockholder........................ 170,000 shares
Common Stock to be outstanding after the 3,750,000 shares(1)
Offering.......................................
Use of Proceeds.................................. To repay certain indebtedness; develop a
national sales network; acquire certain
fixed assets; increase inventories to
maximize efficiencies; and for working
capital and general corporate purposes.
See "Use of Proceeds."
Proposed American Stock Exchange Symbol.......... " "
</TABLE>
- ------------------------
(1) Excludes (i) an estimated 302,959 shares of Common Stock issuable upon
exercise of outstanding options and warrants, and (ii) 352,500 shares of
Common Stock reserved for issuance pursuant to options that may be granted
in the future under the Company's 1997 Stock Incentive Plan. See
"Management--Stock Incentive Plan," "Description of Capital
Stock--Warrants," "Underwriting" and "Shares Eligible for Future Sale."
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN THOUSANDS EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
AUGUST 31,
---------------------
<S> <C> <C>
1996 1997
---------- ---------
INCOME STATEMENT DATA:
Net sales............................................................................. $ 14,738 $ 19,539
Cost of goods sold.................................................................... 10,090 12,547
---------- ---------
Gross profit........................................................................ 4,648 6,993
Selling, general and administrative expenses.......................................... 4,973 5,897
Write-off of printing division........................................................ -- 232
---------- ---------
Total operating expenses............................................................ 4,973 6,129
Income (loss) from operations......................................................... (325) 864
Interest expense...................................................................... 465 810
Income (loss) before provision for income taxes....................................... (790) 54
Provision for income taxes(1)......................................................... -- 113
---------- ---------
Net loss............................................................................ $ (790) $ (59)
---------- ---------
---------- ---------
Net loss per share.................................................................... $ (.37) $ (.03)
---------- ---------
---------- ---------
Weighted average shares outstanding................................................... 2,086 2,086
---------- ---------
---------- ---------
Pro forma net loss per share(2) $ -- $ (.02)
Pro forma weighted average shares outstanding(2)...................................... -- 2,539
---------- ---------
---------- ---------
</TABLE>
<TABLE>
<CAPTION>
AUGUST 31, 1997
------------------------------------
ACTUAL PRO FORMA(2) AS ADJUSTED
--------- ------------ -----------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash........................................................................ $ 148 $ 148 $ 7,284
Working capital............................................................. (1,807) (932) 6,354
Total assets................................................................ 5,350 5,350 12,456
Total liabilities........................................................... 7,491 6,616 5,216
Stockholders' equity (capital deficiency)................................... (2,141) (1,266) 7,240
</TABLE>
- ------------------------
(1) The Provision for income taxes is the result of the Company's Subsidiaries
filing separate tax returns in years prior to the Consolidation.
(2) To reflect the conversion of a convertible promissory note in the principal
amount of $875,000.
6
<PAGE>
THE COMPANY
The Company was incorporated in Delaware in September 1997. The Company was
formed to combine several existing related operating entities formed by Harold,
Colin and Mark Dyne under a single holding company for the purposes of
facilitating a simplified and unified capital structure, securing capital for
the benefit of all of the individual entities, capturing within the holding
company overall operating efficiencies and developing an integrated sales and
marketing network. The Company combines Tag-It, Tag-It Hong Kong, Tag-It Mexico,
A.G.S. Stationery and Pacific Trim, all of which were related through common
stockholders, shared facilities, and certain shared personnel.
Tag-It Pacific L.L.C., a Delaware limited liability company ("Tag-It Pacific
LLC"), has (i) acquired directly, and in the case of AGS Stationery, indirectly
through AGS Holdings L.L.C., a Delaware limited liability company ("AGS
Holdings"), in a single transaction all of the outstanding capital stock of each
of the Subsidiaries for an aggregate of 2,470,000 membership units of Tag-It
Pacific LLC, and (ii) assumed outstanding warrants to purchase equity securities
of certain Subsidiaries which will become exercisable for 62,076 membership
units of Tag-It Pacific LLC at a weighted average exercise price of $.7299 per
unit in a stock-for-unit exchange (the "Exchange"). At the time of the Exchange,
Pacific Trim converted from an S corporation to a C corporation for tax
purposes. Immediately prior to the effectiveness of the Offering, the 2,470,000
outstanding membership units of Tag-It Pacific LLC will be converted to
2,470,000 shares of Common Stock of the Company (the Exchange and such
conversion are referred to as the "Consolidation.")
Tag-It, founded in May 1991, designs and produces hang tags and specialty
packaging products. In October 1994, Tag-It's founders expanded Tag-It's
offshore raw material sourcing capabilities and Asian distribution
infrastructure by forming Tag-It Hong Kong. In 1996, Tag-It expanded into the
licensed and private label stationery business. Also in 1996, to gain the
benefits of a larger and more cost-effective in-house labor force, Tag-It
commenced operations in Mexico through Tag-It Mexico, a qualified "Maquiladora"
under Mexico's Border Industrialization Program. Tag-It, Tag-It Hong Kong and
Tag-It Mexico, although separate corporate entities, have always operated as a
single functional enterprise.
In December 1995, AGS Stationery was formed for the limited purpose of
designing, manufacturing and marketing Guess? brand stationery products pursuant
to an exclusive license covering the United States, Canada, Mexico, Australia
and parts of Asia. AGS Stationery is operated separately from the other
stationery operations of Tag-It due to provisions of the Guess? license which
mandate that management control of AGS Stationery be maintained by Mark Dyne and
Colin Dyne. See "Risk Factors -- Dependence upon Guess? License."
Pacific Trim was founded in November 1987 and shares its principal offices
and facilities with Tag-It and AGS Stationery. Due to its S corporation status
and the existence of third party shareholders not associated with the Dyne
family, Pacific Trim, although operated at the same location as Tag-It and AGS
Stationery in Los Angeles and sharing certain overhead and infrastructure
resources and certain sales and marketing personnel, has operated as a separate
entity for financial reporting, financing and legal purposes.
Pacific Trim has been treated as an S corporation since its inception. As a
result, through the date immediately preceding the date of termination of its S
corporation status (the "Termination Date"), its earnings have been and will be
taxed for federal income tax purposes directly to the its shareholders, rather
than to the Company. Other than a tax imposed on S corporations by the State of
California (currently 1.5% of income), state income taxes on earnings also have
been the responsibility of the shareholders of Pacific Trim. The Termination
Date occurred at the time of the Exchange and at that time Pacific Trim became
subject to federal and state corporate income taxes. See Note 7 of Notes to
Financial Statements.
7
<PAGE>
Approximately $92,000 of the proceeds of the offering will be distributed to
Pacific Trim's shareholders to permit them to pay income taxes attributable to
the earnings of Pacific Trim prior to the Termination Date.
Immediately prior to the Exchange, the Company and the Pacific Trim
shareholders entered into a tax indemnification agreement (the "Tax Agreement")
relating to their respective income tax liabilities. Because the Company became
fully subject to corporate income taxation on the earnings of Pacific Trim after
the termination of Pacific Trim's S corporation status, the reallocation of
income and deductions between the period during which Pacific Trim was treated
as an S corporation and the period during which the Company is subject to
corporate income taxation with respect to the operations of Pacific Trim may
increase the taxable income of one party while decreasing that of another party.
Accordingly, the Tax Agreement is intended to assure that taxes are borne by the
Company on the one hand and the shareholders of Pacific Trim on the other only
to the extent that such parties received the related income. The Tax Agreement
generally provides that, if an adjustment is made to the taxable income of the
Pacific Trim for a year in which it was treated as an S corporation, the Company
will indemnify the Pacific Trim shareholders and the Pacific Trim shareholders
will indemnify the Company against any increase in the indemnified party's
income tax liability (including interest and penalties and related costs and
expenses), with respect to any tax year to the extent such increase results in a
related decrease in the income tax liability of the indemnifying party for that
year. The Company has also indemnified the Pacific Trim shareholders for all
taxes imposed upon them as the result of their receipt of an indemnification
payment under the Tax Agreement. Any payment made by the Company to the Pacific
Trim shareholders pursuant to the Tax Agreement may be considered by the
Internal Revenue Service or state taxing authorities to be non-deductible by the
Company for income tax purposes.
The Exchange will be treated as a reorganization of companies under common
control and will be accounted for in a manner similar to a pooling of interests.
All information set forth in this Prospectus gives effect to the Consolidation
and the conversion of Pacific Trim to a C corporation for tax purposes,
including all financial information which is presented on a consolidated basis.
The Company maintains its principal executive offices at 3820 South Hill
Street, Los Angeles, California, 90037. The telephone number of its principal
executive offices is (213) 234-9606.
8
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING RISK
FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE COMPANY AND ITS
BUSINESS BEFORE PURCHASING THE SHARES OF COMMON STOCK OFFERED HEREBY. THIS
PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS REGARDING THE INTENT, BELIEF AND
CURRENT EXPECTATIONS OF THE COMPANY, ITS DIRECTORS AND ITS OFFICERS, INCLUDING
STATEMENTS WITH RESPECT TO THE USE OF PROCEEDS OF THE OFFERING AND TRENDS
AFFECTING THE COMPANY'S FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
PROSPECTIVE INVESTORS ARE CAUTIONED THAT SUCH FORWARD-LOOKING STATEMENTS ARE NOT
GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE RISKS AND UNCERTAINTIES AND THAT
ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE
FORWARD-LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS. THE ACCOMPANYING
INFORMATION CONTAINED IN THIS PROSPECTUS, INCLUDING THE INFORMATION SET FORTH
BELOW AND UNDER "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS," AND "BUSINESS" IDENTIFIES IMPORTANT FACTORS THAT COULD
CAUSE SUCH DIFFERENCES.
MANAGEMENT OF BUSINESS CHANGES; POTENTIAL GROWTH; POTENTIAL ACQUISITIONS
The Subsidiaries have significantly expanded their operations and have been
operated under family management over the past several years. The Company's
expansion has placed, and any future expansion, internally or through
acquisitions, will place, significant demands on the Company's management,
operational, administrative, financial and accounting resources. Successful
management of the Company's operations will require the Company to continue to
implement and improve its financial and management information and reporting
systems and procedures on a timely basis. The Company's ability to manage its
future growth, if any, will also require it to hire and train new employees,
including management and operating personnel, and motivate and manage its new
employees and integrate them into its overall operations and culture. The
Company recently has made additions to its management team and is in the process
of expanding its accounting staff and modifying its internal procedures to adapt
to its new role as a public company, a process which is expected to continue
following the Offering.
In the future, the Company may acquire complementary companies, products or
technologies, although no specific acquisitions currently are pending or under
negotiation. Acquisitions involve numerous risks, including adverse short-term
effects on the combined business' reported operating results, impairments of
goodwill and other intangible assets, the diversion of management's attention,
the dependence on retention, hiring and training of key personnel, the
amortization of intangible assets and risks associated with unanticipated
problems or legal liabilities.
The Company's failure to manage implementation of its growth strategies and
the changes implemented to structure and prepare for the Offering would have a
material adverse effect on the Company's results of operations and its ability
to implement its growth strategy.
POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS; SEASONALITY
The Company may in the future experience significant quarterly fluctuations
in sales, operating income and cash flows as a result of certain factors,
including the volume and timing of customer orders received during the quarter,
the timing and magnitude of customers' marketing campaigns, the loss of a major
customer, the availability and pricing of materials for the Company's products,
increased selling, general and administrative expenses incurred in connection
with acquisitions or the introduction of new products, the costs and timing of
any future acquisitions, the timing and magnitude of capital expenditures, and
changes in the Company's product mix or in the relative contribution to sales of
the various Subsidiaries. Due to the foregoing factors, it is possible that in
some future quarter the Company's operating results may be below the
expectations of public market analysts and investors. In such event, the price
of the Company's Common Stock would likely be materially and adversely affected.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
In addition, most of the Company's customers are in the apparel industry,
which historically has been subject to substantial cyclical variations. The
Company's business has experienced and is expected to
9
<PAGE>
continue to experience significant seasonality, in part due to customer buying
patterns. In recent years, the Company generally had stronger demands for its
products during the quarters ending in November, May and August, and
significantly weaker demand in the quarter ending in February. A recession in
the general economy or uncertainties regarding future economic prospects that
affect consumer spending habits could have a material adverse effect on the
Company's financial condition and results of operations.
REQUIREMENT FOR INTEGRATED INFORMATION SYSTEM
The Consolidation and resulting centralized management of the Subsidiaries,
implementation of the Company's growth strategies and the general strains of the
Company's new role as a public company will place significant demands on the
Company's information systems and require that the Company significantly expand
and improve its financial and operating controls. Additionally, the Company must
effectively integrate the information systems of Hong Kong and Mexico with its
principal offices in Los Angeles. Although the Company intends to apply a
portion of the proceeds of the Offering to the implementation and improvement of
its information systems and staff, there are no assurances that the Company will
be successful in doing so and the Company's failure to improve its information
systems will have a material adverse effect on the Company's results of
operations and its ability to implement its business strategy.
DEPENDENCE ON KEY CUSTOMERS; ABSENCE OF LONG-TERM CONTRACTS WITH CUSTOMERS
The Company's two largest customers, Guess? and Swank (a licensee of Yves
Saint Laurent, Kenneth Cole, Geoffrey Beene and Pierre Cardin), accounted for
approximately 18.3% and 11.1%, respectively, of the Company's net sales (on a
consolidated basis) for the year ended August 31, 1997, and approximately 15.1%
and 11.4%, respectively, of the Company's net sales (on a consolidated basis)
for the year ended August 31, 1996. There can be no assurance that the Company
or the Subsidiaries will be able to maintain the current level of sales derived
from these or any other customer in the future.
The Company generally does not enter into long-term sales contracts with its
customers requiring them to make purchases from the Company. The Company's sales
are generally evidenced by a purchase order and similar documentation limited to
a specific sale. As a result, a customer from whom the Company generates
substantial revenue in one period may not be a substantial source of revenue in
a subsequent period. In addition, the Company's customers generally have the
right to terminate their relationships with the Company without penalty and on
little or no notice. In the absence of such long-term contracts, there can be no
assurance that these customers will continue to purchase products from the
Company, and thus there can be no assurance that the Company will be able to
maintain a consistent level of sales.
The termination of the Company's business relationship with any of its
significant customers or a material reduction in sales to a significant customer
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business--Customers."
DEPENDENCE ON KEY PERSONNEL
The Company's success has and will continue to depend to a significant
extent upon certain key management and design and sales personnel, many of whom
would be difficult to replace, particularly Colin Dyne, its Chief Executive
Officer and Harold Dyne, its President, neither of whom is bound by an
employment agreement or the subject of key man insurance. The loss of the
services of one or more of these key executives and other key employees could
have a material adverse effect on the Company, including the Company's ability
to establish and maintain client relationships. The Company's future success
will depend in large part upon its ability to identify, attract, assimilate,
retain and motivate personnel with a variety of design, sales, operating and
managerial skills. There can be no assurance that the Company will be able to
retain and motivate its managerial, design, sales and operating personnel or
10
<PAGE>
attract additional qualified members to management, design or sales staff. See
"Business--Employees" and "Management."
CONTROL BY EXISTING STOCKHOLDERS
Upon consummation of the Offering, the Company's officers and directors (and
their affiliates), will own approximately 48.1% of the Company's outstanding
shares (approximately 45.9% assuming the full exercise of the Over-Allotment
Option); and the Dyne family will own approximately 47.8% of the Company's
outstanding shares (approximately 45.5% assuming the full exercise of the
Over-Allotment Option). As a result, these stockholders, or the Dyne family
acting as a group, will be able to control the Company and its operations,
including the election of at least a majority of the Company's Board of
Directors and thus the policies of the Company. The voting power of these
stockholders could also serve to discourage potential acquirors from seeking to
acquire control of the Company through the purchase of the Common Stock, which
might have a depressive effect on the price of the Common Stock. See
"Management," "Principal and Selling Stockholders," and "Description of Capital
Stock."
ACCESS TO FINANCING AND REPLACEMENT OF FACTORS
Historically the Company has factored its receivables in order to obtain
necessary capital. Factoring of its receivables has substantially increased the
Company's cost of funds, limited the Company's ability to sell to customers not
approved by the Company's factors, and has limited the Company's growth
potential. Under the Company's factoring arrangements, the amount of cash
available to the Company is tied directly to the level of the Company's
shipments and the credit quality of the Company's customers. The amount of cash
available to the Company has been, and may continue to be adversely affected by
delays in shipment, economic trends in the packaging and garment industry,
interest rate fluctuations and the lending policies of the Company's factors.
Many of these influences are beyond the Company's control. Following the
Offering, the Company expects to replace its factoring relationships with more
cost effective asset based financing. However, no assurance can be given that
the Company will be able to obtain asset based financing or other financing at
rates and on terms more favorable to the Company than its current factoring
arrangement. Even if the Company is able to obtain financing on acceptable
terms, any decrease or material limitation on the amount of capital available to
the Company under such arrangements will limit the ability of the Company to
expand its sales levels and, therefore, would have a material adverse effect on
the Company's financial position, operating results, and cash flows. In
addition, any significant increases in interest rates will increase the cost of
financing to the Company and would have a material adverse effect on the
Company's financial position, operating results, and cash flows.
DEPENDENCE ON LIMITED ASSEMBLY FACILITIES
Certain of the Company's products are assembled or finished at one of two
foreign assembly facilities of the Company. Since the Company does not currently
operate duplicate facilities in different geographic areas, a disruption of the
Company's manufacturing operations resulting from various factors, including
human error, foreign trade disruptions, import restrictions, labor disruptions,
embargos, government intervention or a natural disaster such as fire, earthquake
or flood, could cause the Company to cease or limit its assembly or finishing
operations and consequently could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business--Procurement, Assembly and Finishing."
FLUCTUATING PAPER COSTS AND PAPER SHORTAGES
The cost of paper is a principal component of the price the Company charges
for its paper products, including its high quality paper boxes, custom shopping
bags, hang tags, packaging and stationery products. Historically, the Company
has been able to pass on to its customers any increase or decrease in the cost
of paper, and thus the gross margin on the Company's paper products remains
constant during fluctuations in
11
<PAGE>
the cost of paper. There can be no assurance, however, that the Company will
continue to be able to pass increases in paper costs to its customers. To the
extent that the Company is unable to pass on to its customers increases in paper
costs, or if paper cost increases cause them to reduce their purchases, the
Company's results of operations could be materially adversely affected.
The Company does not have any long-term agreements with its key sources of
paper. While capacity in the paper industry has remained relatively stable in
recent years, increases or decreases in demand for paper have led to
corresponding pricing changes and, in periods of high demand, to limitations on
the availability of certain grades of paper, including grades utilized by the
Company. Any loss of the sources for paper supply or any disruption in such
sources' business or failure by them to meet the Company's product needs on a
timely basis could cause shortages in needed materials which could have a
material adverse effect on the Company's results of operations. Although the
Company actively manages its paper supply and has established strong
relationships with its suppliers, which include many of the leading paper
companies in North America, there can be no assurance that the Company's sources
of supply for its paper will be adequate or, in the event that such sources are
not adequate, that alternative sources can be developed in a timely manner.
LIMITED SOURCES OF SUPPLY
The Company generally does not have long-term agreements with its key
sources of supply. Lead times for materials ordered by the Company can vary
significantly and depend on factors such as the specific supplier, contract
terms and demand for particular materials at a given time. From time to time,
the Company has experienced fluctuations in materials prices. Shortages or
disruptions in the supply of materials, or the inability of the Company to
procure such materials from alternate sources at acceptable prices in a timely
manner, could lead to the loss of customers due to the failure to timely meet
orders which in turn could result in a material adverse effect on the Company's
business, financial condition and results of operations.
COMPETITION
The industries in which the Company competes are highly competitive and
fragmented and include numerous local and regional companies that provide some
or all of the services offered by the Company. The Company also competes with
United States and international design companies, distributors and manufacturers
of tags, packaging products and trims. Some of the Company's competitors,
including Paxar, Inc., RVL, Inc., International Packaging, Inc., Universal
Button, Inc., and Scovill Fasteners, Inc., have greater name recognition, longer
operating histories and, in many cases, substantially greater financial and
other resources than the Company. Such competitors have used their economic
strength to influence the market to continue to buy their products which compete
with the Company's products.
In addition, new competitors, potentially with substantially greater
resources than the Company, may arise and may develop products which compete
with the Company's products. Moreover, there can be no assurance that new or
proprietary technology will not be introduced by an existing or new competitor
that may make some of the Company's products or services obsolete. To the extent
that the Company is unable to compete successfully against its existing and
future competitors, its business, operating results and financial condition
would be materially adversely affected. While the Company believes that it
competes effectively within the value-added design and packaging industry, there
are numerous factors that could reduce the Company's ability to compete
effectively. See "Business--Competition."
DEPENDENCE UPON GUESS? LICENSE
The Company, through AGS Stationery, manufactures Guess? stationery products
pursuant to an exclusive license with Guess? entered into as of March 1, 1996.
Net sales of Guess? stationery products accounted for 10.9% of the Company's
consolidated net sales in fiscal 1997. The Guess? license terminates
12
<PAGE>
on December 31, 2001, but may be renewed by the Company through December 31,
2006 so long as the Company is not in breach of the license agreement and
generates the required amount of minimum net sales for the two contract years
prior to renewal. Guess? may terminate the license before its term expires upon
the occurrence of certain events, including (i) if the Company commits a breach
of the license agreement and fails to cure that breach within the cure period,
(ii) if net sales for any contract year do not meet or exceed the minimum net
sales required for such contract year, (iii) if, following any consolidation,
sale or merger of AGS Stationery, Mark Dyne and Colin Dyne do not, subsequent to
the consolidation, sale or merger, retain, directly or indirectly, the power to
vote or direct the voting of more than fifty percent of the outstanding voting
securities of AGS Stationery, or (iv) if Colin Dyne leaves the employment of AGS
Stationery or otherwise fails to devote the vast majority of his time and
efforts to the daily management of AGS Stationery's business, or Mark Dyne
ceases to exert, on a regular basis, actual and bona fide management control and
oversight over AGS Stationery's business. The Company has structured the
Consolidation in order to assure that Mark Dyne and Colin Dyne continue to
control the management of AGS Stationery, and Guess? has been notified of this
structure and has not objected. See "The Company." The termination of the Guess?
license could have a material adverse effect on the Company's business,
operating results and financial condition. Additionally, Guess? has certain
approval rights over the various aspects of the design, manufacture, marketing
and distribution of products under the license and consequently may delay the
distribution of products bearing its proprietary marks. There can be no
assurance that the Company will not be subject to delays resulting from
disagreements with, or an inability to obtain approvals from Guess?. See
"Business--Products--Private Label and Specialty Licenses."
RISK OF PRODUCT RETURNS
The Company incurs expenses as a result of the return of products by
customers, particularly in connection with customers of the Company's licensed
stationery business. Such returns may result from sale or return arrangements,
defective goods, inadequate performance relative to customer expectations,
shipping errors and other causes which are outside the Company's control.
Generally, returned items have limited or no value and Company will be forced to
bear the cost of such returns. Any significant increase in the rate of product
returns could have a material adverse effect on the Company's financial
position, operating results, and cash flows. In addition, product returns could
result in loss of revenue or delay in market acceptance, diversion of
development resources, damage to the Company's reputation to increase service
and warranty costs, any of which could have a material adverse effect on the
Company's business operating results and financial condition.
INTERNATIONAL BUSINESS
During 1997, approximately 40% of the Company's products were purchased,
assembled or finished outside the United States, principally in Hong Kong and
Mexico, and the Company intends to continue to purchase, assemble or finish a
similar or greater percentage of its products outside of the United States in
the future. The Company's international business is subject to numerous risks,
including the need to comply with a wide variety of foreign and United States
export and import laws, changes in export or import controls, tariffs and other
regulatory requirements, the imposition of governmental controls, political and
economic instability, trade restrictions, the difficulty of administering
business overseas and general economic conditions. The inability of a contractor
or supplier to ship orders in a timely manner could cause the Company to miss
the delivery date requirements of its customers for those items, which could
result in the cancellation of orders, refusal to accept deliveries or a
reduction in sales price. Although the Company's international operations are
denominated principally in United States dollars, purchases from foreign vendors
may also be affected by changes in demand resulting from fluctuations in
interest and currency exchange rates. There can be no assurance that these
factors will not have a material adverse effect on the Company's business and
results of operations. In addition, the Company cannot predict the effects the
above risks will have on its business arrangements with its contractors or
suppliers. If any such risks were to render the conduct of business in a
particular country undesirable or impractical, or if the
13
<PAGE>
Company's current contractors or suppliers were to cease doing business with the
Company for any reason, the Company's business and operating results could be
adversely effected. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Sovereignty over Hong Kong was transferred from the United Kingdom to The
People's Republic of China on July 1, 1997. If the business climate in Hong Kong
were to experience an adverse change as a result of the transfer, the Company
believes it could relocate its production and sourcing facilities outside Hong
Kong and replace the products currently produced in Hong Kong with products
produced elsewhere without a material adverse effect on the Company's financial
condition or results of operations. Nevertheless, there can be no assurance that
the Company would be able to do so.
SHARED RESPONSIBILITIES OF CHAIRMAN
The Company's Chairman, Mark Dyne, also serves as Chief Executive Officer
and Chairman of Brilliant Digital Entertainment, Inc. ("Brilliant") and a joint
managing director of Sega Ozisoft Pty., Limited ("Sega Ozisoft") and other
businesses. Mr. Dyne is not required to spend a certain amount of time at the
Company nor is he able to devote his full time and resources to the Company.
There can be no assurance that the inability of Mr. Dyne to devote his full time
and resources to the Company will not adversely affect the Company's business,
operating results or financial condition. The Company's Certificate of
Incorporation provides that Mark Dyne is not required to present opportunities
to the Company which potentially may be of benefit to the Company with the
exception of opportunities in the following industries: packaging, stationery,
label, garment or garment related design or manufacturing. There can be no
guaranty that such provisions will be enforceable. See "Management."
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
The Company anticipates that its existing capital resources, together with
the net proceeds of the Offering, will be adequate to satisfy its capital
requirements for at least the next 18 months. The Company's future capital
requirements will depend, however, on many factors, including but not limited
to, results of operations, the size and timing of future acquisitions, if any,
and the availability of additional financing. To the extent that existing
resources and future earnings are insufficient to fund the Company's activities,
the Company may need to raise additional funds through debt or equity
financings. No assurance can be given that such additional financing will be
available or that, if available, it can be obtained on terms favorable to the
Company and its stockholders. In addition, any equity financing could result in
dilution to the Company's stockholders. The Company's inability to obtain
adequate funds would adversely affect the Company's operations and ability to
implement its strategy. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
HOLDING COMPANY STRUCTURE
The Company is a holding company with no substantial operations and,
consequently, is dependent on dividends and other payments from the Subsidiaries
for virtually all of its cash flow, including cash flow for management salaries
and overhead, to service debt, to make equity investments and to finance its
growth. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
MANAGEMENT'S DISCRETION AS TO USE OF PROCEEDS
The Company's management will have broad discretion as to the application of
the net proceeds to the Company from the sale of Common Stock by this
Prospectus. The net proceeds to the Company are estimated to be approximately
$8.5 million (assuming no exercise of the Over-Allotment Option). The Company
expects to use approximately $1.4 million of the net proceeds to repay
outstanding indebtedness (of which $1.37 million will be used to repay
indebtedness to related parties), $1.0 million to develop a
14
<PAGE>
national sales and marketing network, including hiring additional sales
personnel, $1.75 million to acquire fixed assets, including bar code equipment,
label weaving looms, prototype fabrication equipment, and equipment to upgrade
the Company's information systems, and approximately $1.0 million to finance
increased inventory levels to maximize efficiency and volume discounts. The
balance of the net proceeds will be used for working capital and general
corporate purposes. The Company may change the allocation of these proceeds in
response to developments in the industries in which it operates and changes in
the Company. Accordingly, Company management will have broad discretion as to
the application of the net proceeds of the Offering. See "Use of Proceeds."
NO EARTHQUAKE INSURANCE
The Company's principal executive offices are located in Los Angeles,
California--an area which often experiences earthquakes. The Company faces the
risks that it may experience uninsured property damage and/or sustain
interruption of its business and operations. The Company does not currently
carry insurance against earthquake-related risks.
IMMEDIATE AND SUBSTANTIAL DILUTION
The proposed initial public offering price of $8.00 per share is
substantially higher than the book value per outstanding share of Common Stock.
Specifically, investors will sustain immediate dilution of $6.24 per share (or
78%) based on the pro forma net tangible book value of the Company at August 31,
1997 of $7,772,060. Investors in the Offering therefore will bear a
disproportionate part of the financial risk associated with the Company's
business while effective control will remain with existing stockholders and
management. Additional dilution may occur upon the exercise of outstanding stock
options and warrants. See "Dilution" and "Principal and Selling Stockholders."
ABSENCE OF PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE; ARBITRARY
DETERMINATION OF OFFERING PRICE
Prior to the Offering, there has been no public market for the Common Stock.
Although the Company has applied for approval for trading of the Common Stock on
the American Stock Exchange, there can be no assurance that an active trading
market for the Common Stock will develop as a result of the Offering or, if a
trading market does develop, that it will continue or be sustained after the
Offering. In the absence of such a market, investors may be unable readily to
liquidate their investment in the Common Stock. The trading price of the Common
Stock could be subject to wide fluctuations in response to quarter to quarter
variations in operating results, news announcements relating to the Company's
business (including innovations or new product introductions by the Company or
its competitors), changes in financial estimates by securities analysts, the
operating and stock price performance of other companies that investors may deem
comparable to the Company as well as other developments affecting the Company or
its competitors. In addition, the market for equity securities in general has
been volatile and the trading price of the Common Stock could be subject to wide
fluctuations in response to general market trends, changes in general conditions
in the economy or the financial markets and other factors which may be unrelated
to the Company's operating performance. The public offering price of the shares
of Common Stock will be determined by arms-length negotiations between the
Company, Selling Stockholder and Cruttenden Roth Incorporated as representative
of the Underwriters and will not necessarily bear any relationship to the
Company's assets, book value, earnings history or other investment criteria.
There can be no assurance that the shares offered hereby will trade at market
prices in excess of the initial public offering price. See "Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of Common Stock by existing stockholders could adversely affect
the prevailing market price of the Common Stock and the Company's ability to
raise capital in the equity markets. Upon
15
<PAGE>
completion of the Offering, the Company will have 3,750,000 shares of Common
Stock outstanding (3,942,000 if the Underwriter's over-allotment option is
exercised in full). Of those shares, the 1,450,000 shares of Common Stock
offered hereby (1,642,000 if the Underwriter's over-allotment option is
exercised in full) will be freely tradeable without restriction or further
registration under the Securities Act, unless purchased by "affiliates" of the
Company as that term is defined in Rule 144 under the Securities Act ("Rule
144"). The remaining 2,300,000 shares of Common Stock outstanding are
"restricted securities," as that term is defined by Rule 144, and if held by
affiliates are also subject to the volume and manner of sale limitations of Rule
144. Under certain lock-up agreements, the officers, directors and stockholders
of the Company have agreed that they will not, directly or indirectly, sell,
assign or otherwise transfer any shares of Common Stock owned by them for a
period of 365 days after the effective date of this Prospectus, without the
prior written consent of Cruttenden Roth Incorporated. Upon expiration of the
lock-up agreements, such 2,300,000 shares of Common Stock will become eligible
for sale, subject to compliance with the volume and manner of sale limitations
of Rule 144. See "Shares Eligible for Future Sale" and "Underwriting."
The Company intends to file a registration statement under the Securities
Act to register the shares of Common Stock reserved for issuance pursuant to the
Company's 1997 Stock Incentive Plan (the "1997 Plan"). See "Management--Stock
Incentive Plan." This registration statement will become effective immediately
upon filing. As of October 15, 1997, options to purchase 210,000 shares of
Common Stock had been granted under the 1997 Plan and warrants to purchase
92,959 shares of Common Stock had been granted, none of which had been
exercised. The availability for sale, as well as actual sales, of currently
outstanding shares of Common Stock, and shares of Common Stock issuable upon the
exercise of options and warrants, may depress the prevailing market price for
the Common Stock and could adversely affect the terms upon which the Company
would be able to obtain additional equity financing.
ENVIRONMENTAL REGULATIONS
Certain of the Subsidiaries use hazardous materials in their manufacturing
operations. As a result, the Company is subject to federal, state and local
regulations governing the storage, use and disposal of such materials. The use
and disposal of hazardous materials involves the risk that the Company could be
required to incur substantial expenditures for preventive or remedial action,
reduction of chemical exposure, or waste treatment or disposal. The liability in
the event of an accident or the costs of such actions could exceed the Company's
resources or otherwise have a material adverse effect on the Company's business,
financial condition or results of operations.
EFFECT OF CERTAIN CHARTER PROVISIONS; ANTI-TAKEOVER EFFECTS OF CERTIFICATE OF
INCORPORATION, BYLAWS AND DELAWARE LAW
The Company's Board of Directors has the authority to issue up to 3,000,000
shares of Preferred Stock and to determine the price, rights, preferences,
privileges and restrictions, including voting rights, of those shares without
any further vote or action by the stockholders. The Preferred Stock could be
issued with voting, liquidation, dividend and other rights superior to those of
the Common Stock. Following the Offering, no shares of Preferred Stock of the
Company will be outstanding, and the Company has no present intention to issue
any shares of Preferred Stock. However, the rights of the holders of Common
Stock will be subject to, and may be adversely affected by, the rights of the
holders of any Preferred Stock that may be issued in the future. The issuance of
Preferred Stock, while providing desirable flexibility in connection with
possible acquisitions and other corporate purposes, could have the effect of
making it more difficult for a third party to acquire a majority of the
outstanding voting stock of the Company. Further, certain provisions of the
Company's Certificate of Incorporation and Bylaws and of Delaware law could
delay or make more difficult a merger, tender offer or proxy contest involving
the Company. See "Description of Capital Stock--Preferred Stock" and
"Description of Capital Stock--Anti-Takeover Provisions."
16
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,280,000 shares of
Common Stock offered by the Company hereby are estimated to be $8.7 million
(approximately $10.2 million if the Over-Allotment Option granted to the
Underwriters by the Company is excercised in full), at an assumed initial public
offering price of $8.00 per share and after deducting the estimated offering
expenses and underwriting discounts and commissions payable by the Company.
The Company expects to use the estimated net proceeds as follows: (i)
approximately $1.4 million to repay certain indebtedness, which was incurred to
fund the working capital requirements of the Company's operations, including
$1.37 million which will be paid to certain related parties (the "Related Party
Indebtedness"); (ii) approximately $1.0 million to develop a national sales and
marketing network, which would include the hiring of additional sales personnel;
(iii) $1.75 million to acquire fixed assets, including bar-code equipment, label
weaving looms, prototype fabrication equipment, and equipment to upgrade the
Company's information systems; and (iv) approximately $1.0 million to finance
increased inventory levels to maximize efficiency and volume discounts. The
balance of the net proceeds will be used for working capital and general
corporate purposes. Until the net proceeds of the Offering are used, the Company
intends to invest them in United States government securities, short-term
certificates of deposit, money market funds or other short-term interest bearing
investments. The Company's management will have broad discretion as to the
application of the net proceeds to the Company from the sale of Common Stock by
this Prospectus. The Company may change the allocation of these proceeds in
response to developments in the industries in which it operates and changes in
the Company.
In addition, the Company is conducting the Offering to create a market for
its Common Stock, to facilitate future access by the Company to the public
equity markets and to enhance the Company's public image and credibility to
support its marketing efforts, particularly its plans to create a national sales
presence in the United States.
As of October 15, 1997, the Related Party Indebtedness consisted of
approximately (i) $100,000 owed by Tag-It to Harold Dyne with an interest rate
equal to the interest rate on the indebtedness owed by Harold Dyne to Mercantile
National Bank (11.75% as of October 15, 1997), (ii) $10,000 owed by Tag-It to
Harold Dyne with an interest rate of 10.0% per annum, (iii) $15,000 owed by
Tag-It to Mark Dyne with an interest rate of 7.5% per annum, (iv) $300,000 owed
by AGS Stationery to Monto Holdings Pty. Ltd. with an interest rate of 7.5% per
annum, (v) $124,626 owed by Pacific Trim to Monto Holdings Pty. Ltd. with an
interest rate of 10.0% per annum, (vi) $817,472 owed by Tag-It to NPM
Investments, Inc. with an interest rate of 7.5% per annum, (vii) $16,000 owed by
Tag-It to Pacific Western, Inc. ("Pacific Western") with an interest rate of
7.5% per annum, and (viii) $6,000 owed by Pacific Trim to Pacific Western with
an interest rate of 7.5% per annum. All of the Related Party Indebtedness is due
and payable on the fifteenth day following the date of delivery of written
demand for payment at any time following December 31, 1998.
The indebtedness to be repaid by the Company (other than Related Party
Indebtedness) consists of (i) $25,200 owed by Pacific Trim to ECD International,
Inc. with an interest rate of 10.0% per annum and which is due and payable on
the fifteenth day following the date of delivery of written demand for payment,
and (ii) $15,897 owed by Pacific Trim to Raymond Spiro with an interest rate of
10.0% per annum and which is due and payable on the fifteenth day following the
date of delivery of written demand for payment.
DIVIDEND POLICY
The Company has no current intention to pay dividends on its Common Stock
following the Offering and intends to follow a policy of retaining earnings to
finance the growth of its business. Additionally, several of the Company's
current credit facilities limit or prohibit the payment of dividends unless
certain conditions are satisfied. Any future determination to pay dividends will
be at the discretion of the Board of Directors of the Company and will be
dependent on the Company's results of operations, financial condition,
contractual and legal restrictions and other factors deemed relevant by the
Board of Directors at that time.
17
<PAGE>
DILUTION
The consolidated pro forma net tangible book value of the Common Stock as of
August 31, 1997, was $(1,265,837) or $(.50) per share. Consolidated net tangible
book value per share is equal to the total tangible assets of the Company, less
total liabilities, divided by the number of shares of Common Stock outstanding.
After giving effect to the sale of the 1,280,000 shares offered by the Company
hereby (at an assumed initial offering price of $8.00 per share) and assuming
net proceeds to the Company of $8,505,800 (after deducting underwriting
discounts and commissions and estimated offering expenses), the pro forma
consolidated net tangible book value for the Common Stock as of August 31, 1997,
would have been $7,239,963, or $1.93 per share. This represents an immediate
increase in consolidated net tangible book value of $3.44 per share to existing
stockholders and an immediate dilution of $6.07 per share to new investors
purchasing shares in the Offering. The following table illustrates this per
share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price........................ $ 8.00
Consolidated pro forma net tangible book value per share as
of August 31, 1997......................................... $ (.51)
Increase per share attributable to new investors............. $ 2.44
---------
Pro forma consolidated net tangible book value per share as
of August 31, 1997, as adjusted............................ $ 1.93
---------
Dilution per share to new investors.......................... $ 6.07
---------
---------
</TABLE>
The following table summarizes, with respect to existing holders of Common
Stock and new investors, a comparison of the number of shares of Common Stock
acquired from the Company, the percentage ownership of such shares, the total
consideration, the percentage of total consideration and the average price per
share.
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK
ACQUIRED TOTAL CONSIDERATION AVERAGE
---------------------- ----------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
--------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
All existing stockholders.................... 2,470,000 65.87% $ 960,000 8.57% .39
New investors................................ 1,280,000 34.13 10,240,000 91.43 8.00
--------- ----- ---------- ----- -----
3,750,000 100.0% $11,200,000 100.0% 2.99
--------- ----- ---------- ----- -----
--------- ----- ---------- ----- -----
</TABLE>
The foregoing tables and calculations assume no exercise of outstanding
options and warrants. At October 20, 1997, 240,883 shares of Common Stock were
subject to outstanding options at a weighted average exercise price of $6.40 per
share and 62,076 shares of Common Stock were subject to outstanding warrants at
a weighted average exercise price of $.74 per share. If all of the currently
exercisable options and warrants are exercised, an additional 302,959 shares
would be issued and the dilution to new investors would decrease to $5.82 per
share.
18
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at August
31, 1997 and as adjusted to give effect to the sale of the 1,280,000 shares of
Common Stock offered by the Company hereby at an assumed offering price of $8.00
per share and the application of the estimated net proceeds therefrom (after
deducting underwriting discounts and commissions and estimated offering
expenses). See "Use of Proceeds." This table should be read in conjunction with
the Consolidated Financial Statements and related notes contained therein and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AUGUST 31, 1997
---------------------------------
PRO AS
ACTUAL FORMA(1) ADJUSTED(2)
--------- ----------- ---------
<S> <C> <C> <C>
Current Liabilities...................................... 6,185,994 5,310,994 5,160,692
--------- ----------- ---------
Total long-term debt, less current portion............... 55,315 55,315 55,315
Notes payable to related parties, less current portion... 1,249,698 1,249,698 -0-
--------- ----------- ---------
Stockholders' deficiency:
Preferred Stock, $.001 par value; 3,000,000 shares
authorized; no shares issued and outstanding......... -- -- --
Common Stock; $.001 par value; 15,000,000 shares
authorized; shares issued and outstanding,
2,085,599, 2,470,000 and ........................ -- -- --
Additional Paid-in capital............................. 85,000 960,000 960,000
Accumulated deficit.................................... (2,225,837) (2,225,837) (1,265,837)
--------- ----------- ---------
Total Stockholders Equity (Capital Deficiency)........... (2,140,837) (1,265,837) 7,239,963
--------- ----------- ---------
Total Liabilities and Stockholders Equity................ 5,350,170 5,350,170 12,455,970
--------- ----------- ---------
--------- ----------- ---------
</TABLE>
- ------------------------
(1) Assumes conversion of debt to equity.
(2) As adjusted for sale of
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data have been derived from
the Company's consolidated financial statements, which financial statements for
the years ended August 31, 1996 and 1997 have been audited by BDO Seidman, LLP,
independent certified public accountants. The consolidated financial statements
as of August 31, 1996 and 1997, and for each of the years in the two-year period
ended August 31, 1997, and the report thereon, are included elsewhere in this
Prospectus. The selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Financial Statements and related notes and
other financial information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
AUGUST 31,
--------------------
1996 1997
--------- ---------
(IN THOUSANDS,
EXCEPT FOR PER SHARE
DATA)
<S> <C> <C>
INCOME STATEMENT DATA:
Net sales............................................................. $ 14,738 $ 19,539
Cost of goods sold.................................................... 10,090 12,547
--------- ---------
Gross profit........................................................ 4,648 6,993
Selling, general and administrative expenses.......................... 4,973 5,897
Write-off of printing division........................................ -- 232
--------- ---------
Total operating expenses............................................ 4,973 6,128
Income (loss) from operations......................................... (325) 864
Interest expense...................................................... 465 810
Income (loss) before provision for income taxes....................... (790) 54
Provision for income taxes(1) -- 113
--------- ---------
Net loss............................................................ ($ 790) $ (59)
--------- ---------
--------- ---------
Net loss per share.................................................... $ (.37) $ (.03)
--------- ---------
--------- ---------
Weighted average shares outstanding................................... 2,086 2,086
--------- ---------
--------- ---------
Pro forma net loss per share(2)....................................... $ -- $ (.02)
--------- ---------
--------- ---------
Pro forma weighted average shares ourstanding(2)...................... -- 2,539
--------- ---------
--------- ---------
</TABLE>
<TABLE>
<CAPTION>
AUGUST 31, 1997
------------------------------------
<S> <C> <C> <C>
ACTUAL PRO FORMA(2) AS ADJUSTED
--------- ------------ -----------
BALANCE SHEET DATA:
Cash....................................................................... $ 148 $ 148 $ 7,284
Working capital............................................................ (1,807) (932) 6,354
Total assets............................................................... 5,350 5,350 12,456
Total liabilities.......................................................... 7,491 6,616 5,216
Stockholders' equity (capital deficiency).................................. (2,141) (1,266) 7,240
</TABLE>
- ------------------------
(1) The provision for income taxes is the result of the Company's Subsidiaries
filing separate tax returns in years prior to the reorganization.
(2) To reflect the conversion of a convertible promissory note in the principal
amount of $875,000.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE
SELECTED FINANCIAL DATA, CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO AND
THE OTHER FINANCIAL INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
MOREOVER, THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS
AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM
THE RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT
CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE
DISCUSSED IN "RISK FACTORS."
OVERVIEW
The Company is a single source provider of complete brand identity programs
to manufacturers of fashion apparel and accessories as well as specialty
retailers and mass merchandisers.
Beginning in September 1996, the Company commenced several initiatives which
contributed to a 33.2% growth in net sales in fiscal 1997 and which are
anticipated to facilitate further growth in net sales. These initiatives
included the establishment of an assembly operation in Mexico, which enabled the
Company to attract significant new business and to conduct assembly operations
at a lower cost, the start-up of the Company's private-label and licensed
stationery business and the expansion of its sales and marketing efforts.
Historically, the Company has been capital constrained. The Company's
working capital has been provided primarily through related party loans and
factoring arrangements. These financing sources have resulted in substantial
interest expense and other borrowing costs that have reduced net income. In
addition, serving its factoring arrangements has required cash which would
otherwise have been used by the Company for cost efficient raw material
purchases and to further expand its business. For example, in fiscal 1997, the
Company purchased approximately $3.5 million of paper products used in its
business, but because of capital constraints, was frequently unable to take
advantage of volume purchase discounts which would have lowered its overall cost
of materials and cost of goods sold. From the proceeds of this Offering, the
Company plans to repay substantially all of its debt and discount its factoring
arrangements which will substantially reduce interest expense. In addition, the
Company plans to take advantage of volume material purchase discounts which
management believes will enhance the Company's profitability.
Revenues for all product lines are recognized at the time of product
shipment. Cost of goods sold consists primarily of raw material purchases,
direct labor, certain art and design costs associated with the product
development process, die and printing plate charges, finishing costs, freight-in
costs and royalties associated with the Guess? license. The Company develops
photographic films, dies and designs art images which are used for various
products. Development costs associated with films, dies or designs art images
which are deemed to have no future use are expensed as incurred. These
development costs associated with films, dies or designs art images which are
deemed to have future use are capitalized and are amortized over three years on
a straight line basis.
The Company plans to change its fiscal year end from August 31 to December
31 following the completion of the Offering.
21
<PAGE>
RESULTS OF OPERATIONS
The following tables sets forth, for the periods indicated, certain selected
statement of operations data expressed as a percentage of net sales:
<TABLE>
<CAPTION>
YEAR ENDED
AUGUST 31,
--------------------
1996 1997
--------- ---------
<S> <C> <C>
Net sales........................................................................... 100.0% 100.0%
Cost of goods sold.................................................................. 68.5 64.2
--------- ---------
Gross margin........................................................................ 31.5 35.8
Selling, general and administrative expenses........................................ 33.7 30.2
--------- ---------
Income (loss) from operations....................................................... (2.2)% 4.4%
--------- ---------
--------- ---------
</TABLE>
COMPARISON OF FISCAL YEAR ENDED AUGUST 31, 1996 AND AUGUST 31, 1997
NET SALES. Net sales increased $4.8 million or 32.6% to $19.5 million for
the fiscal year ended August 31, 1997 from $14.7 million for the prior
comparable period. A substantial portion of the increase in net sales was due to
increased sales of hang tag and specialty packaging products to the Company's
two largest customers, Guess? and Swank, sales to new customers including Calvin
Klein Jeans as well as the hang tag and label sales pursuant to the Warner
Brothers Looney Tunes licensing agreement. Increase in specialty packaging and
high quality shipping bags sales is directly related to the opening of the
Mexico facility. Other sales increases were attributable to the commencement of
sales of the Guess? licensed stationery.
GROSS PROFIT. Gross profit increased approximately $2.4 million, or 50.5%,
to $7.0 million for the fiscal year ended August 31, 1997 as compared to $4.6
million for the prior fiscal year. Gross margin as a percentage of net sales
increased to approximately 35.8% for the 1997 fiscal year as compared to 31.5%
for the prior fiscal year. The increase in gross margin is attributable to
improved overhead absorption and substantial labor and other cost savings
associated with production of specialty packaging and high quality shopping bags
at the Company's Mexico facility.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 18.6% or approximately $923,000 to $5.9
million for the fiscal year ended August 31, 1997 from $5.0 million for the
prior comparable period. As a percentage of net sales, these expenses declined
to 30.2% in fiscal 1997 compared to 33.7% in the prior period despite increases
in expenses attributable to a higher level of sales, marketing and other general
expenses associated with the launching of the Guess? stationery line and higher
selling expenses associated with increased sales of hang tag and specialty
packaging products.
Art costs capitalized as part of the Company's art library total $45,732 and
$134,256 for the years ended August 31, 1996 and 1997, respectively.
Amortization of capitalized art costs of $7,622 and $37,620 for the 1996 and
1997 fiscal years, respectively, are included in selling, general and
administrative expenses. Capitalized costs to develop photographic films and
dies equaled $248,790 and $225,718 for the years ended August 31, 1996 and 1997,
respectively. Amortization of capitalized film and die costs of $45,865 and
$104,011 for the 1996 and 1997 fiscal years, respectively, are included in cost
of goods sold.
PRINTING DIVISION EXPENSE. The Company incurred approximately $230,000 of
incremental printing costs associated with the operation of its captive printing
division which was closed during 1997.
INTEREST EXPENSE. Interest expense increased to approximately $811,000 for
the fiscal year ended August 31, 1997 from approximately $465,000 for the prior
fiscal year, representing an increase of approximately 74.4%.
22
<PAGE>
PROVISION FOR INCOME TAXES. The provision for income taxes increased to
approximately $113,000 for the fiscal year ended August 31, 1997 as compared
with no tax provision for the prior fiscal year. Notwithstanding the
Consolidation, operating losses from AGS Stationery were not available to offset
taxable income of the Company's other Subsidiaries and in future periods may
only be used to offset future AGS Stationery profits.
NET LOSS. Net loss was $59,000 for the fiscal year ended August 31, 1997 as
compared to a net loss of approximately $790,000 for the prior fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
During 1995 and 1996 the Company satisfied its working capital requirements
primarily through cash flows generated from operations, borrowings under Heller
Financial, Inc. ("Heller Financial") and Safcor, Inc. ("Safcor") factoring
agreements and related party borrowings. Generally, the Company's borrowing
requirements have been somewhat seasonal, with the peak working capital needs
arising at the end of the calendar year.
Pursuant to the terms of its factoring arrangements, the factor purchases
the Company's eligible accounts receivables and assumes the credit risk only on
those accounts for which it has given prior credit approval. As of August 31,
1997 approximately $692,337 million was due from Heller Financial and
approximately $520,377 was due from Safcor.
As of August 31, 1996 the Company had outstanding related party debt of
approximately $1.37 million. All related party debt is due and payable on the
fifteenth day following the date of delivery of written demand for payment at
any time after December 31, 1998. On October 16, 1997, NPM Investments exercised
its conversion rights under a previously outstanding convertible debenture in
the amount of $875,000, which was converted into 384,401 outstanding Common
Stock, or 15.6% of the fully diluted shares outstanding at the time.
Net cash used in operating activities was approximately $495,000 and
$233,000 for fiscal years 1996 and 1997, respectively. The increase in net cash
used in operating activities during 1996 resulted primarily from the operating
losses incurred relating to the start up of the Guess? licensed stationery line
including operating expenses and the purchases of inventory. The decrease in net
cash used in operating activities during 1997 resulted primarily from lower
operating losses than those associated with 1996, resulting primarily from
increased trade credit and higher accounts payable and accrued expenses. In
addition, the Company used cash to increase inventory during 1997 to support the
Guess? stationery launch and increased customer orders for hang tags and
specialty packaging.
Net cash used in investing activities for fiscal years 1996 and 1997 was
$463,000 and $610,000, respectively. Those activities related primarily to
capital expenditures related to the leasing of equipment and expenditures for
office and assembly equipment in connection with the Mexico facility. Net cash
provided by financing activities was approximately $951,000 and $902,000 for
1996 and 1997, respectively. The net cash provided in each of 1996 and 1997
principally represented borrowings from related parties.
The Company is continually evaluating various financing strategies to be
utilized in expanding its business and to fund future growth or acquisitions.
The Company's future capital requirements will depend, however, on many factors,
including but not limited to, results of operations, the size and timing of
future acquisitions, if any, and the availability of additional financing. To
the extent that existing resources and future earnings are insufficient to fund
the Company's activities, the Company may need to raise additional funds through
debt or equity financings. No assurance can be given that such additional
financing will be available or that, if available, it can be obtained on terms
favorable to the Company and its stockholders. In addition, any equity financing
could result in dilution to the Company's stockholders. The Company's inability
to obtain adequate funds would adversely affect the Company's operations and
ability to implement its strategy.
23
<PAGE>
Management of the Company anticipates that the net proceeds from the
Offering, combined with cash flow from operations, will provide adequate
liquidity to fund its business growth plans and its operations for at least the
next 18 months. The Company intends to use a portion of the net proceeds from
the Offering to satisfy all obligations existing under the Heller Financial and
Safcor factoring arrangements and to repay all outstanding related party debt.
NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" ("Statement
128"), which is effective for financial statements issued for the periods after
December 15, 1997, including interim periods. Statement 128 requires the
restatement of all prior period earnings per share ("EPS") data presented. Some
of the changes made to current EPS standards include (i) eliminating the
presentation of primary EPS and replacing it with basic EPS, with the principal
difference being that common stock equivalents are not considered in computing
basic EPS; (ii) eliminating the modified treasury stock method and the three
percent materiality provision; and (iii) revising the contingent share provision
and the supplemental EPS data requirements. Statement 128 also requires dual
presentation of basic and diluted EPS on the face of the income statement, as
well as a reconciliation of the numerator and denominator used in the two
computations of EPS. Basic EPS is defined by Statement 128 as net income from
continuing operations divided by the average number of common shares outstanding
without the consideration of common stock equivalents which may be dilutive to
EPS. The Company does not expect the adoption will have a material effect on its
EPS calculation.
In 1997 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 129, "Disclosure of Information about Capital
Structure" ("Statement 129"), which is effective for financial statements ending
after December 15, 1997. Statement 129 reinstates various securities disclosure
requirements previously in effect under Accounting Principles Board Opinion No.
15, which has been superseded by Statement 128. The Company does not expect
adoption of Statement 129 to have a material effect, if any, on its consolidated
financial position or results of operation.
During June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("Statement 130"), which is effective for financial statements with fiscal years
beginning after December 15, 1997. Statement 130 establishes standards for
reporting and display of comprehensive income and its components in a full set
of general purpose financial statements. The Company has not determined the
effect on its consolidated financial position or results of operations, if any,
from the adoption of this statement.
During June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131, "Disclosure about Segments of an
Enterprise and Related Information" ("Statement 130"), which is effective for
financial statements with fiscal years beginning after December 15, 1997. The
new standard requires that public business enterprises report certain
information about operating segments in complete sets of financial statements of
the enterprise and in condensed financial statements of interim periods issued
to stockholders. It also requires that public business enterprises report
certain information about their products and services, the geographic areas in
which they operate and their major customers. The Company does not expect
adoption of Statement 131 to have a material effect, if any, on its consolidated
results of operation.
24
<PAGE>
BUSINESS
GENERAL
Tag-It Pacific, Inc. (the "Company") is a single-source provider of complete
brand identity programs to manufacturers of fashion apparel and accessories as
well as specialty retailers and mass merchandisers. Such programs communicate a
certain lifestyle, consumer feeling or cohesive aesthetic presence for a given
product line or brand. The Company's programs allow its customers, such as
Guess?, Calvin Klein Jeans, Quiksilver, Carole Little, The Limited, Sony
Signatures and Warner Brothers, as well as licensees of Yves Saint Laurent,
Kenneth Cole, Geoffrey Beene and Pierre Cardin, to outsource most aspects of a
brand identity program, including value-added design, manufacturing
coordination, materials procurement, assembly, finishing and distribution of
creative packaging, tag, and trim products. The Company designs and produces
high quality paper, metal and injection molded boxes, woven and leather labels,
hanging and bar-coded tags, metal jean buttons, and custom shopping bags. The
Company also designs and produces specialty private label and licensed
stationery as well as related accessories and backpacks. The Company designs
approximately 70% of the products it sells.
INDUSTRY BACKGROUND
The majority of the Company's revenues are related to the apparel and
accessory markets, both of which are large and growing. According to The TOPLINE
REPORT published by the NPD Group, Inc., annual apparel sales in the United
States equaled $161.4 billion, up from $152.5 billion in 1995. The increasing
number of fashion-driven apparel and accessory producers and products has made
it more difficult for manufacturers to differentiate their products from those
of competitors. As a result these manufacturers have increased their emphasis on
specialty packaging, value-added tags and other promotional material in order to
compete for consumer attention in the retail environment. This emphasis on
product differentiation has created strong demand for creative image
enhancements such as bright, colorful and otherwise highly distinguishable and
attractive logos, point-of-sale packaging and signage, tags and labels. For
example, the primary distinction among many brand oriented products such as
designer jeans are woven and leather labels, buttons and trims. Where designer
jeans are displayed by retail stores, the trims, hang tags and pocket tags are
used to attract customer attention, as well as to provide important consumer
information. Similarly, wallets and designer jewelry, which are in many cases
difficult to visually distinguish, are often differentiated by specially
designed boxes, which then become a significant factor in attracting consumer
attention.
Short product life cycles for fashion-driven items, advances in printing and
packaging technology, and the diverse geographic locations of specialty
packaging or printing vendors and apparel or accessory manufacturers, combine to
make the design and execution of complete brand identity programs increasingly
more complex. Manufacturers demand packaging compliant with a number of color,
materials, printing, bar coding requirements and other quality standards
affecting hang tags and labels and timely delivery that can generally only be
provided by a single vendor able to coordinate its information systems,
manufacturing and the distribution of complex assortments of labels, hang tags,
specialty packaging and other trim items on a world-wide basis. While apparel
and accessory manufacturers are actively involved in the design and manufacture
of their proprietary product lines, the design and production of critical point-
of-sale differentiators are ancillary to their primary business and are often
out-sourced to multiple separate vendors typically overseen by the manufacturer
or a separate vendor agency. Apparel and accessory manufacturers who oversee
their own multi-vendor brand identify programs often find themselves consuming
excessive time, effort and expenses attempting to manage in-house brand identity
programs and ship floor-ready packaged products to retailers throughout the
global marketplace. The difficulties associated with executing a program which
coordinates these many facets are creating demand for the single source programs
offered by the Company.
25
<PAGE>
THE TAG-IT PACIFIC SOLUTION
To take advantage of the large expanding demand for, and address the
increasingly complicated requirements of, effective brand identity programs, the
Company has positioned itself as a fully-integrated single-source provider of
complete brand identity programs with creative design personnel, sales people,
assembly workers, program managers and global distribution coordinators and with
offices located in Los Angeles, New York, Mexico and Hong Kong. Because
specialty packaging or printing vendors usually specialize in limited product
areas, management believes that the Company, with its innovative designs and its
global coordination, production and distribution capabilities, is well
positioned to become a recognized single-source provider and a market leader.
TAG-IT PACIFIC GROWTH STRATEGY
The Company's growth strategy includes the following elements: (i) expand
its customer base by promoting its single-source solution and in-house design,
manufacturing and distribution coordination capabilities to major retailers and
manufacturers around the world, (ii) increase customer penetration by targeting
additional product lines within existing accounts, (iii) expand its marketing
programs and network of sales offices to cover all major apparel and accessory
producing centers, (iv) broaden its target customer base for logos,
point-of-sale packaging and signage, tags and labels to include cosmetics and
specialty foods manufacturers, (v) create a domestic woven label facility to
take advantage of demand for rapid turnaround of samples and short-run
production, (vi) pursue private label opportunities, and (vii) remain
opportunistic with respect to strategic acquisitions.
EXPAND THE COMPANY'S CUSTOMER BASE BY PROMOTING ITS SINGLE SOURCE SOLUTIONS
AND IN-HOUSE DESIGN, MANUFACTURING AND DISTRIBUTION COORDINATION CAPABILITIES TO
MAJOR RETAILERS AND MANUFACTURERS AROUND THE WORLD. The Company plans to expand
its reputation as a single source provider of specialty packaging and tag and
trim needs. The Company's design capabilities, combined with the Company's
experience in sourcing, manufacturing coordination and distribution allow the
Company to provide customers with a complete design solution for entire product
lines that meet not only aesthetic demands, but also functional and cost
parameters. Because of its single source provider capability, the Company's
customers do not have to maintain the same level of oversight as is required for
numerous separate vendors, allowing the customer to realize an internal cost
savings in addition to the competitive pricing offered by the Company.
INCREASE CUSTOMER PENETRATION BY TARGETING ADDITIONAL PRODUCT LINES WITHIN
EXISTING ACCOUNTS. The Company intends, through increased account coverage and
client monitoring, to further penetrate each individual customer account it
currently services with additional products and services. The Company plans to
increase sales by actively marketing its total solution design capabilities to
new and existing clients.
EXPAND ITS MARKETING PROGRAMS AND NETWORK OF SALES OFFICES TO COVER MAJOR
APPAREL AND ACCESSORY PRODUCING CENTERS IN THE UNITED STATES, MEXICO AND OTHER
INTERNATIONAL LOCATIONS. The Company intends to continue developing a sales and
marketing network to offer its fully integrated design, manufacturing and
distribution capabilities in the key apparel and accessory manufacturing centers
such as Greensboro, Portland, Miami, Dallas, Mexico City and New York as well as
additional apparel centers in Asia and South America.
BROADEN ITS TARGET CUSTOMER BASE FOR LOGOS, POINT-OF-SALE PACKAGING AND
SIGNAGE, AND TAGS AND LABELS TO INCLUDE COSMETICS AND SPECIALTY FOODS
MANUFACTURERS. The Company has begun to exploit its experience in the apparel
and accessories industry to other industries and applications such specialty
packaging tags and labels for cosmetics and specialty food products, all of
which provide new business opportunities not previously pursued by the Company.
CREATE A DOMESTIC WOVEN LABEL FACILITY TO TAKE ADVANTAGE OF DEMAND FOR RAPID
TURNAROUND OF SAMPLES AND SHORT-RUN PRODUCTION. Many woven labels designed by
the Company are manufactured offshore. The Company plans to add woven label
manufacturing capability in the United States in order to meet the
26
<PAGE>
demand for shorter lead-times and to attract business from customers who require
that their products be manufactured in the United States.
PURSUE PRIVATE LABEL OPPORTUNITIES. The Company has produced lines of
private label stationery for Quiksilver, and its Roxy division, and has
developed private label expertise in connection with its Guess? stationery
license. The Company intends to pursue private label design and manufacturing
projects for additional customers with well established brand recognition.
REMAIN OPPORTUNISTIC WITH RESPECT TO STRATEGIC ACQUISITIONS. While
historically the Company has grown solely through internal efforts, the Company
may in the future pursue selected strategic acquisitions. In this regard, the
Company will seek acquisition targets that build additional internal product
expertise or bring in-house certain manufacturing capabilities that are
currently performed by third party vendors. The Company is not currently
considering any acquisition candidate.
DESIGN AND DEVELOPMENT
The Company estimates that 70% of the products sold by the Company are also
designed by the Company. The Company believes that its products are
distinguished by the innovative designs developed by its in-house creative
staff. The Company's expertise in sourcing and manufacturing the products it
designs provides the Company with the ability to design products that meet not
only aesthetic demands, but also functional and cost parameters. The Company
believes that specialty design companies, with limited sourcing or manufacturing
experience, create designs that often cannot be implemented because of
difficulties in the manufacturing process, the expenses of required materials,
or because the resulting product is not functional. The Company's products are
designed to function within the limitations imposed by the applicable
manufacturing framework, and, because of its manufacturing and sourcing
experience, time consuming delays arising from the coordination of independent
design houses and manufacturing facilities are minimized. This not only reduces
development and production costs, but also decreases the total time to market.
The Company's product development begins with the creation of a distinctive
design that embodies a customer's corporate image and existing trademarks.
Although the designs developed by the Company are consistent with the customer's
image, they are distinct to each particular product. The Company will typically
create a comprehensive design presentation for a customer focused on a discrete
product tag, packaging, trim or label assignment or for an entire packaging, tag
and labeling program for a line of products. From the presentation, the client
is able to select from numerous samples generated by the Company the particular
design and product style and image and type preferred by the customer. The
Company will then coordinate the manufacture, assembly, finishing and
distribution of all packaging, tag, label and trim products to the customer's
locations.
All of the Company's design work is done in-house by its team of seven
designers, who include graphic artists and prototype fabricators. All design
services for specialty packaging, hang tags, woven labels, metal jean buttons
and trims, and licensed and private label stationery is performed by the
Company's art department located in Los Angeles. In addition, all film, die
making and pre-production is completed at the Company's Los Angeles facilities.
The Company's design team uses computer assisted design techniques employing
a sophisticated Scitex color separating and color control system to produce all
color separations for its printed products. The Company provides these color
separations to its contract manufacturers worldwide to ensure that the Company's
finished products, wherever manufactured, have color and appearance uniformity.
PROCUREMENT, ASSEMBLY AND FINISHING
The Company creates all product artwork, and any necessary films, dies and
molds, which are used to manufacture its products. All prototype development,
bar-code printing, assembly and finishing of high
27
<PAGE>
quality paper boxes, custom shopping bags and point-of-sale packaging signage is
performed internally by the Company. The Company also assembles multi-part jean
buttons. All other products designed and sold by the Company are produced by
third party vendors. The Company intends to continue to outsource high risk
production to qualified vendors, particularly with respect to manufacturing
activities that require substantial investment in capital equipment.
Through its Hong Kong facility, the Company produces and distributes
bar-coded hang tags, distributes apparel packaging and coordinates the
manufacturing and distribution of the full range of the Company's products. The
Hong Kong facility supplies several significant packaging programs, services
customers located in Asia and the Pacific Rim and sources products for the
Company's Los Angeles operations. Through its assembly and finishing facility in
Mexico, the Company completes the assembly and finishing of many of its
packaging products and has commenced distributing products to Mexico based
manufacturers.
The Company purchases raw materials from several qualified material
suppliers and has developed a knowledge of the best materials, prices and
vendors for particular products and raw materials. Because of its raw material
sourcing capabilities and knowledge, the Company is able to produce a broad
range of packaging styles at various price points geared towards a customer's
budget and product pricing parameters.
The Company's customers generally book orders for speciality packaging, hang
tags or woven labels for an entire season. Although the Company will produce the
entire order, it allows its customers to draw down and pay for finished items in
inventory, on an as needed basis. Although the Company from time to time holds
significant inventory and bears the cost of doing so, all customers are
obligated by contract to pay the full purchase order price of the inventory by a
specified date, regardless of when or whether they accept delivery. The Company
prefers to purchase certain paper stock and finished product in bulk, but, as a
result of cash constraints raw materials have generally been purchased on an as
needed basis. This has resulted in less than optimal pricing for raw material
and finished goods purchases, and has required multiple runs to fulfill
customers' orders, increasing labor cost and management burden. The Company
intends to use a portion of the proceeds of this Offering to purchase certain
products in bulk in order to realize the benefits of volume discounts and single
production runs. See "Use of Proceeds," "Risk Factors--Limited Sources of
Supply" and "--Fluctuating Paper Costs and Paper Shortages."
SALES AND MARKETING
The Company's principal products are currently sold through a combination of
its sales force (five representatives based in Los Angeles and two based in New
York) and three independent sales representatives and one sales manager who
focus on sales of licensed and private label stationery products. Additionally,
the Company has three major account managers who service three of the Company's
significant customers and who have first hand knowledge of those customers'
practices.
In addition to the Company's sales force, the Company's senior executives
have developed strong relationships with its major customers at senior levels
and actively participate in marketing and sales functions. The Company also
builds upon its top-level relationships through its account managers who are
responsible for enhancing these existing relationships through a high level of
responsiveness and attention. When the Company becomes the outsourcing vendor
for a customer's packaging or tag requirements, the Company attempts to position
itself as a department of the customer's procurement operation.
The Company plans to expand its an overall team approach to the sales and
marketing of its products to include regional sales vice presidents located in
major apparel centers who will be assigned account coverage and make calls on
senior merchandising officers of major manufacturers. This team approach also
includes field representatives who will interface with the manufacturing and
distribution personnel of these major customers. These team sales efforts will
be supported by the Company's in-house account
28
<PAGE>
representatives who will provide customer service to all accounts, and
coordinate order fulfillment. The Company considers a high level of customer
service essential to its success.
It is anticipated that proceeds of this Offering will be used to
significantly expand the Company's sales force. The Company initially plans to
expand its sales network into major apparel and accessory centers including
Greensboro, Portland, Miami, Dallas and Mexico City, and to increase its sales
force in New York.
PRODUCTS
SPECIALTY PACKAGING. The Company's specialty packaging products include
high quality paper boxes, metal tins, injection-molded packaging items and high
quality shopping bags. These products are designed and produced individually or
as part of a program where the Company designs and develops an entire
coordinated packaging line for a client. The Company's specialty packaging is
used for a wide variety of products, such as wallets, watches, sunglasses,
belts, undergarments and gift sets.
HANG TAGS AND PRINTED APPAREL PACKAGING AND TRIMS. The Company's hang tags,
pocket flashers, waistband tickets, size stickers and bar-coded hang tags are
attached to products by manufacturers and retailers to identify and promote
their products, allow automated data collection and provide brand identification
and consumer information such as UPC bar code, manufacturer's suggested retail
price, size, fabric content and care instructions.
The Company's customized woven, leather, synthetic, embroidered and novelty
labels and tapes are designed for and printed on or woven in a wide range of
fabrics and other materials and produced on various types of high-speed
equipment. The Company's labels are used primarily for product identification
and consumer information on apparel.
The Company offers its customers a full range of logo and non-logo hardware
trim for their apparel. The hardware product line includes jean buttons, jean
rivets, snaps, metal sew-on buttons as well as an assortment of logo hardware
which is designed to customize the products of the Company's customers. The
Company believes it has the ability to supply its customers with all of their
hardware needs. The Company leases its customers machinery to attach buttons,
rivets and snaps produced by the Company. This equipment is used exclusively for
the Company's products.
PRIVATE LABEL. The Company designs and manufactures two private label
product lines, including book bags, ring binders, composition books, stationery,
metal pencil tins and date books. Many of the Company's apparel and accessory
customers are household or major brand names and are potential customers for the
Company's private label business.
SPECIALTY LICENSES. The Company has entered into licensing arrangements
with companies which have high brand recognition among consumers. The Company's
licensing arrangements allow the Company to manufacture products utilizing such
companies' trademarks, brand names or other intellectual property. The Company
currently produces stationery products under a license from Guess? In 1996, the
Company was awarded the exclusive packaging license for Batman and Superman
licensed apparel by Warner Brothers Consumer Products. Under this arrangement,
any licensee of Warner Brothers selling products bearing the Batman or Superman
logos must purchase all product hang tags from the Company. In addition, the
Company recently secured the hang tag business for all consumer products
associated with the release of three upcoming feature films and one television
series by Sony Pictures Entertainment, Inc.'s Sony Signatures division,
including GODZILLA, JEANNIE, and ZORRO, as well as the GHOSTBUSTERS television
series. The Company is also one of a limited number of approved vendors
permitted to supply hang tags, woven labels and printed labels for LOONEY TUNES
AND BABY LOONEY TUNES licensed products. Also, the Company produces hang tags,
woven labels and printed labels under an exclusive license from Warner Bros. for
Batman and Superman licensed apparel products. The Company intends to obtain
additional licenses as they become available on appropriate terms and
conditions.
29
<PAGE>
CUSTOMERS
The Company has more than 125 customers, including well-known apparel
manufacturers, such as Guess?, Calvin Klein Jeans, Quiksilver, Carole Little,
licensees of Yves Saint Laurent, Kenneth Cole, Geoffrey Beene and Pierre Cardin,
specialty retailers such as American Eagle Outfitters and Miller's Outpost and
mass merchant retailers, such as Office Max and J.C. Penney, and the promotional
arms of large entertainment companies such as Sony Signatures and Warner
Brothers Consumer Products. For the fiscal year ended August 31, 1997, Guess?
and Swank (a licensee of Yves Saint Laurent, Kenneth Cole, Geoffrey Beane and
Pierre Cardin) represented 16.5% and 11.1%, respectively, of the Company's total
sales. The Company does not have long-term contracts with its customers
requiring them to use its products or services. The Company does not believe
that the loss of any single customer other than Guess? or Swank would have a
material adverse effect upon the Company's consolidated financial position or
results of operations. See "Risk Factors--Dependence on Key Customers; Absence
of Long-Term Contracts with Customers."
The following table describes the products provided by the Company for its
significant customers.
PACKAGING AND STATIONERY PRODUCTS
<TABLE>
<CAPTION>
STATIONERY
PACKAGING PRODUCTS PRODUCTS
-------------------------------------------------------------- -------------
PAPER SHOPPING PLASTIC BACK TO
NAME OF CUSTOMER BOXES BAGS PACKAGING METAL TINS SCHOOL
- ---------------------------------------------- ----------- --------------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Guess......................................... X X X X
- -------------------------------------------------------------------------------------------
Swank ........................................ X X X
Quiksilver.................................... X X X
- -------------------------------------------------------------------------------------------
Warner Brothers .............................. X X X
Baby Guess.................................... X X
- -------------------------------------------------------------------------------------------
Nordstrom .................................... X X
Sony Signature................................ X
- -------------------------------------------------------------------------------------------
Gymboree ..................................... X X
Signal Apparel................................ X
- -------------------------------------------------------------------------------------------
XOXO ......................................... X X
<CAPTION>
ACCESSORIES
NAME OF CUSTOMER BACKPACKS GIFT PACKS
- ---------------------------------------------- --------------- ---------------
<S> <C> <C>
Guess......................................... X X
- ----------------------------------------------
Swank ........................................
Quiksilver....................................
- ----------------------------------------------
Warner Brothers ..............................
Baby Guess....................................
- ----------------------------------------------
Nordstrom ....................................
Sony Signature................................
- ----------------------------------------------
Gymboree .....................................
Signal Apparel................................
- ----------------------------------------------
XOXO .........................................
</TABLE>
30
<PAGE>
APPAREL RELATED PRODUCTS
<TABLE>
<CAPTION>
HANG TAGS/
BAR CODE POCKET JEAN WOVEN
NAME OF CUSTOMER PRINTING FLASHERS BOXES BUTTONS RIVETS LABELS
- ------------------------------------- --------------- --------------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Guess................................ X X X X X X
- -------------------------------------------------------------------------------------------
Swank ............................... X
Quiksilver........................... X X X X
- -------------------------------------------------------------------------------------------
Gymboree ............................ X X X
Warner Brothers...................... X X X X
- -------------------------------------------------------------------------------------------
Baby Guess .......................... X X X X X X
Signal Apparel....................... X X X
- -------------------------------------------------------------------------------------------
Carole Little ....................... X X X
Paul Davril.......................... X X
- -------------------------------------------------------------------------------------------
Sony Signatures ..................... X X X
Calvin Klein Jeans................... X X
- -------------------------------------------------------------------------------------------
Miller's Outpost .................... X X X X X
Express.............................. X X X X
- -------------------------------------------------------------------------------------------
JC Penny ............................ X X X
Azteca............................... X X X X X
- -------------------------------------------------------------------------------------------
Honda ............................... X
Chorus Line.......................... X X X
- -------------------------------------------------------------------------------------------
Dr. Martens ......................... X X X X
A4Moshay (licensee of Converse)......
- -------------------------------------------------------------------------------------------
Z-Cavaricci ......................... X
Outlaw Jeans......................... X X X X
- -------------------------------------------------------------------------------------------
Union Bay/Nautica ................... X X
Enc/Kellwood......................... X X
- -------------------------------------------------------------------------------------------
Paris Blues ......................... X X X
<CAPTION>
LEATHER-PVC
NAME OF CUSTOMER PATCHES SNAPS ZIPPERS
- ------------------------------------- ----------------- ----------- -------------
<S> <C> <C> <C>
Guess................................ X X
- -------------------------------------
Swank ............................... X
Quiksilver...........................
- -------------------------------------
Gymboree ............................
Warner Brothers......................
- -------------------------------------
Baby Guess .......................... X X
Signal Apparel.......................
- -------------------------------------
Carole Little .......................
Paul Davril..........................
- -------------------------------------
Sony Signatures .....................
Calvin Klein Jeans...................
- -------------------------------------
Miller's Outpost .................... X
Express..............................
- -------------------------------------
JC Penny ............................ X
Azteca............................... X
- -------------------------------------
Honda ............................... X X
Chorus Line.......................... X
- -------------------------------------
Dr. Martens ......................... X X X
A4Moshay (licensee of Converse)...... X X
- -------------------------------------
Z-Cavaricci ......................... X
Outlaw Jeans......................... X
- -------------------------------------
Union Bay/Nautica ...................
Enc/Kellwood.........................
- -------------------------------------
Paris Blues ......................... X X
</TABLE>
31
<PAGE>
COMPETITION
The industries in which the Company competes are highly competitive and
fragmented and include numerous local and regional companies that provide some
as all of the services offered by the Company. The Company also competes with
United States and international design companies, distributors and manufacturers
of tag, trim and packaging products. Some of the Company's competitors,
including Paxar, Inc., RVL, Inc., Copac International Packaging, Inc., Universal
Button, Inc., and Scovill Fasteners, Inc. have greater name recognition, longer
operating histories and, in many cases, substantially greater financial and
other resources than the Company. Such competitors may use their economic
strength to influence the market to continue to buy their products which compete
with the Company's products. See "Risk Factors--Competition."
The Company believes that competitive factors in the market are generally
design capability, price, quality, service and delivery lead times. The Company
believes that it is competitive with respect to all of these factors. Because of
the Company's integrated production capabilities, the Company is able to
effectively compete for business particularly where the various functional
requirements in packaging production are separately sourced.
EMPLOYEES
As of August 31, 1997, the Company had approximately 390 employees located
at its various facilities, with 57 employees in Los Angeles, nine employees in
Hong Kong and the balance of employees in Mexico. All of the Company's employees
based in Los Angeles, other than executive officers and senior management are
provided by an employee leasing company that has responsibility for payroll and
human resources functions. The Company has determined that leasing employees
offers advantages over directly employing its workforce, including reduction of
management time and effort required to be devoted to multistate payroll
administration, payroll tax and reporting, health insurance program oversight
and other administrative functions.
The Company's labor force located in the United States and Hong Kong are
non-union. The employees at the Company's Mexico facilities are represented by
the Sindicato "Mexico Moderno" De Trabajadores De La Baja California, C.R.O.M.
In addition to its salaried and hourly workforce, the Company employs additional
workers, on a temporary basis, throughout the year at its Mexico facilities
depending upon current production and assembly requirements. The temporary work
force ranges from zero to approximately one hundred employees at any one time
throughout the year. The Company believes that it has satisfactory employee and
labor relations.
The Company believes that its future success will depend in large part upon
its ability to recruit and retain qualified employees, particularly in the area
of product operations and sales and marketing. See "Risk Factors--Management of
Business Changes; Potential Growth; Potential Acquisitions" and "-- Dependence
on Key Personnel."
The Company intends to hire additional key personnel in the near future,
particularly in the areas of production operations and sales and marketing.
Specifically, the Company plans to use a portion of the proceeds of this
Offering to hire additional sales representatives, in-house account managers and
additional operations staff.
All of the Company's key employees are located in Los Angeles, California.
PROPERTIES
The Company's headquarters is located in Los Angeles, California, in the
center of the apparel manufacturing district. It occupies approximately 18,145
square feet of administrative, preproduction and warehouse space pursuant to a
lease which expires on April 30, 2000 and a current annual rental of
approximately $108,864. The Company's Los Angeles premises are leased from
D.P.S. Associates, a
32
<PAGE>
general partnership in which Harold Dyne is a general partner. Adjacent to the
headquarters, the Company leases an additional 5,000 square feet of office and
warehouse space for the business of AGS Stationery. This lease expires on
September 30, 1998 and the current annual rental is approximately $31,200.
In addition to the Los Angeles facilities, Tag-It Hong Kong leases
approximately 3,000 square feet of office and warehouse space located in Fo Tan.
The lease expires on May 22, 1998 and provides for a current monthly rental of
approximately $3,770. Tag-It Mexico leases two facilities with approximately
7,500 and 7,000 square feet of production and warehouse space, respectively,
both located in Tijuana, Mexico. The 7,500 square foot lease is month to month
and the current monthly rental of $2,400. The 7,000 square foot lease expires on
November 21, 1997, and the current monthly rental is $2,300. In addition,
Pacific Trim leases approximately 800 square feet of office and showroom space
located in New York, New York. The current term of the lease expires on April
30, 1998 and provides for a current monthly rental of $1,400. The lease may be
renewed through April 30, 1999 at a monthly rental of $1,500.
The Company is currently studying its office and production requirements. It
is anticipated that a portion of the proceeds from the Offering may be used to
relocate the Company's operations to larger facilities during the first or
second quarters of 1998. The Company does not believe that there will be any
adverse impact in terminating its current lease agreements for any of its leased
properties in Los Angeles.
LEGAL PROCEEDINGS
Certain claims, suits and complaints which arise in the ordinary course of
the Company's business have been filed or are pending against the Company. The
Company believes that it has meritorious defenses to such claims or that such
matters either are adequately reserved for, are covered by insurance, or would
not, after taking into account the reserves established and/or insurance in
place, have a material adverse effect on the Company's consolidated financial
condition or results of operations, if adversely determined against the Company.
33
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Information with respect to the directors and executive officers of the
Company as of October 15, 1997 is as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------ --- ----------------------------------------------------------------------
<S> <C> <C>
Mark Dyne(1)........................ 36 Chairman of the Board
Colin Dyne(1)....................... 34 Chief Executive Officer, Director and Treasurer;
Chief Executive Officer of Tag-It
Harold Dyne(1)...................... 65 President and Director; Chief Executive Officer of Pacific Trim
Jonathan Markiles................... 32 Executive Vice President, Strategic Planning and Business Development
Jonathan Burstein(2)................ 31 Executive Vice President, Sales and Marketing
Diana Maranon*(3)(4)................ 39 Director
Brent Cohen*(3)(4).................. 39 Director
</TABLE>
- ------------------------
* These individuals currently do not serve in the positions indicated. The
Company intends to appoint these individuals to these positions prior to the
consummation of the Offering.
(1) Colin Dyne and Mark Dyne are brothers. Harold Dyne is their Father.
(2) Jonathan Burstein is Harold Dyne's son-in-law and Colin Dyne's and Mark
Dyne's brother-in-law.
(3) Member of the Audit Committee effective upon appointment as a director.
(4) Member of the Compensation Committee effective upon appointment as a
director.
MARK DYNE has served as Chairman of the Board of Directors of the Company
since September 1997. Mr. Dyne currently is Chairman of the Board of Directors
and Chief Executive Officer of Brilliant Digital Entertainment, Inc., a position
he has held since October 1996; and Joint Managing Director of Sega Ozisoft Pty.
Limited, a company he helped found in 1982, a director of Monto Holdings Pty.
Ltd. ("Monto") and Nu-Metro Multimedia Pty. Ltd., and a co-owner and director of
Packard Bell Australia Pty. Ltd. From June 1995 through May 1997, Mr. Dyne
served as Co-Chief Executive Officer of Sega Enterprises (Australia) Pty., Ltd.
COLIN DYNE has served as Chief Executive Officer, President and Director of
the Company since October 1997. Mr. Dyne co-founded Tag-It in 1991 with his
father, Harold Dyne, and has served as its President since inception. Prior to
founding Tag-It in 1991, Mr. Dyne worked in numerous positions within the
stationery products industry, including owning and operating retail stationery
businesses and servicing the larger commercial products industry through
contract stationery and printing operations.
HAROLD DYNE has served as President and director of the Company since
October 1997. Mr. Dyne, founder of Pacific Trim, one of the Subsidiaries, has
served as Chief Executive Officer of Pacific Trim since it was founded in 1987.
Mr. Dyne co-founded Tag-It with Colin Dyne in 1991. Mr. Dyne has been involved
in the apparel industry since 1958, when he founded the Union Fasteners
Corporation in South Africa. In 1971, he formed a joint venture with YKK Zipper
Manufacturing Company in Southern Africa.
JONATHAN MARKILES is Executive Vice President, Strategic Planning and
Business Development of the Company. Mr. Markiles joined Tag-It in May 1994 as
its General Manager where he has been responsible for production, distribution
and international operations. Prior to joining Tag-It, Mr. Markiles received his
M.B.A. from the University of Southern California in May 1994. From 1987 until
August 1992, Mr. Markiles held various operational positions with Windshields
America, Inc., a national chain of autoglass stores.
34
<PAGE>
JONATHAN BURSTEIN is Executive Vice President, Sales and Marketing of the
Company. From 1987 until the present, Mr. Burstein has been employed by Pacific
Trim, where he has been responsible for managing many of Pacific Trim's largest
customer accounts and supervising Pacific Trim's sales force. Mr. Burstein also
has been responsible for implementing systems and protocols in the purchasing
department as well as developing and managing Pacific Trim's key supply lines.
DIANA MARANON will be elected a director of the Company prior to the
consummation of the Offering. Ms. Maranon is the President and Managing Director
of Averil Associates, Inc. ("Averil Associates"), a financial advisory firm and
member of the National Association of Securities Dealers, and serves as a
director of Brilliant Digital Entertainment, Inc. and Micronet Technology, Inc.
Prior to founding Averil Associates in 1994, Ms. Maranon was a Vice President
with Wasserstein Perella & Co., Inc., an investment banking firm, with whom she
started in 1988. From 1985 to 1988, Ms. Maranon practiced securities law with
Skadden Arps Slate Meagher & Flom. Ms. Maranon is a member of the State Bar of
California.
BRENT COHEN will be elected a director of the Company prior to the
consummation of the Offering. Mr. Cohen has served as President of the Consumer
Products and International divisions of Packard Bell NEC, Inc., since 1996. From
1987 to 1996, Mr. Cohen served in various positions with Packard Bell,
culminating with the position of Chief Financial Officer and Chief Operating
Officer prior to his election to his current office. Prior to joining Packard
Bell NEC, Inc., Mr. Cohen was employed with Andersen Consulting.
BOARD OF DIRECTORS
The Board of Directors is divided into three classes, designated Class I,
Class II and Class III. Brent Cohen and Diana Maranon will serve as the Class I
directors. This class will stand for election at the 1998 annual stockholders
meeting. Harold Dyne will serve as the Class II director. This class will stand
for election at the 1999 annual stockholders meeting. Colin Dyne and Mark Dyne
currently are the Class III directors. This class will stand for election at the
2000 annual stockholders meeting. At each annual meeting of stockholders,
successors of the class of directors whose term expires at that annual meeting
are elected for a three-year term or until their successors have been elected
and qualified. If the number of directors is changed, any increase or decrease
is to be apportioned among the classes so as to maintain the number of directors
in each class as nearly equal as possible. Directors may be removed from office
only for cause by the affirmative vote of a majority of the outstanding shares
of Common Stock. Vacancies on the Board of Directors may be filled only by a
majority of the directors then in office.
BOARD COMMITTEES
The Company's Board of Directors maintains an Audit Committee and a
Compensation Committee. The Audit Committee's functions include recommending to
the Board of Directors the engagement of the Company's independent certified
public accountants, reviewing with those accountants the plan and results of
their audit of the financial statements and determining the independence of the
accountants. The Compensation Committee reviews and makes recommendations with
respect to compensation of officers and key employees, and is currently
responsible for the grant of options and other awards under the Company's Stock
Incentive Plan. See "--Stock Incentive Plan."
DIRECTOR COMPENSATION
Nonemployee directors of the Company currently are paid $1,500 for their
personal attendance at any meeting of the Board and $500 for attendance at any
telephonic meeting of the Board or at any meeting of a committee of the Board.
Directors also are reimbursed for their reasonable travel expenses incurred in
attending Board or committee meetings. In October 1997, the Company granted to
Ms. Maranon options to purchase 15,000 shares of Common Stock at an exercise
price of $6.40 per share, and intends to grant to Mr. Cohen, effective upon his
commencement of service as a director, options to purchase 20,000 shares of
Common Stock at an exercise price of $6.40 per share.
35
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth both cash and noncash compensation paid or to
be paid by the Company, directly and/or through its subsidiaries, to, Colin
Dyne, the Chief Executive Officer of the Company, and Harold Dyne, the President
of the Company and the Chief Executive Officer of Pacific Trim, and each other
executive officer whose compensation exceeded $100,000 (the "Named Executive
Officers") for the fiscal year ended August 31, 1997. No other officer received
compensation in excess of $100,000 for the fiscal year ended August 31, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
FISCAL YEAR ------------------------------------
ENDED AUGUST OTHER ANNUAL
NAME AND PRINCIPAL POSITION 31, SALARY BONUS COMPENSATION
- --------------------------------------------------------------- ------------- ---------- ---------
<S> <C> <C> <C> <C>
Colin Dyne, ................................................... 1997 $ 227,340 -- $ 22,773(2)
Chief Executive Officer
Harold Dyne, .................................................. 1997 $ 214,334 -- $ 24,832(2)
President
Jonathan Burstein, ............................................ 1997 $ 152,981 -- $ 12,393(2)
Executive Vice President, Sales and Marketing
</TABLE>
- ------------------------
(1) See "Stock Incentive Plan," below.
(2) Represents car allowance and medical insurance.
EMPLOYMENT CONTRACTS
None of the Named Executive Officers have employment agreements with the
Company and their employment may be terminated at any time. See "Risk
Factors--Dependence on Key Personnel."
STOCK INCENTIVE PLAN
The Company adopted a Stock Incentive Plan (the "1997 Plan") in October
1997. Each executive officer, other employee, non-employee director or
consultant of the Company or any of its subsidiaries is eligible to be
considered for the grant of awards under the 1997 Plan. A maximum of 562,500
shares of Common Stock may be issued pursuant to awards granted under the 1997
Plan, subject to certain adjustments to prevent dilution. Any shares of Common
Stock subject to an award which for any reason expires or terminates unexercised
are again available for issuance under the 1997 Plan.
The 1997 Plan will be administered by the Company's Board of Directors or by
a committee of two or more directors appointed by the Board of Directors (the
"Administrator"). Subject to the provisions of the 1997 Plan, the Administrator
will have full and final authority to select the executives and other employees
to whom awards will be granted thereunder, to grant the awards and to determine
the terms and conditions of the awards and the number of shares to be issued
pursuant thereto.
AWARDS. The 1997 Plan authorizes the Administrator to enter into any type
of arrangement with an eligible employee that, by its terms, involves or might
involve the issuance of (1) shares of Common Stock, (2) an option, warrant,
convertible security, stock appreciation right or similar right with an exercise
or conversion privilege at a price related to the Common Stock, or (3) any other
security or benefit with a value derived from the value of the Common Stock. The
maximum number of shares of Common Stock with respect to which options or rights
may be granted under the 1997 Plan to any participant is 140,625, subject to
certain adjustments to prevent dilution.
Awards under the 1997 Plan are not restricted to any specified form or
structure and may include arrangements such as sales, bonuses or other transfers
of stock, restricted stock, stock options, reload stock options, stock purchase
warrants, other rights to acquire stock or securities convertible into or
redeemable
36
<PAGE>
for stock, stock appreciation rights, phantom stock, dividend equivalents,
performance units or performance shares. An award may consist of one such
arrangement or two or more such arrangements in tandem or in the alternative. An
award may provide for the issuance of Common Stock for any lawful consideration,
including services rendered or, to the extent permitted by applicable state law,
to be rendered. Currently, Delaware law does not permit the issuance of common
stock for services to be rendered.
An award granted under the 1997 Plan may include a provision conditioning or
accelerating the receipt of benefits, either automatically or in the discretion
of the Administrator, upon the occurrence of specified events, including a
change of control of the Company, an acquisition of a specified percentage of
the voting power of the Company or a dissolution, liquidation, merger,
reclassification, sale of substantially all of the property and assets of the
Company or other significant corporate transaction. Any stock option granted to
an employee may be an incentive stock option within the meaning of Section 422
of the Code or a nonqualified stock option.
An award under the 1997 Plan may permit the recipient to pay all or part of
the purchase price of the shares or other property issuable pursuant to the
award, and/or to pay all or part of the recipient's tax withholding obligations
with respect to such issuance, by delivering previously owned shares of capital
stock of the Company or other property, or by reducing the amount of shares or
other property otherwise issuable pursuant to the award. If an option granted
under the 1997 Plan permitted the recipient to pay for the shares issuable
pursuant thereto with previously owned shares, the option may grant the
recipient the right to "pyramid" his or her previously owned shares, i.e., to
exercise the option in successive transactions, starting with a relatively small
number of shares and, by a series of exercises using shares acquired from each
transaction to pay the purchase price of the shares acquired in the following
transaction, to exercise the option for a larger number of shares with no more
investment than the original share or shares delivered.
As of the date hereof, the Board has granted options covering an aggregate
of 210,000 shares of Common Stock to certain directors and officers of the
Company, with an exercise price of $6.80 per share. The directors' options were
granted effective at such time as each director joins the Board of Directors and
will be immediately fully vested. The options granted to officers vest in four
equal annual installments commencing on the date of grant or in 48 equal monthly
installments commencing on the date of grant.
PLAN DURATION. The 1997 Plan became effective upon its adoption by the
Board of Directors and approved by the Company's stockholders on October 1,
1997, and, unless sooner terminated by the Board of Directors, will terminate on
October 1, 2007. No awards may be made after such date, nor may any shares of
Common Stock be issued pursuant to any award made after such date, although any
award that was duly granted on or prior to such date may thereafter be exercised
or settled in accordance with its terms. See "Principal and Selling
Stockholders."
AMENDMENTS. The Administrator may amend the 1997 Plan at any time and in
any manner, subject to the following: (1) no recipient of any award may, without
his or her consent, be deprived thereof or of any of his or her rights
thereunder or with respect thereto as a result of such amendment or termination;
and (2) if any rule or regulation promulgated by the Securities and Exchange
Commission (the "Commission"), the Internal Revenue Service or any national
securities exchange or quotation system upon which any of the Company's
securities are listed requires that any such amendment be approved by the
Company's stockholders, then such amendment will not be effective until it has
been approved by the Company's stockholders.
FORM S-8 REGISTRATION. The Company intends to file a registration statement
under the Securities Act to register the 562,500 shares of Common Stock reserved
for issuance under the 1997 Plan. Such registration statement is expected to be
filed shortly following the date of this Prospectus and will become effective
immediately upon filing with the Commission. Shares issued under the 1997 Plan
after the effective date of such registration statement generally will be
available for sale to the public without restriction, except for the 365-day
lock-up provisions and except for shares issued to affiliates of the
37
<PAGE>
Company, which will remain subject to the volume and manner of sale limitations
of Rule 144. See "Shares Eligible For Future Sale."
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation and its Bylaws provide for the
indemnification by the Company of each director, officer and employee of the
Company to the fullest extent permitted by the Delaware General Corporation Law,
as the same exists or may hereafter be amended. Section 145 of the Delaware
General Corporation Law provides in relevant part that a corporation may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the corporation) by reason of the fact that such person is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe such person's conduct was
unlawful.
In addition, Section 145 provides that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit if such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Delaware Court
of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Delaware Court of Chancery or
such other court shall deem proper. Delaware law further provides that nothing
in the above-described provisions shall be deemed exclusive of any other rights
to indemnification or advancement of expenses to which any person may otherwise
be entitled under any bylaw, agreement, vote of stockholders or disinterested
directors or otherwise.
The Company's Certificate of Incorporation also provides that a director of
the Company shall not be liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director, to the greatest extent
permitted by the Delaware General Corporation Law. Section 102(b)(7) of the
Delaware General Corporation Law provides that a provision so limiting the
personal liability of a director shall not eliminate or limit the liability of a
director for, among other things: breach of the duty of loyalty; acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of the law; unlawful payment of dividends; and transactions from which
the director derived an improper personal benefit.
The Company has entered into separate but identical indemnity agreements
(the "Indemnity Agreements") with each director of the Company and certain of
its officers (the "Indemnitees"). Pursuant to the terms and conditions of the
Indemnity Agreements, the Company has agreed to indemnify each Indemnitee
against any amounts which he or she becomes legally obligated to pay in
connection with any claim against him or her based upon any action or inaction
which he or she may commit, omit or suffer while acting in his or her capacity
as a director and/or officer of the Company or its subsidiaries, provided,
however, that Indemnitee acted in good faith and in a manner Indemnitee
reasonably believed to be in or
38
<PAGE>
not opposed to the best interests of the Company and, with respect to any
criminal action, had no reasonable cause to believe Indemnitee's conduct was
unlawful.
At the present time, there is no pending litigation or proceedings involving
a director, officer, employee or other agent of the Company in which
indemnification would be required or permitted. The Company is not aware of any
threatened litigation or proceedings which may result in a claim for such
indemnification.
39
<PAGE>
CERTAIN TRANSACTIONS
The information set forth herein briefly describes certain transaction
between the Company and certain affiliated parties. Future transactions with
affiliated parties will be approved by a majority of the Company's disinterested
directors and will be on terms no less favorable to the Company than those that
could be obtained from unaffiliated parties.
D.P.S. Associates, a general partnership in which Harold Dyne is a general
partner, is the lessor of the Company's executive offices located at 3820 South
Hill Street in Los Angeles, California pursuant to a Lease Agreement (the
"D.P.S. Lease") with Pacific Trim, a wholly owned subsidiary of the Company.
Harold Dyne is the President and a director of the Company and the Chief
Executive Officer of Pacific Trim. The D.P.S. Lease provides for a base rent of
$9,072 per month and expires on April 30, 2000.
Harold Dyne, the President and a director of the Company and the Chief
Executive Officer of Pacific Trim, and Colin Dyne, the Chief Executive Officer,
President and a director of the Company and the Chief Executive Officer of
Tag-It, each have personally guaranteed certain obligations of Pacific Trim and
Tag-It under various equipment lease agreements with Saddleback Financial
Corporation and Quail American Corp. As of August 31, 1997, the total amount
outstanding under these equipment lease agreements was approximately $202,000.
Harold Dyne also has guaranteed Pacific Trim's obligations under its lease
agreement for the premises located at 262 W. 38th Street, New York, New York.
The lease provides for an annual base rent of $16,800.
Certain affiliated parties have made loans to the Subsidiaries, all of which
are evidenced by promissory notes executed by the respective Subsidiary and are
due and payable on the fifteenth day following the date written demand for
payment is made by the holder thereof at any time after December 31, 1998. The
loans include (i) a loan by Harold Dyne in June 1991 of $10,000 to Tag-It at an
interest rate of 10.0% per annum, (ii) a loan by Mark Dyne in January 1997 of
$15,000 to Tag-It at an interest rate of 7.5% per annum, (iii) a loan by Monto
in February 1996 of $300,000 to AGS Stationery at an interest rate of 7.5% per
annum, (iv) a loan by Monto Holdings Pty. Ltd. in January 1995 of $124,626 to
Pacific Trim at an interest rate of 10.0% per annum, (v) a loan by NPM
Investment, Inc. in August 1996 of $715,500 to Tag-It at an interest rate of
7.5% per annum, which loan is secured by all of the assets of Tag-It (vi) a loan
by [Pacific West] in May , 1996 of $16,000 to Tag-It at an interest rate of
7.5% per annum, and (vii) a loan by [Pacific West] in June , 1996 of $6,000 to
Pacific Trim at an interest rate of 7.5% per annum. Mark Dyne, the Chairman of
the Board of the Company holds a significant equity interest in Monto Holdings
Pty. Limited, NPM Investments, Inc. [and Pacific West]. Alan Saloner is the
general partner of the Saloner Family Investments Limited Partnership, which is
a stockholder of the Company and holds a significant equity interest in NPM
Investments, Inc.
In addition, in August 1996, NPM Investments, Inc. made an additional loan
of $875,000 to Tag-It, without interest, pursuant to a convertible secured
promissory note (the "Convertible Note") which was secured by all of the assets
of Tag-It. Mark Dyne and Alan Saloner hold significant equity interests in NPM
Investments, Inc. In October, 1997, the Convertible Note was converted by NPM
Investments, Inc. into shares of Common Stock of Tag-It, Tag-It Hong Kong and
AGS Stationery which in the aggregate represent 384,401 shares of Common Stock.
On September 25, 1997, Monto Holdings Pty. Limited made an additional loan
of $126,000 to Tag-It to fund expenses incurred in connecton with the Offering.
The loan bears simple interest at a rate of 7.5% per annum, is due and payable
on the fifteenth day following the date of delivery by Monto Holdings Pty.
Limited of written demand therefor and is expected to be repaid upon the closing
of the Offering.
In September 1996, Harold Dyne borrowed $100,000 from Mercantile National
Bank, which loan was guaranteed by Tag-It. The term loan matures on May 17, 1999
and had an outstanding principal balance of approximately $81,552 as of October
10, 1997. In September 1996, the $100,000 borrowed by Mr. Dyne was lent to
Tag-It at the same interest rate payable on Mr. Dyne's loan from Mercantile
National Bank (11.75% as of October 15, 1997). The loan from Mr. Dyne to Tag-It
is due and payable on the fifteenth day following the date written demand for
payment is made by Mr. Dyne at any time after December 31, 1998.
40
<PAGE>
Harold Dyne and Colin Dyne have each guaranteed the obligations of Tag-It
under a term loan with Mercantile National Bank. The term loan matures on June
8, 1998 and had an outstanding principal balance of approximately $66,374 as of
October 10, 1997.
As of October 15, 1997, Harold Dyne was indebted to Pacific Trim in the
aggregate amount of $22,649. This indebtedness is evidenced by a promissory note
dated August 31, 1997 in the principal amount of $19,649, which currently does
not bear interest, and a promissory note dated October 15, 1997 in the principal
amount of $3,000, which bears interest at a rate of 7.5% per annum. Both of the
promissory notes are due and payable on the fifteenth day following the date of
delivery by Pacific Trim of written demand therefor.
As of October 15, 1997, Colin Dyne was indebted to Tag-It in the aggregate
amount of $77,631. This indebtedness is evidenced by a promissory note dated
August 31, 1997 in the principal amount of $71,542, which is due and payable in
four bi-annual installments of $17,885.50 on June 30, 1998, December 31, 1998,
June 30, 1999 and December 31, 1999, and a promissory note dated October 15,
1997 in the principal amount of $6,089, which is due and payable on the
fifteenth day following the date of delivery by Tag-It of written demand
therefor. Both promissory notes bear interest at a rate of 7.5% per annum.
Harold Dyne and Colin Dyne have each guaranteed the obligations of Tag-It
under a Consulting Agreement and an Agreement for Repurchase of Stock with Frank
M. Peck, a former shareholder of Tag-It. The Consulting Agreement provides that
until December 31, 1998 Frank Peck will receive a monthly consulting fee in the
amount of $11,900.00 subject to certain adjustments based on the aggregate
annual compensation paid by Tag-It to Colin Dyne and Harold Dyne.
In June 1997, AGS Stationery entered into a Collection Date Factoring
Agreement (the "Safcor Agreement") with Safcor, Inc. ("Safcor"). Alan Saloner,
the general partner of the Saloner Family Investments Limited Partnership, a
significant stockholder of the Company, is an officer and director of Safcor.
Pursuant to the Safcor Agreement, AGS Stationery has agreed to sell to Safcor
all accounts relating to the sale of goods or the rendering of services by AGS
Stationery for a purchase price equal to the gross amount of each account, less
all discounts and credits and a factoring commission of 1.5% of the net amount
of the account. In addition, Safcor has the right, in its sole discretion, to
provide customers of AGS Stationery with credit lines for the purchase of AGS
Stationery's products. As of October 15, 1997, receivables advanced by AGS
Stationery to Safcor totalled $1,272,115, and amounts paid by Safcor to AGS
Stationery for such receivable totalled $751,738. The Safcor Agreement may be
terminated by either party upon 60 days prior written notice to the other party.
In 1994, Jonathan Markiles, as compensation for employment services,
received a warrant (the "Markiles Warrants") to purchase 14 shares of Tag-It
Common Stock which, upon the Consolidation became exercisable for 39,235 shares
of Common Stock at a price of $.7136 per share. In the event the shares of
Common Stock underlying the Markiles Warrants are not freely tradeable under the
Securities Act, the Company has agreed to register these shares on Form S-3 or
Form S-8. The Markiles Warrants provide for piggyback registration rights and
expire on December 31, 2002.
Averil Associates, Inc., ("Averil Associates") a financial advisory firm
founded and controlled by Diana Maranon, has, since January 1, 1996, performed
various services for the Company including investigation of strategic financing
and other corporate growth initiatives. Ms. Maranon is a director of the
Company. As consideration for such services, AGS Stationery has paid to Averil
Associates the aggregate amount of $26,123, including out of pocket expenses. As
additional compensation for services rendered, AGS Stationery has granted to
Chloe Holdings, Inc. ("Chloe"), an affiliate of Averil Associates, warrants (the
"Chloe Warrants") to purchase up to 135 shares of Common Stock of AGS
Stationery, and the Company has agreed to pay to Averil Associates an additional
$175,000 upon consummation of the Offering. Effective upon the Consolidation,
the Chloe Warrants became exercisable for 22,841 shares of Common Stock of the
Company. The Chloe Warrants are immediately exercisable. The Company plans to
continue to engage Averil Associates; however, the Company is unable to
currently estimate the extent to which it will use Averil Associates in the
future.
41
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of October 20, 1997, and as adjusted
to reflect the sale of 1,280,000 shares of Common Stock by the Company and the
sale of 170,000 shares of Common Stock by the Selling Stockholder offered by
this Prospectus, for (i) each person who is known to the Company to be the
beneficial owner of more than 5% of the outstanding Common Stock, (ii) each of
the Company's directors, (iii) each of the Named Executive Officers, and (iv)
all directors and executive officers of the Company as a group. The address of
each person listed is in care of the Company, 3820 South Hill Street, Los
Angeles, California 90037, unless otherwise set forth below such person's name.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO OFFERING(1) AFTER THE OFFERING
----------------------- NUMBER -----------------------
NUMBER PERCENT OF SHARES NUMBER PERCENT
NAME OF BENEFICIAL OWNER OF SHARES OF CLASS OFFERED OF SHARES OF CLASS
- --------------------------------------------------------- ---------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Harold Dyne(2)........................................... 789,508 32.0% 170,000 619,508 16.5%
Colin Dyne(2)............................................ 584,531 23.7 -- 584,531 15.6
Mark Dyne(2)............................................. 461,401 18.7 -- 461,401 12.3
Saloner Family Investments Limited Partnership........... 160,167 6.5 -- 160,167 4.3
Jonathan Burstein........................................ 75,788 3.1 -- 75,788 2.0
Jonathan Markiles(3)..................................... 53,248 2.1 -- 53,248 1.4
Diana Maranon(4)......................................... 37,841 1.5 -- 37,841 1.0
Brent Cohen(5)........................................... 20,000 * 20,000 *
All of the directors and executive officers as a group
(seven persons)(6)..................................... 2,022,317 78.8 170,000 1,852,317 48.1
</TABLE>
- ------------------------
* Represents less than 1% of outstanding Common Stock.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission that deem shares to be beneficially owned
by any person who has or shares voting or investment power with respect to
such shares. Unless otherwise indicated, the persons named in this table
have sole voting and sole investment power with respect to all shares shown
as beneficially owned, subject to community property laws where applicable.
In computing the number of shares beneficially owned by a person and the
percentage ownership of that person, shares of Common Stock subject to
options or warrants held by that person that are currently exercisable or
exercisable within 60 days of October 20, 1997 are deemed outstanding. Such
shares, however, are not deemed outstanding for the purposes of computing
the percentage ownership of each other person. Accordingly, the beneficial
ownership percentages shown above exceed 100%.
(2) Colin Dyne and Mark Dyne are brothers. Harold Dyne is their Father.
(3) Includes 39,235 shares of Common Stock reserved for issuance upon exercise
of Markiles Warrant, which are currently exercisable.
(4) Includes 15,000 shares of Common Stock reserved for issuance upon exercise
of stock options which are currently exercisable and 22,841 shares of Common
Stock reserved for issuance upon exercise of the Chloe Warrants which are
currently exercisable.
(5) Represents 20,000 shares of Common Stock reserved for issuance upon exercise
of stock options which are currently exercisable.
(6) Includes the shares of Common Stock referred to in footnotes (3), (4) and
(5) above.
42
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue 15,000,000 shares of Common Stock, par
value $0.001 per share, and 3,000,000 shares of Preferred Stock, par value
$0.001 per share. At October 20, 1997, the Company had 2,470,000 shares of
Common Stock outstanding held by 12 holders of record. The following statements
are brief summaries of certain provisions relating to the Company's capital
stock.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record on all matters on which the holders of Common Stock are entitled to vote.
The holders of Common Stock are entitled to receive ratably dividends when, as
and if declared by the Board of Directors out of funds legally available
therefor. In the event of liquidation, dissolution or winding up of the Company,
the holders of Common Stock are entitled subject to the rights of holders of
Preferred Stock issued by the Company, if any, to share ratably in all assets
remaining available for distribution to them after payment of liabilities and
after provision is made for each class of stock, if any, having preference over
the Common Stock.
The holders of Common Stock have no preemptive or conversion rights and they
are not subject to further calls or assessments by the Company. There are no
redemption or sinking fund provisions applicable to the Common Stock. The
outstanding shares of Common Stock are, and the Common Stock issuable pursuant
to this Prospectus will be, when issued, fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors has the authority to issue the authorized and
unissued Preferred Stock in one or more series with such designations, rights
and preferences as may be determined from time to time by the Board of
Directors. Accordingly, the Board of Directors is empowered, without stockholder
approval, to issue Preferred Stock with dividend, liquidation, conversion,
voting or other rights which adversely affect the voting power or other rights
of the holders of the Company's Common Stock. In the event of issuance, the
Preferred Stock could be utilized, under certain circumstances, as a way of
discouraging, delaying or preventing an acquisition or change in control of the
Company. The Company does not currently intend to issue any shares of its
Preferred Stock.
WARRANTS
In connection with its engagement of Troop Meisinger Steuber & Pasich, LLP
("TMS&P") as counsel to the Company, the Company has agreed to issue to TMS&P
warrants (the "TMS&P Warrants") to purchase such number of shares of Common
Stock of the Company as is equal to the quotient of (i) 120% of the actual fees,
costs and disbursements billed by TMS&P in connection with the Offering, divided
by (ii) an amount equal to 80% of the greater of $8.50 or the initial public
offering price of a share of Common Stock in the Offering. The TMS&P Warrants
will be granted upon the closing of the Offering or, if the Offering is not
successful, on such date as the Company decides not to continue with the
Offering. Each TMS&P Warrant will be immediately exercisable and will expire
five years following the date of grant unless the Company decides not to
continue with the Offering, in which case they will expire one year following
the date of grant. Each TMS&P Warrant provides for piggyback registration
rights. See "-- Registration Rights."
Pursuant to an agreement with Averil Associates, the Company issued the
Chloe Warrants to purchase 22,841 shares of Common Stock with an exercise price
of $.7578 per share. In the event the shares of Common Stock underlying the
Chloe Warrants are not freely tradeable pursuant to an exemption from
registration under the Securities Act of 1933, as amended, (the "Securities
Act"), the Company has agreed to register these shares on Form S-3.
Additionally, the Chloe Warrants provide for piggyback registration rights. See
"--Registration Rights." These warrants expire on December 31, 2002 .
43
<PAGE>
In 1994, Jonathan Markiles, as compensation for employment services,
received the Markiles Warrants to purchase 14 shares of Tag-It Common Stock
which, upon the Consolidation became exercisable for 39,235 shares of Common
Stock at a price of $.7136 per share. In the event the shares of Common Stock
underlying the Markiles Warrants are not freely tradeable under the Securities
Act, the Company has agreed to register these shares on Form S-3 or Form S-8.
The Markiles Warrants also provide for piggyback registration rights and expire
on December 31, 2002.
All of the warrants granted to TMS&P and Chloe are entitled to equitable
adjustments in the purchase price and in the number of shares of Common stock
and/or other securities deliverable upon exercise thereof in the event of a
stock dividend, stock split, reclassification, reorganization, consolidation or
merger.
ANTI-TAKEOVER PROVISIONS
The Company's Certificate of Incorporation provides that the Company's Board
of Directors is classified into three classes of directors. The Certificate of
Incorporation also provides that all stockholder action must be effected at a
duly called meeting of stockholders and not by a consent in writing. In
addition, the Company's Certificate of Incorporation and Bylaws provide that
only the Company's Chief Executive Officer, a majority of the members of the
Company's Board of Directors may call a special meeting of stockholders. In
addition, directors may not be removed without cause. These provisions of the
Certificate of Incorporation and Bylaws could discourage potential acquisition
proposals and could delay or prevent a change in control of the Company. Such
provisions also may have the effect of preventing changes in the management of
the Company. See "Risk Factors--Effect of Certain Charter Provisions;
Antitakeover Effects of Certificate of Incorporation, Bylaws and Delaware Law."
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law. That section provides, with certain exceptions, that a
Delaware corporation may not engage in any of a broad range of business
combinations with a person or affiliate, or associate of such person, who is an
"interested stockholder" for a period of three years from the date that such
person became an interested stockholder unless: (i) the transaction resulting in
a person becoming an interested stockholder, or the business combination, is
approved by the board of directors of the corporation before the person becomes
an interested stockholder; (ii) the interested stockholder acquires 85% or more
of the outstanding voting stock of the corporation in the same transaction that
makes it an interested stockholder (excluding shares owned by persons who are
both officers and directors of the corporation, and shares held by certain
employee stock ownership plans); or (iii) on or after the date the person
becomes an interested stockholder, the business combination is approved by the
corporation's board of directors and by the holders of at least 66 2/3% of the
corporation's outstanding voting stock at an annual or special meeting,
excluding shares owned by the interested stockholder. An "interested
stockholder" is defined as any person that is (a) the owner of 15% or more of
the outstanding voting stock of the corporation or (b) an affiliate or associate
of the corporation and was the owner of 15% or more of the outstanding voting
stock of the corporation at any time within the three-year period immediately
prior to the date on which it is sought to be determined whether such person is
an interested stockholder.
REGISTRATION RIGHTS
After the Offering, the holders of the TMS&P Warrants, the Chloe Warrants
and Markiles Warrants will be entitled to certain rights with respect to
registration of such shares under the Securities Act. If the Company proposes to
register any of its securities under the Securities Act at least 180 days
subsequent to the Offering, TMS&P and Chloe are entitled to notice of such
registration and are entitled to include the shares underlying their respective
warrants in such registration, provided, among other conditions, that the
underwriters of any offering have the right to limit the number of shares
included in such registration. In addition, in the event the shares of Common
Stock underlying the Chloe Warrants are not freely tradeable
44
<PAGE>
pursuant to an exemption from registration under the Securities Act, the Company
has agreed to register these shares on Form S-3 or Form S-8.
TRANSFER AGENT
The Company's transfer agent and registrar for its Common Stock is American
Stock Transfer and Trust Corporation, 40 Wall Street, New York, New York 10005.
45
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no public market for the Company's
Common Stock. Sale of substantial amounts of Common Stock in the public market
could adversely affect the market price of the Common Stock.
Upon completion of the Offering, based on the number of shares outstanding
as of October 20, 1997, the Company will have outstanding an aggregate of
3,750,000 shares of Common Stock, assuming no exercise of the Underwriters'
Over-Allotment Option and no exercise of outstanding options. Of these shares,
the 1,450,000 shares sold in the Offering will be freely tradable without
restriction or further registration under the Securities Act, unless held by
"affiliates" of the Company, as that term is defined in Rule 144 under the
Securities Act. The remaining 2,300,000 shares of Common Stock held by existing
stockholders are "restricted" securities within the meaning of Rule 144 under
the Securities Act. Restricted securities may be sold in the public market only
if registered or if they qualify for an exemption from registration under Rules
144, 144(k) or 701 promulgated under the Securities Act, which rules are
summarized below.
All holders of the Company's securities outstanding prior to the Offering
will, prior to the Offering, be subject to "lock-up" provisions providing that
such holders will not offer to sell, contract to sell or otherwise sell, dispose
of, loan, pledge or grant any rights with respect to, any shares of Common
Stock, or any options or warrants to purchase Common Stock, or any securities
convertible into or exercisable for Common Stock, of the Company for 365 days
after the effective date of the Offering without the prior written consent of
the representative of the underwriters. As a result of these contractual
restrictions, notwithstanding possible earlier eligibility for sale under the
provisions of Rules 144, 144(k) and 701, no shares will be eligible for
immediate sale on the effective date of the Offering and, unless earlier
released from the lock-up provisions, 2,300,000 currently outstanding shares of
Common Stock will be eligible for sale 365 days after the effective date of the
Offering, subject in all cases to the volume limitations of Rules 144 and 701
summarized below.
Additionally, pursuant to Rules 144 and 701, beginning one year after the
effective date of the Offering, upon the expiration of contractual lock-up
provisions with the Company, an aggregate of approximately 302,959 shares will
be vested and eligible for sale upon the exercise of outstanding stock options.
In general, under Rule 144 as currently in effect, an affiliate of the
Company, or person (or persons whose shares are aggregated) who has beneficially
owned restricted shares for at least one year but less than two years, will be
entitled to sell in any three-month period a number of shares that does not
exceed the greater of (i) 1% of the then outstanding shares of Common Stock
(approximately 37,500 shares immediately after the Offering) or (ii) the average
weekly trading volume during the four calendar weeks immediately preceding the
date on which notice of the sale is filed with the Securities and Exchange
Commission. Sales pursuant to Rule 144 are subject to certain requirements
relating to manner of sale, notice and availability of current public
information about the Company. A person (or person whose shares are aggregated)
who is not deemed to have been an affiliate of the Company at any time during
the 90 days immediately preceding the sale and who has beneficially owned his or
her shared for at least two years is entitled to sell such shares pursuant to
Rule 144(k) without regard to the limitations described above. In general, under
Rule 701 under the Securities Act as currently in effect, any employee,
consultant or advisor of the Company who purchases shares from the Company in
connection with a compensatory stock or option plan or other written agreement
related to compensation is eligible to resell such shares 90 days after the
effective date of the Offering in reliance on Rule 144, but without compliance
with certain restrictions contained in Rule 144.
At October 20, 1997, the Company had reserved an aggregate of 562,500 shares
of Common Stock for issuance pursuant to the 1997 Plan, and options to purchase
210,0000 shares were outstanding under the 1997 Plan. The Company intends to
file a registration statement under the Securities Act to register the
46
<PAGE>
562,500 shares of Common Stock reserved for issuance under the 1997 Plan. Such
registration statement is expected to be filed shortly following the date of
this Prospectus and will become effective immediately upon filing with the
Securities and Exchange Commission. Shares issued under the 1997 Plan after the
effective date of such registration statement generally will be available for
sale to the public without restriction, except for the 365-day lock-up
provisions and shares issued to affiliates of the Company, which will remain
subject to the volume and manner of sale limitations of Rule 144. See
"Underwriting." Additionally, after the Offering, TMS&P and Chloe will be
entitled to certain rights with respect to registration under the Securities Act
of the shares of Common Stock underlying the TMS&P Warrants and the Chloe
Warrants, respectively.
47
<PAGE>
UNDERWRITING
The Underwriters named below, for whom Cruttenden Roth Incorporated is
acting as the representative (the "Representative"), have agreed severally,
subject to the terms and conditions contained in an Underwriting Agreement
("Underwriting Agreement"), to purchase from the Company and the Selling
Stockholder the number of shares of Common Stock indicated below opposite their
respective names at the proposed public offering price less the estimated
underwriting discounts and commissions set forth on the cover page of this
Prospectus. The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions, and that the Underwriters are
committed to purchase all of such shares (other than those covered by the
over-allotment option, if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
Cruttenden Roth Incorporated..................................................... --
----------
Total........................................................................ 1,450,000
----------
----------
</TABLE>
The Underwriters initially propose to offer the shares of Common Stock
offered hereby to the public at the price to public set forth on the cover page
of this Prospectus. The Underwriters may allow a concession to selected dealers
who are members of the National Association of Securities Dealers, Inc. ("NASD")
not in excess of $ per share, and the Underwriters may allow, and such
dealers may re-allow, to members of the NASD, a concession not in excess of
$ per share. After the public offering, the price to public, the
concession and the re-allowance may be changed by the Representative.
The Company has granted an option to the Underwriters, exercisable within 45
days after the date of this Prospectus, to purchase up to an additional 192,000
shares of Common Stock at the proposed initial price to public, less the
estimated underwriting discount, set forth on the cover page of this Prospectus.
The Underwriters may exercise the option only for the purpose of covering
over-allotments (the "Over-Allotment Option"). To the extent that the
Underwriters exercise the Over-Allotment Option, each Underwriter will be
committed, subject to certain conditions, to purchase from the Company that
number of additional shares of Common Stock which is proportionate to such
Underwriter's initial commitment.
The Company has also agreed to sell to the Representative warrants to
purchase up to 100,000 shares of Common Stock (the "Representative's Warrant").
The Representative's Warrant will be exercisable for a period of five years,
commencing one year after the date of this Prospectus, at an initial per share
exercise price equal to 120% of the price to public set forth on the cover page
of this Prospectus. Neither the Representative's Warrant nor the shares of
Common Stock issuable upon exercise thereof may be transferred, assigned or
hypothecated until one year from the date of this Prospectus, except that they
may be assigned, in whole or in part, (i) to individuals who are either officers
or partners of the Representative, or (ii) by will or the laws of descent and
distribution or (iii) to certain successor of the Representative. Any profit
realized by the Representative on the sale of securities issuable upon exercise
of the Representative's Warrant may be deemed to be additional compensation.
The holder of the Representative's Warrant will have no voting, dividend or
other rights as a stockholder of the Company unless and until the exercise of
the Representative's Warrant. The number of securities deliverable upon any
exercise of the Representative's Warrant or its underlying securities and the
exercise price of the Representative's Warrant are subject to adjustment to
protect against any dilution upon the occurrence of certain events, including
issuance of stock dividends, stock splits, subdivision or combination of
outstanding stock and reclassification of stock.
The Company has agreed with the Representative to register the
Representative's Warrant and/or the underlying shares for resale, on one such
occasion at any time during the five-year period commencing one year following
the date of this Prospectus upon written demand by the Representative. The
Company has agreed with the Representative that if, during the five-year period
commencing one year following the date
48
<PAGE>
of this Prospectus, the Company registers any of its Common Stock for sale
pursuant to a registration statement (with the exception of Form S-4, Form S-8
or other inappropriate form), it will use its best efforts, upon request of any
of holder of the Representative's Warrant and/or the underlying shares, to
include such securities as a part of the registration statement. The Company
will bear all the costs, except underwriting discounts and the Representative's
legal fees, for any registration.
The Representative will also receive at the closing of the Offering a
non-accountable expense allowance equal to 2% of the aggregate public offering
price of the shares of Common Stock sold in the Offering including proceeds from
the Over-Allotment Option, if exercised. The Representative's expenses in excess
of the non-accountable expenses allowance, including its legal expenses, will be
borne by the Representative. To the extent that the expenses of the
Representative are less than the non-accountable expense allowance, the excess
shall be deemed to be compensation to the Representative.
The Company, and its executive officers, directors and its stockholders have
agreed that for a period of 365 days after the date of this Prospectus they will
not, directly or indirectly, offer, sell, contract to sell, grant any option to
sell, or otherwise dispose of shares of Common Stock or other securities which
are substantially similar to the Common Stock or securities convertible into or
exercisable or exchangeable for or any rights to purchase or acquire Common
Stock or securities which are substantially similar to the Common Stock without
the prior written consent of the Representative.
Prior to this Offering, there has been no public market for the Common Stock
and there can be no assurance that a regular trading market will develop upon
the completion of this Offering. The public offering price will be determined by
arms-length negotiations between the Company, the Selling Stockholder and the
Representative and will not necessarily bear any relationship to assets, book
value, earnings history or other investment criteria. The primary factors
considered in determining such offering price included the trading price for the
Company's Common Stock, the history of and prospects for the industry in which
the Company competes, market valuation of comparable companies, market
conditions for public offerings, the history of and prospects for the Company's
business, the Company's past and present operations and earnings and the trend
of such earnings, the prospects for future earnings of the Company, the
Company's current financial position, an assessment of the Company's management,
the general condition of the securities markets, the demand for similar
securities of comparable companies and other relevant factors. There can be no
assurance, however, that the prices at which the Common Stock will trade in the
public market following the Offering will not be lower than the initial public
offering price.
The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act or to contribute to payments which the Underwriters may be
required to make in respect thereof.
The Representative has advised the Company that it does not expect any sales
by the Underwriters to accounts over which they exercise discretionary
authority.
The foregoing is a brief summary of the provisions of the Underwriting
Agreement and does not purport to be a complete statement of its terms and
conditions. The Underwriting agreement has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part.
Certain persons participating in the Offering may overallot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the Common Stock at levels above those which might otherwise prevail in the open
market, including by entering stabilizing bids, effecting syndicate covering
transactions or imposing penalty bids. A stabilizing bid means the placing of
any bid, or the effecting of any purchase, for the purpose of pegging, fixing or
maintaining the price of the Common Stock. A syndicate covering transaction
means the placing of any bid on behalf of the underwriting syndicate or the
effecting of any purchase to reduce a short position created in connection with
the Offering. A penalty bid means an arrangement that permits the Underwriters
to reclaim a selling concession from a syndicate member in connection with the
Offering when shares of Common Stock sold by the syndicate member in connection
49
<PAGE>
with the Offering are purchased in syndicate covering transactions. Such
transactions may be effected on the American Stock Exchange, in the
over-the-counter market, or otherwise. Such stabilizing, if commenced, may be
discontinued at any time.
LEGAL MATTERS
Counsel for the Company, Troop Meisinger Steuber & Pasich, LLP, Los Angeles,
California, have rendered an opinion to the effect that the Common Stock offered
by the Company upon sale will be duly and validly issued, fully paid and
non-assessable. Troop Meisinger Steuber & Pasich, LLP holds warrants to purchase
approximately 20,600 shares of Common Stock of the Company. Graham & James LLP,
San Francisco, California, has acted as counsel to the Underwriters in
connection with certain legal matters relating to this Offering.
EXPERTS
The consolidated financial statements of the Company at August 31, 1997 and
1996, and for the years then ended, appearing in this Prospectus and
Registration Statement have been audited by BDO Seidman, LLP, independent
certified public accountants, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission in
Washington, D.C., a Registration Statement under the Securities Act for the
shares offered by this Prospectus. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits included
with the Registration Statement. Statements contained in this Prospectus as to
the contents of any contract or any other document referred to are not
necessarily complete, and with respect to any contract or other document filed
as an exhibit to the Registration Statement, reference is made to the exhibit
for a more complete description of the matter involved, and each such statement
is qualified in its entirety by this reference. For further information about
the Company and the shares offered by this Prospectus, reference is hereby made
to the Registration Statement and exhibits included with the Registration
Statement. A copy of the Registration Statement, including exhibits, may be
inspected without charge at the Securities and Exchange Commission's principal
office in Washington, D.C., and copies of all or any part thereof may be
obtained from the Public Reference Section of the Securities and Exchange
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of
certain prescribed rates.
Upon consummation of the Offering, the Company will become subject to the
information requirements of the Exchange Act and, in accordance therewith, will
file reports and other information with the Securities and Exchange Commission
in accordance with its rules. These reports and other information concerning the
Company may be inspected and copied at the public reference facilities referred
to above as well as certain regional offices of the Securities and Exchange
Commission.
The Securities and Exchange Commission maintains a Web Site which contains
reports, proxy and information statements and other information regarding
issuers that file electronically with the Securities and Exchange Commission
(such as the Company) at http:\\www.sec.gov.
The Company intends to furnish to its stockholders annual reports containing
consolidated financial statements audited by its independent auditors and
quarterly reports containing unaudited consolidated financial statements for
each of the first three quarters of each fiscal year.
50
<PAGE>
TAG-IT PACIFIC, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets as of August 31, 1996 and 1997 F-3
Consolidated Statements of Operations for the years ended August 31, 1996 and 1997 F-4
Consolidated Statements of Stockholders' Deficiency for the years ended August 31, 1996 and 1997 F-5
Consolidated Statements of Cash Flows for the years ended August 31, 1996 and 1997 F-6
Notes to Consolidated Financial Statements F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
[The following is the form of the opinion that BDO Seidman, LLP will be in a
position to issue upon completion of the recapitalization described in Note 1.]
The Board of Directors
Tag-It Pacific, Inc.
Los Angeles, California
We have audited the accompanying consolidated balance sheets of Tag-It
Pacific, Inc. as of August 31, 1996 and 1997, and the related consolidated
statements of operations, stockholders' deficiency and cash flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Tag-It
Pacific, Inc. at August 31, 1996 and 1997, and the results of their operations
and their cash flows for each of the years then ended in conformity with
generally accepted accounting principles.
Los Angeles, California
October 20, 1997, except for
the recapitalization described
in Note 1 as to which its date
is , 1997
F-2
<PAGE>
TAG-IT PACIFIC INC. (NOTE 1)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AUGUST 31, PROFORMA
---------------------------- (SEE NOTE
1996 1997 12)
------------- ------------- ------------
<S> <C> <C> <C>
ASSETS (NOTE 6)
Current Assets:
Cash............................................................ $ 89,873 $ 148,062
Factored accounts receivable (Note 2)........................... 600,332 1,212,714
Accounts receivable (Note 11)................................... 265,763 682,706
Due from related parties (Note 12).............................. 45,372 102,092
Inventories (Note 3)............................................ 1,206,026 2,017,503
Prepaid expenses and other current assets....................... 217,400 215,678
------------- -------------
Total current assets.......................................... 2,454,766 4,378,755
Property and equipment, net (Note 4).............................. 606,558 922,262
Other assets...................................................... 54,963 49,153
------------- -------------
Total Assets...................................................... $ 3,116,287 $ 5,350,170
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Bank overdrafts................................................. $ 175,647 $ 251,115
Current portion of long-term debt (Note 5)...................... 180,136 158,176
Current portion of notes payable to related parties (Note 6).... 1,179,953 912,898 $ 37,898
Accounts payable................................................ 2,696,837 3,294,442
Accrued expenses................................................ 775,691 1,569,363
------------- -------------
Total current liabilities..................................... 5,008,264 6,185,994 5,310,994
Long-term debt, less current portion (Note 5)..................... 189,660 55,315
Notes payable to related parties, less current portion............ -- 1,249,698
------------- ------------- ------------
Total Liabilities................................................. 5,197,924 7,491,007 6,616,007
Commitments and contingencies (Note 10)...........................
Stockholders' Deficiency (Notes 8 and 12).........................
Preferred stock, $.001 par value; 3,000,000 shares authorized;
no shares issued and outstanding ............................. -- --
Common stock; $.001 par value; 15,000,000 shares authorized;
2,085,599 shares issued and outstanding (2,470,000 shares pro
forma)........................................................ 2,086 2,086
Additional paid-in capital...................................... 82,914 82,914 957,914
Accumulated deficit............................................. (2,166,637) (2,225,837)
------------- ------------- ------------
Total stockholders' deficiency.............................. (2,081,637) (2,140,837) (1,265,837)
------------- ------------- ------------
Total Liabilities and Stockholders' Deficiency.................... $ 3,116,287 $ 5,350,170 $5,350,170
------------- ------------- ------------
------------- ------------- ------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
TAG-IT PACIFIC, INC. (NOTE 1)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31,
----------------------------
1996 1997
------------- -------------
<S> <C> <C>
Net sales (Note 11)................................................................ $ 14,738,041 $ 19,539,411
Cost of goods sold................................................................. 10,090,538 12,546,541
------------- -------------
Gross profit..................................................................... 4,647,503 6,992,870
Selling, general and administrative expenses....................................... 4,973,058 5,896,543
Write-off of printing division (Note 9)............................................ -- 231,803
------------- -------------
Income (loss) from operations...................................................... (325,555) 864,524
Interest expense................................................................... 464,805 810,681
------------- -------------
Income (loss) before income taxes.................................................. (790,360) 53,843
Provision for income taxes (Note 7)................................................ -- 113,043
------------- -------------
Net loss........................................................................... $ (790,360) $ (59,200)
------------- -------------
------------- -------------
Historical information (Note 1):
Net loss per share............................................................... $ (.37) $ (.03)
------------- -------------
------------- -------------
Weighted average shares outstanding.............................................. 2,085,599 2,085,599
------------- -------------
------------- -------------
Pro forma information (Note 1):
Net loss per share............................................................... $ (.02)
-------------
-------------
Weighted average shares outstanding.............................................. 2,538,888
-------------
-------------
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE>
TAG-IT PACIFIC, INC. (NOTE 1)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
YEARS ENDED AUGUST 31, 1996 AND 1997
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK ADDITIONAL
-------------------- -------------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------- --------- --------- --------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, August 31, 1995...... -- $ -- -- $ 2,086 $ 82,914 $ (1,376,277) $ (1,291,277)
Net loss.................... -- -- -- -- -- (790,360) (790,360)
--------- --------- --------- --------- ----------- ------------- -------------
Balance, August 31, 1996...... -- -- -- 2,086 82,914 (2,166,637) (2,081,637)
Net loss.................... -- -- -- -- -- (59,200) (59,200)
--------- --------- --------- --------- ----------- ------------- -------------
Balance, August 31, 1997...... -- $ -- -- $ 2,086 $ 82,914 $ (2,140,837) $ (2,140,837)
--------- --------- --------- --------- ----------- ------------- -------------
--------- --------- --------- --------- ----------- ------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
TAG-IT PACIFIC INC. (NOTE 1)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31,
1996 1997
----------- -------------
<S> <C> <C>
Increase (decrease) in cash
Cash flows from operating activities:
Net loss............................................................................ (790,360) (59,200)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization..................................................... 144,484 268,047
Changes in operating assets and liabilities:
Factored accounts receivable.................................................... 203,435 (612,382)
Accounts receivables............................................................ (52,973) (416,943)
Inventories..................................................................... (525,117) (811,477)
Other assets.................................................................... (8,065) 5,810
Prepaid expenses and other current assets....................................... (117,088) 1,722
Accounts payable................................................................ 271,355 597,605
Accrued expenses................................................................ 379,074 793,672
----------- -------------
Net cash used in operating activities............................................... (495,255) (233,146)
Cash flows from investing activities:
Loans to related parties.......................................................... 25,503 (26,720)
Acquisition of property and equipment............................................. (488,360) (583,751)
----------- -------------
Net cash used in investing activities............................................... (462,857) (610,471)
Cash flows from financing activities:
Bank overdraft.................................................................... 26,759 75,468
Proceeds from long-term debt...................................................... 369,796 --
Payments on long-term debt........................................................ -- (156,305)
Proceeds from notes payable to related parties.................................... 588,946 1,716,672
Repayments of notes payable to related parties.................................... (34,996) (734,029)
Net cash provided by financing activities........................................... 950,505 901,806
----------- -------------
Net increase (decrease) in cash....................................................... (7,607) 58,189
Cash at beginning of year............................................................. 97,480 89,873
----------- -------------
Cash at end of year................................................................... $ 89,873 $ 148,062
----------- -------------
----------- -------------
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for:
Interest.......................................................................... $ 260,220 $ 566,599
Income Taxes...................................................................... $ 30,204 $ 19,404
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
TAG-IT PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED AUGUST 31, 1996 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
Tag-It Pacific, Inc. (the "Company") was incorporated in September 1997 and
was formed to combine several existing related operating entities under a single
holding company.
The Company combines Tag-It, Inc., a California corporation ("Tag-It");
Tag-It Printing & Packaging Ltd., a BVI corporation ("Tag-It Hong Kong"); Tag-It
de Mexico SA de CV ("Tag-It Mexico"); A.G.S. Stationery, Inc., a California
corporation ("AGS Stationery"); and Pacific Trim & Belt, Inc., a California
corporation ("Pacific Trim") (collectively, the "Subsidiaries").
On October 17, 1997, Tag-It Pacific L.L.C., a Delaware limited liability
company ("Tag-It Pacific LLC"), acquired all of the outstanding capital stock of
each of the Subsidiaries for an aggregate of 2,470,000 membership units of
Tag-It Pacific LLC and assumed outstanding options and warrants to purchase
equity securities of certain Subsidiaries in a stock-for-unit exchange (the
"Exchange"). Immediately prior to the expected effectiveness of the Company's
initial public offering, the outstanding membership units of Tag-It Pacific LLC
will be converted to 2,470,000 shares of Common Stock of the Company (the
Exchange and such conversion are referred to as the "Conversion").
The accompanying consolidated financial statements consist of the
Subsidiaries presented on a consolidated basis to give effect to the Conversion
as of the earliest period presented and treated as a reorganization of entities
under common control accounted for in a manner similar to a pooling of
interests. Accordingly, all references to shares of Common Stock and related
share prices have assumed the effects of the Conversion.
All significant intercompany accounts and transactions have been eliminated
in consolidation.
NATURE OF BUSINESS
The Company operates in one reportable business segment, apparel and
accessory industry. The Company provides labels, hang tags, buttons and other
trimmings to apparel manufacturers. The Company also designs, produces and
markets specialty stationery products under license agreements for branded
stationery products. The Company has production facilities in the United States,
Hong Kong and Mexico. The Company's products are sold in the United States and
Hong Kong. Sales in Hong Kong were $2,030,245 and $2,119,582 for the years ended
August 31, 1996 and 1997, respectively.
REVENUE RECOGNITION
Sales are recorded at the time of shipment.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market
(net realizable value).
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Major improvements and
replacements of property and equipment are capitalized. Maintenance and repairs
are charged to expense as incurred. Upon retirement or other disposition of
property and equipment, applicable cost and accumulated depreciation and
F-7
<PAGE>
TAG-IT PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED AUGUST 31, 1996 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
amortization are removed from the accounts and any gains or losses are included
in results of operations. The Company capitalizes the cost of films, dies, molds
and art designs. The cost capitalized includes direct material and direct labor
cost.
Depreciation of property and equipment is computed using the straight-line
method based on estimated useful lives ranging from three to seven years.
Leasehold improvements are amortized using the straight-line method over the
term of the lease or the estimated life of the related improvements, whichever
is shorter.
INCOME TAXES
The Company uses the liability method of accounting for income taxes in
accordance with Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes." Deferred income taxes are recognized based on the differences
between financial statement and income tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse. Valuation allowances are established, when necessary to reduce
deferred tax assets to the amount expected to be realized. The provision for
income taxes represents the tax payable for the period and the change during the
year in deferred tax assets and liabilities.
Income taxes have been provided on a separate company basis. Pacific Trim
has elected to be treated as an S corporation under the Internal Revenue Code
for the years ended August 31, 1996 and 1997. In lieu of corporate income taxes,
the stockholders of an S corporation are taxed on their proportionate share of
the corporation taxable income. The S corporation was terminated on October 16,
1997 in conjunction with the Conversion. Therefore, no provision or benefit for
income taxes has been included in the accompanying consolidated financial
statements for this S corporation.
NET LOSS PER SHARE
Historical net loss per share is based on the weighted average number of
shares outstanding as if the reorganization took place at the beginning of each
period presented after consideration of the dilutive effect, if any, of stock
options granted during the year and after giving pro forma effect to the
Conversion in connection with the initial public offering and includes the
weighted average effect of options which occurred below the expected offering
price per share in accordance with SAB 83.
Pro forma net loss per share is based on the weighted average number of
shares outstanding after consideration of the dilutive effect, if any, of stock
options granted during the year and after giving pro forma effect to the
Conversion in connection with the initial public offering and includes the
weighted average effect of options and the debt conversion subsequent to year
end which occurred below the expected offering price per share in accordance
with SAB 83.
STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), establishes a fair value method of
accounting for stock-based compensation plans and for transactions in which a
company acquires goods or services from non-employees in exchange for equity
instruments. SFAS 123 also gives the option to account for stock-based employee
compensation in
F-8
<PAGE>
TAG-IT PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED AUGUST 31, 1996 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
accordance with Accounting Principles Board Opinion No. 25 ("APB 25"),
"Accounting for Stock issued to Employees," or SFAS 123. The Company has chosen
to account for stock-based compensation utilizing the intrinsic value method
prescribed in APB 25 and not the method established by SFAS 123. Accordingly,
compensation cost for stock options is measured as the excess, if any, of the
fair market price of the Company's stock at the measurement date over the amount
an employee must pay to acquire stock.
When SFAS 123 is not adopted related to stock-based employee compensation,
SFAS 123 requires that companies measure the cost of stock-based employee
compensation at the grant date based on the value of the award and recognize
this cost over the service period. The value of the stock-based award is
determined using a pricing model whereby compensation cost is the excess of the
fair value of the option as determined by the model at grant date or other
measurement date over the amount an employee must pay to acquire the stock.
These amounts would be disclosed in the notes to the financial statements.
USE OF 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 year.
Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value. FACTORED ACCOUNTS RECEIVABLE: Due to the short-term nature and
variable interest rates under the factor agreements, the fair value approximates
the carrying value. ACCOUNTS RECEIVABLE: Due to the short-term nature of the
receivables, the fair value approximated the carrying value. DUE FROM RELATED
PARTIES AND NOTES PAYABLE TO RELATED PARTIES: Due to the related party nature of
the loan and notes, the fair value cannot be determined. LONG-TERM DEBT:
Estimated based upon current market borrowing rates for loans with similar terms
and maturities.
NEW ACCOUNTING PRONOUNCEMENTS
The Statement of Financial Accounting Standard Number 128 ("SFAS No. 128"),
"Earnings Per Share" ("EPS"), is effective for financial statements issued for
the periods ending after December 15, 1997, including interim periods. The SFAS
No. 128 requires restatement of all prior period EPS data presented. The new
standard also requires a reconciliation of the numerator and denominator of the
basic EPS computation to the numerator and denominator of the diluted EPS
computation. The Company does not expect the adoption will have a material
effect on its EPS calculation.
Statement of Financial Accounting Standards No. 129, "Disclosure of
Information about Capital Structure" ("SFAS No. 129") effective for financial
statements ending after December 15, 1997. The new standard reinstates various
securities disclosure requirements previously in effect under Accounting
Principles Board Opinion No. 15, which has been superseded by SFAS No. 128. The
Company does not expect adoption of SFAS No. 129 to have a material effect, if
any, on its consolidated financial position or results of operations.
F-9
<PAGE>
TAG-IT PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED AUGUST 31, 1996 AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS No. 130") is effective for financial statements
with fiscal years beginning after December 15, 1997. Earlier application is
permitted. SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements.
Statement of Financial Accounting Standards No. 131, "Disclosure about
Segments of an Enterprise and Related Information" ("SFAS No. 131") is effective
for financial statements beginning after December 15, 1997. The new standard
requires that public business enterprises report certain information about
operating segments in complete sets of financial statements of the enterprise
and in condensed financial statements of interim periods issued to stockholders.
It also requires that public business enterprises report certain information
about their products and services, the geographic areas in which they operate
and their major customers. The Company does not expect adoption of SFAS No. 131
to have a material effect, if any, on its consolidated results of operations.
2. FACTORED ACCOUNTS RECEIVABLE
The Company assigns its qualified accounts receivable without recourse under
its two factoring agreements. The Company pays a fixed commission and may borrow
up to 80% of its eligible accounts receivable. Interest is charged at 2.5% over
the prevailing reference rate (8.5% at August 31, 1997). Factored accounts
receivable is as follows:
<TABLE>
<CAPTION>
AUGUST 31,
--------------------------
1996 1997
------------ ------------
<S> <C> <C>
Accounts Receivable............................................... $ 2,181,254 $ 2,633,883
Less: Advances from factor........................................ 1,580,922 1,421,169
------------ ------------
$ 600,332 $ 1,212,714
------------ ------------
------------ ------------
</TABLE>
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
AUGUST 31,
--------------------------
1996 1997
------------ ------------
<S> <C> <C>
Raw materials..................................................... $ 108,750 $ 269,539
Work-in-process................................................... 354,625 458,079
Finished goods.................................................... 742,651 1,289,885
------------ ------------
$ 1,206,026 $ 2,017,503
------------ ------------
------------ ------------
</TABLE>
F-10
<PAGE>
TAG-IT PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED AUGUST 31, 1996 AND 1997
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
AUGUST 31,
--------------------------
1996 1997
------------ ------------
<S> <C> <C>
Furniture and fixtures............................................ $ 214,753 $ 343,725
Machinery and equipment........................................... 387,750 427,797
Leasehold improvements............................................ 162,211 195,822
Films, dies, molds and art designs................................ 271,450 652,571
------------ ------------
1,036,164 1,619,915
Accumulated depreciation and amortization......................... (429,606) (697,653)
------------ ------------
$ 606,558 $ 922,262
------------ ------------
------------ ------------
</TABLE>
F-11
<PAGE>
TAG-IT PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED AUGUST 31, 1997
5. LONG-TERM DEBT
Long-term debt consist of the following:
<TABLE>
<CAPTION>
AUGUST 31,
----------------------
1996 1997
---------- ----------
<S> <C> <C>
Payable to a former shareholder dated October 1994 with
monthly payments of $11,900, interest imputed at 10.75%
maturing December 1998...................................... $ 293,541 $ 176,649
Note payable to, an unrelated company, dated September 30,
1995, payable on demand with interest accruing at 10%....... 25,200 25,200
Other....................................................... 51,055 11,642
---------- ----------
369,796 213,491
Current portion......................................... 180,136 158,176
---------- ----------
$ 189,660 $ 55,315
---------- ----------
---------- ----------
</TABLE>
Aggregate maturities of long-term debt in the next five years are as
follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- -------------------------------------------------------------- ----------
<S> <C>
1999.......................................................... $ 49,433
2000.......................................................... 2,880
2001.......................................................... 3,002
----------
$ 55,315
----------
----------
</TABLE>
The estimated fair value of long term debt, is $364,492 and $210,118 at
August 31, 1996 and 1997.
F-12
<PAGE>
TAG-IT PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED AUGUST 31, 1997
6. NOTES PAYABLE TO RELATED PARTIES
Notes payable to related parties consist of the following:
<TABLE>
<CAPTION>
AUGUST 31,
--------------------------
1996 1997
------------ ------------
<S> <C> <C>
Six notes payable in 1996 and four notes payable in 1997 to
companies which are owned by officers and directors of the
Company with no monthly payments and interest accrued ranging
from 7.5% to 10% annually, maturing on December 31, 1998...... $ 1,132,099 $ 446,626
Five notes payable to officers and directors of the Company
with no monthly payments and interest ranging from 7.5% to
prime plus 3.5% annually, maturing on December 31, 1998....... 47,854 125,970
Note payable to NPM Investments, Inc., which is a majority
owned by the Chairman of the Company. The note, dated August
1996 requires no monthly payments and interest accrues at 7.5%
annually, maturing on December 31, 1998, collateralized by the
assets of Tag-It, Inc......................................... -- 715,000
Note payable to NPM Investments, Inc., which is majority owned
by the Chairman of the Company. The note, dated August 23,
1996 was made without interest and no maturity date. The note
was converted to 384,401 shares on October 16, 1997. See Note
12............................................................ -- 875,000
------------ ------------
$ 1,179,953 $ 2,162,596
Less: Current maturities of notes payable..................... 1,179,953 912,898
------------ ------------
-- 1,249,698
------------ ------------
------------ ------------
</TABLE>
7. INCOME TAXES
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31,
----------------------
1996 1997
---------- ----------
<S> <C> <C>
Current:.......................................................... $ $
Federal......................................................... -- --
State........................................................... -- 6,920
---------- ----------
-- 6,920
---------- ----------
Deferred:......................................................... $ $
Federal......................................................... -- 76,899
State........................................................... -- 29,224
---------- ----------
-- 106,123
---------- ----------
$ -- $ 113,043
---------- ----------
---------- ----------
</TABLE>
F-13
<PAGE>
TAG-IT PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED AUGUST 31, 1997
7. INCOME TAXES (CONTINUED)
A reconciliation of the statutory Federal income tax rate with the Company's
effective income tax rate is as follows:
<TABLE>
<CAPTION>
YEARS ENDED AUGUST 31,
------------------------
1996 1997
----------- -----------
<S> <C> <C>
Federal statutory rate.......................................... $ (268,722) $ 18,307
Change in valuation allowance................................... 471,070 194,074
Meals and entertainment......................................... 3,040 --
State taxes net of federal benefit.............................. (100,172) (55,896)
Effect of S-Corp election....................................... (105,216) (43,442)
----------- -----------
$ -- $ 113,043
----------- -----------
----------- -----------
</TABLE>
The primary components of temporary differences which give rise to the
Company's deferred assets and deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
AUGUST 31,
------------------------
1996 1997
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.................................. $ 513,489 $ 659,662
Other temporary differences....................................... 1,331 5,482
----------- -----------
Valuation allowance................................................. (471,070) (665,144)
----------- -----------
Total deferred tax assets......................................... 43,750 --
----------- -----------
Deferred tax liabilities:
Depreciation...................................................... (43,750) (106,123)
----------- -----------
Net deferred tax asset (liability).............................. $ -- $ (106,123)
----------- -----------
----------- -----------
</TABLE>
A valuation allowance has been established for the deferred tax assets which
management has determined are not more likely than not to be realizable.
At August 31, 1997, the Company has Federal and state net operating loss
("NOL") carryforwards of approximately $1,540,000 and $1,462,000 respectively.
The Federal NOL is available to offset future taxable income through 2011, and
the state NOL expires in 2001. The Company's ability to utilize the NOL
carryforwards are dependent upon the Company's ability to generate taxable
income in future periods and may be limited due to restrictions imposed to under
Federal and state laws upon a change in ownership. The NOL's stated above are
subject to separate return year loss limitations.
F-14
<PAGE>
TAG-IT PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED AUGUST 31, 1997
8. STOCK OPTIONS AND WARRANTS
STOCK OPTIONS
In June 1994, one executive officer was granted options to purchase 39,235
shares of the Company's Common Stock at $.71 per share, the estimate fair value
of the Common Stock on the grant date. The options vest immediately and are
exercisable through their expiration date of December 2002.
WARRANTS
In connection with certain professional services provided by a related party
(see Note 12), the Company issued warrants to purchase 22,841 shares of the
Company's Common Stock at an exercise price of $.76 per share. The exercise
price was the Company's estimate of the fair value of the Common Stock on the
date of grant. The shares of Common Stock underlying the warrant vest
immediately and are exercisable through their expiration date of December 2002.
In connection with certain professional services provided by the Company's
counsel, the Company has agreed to issue warrants to purchase approximately
30,883 shares of common stock at an exercise price of approximately $6.40 per
share. The warrants vest immediately and expire five years following the grant
date.
STOCK INCENTIVE PLAN
On October 1, 1997, the Company adopted the 1997 Stock Incentive Plan (the
"1997 Plan"), which authorized the granting of a variety of stock-based
incentive awards. A total of 562,500 shares of Common Stock have been reserved
for issuance under the 1997 Plan. The 1997 Plan is administered by the Board of
Directors, or a committee appointed by the Board of Directors, who determine the
recipients and terms of the awards granted. In September and October, 1997, the
Company granted options to purchase 210,000 shares of Common Stock at an
exercise price of $6.40 per share, the estimated fair value of the Common Stock
on the grant date. The options vest immediately and are exercisable through
their expiration date of October 2007.
9. WRITE-OFF OF PRINTING DIVISION
In September, 1996 the Company acquired a printing operation located in
Southern California. The results of the printing division were evaluated during
the year and management decided to dispose of this division. Accordingly, the
Company incurred $231,803 of incremental printing costs associated with this
division during the year ended August 31, 1997.
F-15
<PAGE>
TAG-IT PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED AUGUST 31, 1997
10. COMMITMENTS AND CONTINGENCIES
LEASES
The Company is a party to a number of non-cancelable operating lease
agreements involving buildings and equipment which expire at various dates. The
future minimum lease commitments as of August 31, 1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING AUGUST 31, AMOUNT
- -------------------------------------------------------------------------------- ------------
<S> <C>
1998............................................................................ $ 459,650
1999............................................................................ 343,808
2000............................................................................ 240,585
2001............................................................................ 63,032
2002............................................................................ 36,125
------------
Total minimum payments.......................................................... $ 1,143,200
------------
------------
</TABLE>
Total rental expense for the years ended August 31, 1996 and 1997 aggregated
$212,644 and $416,832, respectively.
ROYALTIES
Under a license agreement with a major customer, the Company is required to
pay royalties of 7% on licensed stationery products. Royalty expense of $26,250
and $139,278 is included in the statement operations for the years ended August
31, 1996 and 1997.
CONTINGENCIES
The Company is subject to certain legal proceedings and claims arising in
connection with its business. In the opinion of management, there are currently
no claims that will have a material adverse effect on the Company's consolidated
financial position, results of operations or cash flows.
11. MAJOR CUSTOMERS
Two customers accounted for 11.38 % and 15.09%, respectively of consolidated
net sales for the year ended August 31, 1996 and 11.12% and 18.34% for the year
ended August 31, 1997. The related amount of accounts receivable due from these
customers amounted to $268,419 and $116,736 at August 31, 1996, and $695,162 and
$441,240 at August 31, 1997.
12. RELATED PARTY TRANSACTIONS
The President and director of the Company is the general partner of D.P.S.
Associates, a general partnership, which is the lessor of the Company's
executive offices in Los Angeles California pursuant to a lease agreement with
Pacific Trim. The lease provides for base rent of $9,072 per month and expires
in April 2000.
The President and the Chief Executive Officer of the Company have personally
guaranteed certain obligations of Tag-It and Pacific Trim under various
equipment lease agreements which approximated $202,000. The President of the
Company has also guaranteed Pacific Trim's obligations under its lease agreement
for the premises in New York which provides for annual base rent of $16,800.
F-16
<PAGE>
TAG-IT PACIFIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEAR ENDED AUGUST 31, 1997
12. RELATED PARTY TRANSACTIONS (CONTINUED)
In August 1996, NPM Investments, Inc. made a loan of $875,000 to Tag-It,
without interest, pursuant to a convertible secured promissory note (the
"convertible note") which was secured by all of the assets of Tag-It. The
Chairman of the Board of the Company holds a significant equity interest in NPM
Investments, Inc. In October 1997, the convertible note was converted by NPM
Investments, Inc. into fully paid non-assessable shares of Common Stock of
Tag-It, Tag-It Hong Kong and AGS Stationery, which represent 384,401 shares of
Common Stock of the Company. The unaudited pro forma August 31, 1997 balance
sheet information has been presented to reflect the Company's financial
position, assuming that the aforementioned debt conversion had occurred on
August 31, 1997.
In September 1996, the President of the Company borrowed $100,000 from
Mercantile Bank, which loan was guaranteed by Tag-It. The term loan matures
October 10, 1999. In September 1996, the $100,000 borrowed by the President of
the Company was lent to Tag-It at the same interest rate payable on the
President's loan to the bank. The loan from the President to Tag-It is due and
payable on the fifteenth day following the date written demand for payment is
made by the President.
The CEO and President of the Company have each guaranteed the obligations of
Tag-It under a term loan with Mercantile National Bank which matures June 8,
1998.
In June 1997, AGS Stationery entered into a Collection Date Factoring
Agreement (the "Safcor Agreement") with Safcor, Inc. ("Safcor"). An officer and
director of Safcor is a stockholder of the Company. Pursuant to the Safcor
Agreement, AGS Stationery has agreed to sell to Safcor all accounts receivable
related to the sale of goods or the rendering of services by AGS Stationery for
a purchase price equal to the gross amount of each account, less all discounts
and credits and a factoring commission of 1.5% of the net amount of the account.
In addition, Safcor has the right, at its sole discretion, to provide customers
of AGS Stationery with the credit lines for the purchase of AGS Stationery's
products. The Safcor Agreement may be terminated by either party upon 60 days
prior written notice to the other party.
A Director of the Company controls a financial advisory firm, Averil
Associates, Inc. ("Averil Associates"), which has performed various services for
the Company including investigation of strategic financing and other corporate
growth initiatives. As consideration of such services, the Company paid the
aggregate amount of $26,123, plus out of pocket expenses. As additional
compensation for such services, the Company granted to Chloe Holdings, Inc., an
affiliate of Averil Associates, warrants to purchase up to 22,841 shares of the
common stock of the Company (see Note 8) and the Company has agreed to pay
Averil Associates an additional $175,000 upon consummation of the offering.
13. SUBSEQUENT EVENTS
In September 1997, NPM Investments, Inc. made an additional loan of $126,000
to the Company. The loan bears interest at 7.5% per annum and is due December
31, 1998.
The Company has entered into a letter of intent with an underwriter to sell
shares of the Company in an Initial Public Offering.
The Company intends to change its fiscal year end to December 31.
F-17
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNTIL , 1998 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.THIS
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING
AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OF SUBSCRIPTIONS.
------------------------
TABLE OF CONTENTS
------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 4
Risk Factors.............................................................. 9
Use of Proceeds........................................................... 17
Dividend Policy........................................................... 17
Dilution.................................................................. 18
Capitalization............................................................ 19
Selected Financial Data................................................... 20
Management's Discussion and Analysis of Results of Operations and
Financial Condition...................................................... 21
Business.................................................................. 25
Management................................................................ 34
Certain Transactions...................................................... 40
Principal and Selling Stockholders........................................ 42
Description of Capital Stock.............................................. 43
Shares Eligible For Future Sale........................................... 46
Underwriting.............................................................. 48
Legal Matters............................................................. 50
Experts................................................................... 50
Additional Information.................................................... 50
Index to Financial Statements............................................. F-1
</TABLE>
------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY SHARES OF
COMMON STOCK OTHER THAN THE SHARES OF COMMON STOCK TO WHICH IT RELATES OR AN
OFFER TO, OR A SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THE DATE HEREOF.
1,450,000 SHARES
TAG-IT PACIFIC, INC.
COMMON STOCK
---------------------
PROSPECTUS
---------------------
[LOGO]
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Certificate of Incorporation and its Bylaws provide for the
indemnification by the Registrant of each director, officer and employee of the
Registrant to the fullest extent permitted by the Delaware General Corporation
Law, as the same exists or may hereafter be amended. Section 145 of the Delaware
General Corporation Law provides in relevant part that a corporation may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the corporation) by reason of the fact that such person is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe such person's conduct was
unlawful.
In addition, Section 145 provides that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit if such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Delaware Court
of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Delaware Court of Chancery or
such other court shall deem proper. Delaware law further provides that nothing
in the above-described provisions shall be deemed exclusive of any other rights
to indemnification or advancement of expenses to which any person may be
entitled under any bylaw, agreement, vote of stockholders or disinterested
directors or otherwise.
The Registrant's Certificate of Incorporation provides that a director of
the Registrant shall not be liable to the Registrant or its stockholders for
monetary damages for breach of fiduciary duty as a director. Section 102(b)(7)
of the Delaware General Corporation Law provides that a provision so limiting
the personal liability of a director shall not eliminate or limit the liability
of a director for, among other things: breach of the duty of loyalty; acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of the law; unlawful payment of dividends; and transactions from which
the director derived an improper personal benefit.
The Registrant has entered into separate but identical indemnity agreements
(the "Indemnity Agreements") with each director of the Registrant and certain
officers of the Registrant (the "Indemnitees"). Pursuant to the terms and
conditions of the Indemnity Agreements, the Registrant indemnified each
Indemnitee against any amounts which he or she becomes legally obligated to pay
in connection with any claim against him or her based upon any action or
inaction which he or she may commit, omit or suffer while acting in his or her
capacity as a director and/or officer of the Registrant or its subsidiaries,
provided,
II-1
<PAGE>
however, that Indemnitee acted in good faith and in a manner Indemnitee
reasonably believed to be in or not opposed to the best interests of the
Registrant and, with respect to any criminal action, had no reasonable cause to
believe Indemnitee's Conduct was unlawful.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:
<TABLE>
<CAPTION>
DOCUMENT EXHIBIT NUMBER
- ----------------------------------------------------------------------------- -----------------
<S> <C>
Registrant's Certificate of Incorporation.................................... 3.1
Registrant's Bylaws.......................................................... 3.2
Registrant's Form of Indemnification Agreement............................... 10.1
Tax Indemnification Agreement................................................ 10.12
</TABLE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table itemizes the expenses incurred by the Registrant in
connection with the issuance and distribution of the securities being
registered. All the amounts shown are estimates except the Securities and
Exchange Commission registration fee, the NASD filing fee and the American Stock
Exchange fee:
<TABLE>
<CAPTION>
<S> <C>
Registration fee--Securities and Exchange Commission............................ $ 4,230
NASD filing fee................................................................. 1,896
American Stock Exchange fee..................................................... 25,000
Accounting fees and expenses.................................................... 150,000
Legal fees and expenses (other than blue sky)................................... 200,000
Blue sky fees and expenses, including legal fees................................ 15,000
Printing; stock certificates.................................................... 80,000
Transfer agent and registrar fees............................................... 5,000
Consulting fees................................................................. 175,000
Non-accountable expense allowance............................................... 232,000
Miscellaneous................................................................... 26,874
Total......................................................................... $ 915,000
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
In October 1997, Tag-It Pacific, LLC issued 2,470,000 membership units (the
"LLC Units") of Common Stock in exchange for: (i) all of the outstanding shares
of Common Stock of Pacific Trim & Belt, Inc. a California corporation, owned by
Harold Dyne, and three other shareholders; (ii) all of the outstanding shares of
Common Stock of Tag-It, Inc., a California corporation owned by Mark Dyne,
Harold Dyne, Colin Dyne and four other shareholders; (iii) all of the
outstanding shares of Common Stock of Tag-It Printing & Packaging Ltd., owned by
one foreign shareholder and beneficially owned by Mark Dyne and three other
shareholders; and (iv) all of the outstanding shares of Common Stock of AGS
Stationery, Inc., a California corporation, owned by Mark Dyne, Harold Dyne,
Colin Dyne and three other shareholders. Pursuant to the Exchange Agreement,
each of the recipients of the Shares represented that (i) it was acquiring the
Shares for its own account with the present intention of holding such securities
for investment purposes only and not with a view to, or for sale in connection
with, any distribution of such securities (other than a distribution in
compliance with all applicable federal and state securities laws); (ii) it is an
experienced and sophisticated investor and has such knowledge and experience in
financial and business matters that it is capable of evaluating the relative
merits and the risks of an investment in the
II-2
<PAGE>
Shares and of protecting its own interests in connection with this transaction;
(iii) it is willing to bear and is capable of bearing the economic risk of an
investment in the Shares; and (iv) it is an "accredited investor" as that term
is defined under Rule 501(a)(8) of Regulation D promulgated by the Commission
under the Securities Act. No brokers, underwriters or finders were involved in
the Exchange. The issuance and sale of these securities was exempt from the
registration and prospectus delivery requirements of the Securities Act pursuant
to Section 4(2) of the Securities Act (in accordance with Rule 506 of Regulation
D) as a transaction not involving any public offering.
In October 1997, the Company issued warrants to Troop Meisinger Steuber &
Pasich, LLP, and in February 1996, AGS Stationery, Inc. issued a warrant to
purchase 22,841 shares to Chloe Holdings, Inc. ("Chloe"). Each of Troop
Meisinger Steuber & Pasich, LLP and Chloe represented that (i) it acquired the
warrants for its own account with the present intention of holding such warrants
for investment purposes only and not with a view to, or for sale in connection
with, any distribution of such warrants (other than a distribution in compliance
with all applicable federal and state securities laws); (ii) it is an
experienced and sophisticated investor and has such knowledge and experience in
financial and business matters that it is capable of evaluating the relative
merits and the risks of an investment in the warrants and of protecting its own
interests in connection with the transaction at issue; (iii) it is willing to
bear and is capable of bearing the economic risk of an investment in the
warrants; and (iv) the Company made available, prior to the date of its warrant
agreement, to it the opportunity to ask questions of the Company and its
officers, and to receive from the Company and its officers information
concerning the terms and conditions of the warrant and the warrant agreement and
to obtain any additional information with respect to the Company, its business,
operations and prospects, as reasonably requested by it; and (v) it is an
"accredited investor" as that term is defined under Rule 501(a)(8) of Regulation
D promulgated by the Commission under the Securities Act. The issuance and sale
of these securities was exempt from the registration and prospectus delivery
requirements of the Securities Act pursuant to Section 4(2) of the Securities
Act (in accordance with Rule 506 of Regulation D) as a transaction not involving
any public offering.
ITEM 27. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
1.2 Form of Representative's Warrant.
2.1 Exchange Agreement, dated October 17, 1997.
3.1 Certificate of Incorporation of Registrant.
3.2 Bylaws of Registrant.
4.1 Specimen Stock Certificate of Common Stock of Registrant.*
5.1 Opinion and Consent of Troop Meisinger Steuber & Pasich, LLP.*
10.1 Form of Indemnification Agreement.
10.2 Manufacturing License Agreement, dated as of March 1, 1996, between Guess?, INC. and AGS INC.+
10.3 Collection Date Factoring Agreement, dated June 13, 1997, between A.G.S. Stationery, Inc. and Safcor,
Inc.
10.4 Lease Agreement, dated May 1, 1994, between D.P.S. Associates and Pacific Trim & Belt, Inc.
10.5 Lease Agreement, dated September 6, 1996, between S & S Partnership and Tag It, Inc.
10.6 Lease Agreement, dated June 8, 1996, between Lea Tai Property Development Limited and Tag-It Printing &
Packaging Limited.
10.7 Lease Agreement, dated March 17, 1997, between Palobueno N.V. Ltd. and Pacific Trim & Belt, Inc.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.8 Collection Date Factoring Agreement, dated June 24, 1991, between Tag-It, Inc. and Heller Financial.*
10.9 Promissory Note, dated June 6, 1997, between Tag-It, Inc. and Mercantile National Bank; Commercial
Guaranty, dated June 6, 1997, provided by Harold Dyne for the benefit of Mercantile National Bank; and
Commercial Guaranty, dated June 6, 1997, provided by Colin Dyne for the benefit of Mercantile National
Bank.
10.10 Promissory Note, dated September 13, 1996, between Harold Dyne and Mercantile National Bank; Change in
Terms Agreement, dated May 16, 1997, between Harold Dyne and Mercantile National Bank; and Commercial
Guaranty, dated May 16, 1997, provided by Tag-It, Inc. for the benefit of Mercantile National Bank.
10.11 Domestic Collection Date Factoring Agreement, dated August 6, 1996, between A.G.S. Stationery, Inc. and
Heller Financial.
10.12 Tax Indemnification Agreement between Pacific Trim and Harold Dyne, Jonathan Burstein, Raymond Spiro and
Stan Magnus.
10.13 Equipment Lease Guaranty, Lease No. CPL7B17, provided by Colin Dyne for the benefit of Quail American
Corp.
10.14 Equipment Lease Guaranty, Lease No. 09532-0196, provided by Harold Dyne for the benefit of Saddleback
Financial Corporation.
10.15 Equipment Lease Guaranty, Lease No. ADV5I02, provided by Harold Dyne for the benefit of Quail American
Corp.
10.16 Equipment Lease Guaranty, Lease No. N6F08B, provided by Harold Dyne and Colin Dyne for the benefit of
Quail American Corp.
10.17 Equipment Lease Guaranty, Lease No. CPL7B17, provided by Harold Dyne for the benefit of Quail American
Corp.
10.18 Equipment Lease Guaranty, Lease No. Q6DO1, provided by Harold Dyne for the benefit of Quail American
Corp.
10.19 Equipment Lease Guaranty, Lease No. JLA7H07, provided by Colin Dyne for the benefit of Quail American
Corp.
10.20 Equipment Lease Guaranty, Lease No. JLA7H07, provided by Harold Dyne for the benefit of Quail American
Corp.
10.21 Equipment Lease Guaranty provided by Harold Dyne and Colin Dyne for the benefit of Quail American Corp.
10.22 Promissory Note, dated September 30, 1996, provided by Tag-It, Inc. to Harold Dyne.
10.23 Promissory Note, dated June 30, 1991, provided by Tag-It, Inc. to Harold Dyne.
10.24 Promissory Note, dated January 31, 1997, provided by Tag-It, Inc. to Mark Dyne.
10.25 Promissory Note, dated February 29, 1996, provided by A.G.S. Stationery, Inc. to Monto Holdings Pty.
Ltd.
10.26 Promissory Note, dated January 19, 1995, provided by Pacific Trim & Belt, Inc. to Monto Holdings Pty.
Ltd.
10.27 Convertible Promissory Note, dated August 23, 1996, provided by Tag-It, Inc. to NPM Investments, Inc.
10.28 Promissory Note, dated August 23, 1996, provided by Tag-It, Inc. to NPM Investments, Inc.
10.29 Registrant's 1997 Stock Incentive Plan.
10.30 Form of Nonstatutory Stock Option Agreement.
10.31 Promissory Note, dated August 31, 1997, provided by Colin Dyne to Tag-It, Inc.
10.32 Promissory Note, dated August 31, 1997, provided by Harold Dyne to Pacific Trim & Belt, Inc.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.33 Promissory Note, dated October 15, 1997, provided by Colin Dyne to Tag-It, Inc.
10.34 Promissory Note, dated October 15, 1997, provided by Harold Dyne to Pacific Trim & Belt, Inc.
10.35 Formation Agreement of AGS Holdings L.L.C., dated as of October 17, 1997.
10.36 Promissory Note, dated September 25, 1997, provided by Tag-It, Inc. to Monto Holdings Pty. Ltd., Inc.
10.37 Guaranty of Colin Dyne and Harold Dyne in favor of Frank Peck.*
10.38 Engagement Letter, dated January 1, 1996, between Averil Associates and A.G.S. Stationery, Inc., d.b.a.
Guess Stationery, and Indemnification Agreement, dated January 1, 1996, between Averil Associates and
A.G.S. Stationery, Inc., d.b.a. Guess Stationery.*
10.39 Warrant Agreement, dated June 1, 1994, between Jonathan Markiles and Tag-It, Inc.
10.40 Warrant Agreement, dated February 1, 1996, between A.G.S. Stationery, Inc. and Chloe Holdings, Inc.*
10.41 Form of Warrant Agreement between the Company and Troop Meisinger Steuber & Pasich, LLP.*
10.42 Promissory Note between Pacific Western, Inc. and Tag-It, Inc.*
10.43 Promissory Note between Pacific Western, Inc. and Pacific Trim.*
11 Computation of Earnings.
21.1 List of Subsidiaries of Registrant.
23.1 Consent of Troop Meisinger Steuber & Pasich, LLP (included in its opinion to be filed as Exhibit 5.1
hereto).*
23.2 Consent of BDO Seidman, LLP.
24.1 Power of Attorney (included in signature page).
27 Financial Data Schedule.
99.1 Consent of Brent Cohen as nominee
99.2 Consent of Diana Maranon as nominee
</TABLE>
- ------------------------
* To be filed by Amendment.
+ Certain portions of this agreement have been omitted and filed separately
with the Securities and Exchange Commission pursuant to a request for an
order granting confidential treatment pursuant to Rule 406 of the General
Rules and Regulations under the Securities Act of 1933.
ITEM 29. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(a) To provide to the underwriter at the closing specified in the
underwriting agreements, certificates in such denominations and registered in
such names as required by the underwriter to permit prompt delivery to each
purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer of controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its
II-5
<PAGE>
counsel the matter has been settled by a controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For the purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the Offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form SB-2 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Los Angeles, State of California, on October 21,
1997.
<TABLE>
<S> <C> <C>
TAG-IT PACIFIC, INC.
By: /s/ COLIN DYNE
-----------------------------------------
Colin Dyne
CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Colin
Dyne and Diana Maranon, and each of them, as his true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution,
for him and his name, place and stead, in any and all capacities, to sign any or
all amendments (including post effective amendments) to this Registration
Statement and a new Registration Statement filed pursuant to Rule 462(b) of the
Securities Act of 1933 and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the foregoing, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or either of them, or
their substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ MARK DYNE
- ------------------------------ Chairman of the Board October 21, 1997
Mark Dyne
Chief Executive Officer,
/s/ COLIN DYNE Treasurer and Director
- ------------------------------ (Principal Financial October 21, 1997
Colin Dyne Officer)
/s/ HAROLD DYNE
- ------------------------------ President and Director October 21, 1997
Harold Dyne
II-7
<PAGE>
1,450,000 SHARES
TAG-IT PACIFIC, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
December __, 1997
CRUTTENDEN ROTH INCORPORATED
As Representative of the several Underwriters
c/o Cruttenden Roth Incorporated
18301 Van Karman, Suite 100
Irvine, California 92612
Ladies and Gentlemen:
TAG-IT PACIFIC, INC., a Delaware corporation (the "Company"), and Harold
Dyne (the "Selling Stockholder") address you as the Representative of each of
the persons, firms and corporations listed in Schedule A hereto (herein
collectively called the "Underwriters") and hereby confirm its agreement with
the several Underwriters as follows:
1. DESCRIPTION OF SHARES. The Company proposes to issue and sell
1,280,000 shares of its authorized and unissued Common Stock, and the Selling
Stockholder proposes to sell an aggregate of 170,000 shares of the Company's
Common Stock (such 1,450,000 shares being referred to herein as the "Firm
Shares") to the several Underwriters. The Company also proposes to grant to the
Underwriters an option to purchase up to 192,000 additional shares of the
Company's Common Stock (the "Option Shares"), as provided in Section 7 hereof.
As used in this Agreement, the term "Shares" shall include the Firm Shares and
the Option Shares. All shares of Common Stock of the Company to be outstanding
after giving effect to the sales contemplated hereby, including the Shares, are
hereinafter referred to as "Common Stock."
1
<PAGE>
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY AND THE
SELLING STOCKHOLDER.
(a) Each of the Company and the Selling Stockholder hereby represents
and warrants to and agrees severally with each Underwriter that:
A registration statement on Form B-2 (File No. 333-_______)
with respect to the Shares, including a prospectus, has been prepared by the
Company in conformity in all material respects with the requirements of the
Securities Act of 1933, as amended (the "Act"), and the applicable rules and
regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") under the Act and has been filed with the
Commission; such amendments to such registration statement, such amended
prospectuses and such abbreviated registration statements pursuant to
Rule 462(b) of the Rules and Regulations as may have been required prior to the
date hereof have been similarly prepared and filed with the Commission; and the
Company will file such additional amendments to such registration statement,
such amended prospectuses and such abbreviated registration statements as may
hereafter be required. Copies of such registration statement and amendments
together with each exhibit filed therewith, of each related prospectus (the
"Preliminary Prospectuses") and of any abbreviated registration statement
pursuant to Rule 462(b) of the Rules and Regulations have been delivered to you.
If the registration statement relating to the Shares has been
declared effective under the Act by the Commission, the Company will prepare and
promptly file with the Commission the information omitted from the registration
statement pursuant to Rule 430A(a) or, if Cruttenden Roth Incorporated, on
behalf of the several Underwriters, shall agree to the utilization of Rule 434
of the Rules and Regulations, the information required to be included in any
term sheet filed pursuant to Rule 434(b) or (c), as applicable, of the Rules and
Regulations pursuant to subparagraph (1), (4) or (7) of Rule 424(b) of the Rules
and Regulations or as part of a post-effective amendment to the registration
statement (including a final form of prospectus). If the registration statement
relating to the Shares has not been declared effective under the Act by the
Commission, the Company will prepare and promptly file an amendment to the
registration statement, including a final form of prospectus, or, if Cruttenden
Roth Incorporated, on behalf of the several Underwriters, shall agree to the
utilization of Rule 434 of the Rules and Regulations, the information required
to be included in any term sheet filed pursuant to Rule 434(b) or (c), as
applicable, of the Rules and Regulations. The term "Registration Statement" as
used in this Agreement shall mean such registration statement, including
financial statements, schedules and exhibits (including exhibits incorporated by
reference), in the form in which it became or becomes, as the case may be,
effective (including, if the Company omitted information from the registration
statement pursuant to Rule 430A(a) or files a term sheet pursuant to Rule 434 of
the Rules and Regulations, the information deemed to be a part of the
registration statement at the time it became effective pursuant to Rule 430A(b)
or Rule 434(d) of the Rules and Regulations) and, in the event of any amendment
thereto
2
<PAGE>
or the filing of any abbreviated registration statement pursuant to Rule 462(b)
of the Rules and Regulations relating thereto after the effective date of such
registration statement, shall also mean (from and after the effectiveness of
such amendment or the filing of such abbreviated registration statement) such
registration statement as so amended, together with any such abbreviated
registration statement. The term "Prospectus" as used in this Agreement shall
mean the prospectus relating to the Shares as included in such Registration
Statement at the time it becomes effective (including, if the Company omitted
information from the Registration Statement pursuant to Rule 430A(a) of the
Rules and Regulations, the information deemed to be a part of the Registration
Statement at the time it became effective pursuant to Rule 430A(b) of the Rules
and Regulations); PROVIDED, HOWEVER, that if in reliance on Rule 434 of the
Rules and Regulations and with the consent of Cruttenden Roth Incorporated, on
behalf of the several Underwriters, the Company shall have provided to the
Underwriters a term sheet pursuant to Rule 434(b) or (c), as applicable, prior
to the time that a confirmation is sent or given for purposes of Section
2(10)(a) of the Act, the term "Prospectus" shall mean the "prospectus subject to
completion" (as defined in Rule 434(g) of the Rules and Regulations) last
provided to the Underwriters by the Company and circulated by the Underwriters
to all prospective purchasers of the Shares (including the information deemed to
be a part of the Registration Statement at the time it became effective pursuant
to Rule 434(d) of the Rules and Regulations). Notwithstanding the foregoing, if
any revised prospectus shall be provided to the Underwriters by the Company for
use in connection with the offering of the Shares that differs from the
prospectus referred to in the immediately preceding sentence (whether or not
such revised prospectus is required to be filed with the Commission pursuant to
Rule 424(b) of the Rules and Regulations), the term "Prospectus" shall refer to
such revised prospectus from and after the time it is first provided to the
Underwriters for such use. If in reliance on Rule 434 of the Rules and
Regulations and with the consent of Cruttenden Roth Incorporated, on behalf of
the several Underwriters, the Company shall have provided to the Underwriters a
term sheet pursuant to Rule 434(b) or (c), as applicable, prior to the time that
a confirmation is sent or given for purposes of Section 2(10)(a) of the Act, the
Prospectus and the term sheet, together, will not be materially different from
the prospectus in the Registration Statement.
The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus or instituted proceedings for
that purpose, and each such Preliminary Prospectus has conformed in all material
respects to the requirements of the Act and the Rules and Regulations and, as of
its date, has not included any untrue statement of a material fact or omitted to
state a material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading; and at the time
the Registration Statement became or becomes, as the case may be, effective and
at all times subsequent thereto up to and on the Closing Date (hereinafter
defined) and on any later date on which Option Shares are to be purchased,
(i) the Registration Statement and the Prospectus, and any amendments or
supplements thereto, contained and will contain all material information
required to be included therein by the Act and the Rules and Regulations and
will in all material
3
<PAGE>
respects conform to the requirements of the Act and the Rules and Regulations,
(ii) the Registration Statement, and any amendments or supplements thereto, did
not and will not include any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, and (iii) the Prospectus, and any amendments
or supplements thereto, did not and will not include any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; PROVIDED, HOWEVER, that none of the representations and warranties
contained in this subparagraph (b) shall apply to information contained in or
omitted from the Registration Statement or Prospectus, or any amendment or
supplement thereto, in reliance upon, and in conformity with, written
information relating to any Underwriter furnished to the Company by such
Underwriter specifically for use in the preparation thereof.
Each of the Company and its subsidiaries is duly incorporated and validly
existing as a corporation in good standing under the laws of the jurisdiction of
its incorporation with full power and authority (corporate and other) to own,
lease and operate its properties and conduct its business as described in the
Prospectus; each of the Company and its subsidiaries is duly qualified to do
business as a foreign corporation and in good standing in each jurisdiction in
which the ownership or leasing of its properties or the conduct of its business
requires such qualification, except where the failure to be so qualified or be
in good standing would not have a material adverse effect on the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company and its subsidiaries, taken as a whole; no proceeding has been
instituted in any such jurisdiction revoking, limiting or curtailing, or seeking
to revoke, limit or curtail, such power and authority or qualification; each of
the Company and its subsidiaries is in possession of and operating in compliance
with all authorizations, licenses, certificates, consents, orders and permits
from state, federal and other regulatory authorities that are material to the
conduct of its business, all of which are valid and in full force and effect;
none of the Company or its subsidiaries is in violation of its charter or bylaws
or in default in the performance or observance of any material obligation,
agreement, covenant or condition contained in any material bond, debenture, note
or other evidence of indebtedness, or in any material lease, contract,
indenture, mortgage, deed of trust, loan agreement, joint venture or other
agreement or instrument to which the Company or any of its subsidiaries is a
party or by which its properties may be bound; and none of the Company or its
subsidiaries is in material violation of any law, order, rule, regulation, writ,
injunction, judgment or decree of any court, government or governmental agency
or body, domestic or foreign, having jurisdiction over the Company, its
subsidiaries or over each of their respective properties. The Company owns all
of the outstanding capital stock of each of its subsidiaries free and clear of
all claims, liens, charges and encumbrances.
The Company has full legal right, power and authority to
enter into this Agreement and perform the transactions contemplated hereby.
This Agreement has been duly authorized, executed and delivered by the Company
and
4
<PAGE>
constitutes a valid and binding agreement on the part of the Company,
enforceable in accordance with its terms, except as rights to indemnification
hereunder may be limited by applicable law and except as the enforcement hereof
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws relating to or affecting creditors' rights generally or by
general equitable principles; the making and performance of this Agreement by
the Company and the consummation of the transactions herein contemplated will
not conflict with or result in a breach or violation of any of the terms and
provisions of, or constitute either by itself or upon notice or the passage of
time or both, a default under, (i) any bond, debenture, note or other evidence
of indebtedness, or under any lease, contract, indenture, mortgage, deed of
trust, loan agreement, joint venture or other agreement or instrument to which
the Company or any of its subsidiaries is a party or by which any of its
respective properties may be bound, (ii) the articles of incorporation or bylaws
of the Company or any of its subsidiaries or (iii) any law, order, rule,
regulation, writ, injunction, judgment or decree of any court, administrative
agency, regulatory body, government or governmental agency or body, domestic or
foreign, having jurisdiction over the Company or any of its subsidiaries or any
of their respective properties. No consent, approval, authorization or order of
or qualification with any court, government or governmental agency or body,
domestic or foreign, having jurisdiction over the Company or any of its
subsidiaries or any of their respective properties is required for the execution
and delivery of this Agreement and the consummation by the Company of the
transactions herein contemplated, except such as may be required under the Act,
by the National Association of Securities Dealers, Inc. (the "NASD"), the rules
of the American Stock Exchange, or under state or other securities or Blue Sky
laws, all of which requirements have been satisfied in all material respects.
There is not any pending or threatened action (legal or
governmental), suit, claim or proceeding against the Company or any of its
subsidiaries, any of each of the Company's or its subsidiaries' officers, any of
the respective properties (owned or leased), assets or rights of the Company or
its subsidiaries before any court, administrative agency, regulatory body,
government or governmental agency or body, domestic or foreign, having
jurisdiction over the Company, its subsidiaries, each of the Company's or its
subsidiaries' officers or properties (owned or leased) or otherwise which
(i) except as accurately described in all material respects in the Registration
Statement and the Prospectus (A) might, individually or in the aggregate, result
in any material adverse change in the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company and any of
its subsidiaries, taken as a whole, or might materially and adversely affect the
properties, assets or rights of the Company and any of its subsidiaries, taken
as a whole, or (B) might prevent consummation of the transactions contemplated
hereby or (ii) is required to be disclosed in the Registration Statement or
Prospectus and is not so disclosed; and there are no agreements, contracts,
leases or documents of the Company or any of its subsidiaries of a character
required to be described or referred to in the Registration Statement or
Prospectus or to be filed as an exhibit to the Registration Statement by the Act
or the Rules and Regulations which have not been accurately described in all
material respects
5
<PAGE>
in the Registration Statement or Prospectus or filed as exhibits to the
Registration Statement. None of the Company or its subsidiaries is a party or
subject to the provisions of any injunction, judgment, decree or order of any
court, regulatory body, administrative agency, government or governmental agency
or body domestic or foreign, that could be expected to result in a material
adverse change in the condition (financial or other), earnings, operations,
business or business prospects of the Company and its subsidiaries, taken as a
whole.
All outstanding shares of capital stock of the Company and
all issued and outstanding shares of capital stock of the subsidiaries of the
Company have been duly authorized and validly issued and are fully paid and
nonassessable, have been issued in compliance with all federal and state
securities laws, were not issued in violation of or subject to any preemptive
rights or other rights to subscribe for or purchase securities, and the
authorized and outstanding capital stock of the Company is as set forth in the
Prospectus under the caption "Capitalization" and conforms in all material
respects to the statements relating thereto contained in the Registration
Statement and the Prospectus (and such statements correctly state the substance
of the instruments defining the capitalization of the Company); the Shares have
been duly authorized for issuance and sale to the Underwriters pursuant to this
Agreement, and, when issued and delivered by the Company against payment
therefor in accordance with the terms of this Agreement, will be duly and
validly issued and fully paid and nonassessable, and will be sold free and clear
of any pledge, lien, security interest, encumbrance, claim or equitable
interest; and no preemptive right, co-sale right, registration right, right of
first refusal or other similar right of stockholder exists with respect to any
of the Shares or the issuance and sale thereof. No stockholder of the Company
or any of its subsidiaries has any right to require the Company to register the
sale of any shares owned by such stockholder under the Act in the public
offering contemplated by this Agreement. No further approval or authorization
of any stockholder, the Board of Directors of the Company or others is required
for the issuance and sale or transfer of the Shares except as may be required
under the Act or under state or other securities or Blue Sky laws. Except as
disclosed in the Registration Statement, Prospectus and the financial statements
of the Company, and the related notes thereto included in the Prospectus, the
Company has no outstanding options to purchase, or any preemptive rights or
other rights to subscribe for or to purchase, any securities or obligations
convertible into, or any contracts or commitments to issue or sell, shares of
its capital stock or any such options, rights, convertible securities or
obligations. Except as disclosed in the Registration Statement and the
Prospectus, the Company has not granted any option or other right to purchase,
or issued any security or obligation convertible into, or entered into any
contract or commitment to sell, shares of any of the Company's subsidiaries.
The description of the Company's stock option, stock bonus and other stock plans
or arrangements, and the options or other rights granted and exercised
thereunder, set forth in the Prospectus fairly and accurately presents the
information required to be shown with respect to such plans, arrangements,
options and rights.
BDO Siedman independent auditors, which have audited the
6
<PAGE>
consolidated financial statements of the Company, together with the related
schedules and notes, as of ___________________ and for the years ended _______,
all filed with the Commission as a part of the Registration Statement, which are
included in the Prospectus, are independent accountants within the meaning of
the Act and the Rules and Regulations; the audited consolidated financial
statements of the Company, together with the related schedules and notes, and
the unaudited financial information, forming part of the Registration Statement
and Prospectus, fairly present the financial position and the results of
operations of the Company and its subsidiaries at the respective dates and for
the respective periods to which they apply; and all consolidated audited
financial statements of the Company and its subsidiaries, together with the
related schedules and notes, and the unaudited financial information, filed with
the Commission as part of the Registration Statement, have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods involved except as may be otherwise stated therein. The
selected and summary financial and statistical data included in the Registration
Statement, which are included in the Prospectus, present fairly the information
shown therein and have been compiled on a basis consistent with the audited
consolidated financial statements presented therein. No other financial
statements or schedules are required to be included in the Registration
Statement pursuant to the Rules and Regulations.
Subsequent to the respective dates as of which information
is given in the Registration Statement and Prospectus, except as set forth in
the Registration Statement and Prospectus, there has not been (i) any material
adverse change in the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company or any of its subsidiaries, taken
as a whole, (ii) any transaction that is material to the Company or any of its
subsidiaries, (iii) any obligation, direct or contingent, that is material to
the Company or any of its subsidiaries, incurred by the Company or any of its
subsidiaries, except obligations incurred in the ordinary course of business,
(iv) any change in the capital stock or outstanding indebtedness of the Company
or any of its subsidiaries, (v) any dividend or distribution of any kind
declared, paid or made on the capital stock of the Company, (vi) any default in
the payment of principal of or interest on any outstanding material debt
obligations of the Company or any of its subsidiaries, or (vii) any loss or
damage (whether or not insured) to the property of the Company or any of its
subsidiaries which has been sustained or will have been sustained which has a
material adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company or any of its
subsidiaries, taken as a whole.
Except as set forth in the Registration Statement and
Prospectus, (i) each of the Company and its subsidiaries has good and marketable
title to all properties and assets described in the Registration Statement and
Prospectus as owned by them, free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest, other than such as would not
have a material adverse effect on the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company or any of
its subsidiaries, taken as a whole, (ii) the agreements to which
7
<PAGE>
the Company and any of its subsidiaries is a party described in, or filed as
exhibits to, the Registration Statement and Prospectus are valid agreements,
enforceable by the Company or its subsidiaries, except as the enforcement
thereof may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors' rights
generally or by general equitable principles and, the other contracting party or
parties thereto are not in material breach or material default under any of such
agreements, and (iii) the Company and its subsidiaries have valid and
enforceable leases for all properties described in the Registration Statement
and Prospectus as leased by any of them, except as the enforcement thereof may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting creditors' rights generally or by
general equitable principles. Except as set forth in the Registration Statement
and Prospectus, the Company and its subsidiaries own or lease all such
properties as are necessary to their operations as now conducted or as proposed
to be conducted.
The Company and its subsidiaries have timely filed all
necessary federal, state and foreign income and franchise tax returns and have
paid all taxes shown thereon as due (except in any case in which the failure to
do so would not have a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company
and its subsidiaries, taken as a whole, and there is no tax deficiency that has
been or might be asserted against the Company (or any of its subsidiaries) that
might have a material adverse effect on the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company and its
subsidiaries, taken as a whole); and all tax liabilities are adequately provided
for on the books of the Company.
Each of the Company and its subsidiaries maintains insurance
with insurers of recognized financial responsibility of the types and in the
amounts generally deemed prudent for its business and consistent with insurance
coverage maintained by similar companies in similar businesses, including, but
not limited to, insurance covering the Company against general liability and
errors and omission for contract and temporary placements, and real and personal
property owned or leased by the Company and its subsidiaries against theft,
damage, destruction, acts of vandalism, products liability, errors and
omissions, workers' compensation claims and all other risks customarily insured
against, all of which insurance is in full force and effect; none of the Company
or its subsidiaries has been refused any insurance coverage sought or applied
for; and none of the Company or its subsidiaries has any reason to believe that
it will not be able to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not materially and
adversely affect the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company and its subsidiaries, taken as a
whole.
No labor disturbance by the employees of the Company or any
of its subsidiaries exists or is imminent that might be expected to result in a
material
8
<PAGE>
adverse change in the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company and any of its subsidiaries, taken
as a whole. No collective bargaining agreement exists with any of the employees
of the Company or any of its subsidiaries and, to the knowledge of the Company
and its subsidiaries, no such agreement is imminent.
Each of the Company and its subsidiaries owns or possesses
exclusive rights to use all patents, patent rights, inventions, trade secrets,
know-how, trademarks, service marks, trade names, copyrights and other
intellectual property which are necessary in all material respects to conduct
its business as now conducted and as described in the Registration Statement and
Prospectus; except as set forth in the Registration Statement and the
Prospectus, the expiration of any patents, patent rights, trade secrets,
trademarks, service marks, trade names, copyrights or other intellectual
property would not have a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company
and its subsidiaries, taken as a whole; none of the Company or its subsidiaries
has received any notice of, and has knowledge of, any infringement of or
conflict with asserted rights of the Company or its subsidiaries by others with
respect to any patent, patent rights, inventions, trade secrets, know-how,
trademarks, service marks, trade names, copyrights or other similar intellectual
property rights; and none of the Company or its subsidiaries has received any
notice of, or has any knowledge of, any infringement of or conflict with
asserted rights of others with respect to any patent, patent rights, inventions,
trade secrets, know-how, trademarks, service marks, trade names, copyrights or
other similar rights which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, might have a material adverse effect on
the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company and any of its subsidiaries, taken as a whole.
The Common Stock is registered pursuant to Section 12(g) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and is
approved for listing on the American Stock Exchange, and the Company has taken
no action designed to, or likely to have the effect of, terminating the
registration of the Common Stock under the Exchange Act or delisting the Common
Stock from the American Stock Exchange, nor has the Company received any
notification that the Commission or the American Stock Exchange is contemplating
termination of such registration or listing.
There are no arrangements, contracts, agreements or other
documents (verbal or written) required to be described in the Registration
Statement or to be filed as exhibits to the Registration Statement by the Act or
by the Rules and Regulations which have not been described or filed as required.
The arrangements, contracts, agreements and documents so described in the
Prospectus are in full force and effect on the date hereof; and neither the
Company nor any of the subsidiaries nor any other party is in breach of or
default under any of such arrangements, contracts, agreements and documents,
except as to breaches or defaults which individually or in
9
<PAGE>
the aggregate would not have a material adverse effect on the Company, or to the
best of their knowledge is aware of any imminent termination thereof.
The Company has been advised concerning the Investment
Company Act of 1940, as amended (the "1940 Act"), and the rules and regulations
thereunder, and has in the past conducted, and intends in the future to conduct,
its affairs in such a manner as to ensure that it is not and will not become an
"investment company" or a company "controlled" by an "investment company" within
the meaning of the 1940 Act and such rules and regulations.
(i) Each of the Company and its subsidiaries has not distributed
and will not distribute prior to the later of (i) the Closing Date, or any date
on which Option Shares are to be purchased, as the case may be, and
(ii) completion of the distribution of the Shares, any offering material in
connection with the offering and sale of the Shares other than any Preliminary
Prospectuses, the Prospectus, the Registration Statement and other materials, if
any, permitted by the Act.
(ii) The Company (nor any of its subsidiaries) has not at any
time during the last five (5) years (i) made any unlawful contribution to any
candidate for foreign office or failed to disclose fully any contribution in
violation of law, or (ii) made any payment to any federal or state governmental
officer or official, or other person charged with similar public or quasi-public
duties, other than payments required or permitted by the laws of the United
States or any jurisdiction thereof.
The Company (nor any of its subsidiaries) has not taken and
will not take, directly or indirectly, any action designed to or that might
reasonably be expected to cause or result in stabilization or manipulation of
the price of the Common Stock to facilitate the sale or resale of the Shares.
Each officer and director of the Company, and each
stockholder that holds five percent (5%) or more of the Company's Common Stock
has executed a Lock-Up Letter (the "Lock-Up Agreement") in a form approved by
Cruttenden Roth Incorporated pursuant to which such persons have agreed not to,
except as described therein, for a period of 365 days from the date of the final
Prospectus (the "Lock-Up Period"), sell, offer to sell, solicit an offer to buy,
contract to sell, loan, pledge, grant any option to purchase, or otherwise
transfer or dispose of (collectively, a "Disposition"), any shares of Common
Stock, or any securities convertible into or exercisable or exchangeable for
Common Stock (collectively, "Securities"), now owned or hereafter acquired by
such person or with respect to which such person has or hereafter acquires the
power of disposition. The Company has provided to counsel for the Underwriters
a complete and accurate list of all securityholders of the Company as of
_______________, 1997 and the number and type of securities held by each
securityholder. The Company hereby agrees not to take any action which would
release any of its officers, directors or other stockholders from any Lock-Up
Agreements currently existing or hereafter effected without the prior written
consent of Cruttenden
10
<PAGE>
Roth Incorporated.
The Company and each of its subsidiaries maintains a system
of internal accounting controls sufficient to provide reasonable assurances that
(i) transactions are executed in accordance with management's general or
specific authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization, and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
There are no outstanding loans, advances (except normal
advances for business expenses in the ordinary course of business) or guarantees
of indebtedness by the Company or any of its subsidiaries to or for the benefit
of any of the officers or directors of the Company or its subsidiaries, or any
of the members of the families of any of them, except as disclosed in the
Registration Statement and the Prospectus.
Other than Cruttenden Roth Incorporated, on behalf of the
several Underwriters, and except as disclosed in writing to Cruttenden Roth
Incorporated, no person is or will be owed any finders fee or commission or
similar payment in connection with the transactions contemplated by this
Agreement.
Except for employee benefit plans disclosed in the Prospectus,
the Company does not maintain any employee benefit plan subject to Title IV of
the Employee Retirement Income Security Act of 1974, as amended.
The Selling Stockholder, represents and warrants, to the several
Underwriters and the Company as follows:
The Selling Stockholder now has, and/or on the Closing Date
will have, good and marketable title to all of the Shares to be sold by him,
hereunder, free and clear of all liens, encumbrances, equities, security
interests and claims whatsoever, with full right and authority to deliver the
same hereunder, subject to the rights of ____________________, as custodian
(herein called the "Custodian"), and that upon the delivery of payment for such
Shares hereunder, the several Underwriters will receive good and marketable
title thereto, free and clear of all liens, encumbrances, equities, security
interests and claims whatsoever.
Certificates in negotiable form for the Shares to be sold by
the Selling Stockholder have been placed in custody under a Custody Agreement
(herein called the "Custody Agreement") for delivery under this Agreement by the
Custodian; the Selling Stockholder specifically agrees that the Shares
represented by the certificates so held in custody for the Selling Stockholder
are subject to the interest of the several
11
<PAGE>
Underwriters and the Company hereunder, that the arrangements made by the
Selling Stockholder for such custody, including the power of attorney (herein
called the "Power of Attorney") provided for in the Custody Agreement, are to
that extent irrevocable, and that the obligations of the Selling Stockholder
shall not be terminated by any act of the Selling Stockholder or by operation of
law, whether by the death, incapacity or dissolution of the Selling Stockholder
or the occurrence of any other event; if any such death, incapacity, dissolution
or other such event should occur before the delivery of the Shares hereunder,
certificates for the Shares shall be delivered by the Custodian in accordance
with the terms and conditions of this Agreement as if such death, incapacity,
dissolution or other event had not occurred regardless of whether the Custodian
shall have received notice of such death, incapacity, dissolution or other
event.
All consents, approvals, authorizations and orders necessary
for the execution and delivery by the Selling Stockholder of this Agreement, the
Power of Attorney and the Custody Agreement, and for the sale and delivery of
the Shares to be sold by the Selling Stockholder hereunder, have been obtained;
and (assuming all filings required under Rule 430A are made) the Selling
Stockholder has full right, power and authority to enter into this Agreement,
the Power of Attorney and the Custody Agreement and to sell, assign, transfer
and deliver the Shares to be sold by the Selling Stockholder hereunder; this
Agreement, the Power of Attorney and the Custody Agreement constitute valid and
binding obligations and agreements of the Selling Stockholder in accordance with
their respective terms.
The execution and delivery by the Selling Stockholder of,
and the performance by the Selling Stockholder of this Agreement, the Power of
Attorney and the Custody Agreement and the consummation of the transactions
herein and therein contemplated will not result in a breach or violation of any
of the terms or provisions of, or constitute a default under, any material
statute, indenture, mortgage, deed of trust, note agreement or other agreement
or instrument to which the Selling Stockholder is a party or by which the
Selling Stockholder is bound, or any order, rule or regulation of any court or
(assuming due qualification of the Shares for public offering under state and
foreign securities laws and assuming all filings required under Rule 430A are
made) governmental agency or body having jurisdiction over the Selling
Stockholder or the property of the Selling Stockholder.
The Selling Stockholder has not taken and will not take,
directly or indirectly, any action which has constituted, or which is designed
to or might reasonably be expected to cause or result in, stabilization or
manipulation of the price of sale or resale of the Shares.
The information pertaining to the Selling Stockholder under
the caption "Principal and Selling Stockholder" in the Registration Statement
and the Prospectus is complete and accurate, and neither the Registration
Statement nor of any amendment thereto, nor of the Prospectus nor of any
supplement thereto, contains or will contain any untrue statement of a material
fact or omits or will omit to state any material
12
<PAGE>
fact required to be stated therein or necessary in order to make the statements
therein not misleading.
3. PURCHASE, SALE AND DELIVERY OF SHARES. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company agrees to sell 1,280,000
Shares of the Firm Shares to the Underwriters, the Selling Stockholder agrees to
sell to each of the Underwriters the number of Firm Shares set forth in SCHEDULE
A, and each Underwriter agrees, severally and not jointly, to purchase from the
Company and the Selling Stockholder, at a purchase price of $_____ per share,
the respective number of Firm Shares which is set forth opposite the name of
such Underwriter in SCHEDULE A hereto (subject to adjustment as provided in
Section 10).
Delivery of definitive certificates for the Firm Shares to be
purchased by the Underwriters pursuant to this Section 3 from the Company and
the Selling Stockholder shall be made against payment of the purchase price
therefor by the several Underwriters by certified or official bank check or
checks drawn in next-day funds, payable to the order of the Company and to the
order of Custodian, for the account of the Selling Stockholder (and the Company
and the Selling Stockholder agree not to deposit any such checks in the bank on
which it is drawn, and not to take any other action with the purpose or effect
of receiving immediately available funds, until the business day following the
date of delivery to the Company and the Custodian and, in the event of any
breach of the foregoing, the Company and the Selling Stockholder shall reimburse
the Underwriters for the interest lost and any other expenses borne by the
Underwriters by reason of such breach), at the offices of Cruttenden Roth
Incorporated, 18301 Von Karman, Suite 100, Irvine, California (or at such other
place as may be agreed upon between Cruttenden Roth Incorporated, the Selling
Stockholder and the Company, at 7:00 A.M. Pacific daylight savings time, (a) on
the third (3rd) full business day following the first day that Firm Shares are
traded, (b) if this Agreement is executed and delivered after 1:30 P.M. Pacific
daylight savings time, the fourth (4th) full business day following the day that
this Agreement is executed and delivered or (c) at such other time and date not
later than seven (7) full business days following the first day that Firm Shares
are traded as Cruttenden Roth Incorporated, the Selling Stockholder and the
Company may determine (or at such time and date to which payment and delivery
shall have been postponed pursuant to Section 10 hereof), such time and date of
payment and delivery being herein called the "Closing Date"; PROVIDED, HOWEVER,
that if the Company has not made available to the Representative copies of the
Prospectus within the time provided in Section 4(d) hereof, Cruttenden Roth
Incorporated may, in its sole discretion, postpone the Closing Date until no
later than two (2) full business days following delivery of copies of the
Prospectus to Cruttenden Roth Incorporated. The certificates for the Firm
Shares to be so delivered will be made available to you at such office or such
other location including, without limitation, in New York City, as you may
reasonably request for checking at least one (1) full business day prior to the
Closing Date and will be in such names and denominations as you may request,
such request to be made at least two (2) full business days prior to the Closing
Date. If Cruttenden Roth
13
<PAGE>
Incorporated so elects, delivery of the Firm Shares may be made by credit
through full fast transfer to the accounts at The Depository Trust Company
designated by Cruttenden Roth Incorporated.
It is understood that you, individually, and not as the Representative
of the several Underwriters, may (but shall not be obligated to) make payment of
the purchase price on behalf of any Underwriter or Underwriters whose check or
checks shall not have been received by you prior to the Closing Date for the
Firm Shares to be purchased by such Underwriter or Underwriters. Any such
payment by you shall not relieve any such Underwriter or Underwriters of any of
its or their obligations hereunder.
After the Registration Statement becomes effective, the several
Underwriters intend to make a public offering (as such term is described in
Section 11 hereof) of the Firm Shares at a public offering price of $_____ per
share. After the public offering, the several Underwriters may, in their
discretion, vary the public offering price.
The information set forth on the front cover page (insofar as such
information relates to the Underwriters) concerning stabilization,
over-allotment and passive market making by the Underwriters, and under the
caption "Underwriting" in any Preliminary Prospectus and in the Prospectus
constitutes the only information furnished by the Underwriters to the Company
for inclusion in any Preliminary Prospectus, the Prospectus or the Registration
Statement, and you, on behalf of the respective Underwriters, represent and
warrant to the Company and the Selling Stockholder that the statements made
therein do not include any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
4. FURTHER AGREEMENTS OF THE COMPANY AND THE SELLING STOCKHOLDER. Each
of the Company and the Selling Stockholder, as the case may be and as
specifically indicated below, agrees with the several Underwriters that:
The Company will use its best efforts to cause the Registration
Statement and any amendment thereof, if not effective at the time and date that
this Agreement is executed and delivered by the parties hereto, to become
effective as promptly as possible; the Company will use its best efforts to
cause any abbreviated registration statement pursuant to Rule 462(b) of the
Rules and Regulations as may be required subsequent to the date the Registration
Statement is declared effective to become effective as promptly as possible; the
Company will notify you, promptly after it shall receive notice thereof, of the
time when the Registration Statement, any subsequent amendment to the
Registration Statement or any abbreviated registration statement has become
effective or any supplement to the Prospectus has been filed; if the Company or
any Selling Stockholder omitted information from the Registration Statement at
the time it was originally declared effective in reliance upon Rule 430A(a) of
the Rules and
14
<PAGE>
Regulations, the Company and/or such Selling Stockholder will provide evidence
satisfactory to you that the Prospectus contains such information and has been
filed, within the time period prescribed, with the Commission pursuant to
subparagraph (1) or (4) of Rule 424(b) of the Rules and Regulations or as part
of a post-effective amendment to such Registration Statement as originally
declared effective which is declared effective by the Commission; if the Company
files a term sheet pursuant to Rule 434 of the Rules and Regulations, the
Company will provide evidence satisfactory to you that the Prospectus and term
sheet meeting the requirements of Rule 434(b) or (c), as applicable, of the
Rules and Regulations have been filed, within the time period prescribed, with
the Commission pursuant to subparagraph (7) of Rule 424(b) of the Rules and
Regulations; if for any reason the filing of the final form of Prospectus is
required under Rule 424(b)(3) of the Rules and Regulations, it will provide
evidence satisfactory to you that the Prospectus contains such information and
has been filed with the Commission within the time period prescribed; it will
notify you promptly of any request by the Commission for the amending or
supplementing of the Registration Statement or the Prospectus or for additional
information; promptly upon your request, it will prepare and file with the
Commission any amendments or supplements to the Registration Statement or
Prospectus which, in the opinion of counsel for the several Underwriters
("Underwriters' Counsel"), may be necessary or advisable in connection with the
distribution of the Shares by the Underwriters; it will promptly prepare and
file with the Commission, and promptly notify you of the filing of, any
amendments or supplements to the Registration Statement or Prospectus which may
be necessary to correct any statements or omissions, if, at any time when a
prospectus relating to the Shares is required to be delivered under the Act, any
event shall have occurred as a result of which the Prospectus or any other
prospectus relating to the Shares as then in effect would include any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading; in case any Underwriter is required to deliver a
prospectus nine (9) months or more after the effective date of the Registration
Statement in connection with the sale of the Shares, it will prepare promptly
upon request, but at the expense of such Underwriter, such amendment or
amendments to the Registration Statement and such prospectus or prospectuses as
may be necessary to permit compliance with the requirements of Section 10(a)(3)
of the Act; and it will file no amendment or supplement to the Registration
Statement or Prospectus which shall not previously have been submitted to you a
reasonable time prior to the proposed filing thereof or to which you shall
reasonably object in writing, subject, however, to compliance with the Act and
the Rules and Regulations and the provisions of this Agreement.
The Company will advise you, promptly after it shall receive
notice or obtain knowledge, of the issuance of any stop order by the Commission
suspending the effectiveness of the Registration Statement or of the initiation
or threat of any proceeding for that purpose; and it will promptly use its best
efforts to prevent the issuance of any stop order or to obtain its withdrawal at
the earliest possible moment if such stop order should be issued.
15
<PAGE>
The Company will use its best efforts (including by providing
full cooperation with your counsel, whose services in this matter are required
and which you and the Company will seek to expedite) to qualify the Shares for
offering and sale under the securities laws of such jurisdictions as you may
designate and to continue such qualifications in effect for so long as may be
required for purposes of the distribution of the Shares, except that the Company
shall not be required in connection therewith or as a condition thereof to
qualify as a foreign corporation or to execute a general consent to service of
process in any jurisdiction in which it is not otherwise required to be so
qualified or to so execute a general consent to service of process. In each
jurisdiction in which the Shares shall have been qualified as above provided,
the Company will make and file such statements and reports in each year as are
or may be required by the laws of such jurisdiction for such purpose.
(a) The Company will furnish to you, as soon as available, and, in
the case of the Prospectus and any term sheet or abbreviated term sheet under
Rule 434, in no event later than the first full business day following the first
day that Shares are traded, copies of the Registration Statement (two of which
will be signed and which will include all exhibits), each Preliminary
Prospectus, the Prospectus and any amendments or supplements to such documents,
including any prospectus prepared to permit compliance with Section 10(a)(3) of
the Act, all in such quantities as you may from time to time reasonably request.
Notwithstanding the foregoing, if Cruttenden Roth Incorporated, on behalf of the
several Underwriters, shall agree to the utilization of Rule 434 of the Rules
and Regulations, the Company shall provide to you copies of a Preliminary
Prospectus updated in all respects through the date specified by you in such
quantities as you may from time to time reasonably request.
The Company will make generally available to its stockholders as
soon as practicable, but in any event not later than the forty-fifth (45th) day
following the end of the fiscal quarter first occurring after the first
anniversary of the effective date of the Registration Statement, an earnings
statement (which will be in reasonable detail but need not be audited) complying
with the provisions of Section 11(a) of the Act and covering a twelve (12) month
period beginning after the effective date of the Registration Statement.
During a period of five (5) years after the date hereof, the
Company will furnish to its stockholders as soon as practicable after the end of
each respective period, annual reports (including financial statements audited
by independent certified public accountants) and, upon request by a stockholder,
unaudited quarterly reports of operations for each of the first three quarters
of the fiscal year, and will furnish to you and the other several Underwriters
hereunder, upon request (i) concurrently with furnishing such reports to its
stockholders, statements of operations of the Company for each of the first
three (3) quarters in the form furnished to the Company's stockholders,
(ii) concurrently with furnishing to its stockholders, a balance sheet of the
Company as of the end of such fiscal year, together with statements of
operations, of stockholders' equity, and of cash flows of the Company for such
fiscal
16
<PAGE>
year, accompanied by a copy of the certificate or report thereon of independent
certified public accountants, (iii) as soon as they are available, copies of all
reports (financial or other) mailed to stockholders, (iv) as soon as they are
available, copies of all reports and financial statements furnished to or filed
with the Commission, the American Stock Exchange or any securities exchange,
(v) every material press release and every material news item or article in
respect of the Company or its affairs which was generally released to
stockholders or prepared by the Company, and (vi) any additional information of
a public nature concerning the Company, or its business which you may reasonably
request. During such five (5) year period, the foregoing financial statements
shall be on a consolidated basis to the extent that the accounts of the Company
and its subsidiaries are consolidated, and shall be accompanied by similar
financial statements for any significant subsidiary which is not so
consolidated.
The Company will apply the net proceeds from the sale of the
Shares being sold by it in the manner set forth under the caption "Use of
Proceeds" in the Prospectus.
(b) The Company will maintain a transfer agent and, if necessary
under the jurisdiction of incorporation of the Company, a registrar (which may
be the same entity as the transfer agent) for its Common Stock.
If the transactions contemplated hereby are not consummated by
reason of any failure, refusal or inability on the part of the Company to
perform any agreement on its part to be performed hereunder or to fulfill any
condition of the Underwriters' obligations hereunder, or if the Company shall
terminate this Agreement pursuant to Section 11(a) hereof, or if the
Underwriters shall terminate this Agreement pursuant to Section 11(a) or 11(b),
then the provisions of Section 11 of that certain letter agreement dated
September 16, 1997 between you and the Company (the "Letter Agreement") shall
govern payment and reimbursement obligations of the parties notwithstanding that
the Letter Agreement shall have ceased to be of full force or effect for any
other purpose.
(c) If at any time during the ninety (90) day period after the
Registration Statement becomes effective, any rumor, publication or event
relating to or affecting the Company or its subsidiaries shall occur as a result
of which in your opinion the market price of the Common Stock has been or is
likely to be materially affected (regardless of whether such rumor, publication
or event necessitates a supplement to or amendment of the Prospectus), the
Company will, after written notice from you advising the Company to the effect
set forth above, forthwith prepare, consult with you concerning the substance of
and disseminate a press release or other public statement, reasonably
satisfactory to you, responding to or commenting on such rumor, publication or
event.
During the Lock-Up Period, the Company will not, without the
prior written consent of Cruttenden Roth Incorporated, effect the Disposition
of, directly
17
<PAGE>
or indirectly, any Securities other than the sale of the Firm Shares and the
Option Shares hereunder, the Company's issuance of options or Common Stock or
capital stock of its subsidiaries under the Company's presently authorized stock
option and stock purchase plans described in the Registration Statement and the
Prospectus, the shares of Common Stock pursuant to the exercise of the warrant
described in Paragraph 6(i) below, and the sale of Securities in connection with
acquisition undertaken by the Company.
The terms of paragraph ____ of the Letter Agreement are hereby
incorporated by reference and made obligations of the Company and Cruttenden
Roth Incorporated as part of this Agreement notwithstanding that the Letter
Agreement shall have ceased to be of full force or effect for any other purpose.
(d) The Company shall reimburse and pay to Cruttenden Roth
Incorporated a nonaccountable expense allowance equal to two percent (2.0%) of
the total Price to Public of the Shares shown on the front cover of the
Prospectus and sold in the offering, including, if exercised, with respect to
the over-allotment option.
18
<PAGE>
5. EXPENSES.
The Company and the Selling Stockholder, as the case may be and
as specifically indicated below, agrees severally with each Underwriter that:
The Company will pay and bear all costs and expenses
incident to the performance of the obligations of the Company and the Selling
Stockholder in connection with the preparation, printing and filing of the
Registration Statement (including financial statements, schedules and exhibits),
Preliminary Prospectuses and the Prospectus and any amendments or supplements
thereto; the printing of this Agreement, the Agreement Among Underwriters, the
Selected Dealer Agreement, the Custody Agreement, the Power of Attorney, the
Preliminary Blue Sky Survey and any Supplemental Blue Sky Survey, the
Underwriters' Questionnaire and Power of Attorney, and any instruments related
to any of the foregoing; the issuance and delivery of the Shares hereunder to
the several Underwriters, including transfer taxes, if any, the cost of all
certificates representing the Shares and transfer agents' and registrars' fees;
the fees and disbursements of counsel for the Company; all fees and other
charges of the Company's independent certified public accountants and legal
counsel; the cost, including the cost of printing, of furnishing to the several
Underwriters copies of the Registration Statement (including appropriate
exhibits), Preliminary Prospectus and the Prospectus, and any amendments or
supplements to any of the foregoing; the Company's road show costs and expenses;
the cost of preparing bound volumes of the documents for the public offering
pursuant to the Registration Statement; NASD and American Stock Exchange filing
fees and all other related fees and the fees, expenses, and the cost, of
qualifying the Shares under the laws of such jurisdictions as you may designate
(including filing fees and fees and disbursements of Underwriters' Counsel in
connection with such NASD filings and Blue Sky qualifications and all other
expenses directly incurred by the Company in connection with the performance of
its obligations hereunder. The provisions of this Section 5(a)(i) are intended
to relieve the Underwriters from the payment of the expenses and costs which the
Company hereby agrees to pay.
In addition to its other obligations under Section 8(a)
hereof, the Company agrees that, as an interim measure during the pendency of
any claim, action, investigation, inquiry or other proceeding described in
Section 8(a) hereof, it will reimburse the Underwriters on a monthly basis for
all reasonable legal or other expenses incurred in connection with investigating
or defending any such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of the Company's obligation to reimburse the Underwriters for
such expenses and the possibility that such payments might later be held to have
been improper by a court of competent jurisdiction. To the extent that any such
interim reimbursement payment is so held to have been improper, the Underwriters
shall promptly return such payment to the Company together with interest,
compounded daily, determined on the basis of the prime rate (or other commercial
lending rate for borrowers of the highest credit standing) listed from time to
time in THE WALL STREET JOURNAL which represents the base rate on corporate
loans posted
19
<PAGE>
by a substantial majority of the nation's thirty (30) largest banks (the "Prime
Rate"). Any such interim reimbursement payments which are not made to the
Underwriters within thirty (30) days of a request for reimbursement shall bear
interest at the Prime Rate from the date of such request.
In addition to their other obligations under Section 8(b) hereof,
the Underwriters severally and not jointly agree that, as an interim measure
during the pendency of any claim, action, investigation, inquiry or other
proceeding described in Section 8(b) hereof, they will reimburse the Company on
a monthly basis for all reasonable legal or other expenses incurred in
connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the
Underwriters' obligation to reimburse the Company for such expenses and the
possibility that such payments might later be held to have been improper by a
court of competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, the Company shall
promptly return such payment to the Underwriters together with interest,
compounded daily, determined on the basis of the Prime Rate. Any such interim
reimbursement payments which are not made to the Company within thirty (30) days
of a request for reimbursement shall bear interest at the Prime Rate from the
date of such request.
It is agreed that any controversy arising out of the operation of
the interim reimbursement arrangements set forth in Sections 5(a)(ii) and 5(b)
hereof, including the amounts of any requested reimbursement payments, the
method of determining such amounts and the basis on which such amounts shall be
apportioned among the reimbursing parties, shall be settled by arbitration
conducted under the provisions of the Constitution and Rules of the Board of
Governors of the New York Stock Exchange, Inc. or pursuant to the Code of
Arbitration Procedure of the NASD. Any such arbitration must be commenced by
service of a written demand for arbitration or a written notice of intention to
arbitrate, therein electing the arbitration tribunal. In the event the party
demanding arbitration does not make such designation of an arbitration tribunal
in such demand or notice, then the party responding to said demand or notice is
authorized to do so. Any such arbitration will be limited to the operation of
the interim reimbursement provisions contained in Sections 5(a)(ii) and 5(b)
hereof and will not resolve the ultimate propriety or enforceability of the
obligation to indemnify for expenses which is created by the provisions of
Sections 8(a) and 8(b) hereof or the obligation to contribute to expenses which
is created by the provisions of Section 8(d) hereof.
The Selling Stockholder will pay any transfer taxes incident to
the transfer to the Underwriters of the Shares being sold by such Selling
Stockholder.
6. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the
several Underwriters to purchase and pay for the Shares as provided herein shall
be subject to the accuracy, as of the date hereof and the Closing Date and any
later date on which
20
<PAGE>
Option Shares are to be purchased, as the case may be, of the representations
and warranties of the Company and the Selling Stockholder herein, to the
performance by the Company and the Selling Stockholder of their obligations
hereunder and to the following additional conditions:
The Registration Statement shall have become effective not later
than 2:00 P.M., Pacific daylight savings time, on the date following the date of
this Agreement, or such later date and time as shall be consented to in writing
by you; if the filing of the Prospectus, or any supplement thereto, is required
pursuant to Rule 424(b) of the Rules and Regulations, the Prospectus shall have
been filed in the manner and within the time period required by 424(b) of the
Rules and Regulations; and no stop order suspending the effectiveness thereof
shall have been issued and no proceedings for that purpose shall have been
initiated or, to the knowledge of the Company or any Underwriter, threatened by
the Commission, and any request of the Commission for additional information (to
be included in the Registration Statement or the Prospectus or otherwise) shall
have been complied with to the satisfaction of Underwriters' Counsel.
All corporate proceedings and other legal matters in connection
with this Agreement, the form of Registration Statement and the Prospectus, and
the registration, authorization, issue, sale and delivery of the Shares, shall
have been reasonably satisfactory to Underwriters' Counsel, and such counsel
shall have been furnished with such papers and information as they may
reasonably have requested to enable them to pass upon the matters referred to in
this Section.
Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date, or any later date on which Option Shares are to be
purchased, as the case may be, there shall not have been any change in the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company or any of its subsidiaries from that set forth in the
Registration Statement or Prospectus, which, in your sole judgment, is material
and adverse and that makes it, in your sole judgment, impracticable or
inadvisable to proceed with the public offering of the Shares as contemplated by
the Prospectus.
You shall have received on the Closing Date and on any later date
on which Option Shares are to be purchased, as the case may be, the opinion of
Troop Meisinger Steuber & Pasich, LLP, counsel for the Company and the Selling
Stockholder, substantially in the following form, dated the Closing Date or such
later date on which Option Shares are to be purchased addressed to the
Underwriters and with reproduced copies or signed counterparts thereof for each
of the Underwriters:
Each of the Company and its subsidiaries has been duly
incorporated and is validly existing as corporations in good standing under the
laws of the jurisdiction of their incorporation.
(i) The Company and its subsidiaries have the corporate power
21
<PAGE>
and authority to own, lease and operate their properties and to conduct their
business as described in the Prospectus.
Each of the Company and its subsidiaries is duly qualified
to do business as a foreign corporation and is in good standing in each
jurisdiction, if any, in which the Company or each of its subsidiaries owns,
leases or licenses properties or conducts its business, except where the failure
to be so qualified or be in good standing would not have a material adverse
effect on the condition (financial or otherwise), earnings, operations or
business of the Company and its subsidiaries, taken as a whole.
The authorized, issued and outstanding capital stock of the
Company is as set forth in the Prospectus under the caption "Capitalization" as
of the dates stated therein; all necessary and proper corporate proceedings have
been taken into order to issue all issued and outstanding shares of Common
Stock; all issued and outstanding shares of capital stock of the Company have
been duly authorized and validly issued and are fully paid and nonassessable,
and will not have been issued in violation of or subject to any preemptive
right, co-sale right, registration right, right of first refusal or other
similar right.
The Firm Shares or the Option Shares, as the case may be, to
be issued by the Company pursuant to the terms of this Agreement have been duly
authorized and, upon issuance and delivery against payment therefor in
accordance with the terms hereof, will be duly and validly issued and fully paid
and nonassessable and will not have been issued in violation of or subject to
any preemptive right, co-sale right, registration right, right of first refusal
or other similar right contained in the Company's articles of incorporation or
bylaws or in any other agreement or contract to which the Company or any of its
subsidiaries is a party; and the forms of certificates evidencing the Common
Stock comply with Delaware law, and when duly countersigned by the Company's
transfer agent and registrar, and delivered to you or upon your order against
payment of the agreed consideration therefor in accordance with the provisions
of this Agreement, the Shares represented thereby will be duly authorized and
validly issued, fully paid and nonassessable and will conform in all material
respects to the description thereof contained in the Prospectus.
The Company has full corporate power and authority to enter
into this Agreement and to issue, sell and deliver to the Underwriters the
Shares to be issued and sold by it hereunder.
All of the issued and outstanding shares of each of the
subsidiaries of the Company have been duly authorized and validly issued, are
fully paid and nonassessable and are owned of record by the Company free and
clear of any perfected security interests, liens or encumbrances, and free and
clear of all equities, claims, security interests, voting trusts or other
defects of title whatsoever, except as set forth in the Registration Statement
and Prospectus.
22
<PAGE>
Except as disclosed in or specifically contemplated by the
Prospectus, there are no outstanding options, warrants or other rights calling
for the issuance of, and no commitments, or agreements to issue, any shares of
capital stock of the Company or any security convertible into or exchangeable
for capital stock of the Company.
The Company and the Selling Stockholder has full right,
power and authority to enter into this Agreement and to sell and deliver the
Shares to be sold by it to the several Underwriters; this Agreement has been
duly authorized by all necessary corporate action on the part of the Company and
the Selling Stockholder, if applicable, and has been duly executed and delivered
by the Company and the Selling Stockholder and, assuming due authorization,
execution and delivery by you, is a valid and binding agreement of the Company
and the Selling Stockholder, enforceable in accordance with its terms, except
insofar as indemnification provisions may be limited by applicable law or public
policy and except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or affecting creditors'
rights generally or by general equitable principles.
The Registration Statement has become effective under the
Act and no stop order suspending the effectiveness of the Registration Statement
has been issued and no proceedings for that purpose have been instituted or are
pending or threatened under the Act; any required filing of the Prospectus and
any supplement thereto pursuant to Rule 424(b) of the Rules and Regulations has
been made in the manner and within the time period required by such Rule 424(b).
The Registration Statement and the Prospectus, and each
amendment or supplement thereto (other than the financial statements (including
supporting schedules), financial data derived therefrom and other financial and
statistical information included therein as to which such counsel need express
no opinion), complied as to form in all material respects with the requirements
of the Act and the applicable Rules and Regulations.
The information in the Prospectus under the captions
"Management," "Shares Eligible For Future Sale," "Description of Capital Stock,"
and Items 14 and 15 of Part II of the Registration Statement to the extent that
it constitutes matters of law or legal conclusions, has been reviewed by such
counsel and is a fair summary of such matters and conclusions in all material
respects.
The description in the Registration Statement and the
Prospectus of the articles of incorporation and bylaws of the Company and of
Delaware statutes are accurate and fairly present in all material respects the
information required to be presented by the Act and the applicable Rules and
Regulations.
There are no agreements, contracts, leases or documents to
which the Company or any of its subsidiaries is a party of a character required
to be
23
<PAGE>
described or referred to in the Registration Statement or Prospectus or to be
filed as an exhibit to the Registration Statement which are not described or
referred to therein or filed as required.
The execution and performance of this Agreement and the
consummation of the transactions herein contemplated will not (a) result in any
violation of the articles of incorporation or bylaws of the Company or any of
its subsidiaries or (b) result in a material breach or violation of any of the
terms and provisions of, or constitute, either by itself or upon notice or the
passage of time or both, a default under, any material bond, debenture, note or
other evidence of indebtedness, or any material lease, contract, indenture,
mortgage, deed of trust, loan agreement, joint venture or other agreement or
instrument to which the Company or any of its subsidiaries is a party or by
which their properties are bound and of which such counsel is aware, or any
applicable statute, rule or regulation or to such counsel's knowledge, any
order, writ or decree of any court, government or governmental agency or body
having jurisdiction over the Company or any of its subsidiaries or any of their
properties or operations.
No consent, approval, registration, filing, license, permit,
authorization or order of or qualification with any court, government or
governmental agency or body having jurisdiction over the Selling Stockholder,
the Company or any of its subsidiaries or any of their properties or operations
is necessary in connection with the consummation by the Company and the Selling
Stockholder of the transactions herein contemplated, except such as have been
obtained under the Act or such as may be required by NASD or under state or
other securities or Blue Sky laws in connection with the purchase and the
distribution of the Shares by the Underwriters (as to which such counsel need
express no opinion).
There are no legal or governmental proceedings pending or
threatened against the Company or any of its subsidiaries of a character
required to be disclosed in the Registration Statement or the Prospectus by the
Act or the Rules and Regulations, other than those described therein.
Neither the Company nor any of its subsidiaries is in
violation of its respective charter or bylaws.
Except as set forth in the Registration Statement and
Prospectus, no holders of Common Stock or other securities of the Company have
registration rights with respect to securities of the Company and, except as set
forth in the Registration Statement and Prospectus, all holders of securities of
the Company having rights to registration of such shares of Common Stock or
other securities, because of the filing of the Registration Statement by the
Company have, with respect to the offering contemplated thereby, waived such
rights or such rights have expired by reason of lapse of time following
notification of the Company's intent to file the Registration Statement.
Except as set forth in the Registration Statement and the
24
<PAGE>
Prospectus, there are no actual or threatened action, suit, claim or proceeding
relating to patents, patent rights or licenses, trademarks or trademark rights,
copyrights, collaborative research, licenses or royalty arrangements or
agreements or trade secrets, know-how or proprietary techniques or technology,
including, processes and substances, owned by or affecting the business
operations of the Company or any of its subsidiaries which are pending or
threatened against the Company or any of its subsidiaries and which action,
suit, claim or proceeding would, with respect to any of the foregoing, have a
material adverse effect on the condition (financial or other), earnings,
operations, business or business prospects of the Company and its subsidiaries,
taken as a whole.
This Agreement and the several Custody Agreements between
the Selling Stockholder and __________________ as Custodian, and the Power of
Attorney referred to in such Custody Agreements have each been duly executed and
delivered by or on behalf of the Selling Stockholder are valid and binding
agreements of the Selling Stockholder, enforceable against the Selling
Stockholder in accordance with the terms thereof except as the enforceability
may be limited by bankruptcy, insolvency, reorganization, moratorium or similar
laws relating to or affecting creditors' rights generally or by general
equitable principals and except insofar as indemnification relating to or
affecting provisions may be limited by applicable law or public policy, and
except that provisions as to the irrevocability of the Custody Agreement may be
limited by applicable law upon the death or incapacity of the Selling
Stockholder.
The performance of this Agreement, the Power of Attorney and
the Custody Agreements and the consummation of the transactions therein
contemplated will not result in a material breach or violation of any of the
terms and provisions of, or constitute a default under any material bond,
indenture, mortgage, deed or trust, or other agreement or instrument of which
such counsel is aware, by such Selling Stockholder or an officer or
representative thereof, to which any Selling Stockholder is a party or by which
the Selling Stockholder is bound, or any applicable law or regulation or any
order, writ, injunction, or decree of any jurisdiction, court or governmental
instrumentality.
The Selling Stockholder is the record owner of the Shares to
be sold by such Selling Stockholder under this Agreement and possesses full
right, power and authority to sell, assign, transfer and deliver the Shares to
be sold by such Selling Stockholder hereunder. The Selling Stockholder has good
and indefeasible title to the Shares sold by such Selling Stockholder under this
Agreement, free and clear of all perfected liens, encumbrances or security
interests and free and clear of all equities, claims or other defects of title
whatsoever, and upon the delivery of and payment for the Shares to be sold by
such Selling Stockholder, the Selling Stockholder shall transfer all rights of
the Selling Stockholder in the Shares to the Underwriters who have severally
purchased such Shares under this Agreement, free and clear of all perfected
liens, encumbrances, security interests and claims, assuming the Underwriters
take without knowledge of any adverse claims.
25
<PAGE>
The Company is not an "investment company" as defined in the
1940 Act.
In addition, such counsel shall state that such counsel has acted
as outside corporate legal counsel to the Company and participated in
conferences with officials and other representatives of the Company, Cruttenden
Roth Incorporated, Underwriters' Counsel and the independent certified public
accountants of the Company, at which such conferences the contents of the
Registration Statement and Prospectus and related matters were discussed, and
although such counsel is not passing upon and does not assume any responsibility
for and has not verified the accuracy, completeness or fairness of the
statements contained in the Registration Statement or the Prospectus, and have
not made any independent check or verification thereof, on the basis of the
foregoing (relying as to materiality to a large extent upon the facts provided
by officers and representatives of the Company), no facts have come to the
attention of such counsel that lead such counsel to believe that either the
Registration Statement at the time it became effective (including the
information deemed to be part of the Registration Statement at the time of
effectiveness pursuant to Rule 430A(b), if applicable), or any amendment thereof
made prior to the Closing Date as of the date of such amendment, does not comply
as to form in all material respects with the Act and the Rules and Regulations,
or contained an untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading or that the Prospectus as of its date (or any amendment
thereof or supplement thereto made prior to the Closing Date as of the date of
such amendment or supplement) and as of the Closing Dated contained or contains
an untrue statement of a material fact or omitted or omits to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading (it
being understood that such counsel need express no belief or opinion with
respect to the exhibits and the financial statements and other financial and
statistical data included therein).
In rendering such opinion, such counsel may rely (A) as to
matters involving the application of laws other than the laws of the United
States and jurisdictions in which they are admitted, to the extent such counsel
deems proper and to the extent specified in such opinion, if at all, upon an
opinion or opinions (in form and substance reasonably satisfactory to
Underwriters' Counsel) of other counsel reasonably acceptable to Underwriters'
Counsel, familiar with the applicable laws; (B) as to matters of fact, to the
extent they deem proper, on certificates of responsible officers of the Company
and certificates or other written statements of officers of departments of
various jurisdictions having custody of documents respecting the corporate
existence or good standing of the Company and its subsidiaries, provided that
copies of any such statements or certificates shall be delivered to
Underwriters' Counsel. The opinion of such counsel for the Company shall state
that the opinion of any such other counsel is in form satisfactory to such
counsel and, in their opinion, you and they are justified in relying thereon.
(e) You shall have received on the Closing Date and on any later date
26
<PAGE>
on which Option Shares are to be purchased, as the case may be, an opinion of
Graham & James, LLP, in form and substance reasonably satisfactory to you, with
respect to the sufficiency of all such corporate proceedings and other legal
matters relating to this Agreement and the transactions contemplated hereby as
you may reasonably require, and the Company shall have furnished to such counsel
such documents as they may have requested for the purpose of enabling them to
pass upon such matters.
(f) You shall have received on the Closing Date and on any later date
on which Option Shares are to be purchased, as the case may be, a letter from
BDO Siedman, Independent Auditors (the "Accountants"), addressed to the
Underwriters, dated the Closing Date or such later date on which Option Shares
are to be purchased, as the case may be (in each case, the "Bring Down Letter"),
confirming that they are independent certified public accountants with respect
to the Company within the meaning of the Act and the applicable published Rules
and Regulations and based upon the procedures described in a letter delivered to
you concurrently with the execution of this Agreement (herein called the
"Original Letter"), but carried out to a date not more than five (5) business
days prior to the Closing Date or such later date on which Option Shares are to
be purchased, as the case may be, (i) confirming, to the extent true, that the
statements and conclusions set forth in the Original Letter are accurate as of
the Closing Date or such later date on which Option Shares are to be purchased,
as the case may be, and (ii) setting forth any revisions and additions to the
statements and conclusions set forth in the Original Letter that are necessary
to reflect any changes in the facts described in the Original Letter since its
date, or to reflect the availability of more recent financial statements, data
or information. The Bring Down Letter shall not disclose any change in the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company or any of its subsidiaries from that set forth in the
Registration Statement or Prospectus, which, in your sole judgment, is material
and adverse and that makes it, in your sole judgment, impracticable or
inadvisable to proceed with the public offering of the Shares as contemplated by
the Prospectus. The Original Letter from the Accountants shall be addressed to
or for the use of the Underwriters in form and substance satisfactory to the
Underwriters and shall (i) represent, to the extent true, that they are
independent certified public accountants with respect to the Company within the
meaning of the Act and the applicable published Rules and Regulations, (ii) set
forth their opinion with respect to their audits of the balance sheet of the
Company as of August 31, 1997 and related statements of operations,
stockholders' equity and cash flows for the twelve (12) months ended August 31,
1997 and state that they have completed the procedures specified by the American
Institute of Certified Public Accountants for a review of interim financial
information as described in SAS No. 71, INTERIM FINANCIAL INFORMATION, on the
unaudited consolidated balance sheet as of as of November 30, 1997 and the
unaudited consolidated statements of operations and cash flows for the three
month period ended November 30, 1997, (iii) state that nothing came to their
attention that caused them to believe that the financial statements included in
the Registration Statement and Prospectus do not comply as to form in all
material respects with the applicable accounting requirements of Rule 11-02
27
<PAGE>
of Regulation S-X and that any adjustments thereto have not been properly
applied to the historical amounts in the compilation of such statements, and
(iv) address other matters agreed upon the Accountants and you. In addition,
you shall have received from BDO Siedman a letter addressed to the Company and
made available to you for the use of the Underwriters stating that their review
of the Company's system of internal accounting controls, to the extent they
deemed necessary in establishing the scope of their audit of the Company's
financial statements as of ______________, 1997, did not disclose any weaknesses
in internal controls that they considered to be material weaknesses.
(g) You shall have received on the Closing Date and on any later date
on which Option Shares are to be purchased, as the case may be, a certificate of
the Company, dated the Closing Date or such later date on which Option Shares
are to be purchased, as the case may be, signed by the Chief Executive Officer
and Chief Financial Officer of the Company, to the effect that, and you shall be
satisfied that:
(i) The representations and warranties of the Company in
this Agreement are true and correct, as if made on and as of the Closing Date or
any later date on which Option Shares are to be purchased, as the case may be,
and the Company has complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or prior to the Closing
Date or any later date on which Option Shares are to be purchased, as the case
may be;
(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued under the Act; no order preventing or
suspending the use of the Prospectus or any Preliminary Prospectus filed as a
part of the Registration Statement, or any amendment thereto, has been issued;
and no proceedings for that purpose have been instituted or are pending,
threatened or contemplated under the Act;
(iii) When the Registration Statement became effective and at
all times subsequent thereto up to the delivery of such certificate, the
Registration Statement and the Prospectus, and any amendments or supplements
thereto, contained all material information required to be included therein by
the Act and the Rules and Regulations, and in all material respects conformed to
the requirements of the Act and the Rules and Regulations, the Registration
Statement, and any amendment or supplement thereto, did not and does not include
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, the Prospectus, and any amendment or supplement thereto, did not and
does not include any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and, since the
effective date of the Registration Statement, there has occurred no event
required to be set forth in an amended or supplemented Prospectus which has not
been so set forth; and
(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus, there has not
been (a) any material
28
<PAGE>
adverse change in the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company and its subsidiaries, taken as a
whole, (b) any transaction that is material to the Company or any of its
subsidiaries, except transactions entered into in the ordinary course of
business, (c) any obligation, direct or contingent, that is material to the
Company or any of its subsidiaries, incurred by the Company or any of its
subsidiaries, except obligations incurred in the ordinary course of business,
(d) any change in the capital stock or outstanding indebtedness of the Company
or any of its subsidiaries that is material to the Company and its subsidiaries,
taken as a whole, or is out of the ordinary course of business of the Company or
any of its subsidiaries, (e) any dividend or distribution of any kind declared,
paid or made on the capital stock of the Company or any of its subsidiaries
(f) any legal or governmental action, suit or proceeding pending or threatened
against the Company or any of its subsidiaries which is material to the Company
and its subsidiaries, taken as a whole, (g) any verbal or written agreement or
other transaction entered into by either the Company or any of its subsidiaries
which is not in the ordinary course of business of the Company or any of its
subsidiaries as the case may be or (h) any loss or damage (whether or not
insured) to the property of the Company or any of its subsidiaries which has
been sustained or will have been sustained which has a material adverse effect
on the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company and its subsidiaries, taken as a whole.
(h) The Company shall have obtained and delivered to you the Lock-Up
Agreements.
(i) The Company shall have furnished you a warrant for the purchase
of up to _______ shares of Common Stock at an exercise price per share equal to
one hundred and twenty percent (120%) of the offering price per share of the
Shares, in the form attached hereto as Exhibit A.
(j) The Company shall have furnished to you such further certificates
and documents as you shall reasonably request (including certificates of
officers of the Company) as to the accuracy of the representations and
warranties of the Company herein, as to the performance by the Company of its
obligations hereunder and as to the other conditions concurrent and precedent to
the obligations of the Underwriters hereunder.
(k) The Shares shall have been duly accepted for listing quotation,
subject to notice of issuance, on the American Stock Exchange.
All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
to Underwriters' Counsel. The Company will furnish you with such number of
conformed copies of such opinions, certificates, letters and documents as you
shall reasonably request.
29
<PAGE>
7. OPTION SHARES.
(a) On the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set forth, the
Company hereby grants to the several Underwriters, for the purpose of covering
over-allotments in connection with the distribution and sale of the Firm Shares
only, a nontransferable option to purchase up to 192,000 Option Shares, at the
purchase price per share for the Firm Shares set forth in Section 3 hereof.
Such notice shall set forth the number of Option Shares as to which the option
is being exercised and the date and time as reasonably determined by you when
such Option Shares are to be delivered. Such option may be exercised by
Cruttenden Roth Incorporated, on behalf of the several Underwriters, on one
(1) or more occasions in whole or in part during the period of forty-five (45)
days after the date on which the Firm Shares are initially offered to the public
by giving written notice (the "Option Notice") to the Company. The number of
Option Shares to be purchased by each Underwriter upon the exercise of such
option shall be the same proportion of the total number of Option Shares to be
purchased by the several Underwriters pursuant to the exercise of such option as
the number of Firm Shares purchased by such Underwriter (set forth in Schedule A
hereto) bears to the total number of Firm Shares purchased by the several
Underwriters (set forth in Schedule A hereto), adjusted by Cruttenden Roth
Incorporated in such manner as to avoid fractional shares.
Delivery of definitive certificates for the Option Shares to be
purchased by the several Underwriters pursuant to the exercise of the option
granted by this Section 7 shall be made against payment of the purchase price
therefor by the several Underwriters by certified or official bank check or
checks drawn in next-day funds, payable to the order of the Company (and the
Company agrees not to deposit any such check in the bank on which it is drawn,
and not to take any other action with the purpose or effect of receiving
immediately available funds, until the business day following the date of its
delivery to the payee). In the event of any breach of the foregoing, the
Company shall reimburse the Underwriters for the interest lost and any other
expenses borne by them by reason of such breach. Such delivery and payment
shall take place at the offices of Cruttenden Roth Incorporated, 18301 Von
Karman, Suite 100, Irvine, California or at such other place as may be agreed
upon between Cruttenden Roth Incorporated and the Company (i) on the Closing
Date, if written notice of the exercise of such option is received by the
Company at least two (2) full business days prior to the Closing Date, or
(ii) on a date which shall not be later than the third (3rd) full business day
following the date the Company receives written notice of the exercise of such
option, if such notice is received by the Company after the date two (2) full
business days prior to the Closing Date.
The certificates for the Option Shares to be so delivered will be
made available to you at such office or such other location including, without
limitation, in New York City, as you may reasonably request for checking at
least one (1) full business day prior to the date of payment and delivery and
will be in such names and
30
<PAGE>
denominations as you may request, such request to be made at least two (2) full
business days prior to such date of payment and delivery. If Cruttenden Roth
Incorporated so elects, delivery of the Option Shares may be made by credit
through full fast transfer to the accounts at The Depository Trust Company
designated by the Representative.
It is understood that you, individually, and not as the
Representative of the several Underwriters, may (but shall not be obligated to)
make payment of the purchase price on behalf of any Underwriter or Underwriters
whose check or checks shall not have been received by you prior to the date of
payment and delivery for the Option Shares to be purchased by such Underwriter
or Underwriters. Any such payment by you shall not relieve any such Underwriter
or Underwriters of any of its or their obligations hereunder.
(b) Upon exercise of any option provided for in Section 7(a) hereof,
the obligations of the several Underwriters to purchase such Option Shares will
be subject (as of the date hereof and as of the date of payment and delivery for
such Option Shares) to the accuracy of and compliance with the representations,
warranties and agreements of the Company herein, to the accuracy of the
statements of the Company and officers of the Company made pursuant to the
provisions hereof, to the performance by the Company of its obligations
hereunder, to the conditions set forth in Section 6 hereof, and to the condition
that all proceedings taken at or prior to the payment date in connection with
the sale and transfer of such Option Shares shall be satisfactory in form and
substance to you and to Underwriters' Counsel, and you shall have been furnished
with all such documents, certificates and opinions as you may request in order
to evidence the accuracy and completeness of any of the representations,
warranties or statements, the performance of any of the covenants or agreements
of the Company or the satisfaction of any of the conditions herein contained.
31
<PAGE>
8. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject (including, without
limitation, in its capacity as an Underwriter or as a "qualified independent
underwriter" within the meaning of Schedule E of the Bylaws of the NASD), under
the Act, the Exchange Act or otherwise, specifically including, but not limited
to, losses, claims, damages or liabilities (or actions in respect thereof)
arising out of or based upon (i) any breach or facts that would constitute a
breach of any representation, warranty, agreement or covenant of the Company
herein contained, (ii) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement or any amendment or
supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or (iii) any untrue statement or alleged untrue
statement of any material fact contained in any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, and agrees to reimburse each
Underwriter for any legal or other expenses reasonably incurred by it in
connection with investigating or defending any such loss, claim, damage,
liability or action; PROVIDED, HOWEVER, that the Company shall not be liable in
any such case to the extent that any such loss, claim, damage, liability or
action arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in the Registration Statement,
such Preliminary Prospectus or the Prospectus, or any such amendment or
supplement thereto, in reliance upon, and in conformity with, written
information relating to any Underwriter furnished to the Company by such
Underwriter, directly or through you, specifically for use in the preparation
thereof and, PROVIDED FURTHER, that the indemnity agreement provided in this
Section 8(a) with respect to any Preliminary Prospectus shall not inure to the
benefit of any Underwriter from whom the person asserting any losses, claims,
damages, liabilities or actions based upon any untrue statement or alleged
untrue statement of material fact or omission or alleged omission to state
therein a material fact purchased Shares, if a copy of the Prospectus in which
such untrue statement or alleged untrue statement or omission or alleged
omission was corrected had not been sent or given to such person within the time
required by the Act and the Rules and Regulations, unless such failure is the
result of noncompliance by the Company with Section 4(d) hereof.
The Selling Stockholder agrees to indemnify and hold harmless
each Underwriter and each person (including each partner thereof) who controls
any Underwriter within the meaning of Section 15 of the Securities Act, to the
same extent as the foregoing indemnity from the Company to each Underwriter, but
only with respect to losses, claims, damages or liabilities which arise out of
or are based upon (i) any breach or facts that would constitute a breach of any
representation, warranty or covenant of such Selling Stockholder contained in
this Agreement or (ii) information relating to
32
<PAGE>
such Selling Stockholder furnished in writing by or on behalf of such Selling
Stockholder expressly for use in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any amendment or supplement thereto; PROVIDED,
HOWEVER, that the Company shall remain jointly and severally obligated to
indemnify each Underwriter pursuant to this Section 8(a). This indemnity
agreement shall be in addition to any liabilities which the Selling Stockholder
may otherwise have.
The indemnity agreement in this Section 8(a) shall extend upon
the same terms and conditions to, and shall inure to the benefit of, each
person, if any, who controls any Underwriter within the meaning of the Act or
the Exchange Act. This indemnity agreement shall be in addition to any
liabilities which the Company may otherwise have.
(b) Each Underwriter, severally and not jointly, agrees to indemnify
and hold harmless the Company and the Selling Stockholder against any losses,
claims, damages or liabilities, joint or several, to which the Company and the
Selling Stockholder may become subject under the Act or otherwise, specifically
including, but not limited to, losses, claims, damages or liabilities (or
actions in respect thereof) arising out of or based upon (i) any breach of any
representation, warranty, agreement or covenant of such Underwriter herein
contained, (ii) any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement or any amendment or supplement
thereto, or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or (iii) any untrue statement or alleged untrue statement of any
material fact contained in any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto, or the omission or alleged omission to state
therein a material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, in the case of
subparagraphs (ii) and (iii) of this Section 8(b) to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company by such Underwriter, directly or through
you, specifically for use in the preparation thereof, and agrees to reimburse
the Company and the Selling Stockholder for any legal or other expenses
reasonably incurred by the Company and the Selling Stockholder in connection
with investigating or defending any such loss, claim, damage, liability or
action.
The indemnity agreement in this Section 8(b) shall extend upon
the same terms and conditions to, and shall inure to the benefit of, each
officer of the Company who signed the Registration Statement and each director
of the Company, and each person, if any, who controls the Company or the Selling
Stockholder within the meaning of the Act or the Exchange Act. This indemnity
agreement shall be in addition to any liabilities which each Underwriter may
otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, such indemnified party
shall, if a claim
33
<PAGE>
in respect thereof is to be made against any indemnifying party under this
Section 8, notify the indemnifying party in writing of the commencement thereof,
but the omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party otherwise than under
this Section 8 except to the extent that it has been prejudiced by such
omission. In case any such action is brought against any indemnified party, and
it notified the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate therein and, to the extent that it shall
elect by written notice delivered to the indemnified party promptly after
receiving the aforesaid notice from such indemnified party, to assume the
defense thereof, with counsel reasonably satisfactory to such indemnified party;
PROVIDED, HOWEVER, that if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be legal defenses available to it which
are different from or additional to those available to the indemnifying party,
the indemnified party or parties shall have the right to select separate counsel
to assume such legal defenses and to otherwise participate in the defense of
such action on behalf of such indemnified party or parties. Upon receipt of
notice from the indemnifying party to such indemnified party of the indemnifying
party's election so to assume the defense of such action and approval by the
indemnified party of counsel, the indemnifying party will not be liable to such
indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed separate counsel in
accordance with the proviso to the next preceding sentence (it being understood,
however, that the indemnifying party shall not be liable for the expenses of
more than one separate counsel (together with appropriate local counsel)
approved by the indemnifying party representing all the indemnified parties
under Section 8(a) or 8(b) hereof who are parties to such action), (ii) the
indemnifying party shall not have employed counsel reasonably satisfactory to
the indemnified party to represent the indemnified party within a reasonable
time after notice of commencement of the action or (iii) the indemnifying party
has authorized the employment of counsel for the indemnified party at the
expense of the indemnifying party. In no event shall any indemnifying party be
liable in respect of any amounts paid in settlement of any action unless the
indemnifying party shall have approved the terms of such settlement; PROVIDED
that such consent shall not be unreasonably withheld. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnification could have
been sought hereunder by such indemnified party, unless such settlement includes
an unconditional release of such indemnified party from all liability on all
claims that are the subject matter of such proceeding.
(d) In order to provide for just and equitable contribution in any
action in which a claim for indemnification is made pursuant to this Section 8
but it is judicially determined (by the entry of a final judgment or decree by a
court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that
34
<PAGE>
this Section 8 provides for indemnification in such case, all the parties hereto
shall contribute to the aggregate losses, claims, damages or liabilities to
which they may be subject (after contribution from others) in such proportion so
that the Underwriters severally and not jointly are responsible pro rata for the
portion represented by the percentage that the underwriting discount bears to
the public offering price, and the Company and the Selling Stockholder are
responsible for the remaining portion, PROVIDED, HOWEVER, that (i) no
Underwriter shall be required to contribute any amount in excess of the amount
by which the underwriting discount applicable to the Shares purchased by such
Underwriter exceeds the amount of damages which such Underwriter has otherwise
been required to pay and (ii) no person guilty of a fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who is not guilty of such fraudulent
misrepresentation. The contribution agreement in this Section 8(d) shall extend
upon the same terms and conditions to, and shall inure to the benefit of, each
person, if any, who controls any Underwriter or the Company within the meaning
of the Act or the Exchange Act and each officer of the Company who signed the
Registration Statement and each director of the Company.
(e) The parties to this Agreement hereby acknowledge that they are
sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof including, without limitation, the
provisions of this Section 8, and are fully informed regarding said provisions.
They further acknowledge that the provisions of this Section 8 fairly allocate
the risks in light of the ability of the parties to investigate the Company and
its business in order to assure that adequate disclosure is made in the
Registration Statement and Prospectus as required by the Act and the Exchange
Act.
9. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS TO SURVIVE
DELIVERY. All representations, warranties, covenants and agreements of the
Company, the Selling Stockholder and the Underwriters herein or in certificates
delivered pursuant hereto, and the indemnity and contribution agreements
contained in Section 8 hereof shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of any Underwriter
or any person controlling any Underwriter within the meaning of the Act or the
Exchange Act, or the Selling Stockholder or by or on behalf of the Company, or
any of its officers, directors or controlling persons within the meaning of the
Act or the Exchange Act, and any Selling Stockholder shall survive the delivery
of the Shares to the several Underwriters hereunder or termination of this
Agreement.
10. SUBSTITUTION OF UNDERWRITERS. If any Underwriter or Underwriters
shall fail to take up and pay for the number of Firm Shares agreed by such
Underwriter or Underwriters to be purchased hereunder upon tender of such Firm
Shares in accordance with the terms hereof, and if the aggregate number of Firm
Shares which such defaulting Underwriter or Underwriters so agreed but failed to
purchase does not exceed ten percent (10%) of the Firm Shares, the remaining
Underwriters shall be obligated, severally in
35
<PAGE>
proportion to their respective commitments hereunder, to take up and pay for the
Firm Shares of such defaulting Underwriter or Underwriters.
If any Underwriter or Underwriters so defaults and the aggregate
number of Firm Shares which such defaulting Underwriter or Underwriters agreed
but failed to take up and pay for exceeds ten percent (10%) of the Firm Shares,
the remaining Underwriters shall have the right, but shall not be obligated, to
take up and pay for (in such proportions as may be agreed upon among them) the
Firm Shares which the defaulting Underwriter or Underwriters so agreed but
failed to purchase. If such remaining Underwriters do not, at the Closing Date,
take up and pay for the Firm Shares which the defaulting Underwriter or
Underwriters so agreed but failed to purchase, the Closing Date shall be
postponed for twenty-four (24) hours to allow the several Underwriters the
privilege of substituting within twenty-four (24) hours (including non-business
hours) another underwriter or underwriters (which may include any nondefaulting
Underwriter) satisfactory to the Company. If no such underwriter or
underwriters shall have been substituted as aforesaid by such postponed Closing
Date, the Closing Date may, at the option of the Company, be postponed for a
further twenty-four (24) hours, if necessary, to allow the Company the privilege
of finding another underwriter or underwriters, satisfactory to you, to purchase
the Firm Shares which the defaulting Underwriter or Underwriters so agreed but
failed to purchase. If it shall be arranged for the remaining Underwriters or
substituted underwriter or underwriters to take up the Firm Shares of the
defaulting Underwriter or Underwriters as provided in this Section 10, (i) the
Company shall have the right to postpone the time of delivery for a period of
not more than seven (7) full business days, in order to effect whatever changes
may thereby be made necessary in the Registration Statement or the Prospectus,
or in any other documents or arrangements, and the Company agrees promptly to
file any amendments to the Registration Statement, supplements to the Prospectus
or other such documents which may thereby be made necessary, and (ii) the
respective number of Firm Shares to be purchased by the remaining Underwriters
and substituted underwriter or underwriters shall be taken as the basis of their
underwriting obligation. If the remaining Underwriters shall not take up and
pay for all such Firm Shares so agreed to be purchased by the defaulting
Underwriter or Underwriters or substitute another underwriter or underwriters as
aforesaid and the Company shall not find or shall not elect to seek another
underwriter or underwriters for such Firm Shares as aforesaid, then this
Agreement shall terminate.
In the event of any termination of this Agreement pursuant to the
preceding paragraph of this Section 10, then the Company shall not be liable to
any Underwriter (except as provided in Sections 5 and 8 hereof) nor shall any
Underwriter (other than an Underwriter who shall have failed, otherwise than for
some reason permitted under this Agreement, to purchase the number of Firm
Shares agreed by such Underwriter to be purchased hereunder, which Underwriter
shall remain liable to the Company, the Selling Stockholder and the other
Underwriters for damages, if any, resulting from such default) be liable to the
Company or the Selling Stockholder (except to the extent provided in Sections 5
and 8 hereof).
36
<PAGE>
The term "Underwriter" in this Agreement shall include any person
substituted for an Underwriter under this Section 10.
11. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION.
(a) This Agreement shall become effective at the earlier of (i) 6:30
A.M., Pacific daylight savings time, on the first full business day following
the effective date of the Registration Statement, or (ii) the time of the public
offering of any of the Shares by the Underwriters after the Registration
Statement becomes effective. The time of the public offering shall mean the
time of the release by you, for publication, of the first newspaper
advertisement relating to the Shares, or the time at which the Shares are first
generally offered by the Underwriters to the public by letter, telephone,
telegram or telecopy, whichever shall first occur. By giving notice as set
forth in Section 12 before the time this Agreement becomes effective, you, as
Representative of the several Underwriters, or the Company, may prevent this
Agreement from becoming effective without liability of any party to any other
party, except as provided in Sections 4(i) and 8 hereof.
(b) You, as Representative of the several Underwriters, shall have
the right to terminate this Agreement by giving notice as hereinafter specified
at any time on or prior to the Closing Date or on or prior to any later date on
which Option Shares are to be purchased, as the case may be, (i) if the Company
shall have failed in any material respect, refused or been unable to perform any
agreement on its part to be performed, or because any other condition of the
Underwriters' obligations hereunder required to be fulfilled is not fulfilled,
including, without limitation, any change in the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company
or its Subsidiaries from that set forth in the Registration Statement or
Prospectus, which, in your sole judgment, is material and adverse, or (ii) if
additional governmental restrictions, not in force and effect on the date
hereof, shall have been imposed upon trading in securities generally or minimum
or maximum prices shall have been generally established on the New York Stock
Exchange or on the American Stock Exchange or in the over the counter market by
the NASD, or trading in securities generally shall have been suspended on either
such exchange or in the over the counter market by the NASD, or if a banking
moratorium shall have been declared by federal, New York or California
authorities, or (iii) if the Company shall have sustained a loss by strike,
fire, flood, earthquake, accident or other calamity of such character as to
interfere materially with the conduct of the business and operations of the
Company or its Subsidiaries regardless of whether or not such loss shall have
been insured, or (iv) if there shall have been a material adverse change in the
general political or economic conditions or financial markets as in your
judgment makes it inadvisable or impracticable to proceed with the offering,
sale and delivery of the Shares, or (v) if there shall have been an outbreak or
escalation of hostilities or of any other insurrection or armed conflict or the
declaration by the United States of a national emergency which, in the opinion
of Cruttenden Roth Incorporated, makes it impracticable or inadvisable to
proceed with the public offering of the Shares as contemplated by the
Prospectus. In the event of
37
<PAGE>
termination pursuant to subparagraph (i) above, the Company shall remain
obligated to pay costs and expenses pursuant to Sections 4(i), 5 and 8 hereof.
Any termination pursuant to any of subparagraphs (ii) through (v) above shall be
without liability of any party to any other party except as provided in
Sections 4(i) and 8 hereof.
If you elect to prevent this Agreement from becoming effective or to
terminate this Agreement as provided in this Section 11, you shall promptly
notify the Company by telephone, telecopy or telegram, in each case confirmed by
letter. If the Company shall elect to prevent this Agreement from becoming
effective, the Company shall promptly notify you by telephone, telecopy or
telegram, in each case, confirmed by letter.
12. NOTICES. All notices or communications hereunder, except as herein
otherwise specifically provided, shall be in writing and if sent to you shall be
mailed, delivered, telegraphed (and confirmed by letter) or telecopied (and
confirmed by letter) to you c/o Cruttenden Roth Incorporated, 18301 Von Karman,
Suite 100, Irvine, California 92612, telecopier number (714) 852-9603,
Attention: General Counsel; if sent to the Company, such notice shall be
mailed, delivered, telegraphed (and confirmed by letter) or telecopied (and
confirmed by letter) to Tag-It Pacific, Inc., 3820 South Hill Street, Los
Angeles, California 90037, telecopier number (213) 234-9606, Attention: Mark
Dyne.
13. PARTIES. This Agreement shall inure to the benefit of and be binding
upon the several Underwriters, the Company and the Selling Stockholder and their
respective executors, administrators, successors and assigns. Nothing expressed
or mentioned in this Agreement is intended or shall be construed to give any
person or entity, other than the parties hereto and their respective executors,
administrators, successors and assigns, and the controlling persons within the
meaning of the Act or the Exchange Act, officers and directors referred to in
Section 8 hereof, any legal or equitable right, remedy or claim in respect of
this Agreement or any provisions herein contained, this Agreement and all
conditions and provisions hereof being intended to be and being for the sole and
exclusive benefit of the parties hereto and their respective executors,
administrators, successors and assigns and said controlling persons and said
officers and directors, and for the benefit of no other person or entity. No
purchaser of any of the Shares from any Underwriter shall be construed a
successor or assign by reason merely of such purchase.
In all dealings with the Company under this Agreement, you shall act
on behalf of each of the several Underwriters, and the Company shall be entitled
to act and rely upon any statement, request, notice or agreement made or given
by you.
14. APPLICABLE LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of California.
15. COUNTERPARTS. This Agreement may be signed in several counterparts,
each of which will constitute an original.
38
<PAGE>
If the foregoing correctly sets forth the understanding among the Company,
the Selling Stockholder and the several Underwriters, please so indicate in the
space provided below for that purpose, whereupon this letter shall constitute a
binding agreement between the Company, the Selling Stockholder and the several
Underwriters.
Very truly yours,
TAG-IT PACIFIC, INC.
By:
Name:
Title:
SELLING SHAREHOLDER:
-----
Accepted as of the date first above written:
CRUTTENDEN ROTH INCORPORATED
On their behalf and on behalf of each of the
several Underwriters named in Schedule A hereto.
By CRUTTENDEN ROTH INCORPORATED
By
-------------------------------
Authorized Signatory
39
<PAGE>
SCHEDULE A
Number of Firm
Shares To Be Number of Firm Shares
Purchased From the To Be Purchased From the
Underwriters Company Selling Stockholder
Cruttenden Roth
Incorporated __________ ___________
Total __________ ___________
40
<PAGE>
TAG-IT PACIFIC, INC.
COMMON STOCK WARRANT
THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED AND MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED UNLESS THERE IS
AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR THE COMPANY RECEIVES AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH SALE OR TRANSFER IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
This certifies that, for good and valuable consideration, receipt of
which is hereby acknowledged, Cruttenden Roth Incorporated ("Holder") is
entitled to purchase, subject to the terms and conditions of this Warrant, from
Tag-It Pacific, Inc., a Delaware corporation (the "Company"), 100,000 fully paid
and nonassessable shares of the Common Stock ("Common Stock") of the Company, in
accordance with Section 2 during the period commencing one year from the date
hereof and ending at 5:00 p.m. California time, December ___, 2003 (the
"Expiration Date"), at which time this Warrant will expire and become void
unless earlier terminated as provided herein. The shares of Common Stock of the
Company for which this Warrant is exercisable as adjusted from time to time
pursuant to the terms hereof, are hereinafter referred to as the "Shares."
1. EXERCISE PRICE. The initial purchase price for the Shares shall
be $_____ per share. Such price shall be subject to adjustment pursuant to the
terms hereof (such price, as adjusted from time to time, is hereinafter referred
to as the "Exercise Price").
2. EXERCISE AND PAYMENT.
(a) CASH EXERCISE. At any time after December ___, 1998, this
Warrant may be exercised, in whole or in part, from time to time by the Holder,
during the term hereof, by surrender of this Warrant and the Notice of Exercise
annexed hereto duly completed and executed by the Holder to the Company at the
principal executive offices of the Company, together with payment in the amount
obtained by multiplying the Exercise Price then in effect by the number of
Shares thereby purchased, as designated in the Notice of Exercise. Payment may
be in cash or by check payable to the order of the Company.
(b) NET ISSUANCE. In lieu of payment of the Exercise Price
described in Section 2(a), the Holder may elect to receive, without the payment
by the Holder of any additional consideration, shares equal to the value of this
Warrant or any portion hereof by the surrender of this Warrant or such portion
to the Company, with the net issue election notice annexed hereto (the "Net
Issuance Election Notice") duly executed, at the
1
<PAGE>
office of the Company. Thereupon, the Company shall issue to the Holder such
number of fully paid and nonassessable shares of Common Stock as is computed
using the following formula:
where:X = Y (A-B)
------
A
X = the number of shares to be issued to the Holder pursuant to this
Section 2.
Y = the number of shares covered by this Warrant in respect of which the
net issuance election is made pursuant to this Section 2.
A = the fair market value of one share of Common Stock, as determined in
accordance with the provisions of this Section 2.
B = the Exercise Price in effect under this Warrant at the time the net
issuance election is made pursuant to this Section 2.
For purposes of this Section 2, the "fair market value" per share of the
Company's Common Stock shall mean:
i. If the Common Stock is traded on a national securities
exchange or admitted to unlisted trading privileges on such an exchange, or
is listed on the Nasdaq National Market (the "NNM") or other over-the-
counter quotation system, the fair market value shall be the last reported
sale price of the Common Stock on such exchange or on the NNM or other
over-the-counter quotation system on the last business day before the
effective date of exercise of the net issuance election or if no such sale
is made on such day, the mean of the closing bid and asked prices for such
day on such exchange, the NNM or over-the-counter quotation system; and
ii. If the Common Stock is not so listed or admitted to unlisted
trading privileges and bid and ask prices are not reported, the fair market
value shall be the price per share which the Company could obtain from a
willing buyer for shares sold by the Company from authorized but unissued
shares, as such price shall be determined by mutual agreement of the
Company and the Holder of this Warrant. If the Company and the Holder
cannot mutually agree on such price, the fair market value shall be made by
an appraiser of recognized standing selected by the Holder and the Company,
or, if they cannot agree on an appraiser, each of the Company and the
Holder shall select an appraiser of recognized standing and the two
appraisers shall designate a third appraiser of recognized standing, whose
appraisal shall be determinative of such value.
3. DELIVERY OF STOCK CERTIFICATES. Within a reasonable time after
exercise, in whole or in part, of this Warrant, the Company shall issue in the
name of and
2
<PAGE>
deliver to the Holder, a certificate or certificates for the number of fully
paid and nonassessable shares of Common Stock which the Holder shall have
requested in the Notice of Exercise or Net Issuance Election Notice. If this
Warrant is exercised in part, the Company shall deliver to the Holder a new
Warrant for the unexercised portion of this Warrant at the time of delivery of
such stock certificate or certificates.
4. NO FRACTIONAL SHARES. No fractional shares or scrip representing
fractional shares will be issued upon exercise of this Warrant. If upon any
exercise of this Warrant a fraction of a share results, the Company will pay the
Holder the difference between the cash value of the fractional share and the
portion of the Exercise Price allocable to the fractional share.
5. CHARGES, TAXES AND EXPENSES. The Holder shall pay all transfer
taxes or other incidental charges, if any, in connection with the transfer of
the Shares purchased pursuant to the exercise hereof from the Company to the
Holder.
6. LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT. Upon receipt
by the Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to the Company,
and upon reimbursement to the Company of all reasonable expenses incidental
thereto, and upon surrender and cancellation of this Warrant, if mutilated, the
Company will make and deliver a new Warrant of like tenor and dated as of such
cancellation, in lieu of this Warrant.
7. SATURDAYS, SUNDAYS, HOLIDAYS, ETC. If the last or appointed day
for the taking of any action or the expiration of any right required or granted
herein shall be a Saturday or a Sunday or shall be a legal holiday, then such
action may be taken or such right may be exercised on the next succeeding
weekday which is not a legal holiday.
8. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES. The number of
and kind of securities purchasable upon exercise of this Warrant and the
Exercise Price shall be subject to adjustment from time to time as follows:
(a) SUBDIVISIONS, COMBINATIONS AND OTHER ISSUANCES. If the
Company shall at any time after the date hereof but prior to the expiration of
this Warrant subdivide its outstanding securities as to which purchase rights
under this Warrant exist, by split-up or otherwise, or combine its outstanding
securities as to which purchase rights under this Warrant exist, the number of
Shares as to which this Warrant is exercisable as of the date of such
subdivision, split-up or combination shall forthwith be proportionately
increased in the case of a subdivision, or proportionately decreased in the case
of a combination. Appropriate adjustments shall also be made to the purchase
price payable per share, but the aggregate purchase price payable for the total
number of Shares purchasable under this Warrant as of such date shall remain the
same.
(b) STOCK DIVIDEND. If at any time after the date hereof the
3
<PAGE>
Company declares a dividend or other distribution on Common Stock payable in
Common Stock or other securities or rights convertible into Common Stock
("Common Stock Equivalents") without payment of any consideration by such holder
for the additional shares of Common Stock or the Common Stock Equivalents
(including the additional shares of Common Stock issuable upon exercise or
conversion thereof), then the number of shares of Common Stock for which this
Warrant may be exercised shall be increased as of the record date (or the date
of such dividend distribution if no record date is set) for determining which
holders of Common Stock shall be entitled to receive such dividend, in
proportion to the increase in the number of outstanding shares (and shares of
Common Stock issuable upon conversion of all such securities convertible into
Common Stock) of Common Stock as a result of such dividend, and the Exercise
Price shall be adjusted so that the aggregate amount payable for the purchase of
all the Shares issuable hereunder immediately after the record date (or on the
date of such distribution, if applicable), for such dividend shall equal the
aggregate amount so payable immediately before such record date (or on the date
of such distribution, if applicable).
(c) OTHER DISTRIBUTIONS. If at any time after the date hereof
the Company distributes to holders of its Common Stock, other than as part of
its dissolution or liquidation or the winding up of its affairs, any shares of
its capital stock, any evidence of indebtedness or any of its assets (other than
cash, Common Stock or securities convertible into Common Stock), then the
Company may, at its option, either (i) decrease the per share Exercise Price of
this Warrant by an appropriate amount based upon the value distributed on each
share of Common Stock as determined in good faith by the Company's Board of
Directors or (ii) provide by resolution of the Company's Board of Directors that
on exercise of this Warrant, the Holder hereof shall thereafter be entitled to
receive, in addition to the shares of Common Stock otherwise receivable on
exercise hereof, the number of shares or other securities or property which
would have been received had this Warrant at the time been exercised.
(d) MERGER. If at any time after the date hereof there shall be
a merger or consolidation of the Company with or into another corporation when
the Company is not the surviving corporation then the Holder shall thereafter be
entitled to receive upon exercise of this Warrant, during the period specified
herein and upon payment of the aggregate Exercise Price then in effect, the
number of shares or other securities or property of the successor corporation
resulting from such merger or consolidation, which would have been received by
Holder for the shares of stock subject to this Warrant had this Warrant at such
time been exercised.
(e) RECLASSIFICATION, ETC. If at any time after the date hereof
there shall be a change or reclassification of the securities as to which
purchase rights under this Warrant exist into the same or a different number of
securities of any other class or classes, then the Holder shall thereafter be
entitled to receive upon exercise of this Warrant, during the period specified
herein and upon payment of the Exercise Price then in effect, the number of
shares or other securities or property resulting from such change or
reclassification, which would have been received by Holder for the shares of
stock subject to this Warrant had this
4
<PAGE>
Warrant at such time been exercised.
9. NOTICE OF ADJUSTMENTS; NOTICES. Whenever the Exercise Price or
number of Shares purchasable hereunder shall be adjusted pursuant to Section 8
hereof, the Company shall execute and deliver to the Holder a certificate
setting forth, in reasonable detail, the event requiring the adjustment, the
amount of the adjustment, the method by which such adjustment was calculated and
the Exercise Price and number of shares purchasable hereunder after giving
effect to such adjustment, and shall cause a copy of such certificate to be
mailed (by first class mail, postage prepaid) to the Holder.
10. RIGHTS AS SHAREHOLDER. Prior to exercise of this Warrant, the
Holder shall not be entitled to any rights as a shareholder of the Company with
respect to the Shares, including (without limitation) the right to vote such
Shares, receive dividends or other distributions thereon, or be notified of
shareholder meetings, and the Holder shall not be entitled to any notice or
other communication concerning the business or affairs of the Company. However,
in the event of any taking by the Company of a record of the holders of any
class of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend (other than a cash dividend) or other
distribution, any right to subscribe for, purchase or otherwise acquire any
shares of stock of any class or any other securities or property, or to receive
any other right, the Company shall mail to each Holder of this Warrant, at least
10 days prior to the date specified therein, a notice specifying the date on
which any such record is to be taken for the purpose of such dividend,
distribution or right, and the amount and character of such dividend,
distribution or right.
11. RESTRICTED SECURITIES. The Holder understands that this Warrant
and the Shares purchasable hereunder constitute "restricted securities" under
the federal securities laws inasmuch as they are, or will be, acquired from the
Company in transactions not involving a public offering and accordingly may not,
under such laws and applicable regulations, be resold or transferred without
registration under the Securities Act of 1933, as amended (the "1933 Act") or an
applicable exemption from such registration. In this connection, the Holder
acknowledges that Rule 144 of the Securities and Exchange Commission (the "SEC")
is not now, and may not in the future be, available for resales of the Warrant
and the Shares purchasable hereunder. Unless the Shares are subsequently
registered pursuant to Section 14, the Holder further acknowledges that the
securities legend on Exhibit A to the Notice of Exercise attached hereto shall
be placed on any Shares issued to the Holder upon exercise of this Warrant.
12. CERTIFICATION OF INVESTMENT PURPOSE. Unless a current
registration statement under the 1933 Act shall be in effect with respect to the
securities to be issued upon exercise of this Warrant, the Holder covenants and
agrees that, at the time of exercise hereof, it will deliver to the Company a
written certification executed by the Holder that the securities acquired by him
upon exercise hereof are for the account of such Holder and acquired for
investment purposes only and that such securities are not acquired with a view
to, or for sale in connection with, any distribution thereof.
5
<PAGE>
13. DISPOSITION OF SHARES. Holder hereby agrees not to make any
disposition of any Shares purchased hereunder unless and until:
(a) Holder shall have notified the Company of the proposed
disposition and provided a written summary of the terms and conditions of the
proposed disposition;
(b) Holder shall have complied with all requirements of this
Warrant applicable to the disposition of the Shares; and
(c) Holder shall have provided the Company with written
assurances, in form and substance satisfactory to legal counsel of the Company,
that (i) the proposed disposition does not require registration of the Shares
under the 1933 Act or (ii) all appropriate action necessary for compliance with
the registration requirements of the 1933 Act or of any exemption from
registration available under the 1933 Act has been taken.
The Company shall NOT be required (i) to transfer on its books
any Shares which have been sold or transferred in violation of the provisions of
this Section 13 or (ii) to treat as the owner of the Shares, or otherwise to
accord voting or dividend rights to, any transferee to whom the Shares have been
transferred in contravention of the terms of this Warrant.
14. REGISTRATION RIGHTS.
(a) PIGGYBACK REGISTRATION. If at any time during the five-year
period commencing December ___, 1998 and ending on December ___, 2003, the
Company shall determine to register for its own account or the account of others
under the 1933 Act any of its equity securities, other than on Form S-4 or Form
S-8 or their then equivalents relating to equity securities to be issued solely
in connection with any acquisition of any entity or business, or equity
securities issuable in connection with stock option or other employee benefit
plans, the Company shall send to each Holder of Warrants or Shares, who is
entitled to registration rights under this Section 14(a) written notice of such
determination and, if within twenty (20) days after receipt of such notice, such
Holder shall so request in writing (hereafter a "Selling Holder"), the Company
shall include in such Registration Statement all or any part of the Shares
issuable upon exercise of the Warrants (the "Registrable Securities") such
Selling Holder requests to be registered. The obligations of the Company under
this Section 14(a) may be waived by Holders holding a majority in interest of
the Registrable Securities. In the event that the managing underwriter for said
offering advises the Company in writing that the inclusion of such Registrable
Securities in the offering would be materially detrimental to the offering, then
the Company shall be required to include in the offering only that number of
Registrable Securities which the managing underwriter determines in its sole
discretion will not jeopardize the success of the offering (the Registrable
Securities so included to be apportioned pro rata among all Selling Holders
according to the total amount of Registrable Securities entitled to be included
therein owned by each selling holder or in such other proportions as shall
mutually be agreed to by
6
<PAGE>
such selling holders); PROVIDED HOWEVER, that in no event shall any Holder of
Registrable Securities have the number of shares of such securities reduced in
such offer unless and until any holders of non-Registrable Securities intending
to participate in such offering (which selling holders' registration rights, if
any, were granted by the Company from and after the date hereof) first shall
have had the number of their shares of such securities reduced up to the amount
of securities the managing underwriter has determined in its sole discretion
shall be excluded from the offering; and PROVIDED FURTHER, that in no event
shall any Shares being sold by a Holder properly exercising a demand
registration granted in Section 14(b) be excluded from such offering.
(b) DEMAND REGISTRATION. In addition to any Registration
Statement pursuant to subparagraph (a) above, during the five-year period
beginning on December ___, 1998 and ending on December ___, 2003, the Company
will, as promptly as practicable (but in any event within 60 days), after
written request (the "REQUEST") by the Holder, or by a person or persons holding
(or having the right to acquire by virtue of holding the Warrants) at least 50%
of the Shares which have been (or may be) issued upon exercise of the Warrants
(such Holder or Holders to be included in the definition of "Selling Holder" for
the purposes of Section 14(c) hereof), prepare and file at its own expense a
Registration Statement with the SEC and appropriate "blue sky" authorities
sufficient to permit the public offering of the Registrable Securities and will
use its best efforts at its own expense through its officers, directors,
auditors and counsel, in all matters necessary or advisable, to cause such
Registration Statement to become effective as promptly as practicable and to
maintain such effectiveness so as to permit resale of the Shares covered by the
Request until the earlier of the time that all such Shares have been sold or the
expiration of 120 days from the effective date of the Registration Statement;
PROVIDED, HOWEVER, that the Company shall only be obligated to file one such
Registration Statement under this Section 14(b).
(c) OBLIGATIONS OF THE HOLDERS. In connection with the
registration of the Registrable Securities pursuant to either Sections 14(a) or
(b), the Selling Holders shall have the following obligations:
i. It shall be a condition precedent to the obligations of
the Company to take any action pursuant to this Agreement with respect to each
Selling Holder that such Selling Holder shall furnish to the Company such
information regarding itself, the Registrable Securities held by it and the
intended method of disposition of the Registrable Securities held by it as shall
be reasonably required to effect the registration of the Registrable Securities
and shall execute such documents in connection with such registration as the
Company may reasonably request. At least fifteen (15) days prior to the first
anticipated filing date of the Registration Statement, the Company shall notify
each Selling Holder of the information the Company requires from each such
Selling Holder (the "Requested Information") in the case of a Registration
Statement being prepared pursuant to Section 14(b) or if such Selling Holder
elects to have any of such Selling Holder's Registrable Securities included in
the Registration Statement in the case of a Registration Statement being
prepared pursuant to Section 14(a).
7
<PAGE>
ii. Each Selling Holder by such Selling Holder's acceptance
of the Registrable Securities agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of the
Registration Statement hereunder, unless such Selling Holder has notified the
Company in writing of such Selling Holder's election to exclude all of such
Selling Holder's Registrable Securities from the Registration Statement; and
iii. No Selling Holder may participate in any underwritten
registration hereunder unless such Selling Holder (i) agrees to sell such
Selling Holder's Registrable Securities on the basis provided in any
underwriting arrangements, (ii) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
reasonably required under the terms of such underwriting arrangements, and (iii)
agrees to pay its pro rata share of all underwriting discounts and commissions
and other fees and expenses of investment bankers and any manager or managers of
such underwriting, except as provided in Section 14(d) below.
(d) EXPENSES OF REGISTRATION. All expenses, other than
underwriting discounts and commissions and other fees and expenses of investment
bankers and other than brokerage commissions, incurred in connection with
registrations, filings or qualifications pursuant to Section 14(a) or 14(b),
including, without limitation, all registration, listing and qualifications
fees, printers and accounting fees and the fees and disbursements of counsel for
the Company and the Selling Holders, shall be borne by the Company; PROVIDED,
HOWEVER, that the Company shall only be required to bear the fees and out-of-
pocket expenses (up to $25,000) of one legal counsel selected by the Selling
Holders in connection with each such registration.
(e) INDEMNIFICATION. In the event any Registrable Securities
are included in a Registration Statement under this Agreement:
i. To the extent permitted by law, the Company will
indemnify and hold harmless each Selling Holder who holds such Registrable
Securities, the directors, if any, of such Selling Holder, the officers, if any,
of such Selling Holder, each person, if any, who controls any Selling Holder
within the meaning of the 1933 Act, any underwriter (as defined in the 1933 Act)
for the Selling Holders, the directors, if any, of such underwriter and the
officers, if any, of such underwriter, and each person, if any, who controls any
such underwriter within the meaning of the 1933 Act (each, an "Indemnified
Person"), against any losses, claims, damages, expenses or liabilities (joint or
several) (collectively, "Claims") to which any of them may become subject under
the 1933 Act or otherwise, insofar as such Claims (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement when it first became effective, or any
related final prospectus, amendment or supplement thereto, or the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which the statements therein were made, not misleading (a "Violation"). The
Company shall reimburse
8
<PAGE>
the Selling Holders and each such underwriter or controlling person, promptly as
such expenses are incurred and are due and payable, for any legal fees or other
reasonable expenses incurred by them in connection with investigating or
defending any such Claim. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 14(e)(i) shall
not apply in such case to the extent any such Claim arising out of or based upon
a Violation which occurs in reliance upon and in conformity with information
furnished in writing to the Company by any Indemnified Person or underwriter for
such Indemnified Person expressly for use in connection with the preparation of
the Registration Statement or any such amendment thereof or supplement thereto,
and shall not apply to amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of the Company, which
consent shall not be unreasonably withheld.
ii. In connection with any Registration Statement in which
a Selling Holder is participating, each such Selling Holder agrees to indemnify
and hold harmless, to the same extent and in the same manner set forth in
Section 14(e)(i), the Company, each of its directors, each of its officers who
signs the Registration Statement, each person, if any, who controls the Company
within the meaning of the 1933 Act, any underwriter and any other shareholder
selling securities pursuant to the Registration Statement or any of its
directors or officers or any person who controls such shareholder or underwriter
within the meaning of the 1933 Act (collectively and together with an
Indemnified Person, an "Indemnified Party"), against any Claim to which any of
them may become subject, under the 1933 Act or otherwise, insofar as such Claim
arises out of or is based upon any Violation, in each case to the extent (and
only to the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished to the Company by such Selling
Holder expressly for use in connection with such Registration Statement, and
such Selling Holder will reimburse any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such Claim;
PROVIDED, HOWEVER, that the indemnity agreement contained in this Section
14(e)(ii) shall not apply to amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of such Selling Holder,
which consent shall not be unreasonably withheld.
iii. The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities industry
professionals participating in any distribution to the same extent as provided
above, with respect to information furnished in writing by such persons
expressly for inclusion in the Registration Statement.
iv. Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 14(e) of notice of the commencement of any
action (including any governmental action), such Indemnified Person or
Indemnified Party shall, if a Claim in respect thereof is made against any
indemnifying party under this Section 14(e), deliver to the indemnifying party a
written notice of the commencement thereof and the indemnifying party shall have
the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
9
<PAGE>
control of the defense thereof with counsel mutually satisfactory to the
indemnifying parties; PROVIDED, HOWEVER, that an Indemnified Person or
Indemnified Party shall have the right to retain its own counsel, with the fees
and expenses to be paid by the indemnifying party, if, in the reasonable opinion
of counsel retained by the indemnifying party, the representation by such
counsel of the Indemnified Person or Indemnified Party and the indemnifying
party would be inappropriate due to actual or potential differing interests
between such Indemnified Person or Indemnified Party and any other party
represented by such counsel in such proceeding. The Indemnifying Party shall
pay for only one separate legal counsel for the Indemnified Parties; such legal
counsel shall be selected by the Indemnified Parties holding a majority in
interest of the Registrable Securities. The failure to deliver written notice
to the indemnifying party within a reasonable time of the commencement of any
such action shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 14(e), except to the
extent that the indemnifying party is prejudiced in its ability to defend such
action. The indemnification required by this Section 14(e) shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, as such expense, loss, damage or liability is incurred and is due
and payable.
v. Notwithstanding any of the foregoing, if, in connection with
an underwritten public offering of Registrable Securities, the Company, the
Selling Holders and the underwriter(s) enter into an underwriting or purchase
agreement relating to such offering which contains provisions covering
indemnification and contribution among the parties, the indemnification and
contribution provisions of this Section 14(e) shall be deemed inoperative for
purposes of such offering.
(e) CONTRIBUTION. To the extent any indemnification by an
indemnifying party is prohibited or limited by law, the indemnifying party
agrees to make the maximum contribution with respect to any amounts for which it
would otherwise be liable under Section 14(e) to the fullest extent permitted by
law; PROVIDED, HOWEVER, that (i) no contribution shall be made under
circumstances where the maker would not have been liable for indemnification
under the fault standards set forth in Section 14(e), (ii) no seller of
Registrable Securities guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from
any seller of Registrable Securities who was not guilty of such fraudulent
misrepresentation, and (iii) contribution by any seller of Registrable
Securities shall be limited in amount to the net amount of proceeds received by
such seller from the sale of such Registrable Securities.
(f) REPORTS UNDER EXCHANGE ACT. With a view to making available
to the Holders the benefits of Rule 144 promulgated under the 1933 Act or any
other similar rule or regulation of the SEC that may at any time permit the
Holders to sell securities of the Company to the public without registration
("Rule 144"), the Company agrees to:
i. use its best efforts to make and keep public
information available, as those terms are understood and defined in Rule 144;
and
10
<PAGE>
ii. use its best efforts to file with the SEC in a timely
manner all reports and other documents required of the Company under the 1933
Act and the Securities Exchange Act of 1934, as amended (the "Exchange Act");
and
iii. furnish to each Holder so long as such Holder owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company with respect to its compliance with the reporting requirements of Rule
144, (ii) a copy of the most recent annual or quarterly report of the Company
and such other reports and documents so filed by the Company, and (iii) such
other information as may be reasonably requested to permit the Holders to sell
such securities without registration pursuant to Rule 144.
(g) ASSIGNMENT OF THE REGISTRATION RIGHTS. The rights to have
the Company register Registrable Securities pursuant to this Agreement shall be
automatically assigned by the Holders to transferees or assignees of all or any
portion of such securities only if: (i) the Holder agrees in writing with the
transferee or assignee to assign such rights, (ii) the Company is, within a
reasonable time after such transfer or assignment, furnished with written notice
of the name and address of such transferee or assignee (iii) such assignment is
in accordance with and permitted by law and all other agreements between the
transferor or assignor and the Company, including without limitation,
shareholder's agreements, warrants and subscription agreements, and the
transferor or assignor otherwise is not in material default of any obligation to
the Company under any such other agreement, and (iv) at or before the time the
Company received the written notice contemplated by clause (ii) of this sentence
the transferee or assignee agrees in writing with the Company to be bound by all
of the provisions contained herein.
(h) TERMINATION OF REGISTRATION RIGHTS. No Holder of Warrants
or Shares shall be entitled to exercise any right provided for in this Section
14 at such time as such Holder would be able to dispose of all of its
Registrable Securities in any three (3) month period under SEC Rule 144 or any
successor rule thereto.
15. TRANSFERABILITY.
(a) GENERAL. This Warrant shall be transferable only on the
books of the Company maintained at its principal office in Dallas, Delaware or
wherever its principal office may then be located, upon delivery thereof duly
endorsed by the Holder or by its duly authorized attorney or representative,
accompanied by proper evidence of succession, assignment or authority to
transfer. Upon any registration of transfer, the Company shall execute and
deliver new Warrants to the person entitled thereto.
(b) LIMITATIONS ON TRANSFER. This Warrant shall not be sold,
transferred, assigned or hypothecated by the Holder except to (i) one or more
persons, each of whom on the date of transfer is an officer of the Holder; (ii)
a general partnership or general partnerships, the general partners of which are
the Holder and one or more persons, each of whom on the date of transfer is an
officer of the Holder; (iii) a successor to the Holder in any merger or
consolidation; (iv) a purchaser of all or substantially all of the
11
<PAGE>
Holder's assets; or (v) any person receiving this Warrant from one or more of
the persons listed in this Section 15(b) at such person's or persons' death
pursuant to will, trust or the laws of intestate succession. This Warrant may
be divided or combined, upon request to the Company by the Holder, into a
certificate or certificates representing the right to purchase the same
aggregate number of Shares.
16. MISCELLANEOUS.
(a) CONSTRUCTION. Unless the context indicates otherwise, the
term "Holder" shall include any transferee or transferees of this Warrant
pursuant to Section 15(b), and the term "Warrant" shall include any and all
warrants outstanding pursuant to this Agreement, including those evidenced by a
certificate or certificates issued upon division, exchange, substitution or
transfer pursuant to Section 15(b).
(b) RESTRICTIONS. By receipt of this Warrant, the Holder makes
the same representations with respect to the acquisition of this Warrant as the
Holder is required to make upon the exercise of this Warrant and acquisition of
the Shares purchasable hereunder as set forth in the Form of Investment Letter
attached as Exhibit A to the Notice of Exercise attached hereto.
(c) NOTICES. Unless otherwise provided, any notice required or
permitted under this Warrant shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or three
(3) days following deposit with the United States Post Office, by registered or
certified mail, postage prepaid and addressed to the party to be notified (or
one (1) day following timely deposit with a reputable overnight courier with
next day delivery instructions), or upon confirmation of receipt by the sender
of any notice by facsimile transmission, at the address indicated below or at
such other address as such party may designate by ten (10) days' advance written
notice to the other parties.
To Holder: Cruttenden Roth Incorporated
18301 Von Karman, Suite 100
Irvine, California 92612
Attention: Charles O. Thompson, III
To the Company: Tag-It Pacific, Inc.
3820 South Hill Street
Los Angeles, California 90037
Attention: President
(d) GOVERNING LAW. This Warrant shall be governed by and
construed under the laws of the State of Delaware as applied to agreements among
Delaware residents entered into and to be performed entirely within Delaware.
(e) ENTIRE AGREEMENT. This Warrant, the exhibits and schedules
12
<PAGE>
hereto, and the documents referred to herein, constitute the entire agreement
and understanding of the parties hereto with respect to the subject matter
hereof, and supersede all prior and contemporaneous agreements and
understandings, whether oral or written, between the parties hereto with respect
to the subject matter hereof.
(f) BINDING EFFECT. This Warrant and the various rights and
obligations arising hereunder shall inure to the benefit of and be binding upon
the Company and its successors and assigns, and Holder and its successors and
assigns.
(g) WAIVER; CONSENT. This Warrant may not be changed, amended,
terminated, augmented, rescinded or discharged (other than by performance), in
whole or in part, except by a writing executed by the parties hereto, and no
waiver of any of the provisions or conditions of this Warrant or any of the
rights of a party hereto shall be effective or binding unless such waiver shall
be in writing and signed by the party claimed to have given or consented
thereto.
(h) SEVERABILITY. If one or more provisions of this Warrant are
held to be unenforceable under applicable law, such provision shall be excluded
from this Warrant and the balance of the Warrant shall be interpreted as if such
provision were so excluded and the balance shall be enforceable in accordance
with its terms.
13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Common Stock
Warrant effective as of the date hereof.
DATED: _____________________, 1997 THE COMPANY:
Tag-It Pacific, Inc.
By:
-----------------------------------
Name:
---------------------------------
Title:
-------------------------------
HOLDER:
Cruttenden Roth Incorporated
By:
-----------------------------------
Name:
---------------------------------
Title:
-------------------------------
14
<PAGE>
NOTICE OF EXERCISE
To: TAG-IT PACIFIC, INC.
The undersigned hereby elects to purchase _____________ shares of
Common Stock ("STOCK") of Tag-It Pacific, Inc., a Delaware corporation (the
"COMPANY") pursuant to the terms of the attached Warrant, and tenders herewith
payment of the purchase price pursuant to the terms of the Warrant.
Attached as Exhibit A is an investment representation letter addressed
to the Company and executed by the undersigned as required by Section 12 of the
Warrant.
Please issue certificates representing the shares of Stock purchased
hereunder in the names and in the denominations indicated on Exhibit A attached
hereto.
Please issue a new Warrant for the unexercised portion of the attached
Warrant, if any, in the name of the undersigned.
Dated:
---------------------------- --------------------------------
Name:
--------------------------------
Title:
--------------------------------
15
<PAGE>
NET ISSUANCE ELECTION NOTICE
To: TAG-IT PACIFIC, INC.
Date:_____________
The undersigned hereby elects under Section 2 of the attached Warrant
to surrender the right to purchase ___________ shares of Common Stock pursuant
to the attached Warrant. The Certificate(s) for the shares issuable upon such
net issuance election shall be issued in the name of the undersigned or as
otherwise indicated below.
Attached as Exhibit A is an investment representation letter addressed
to the Company and executed by the undersigned as required by Section 12 of the
Warrant.
Please issue certificates representing the shares of Stock purchased
hereunder in the names and in the denominations indicated on Exhibit A attached
hereto.
Please issue a new Warrant for the unexercised portion of the attached
Warrant, if any, in the name of the undersigned.
___________________________
Signature
___________________________
Name for Registration
___________________________
Mailing Address
16
<PAGE>
EXHIBIT A
To: TAG-IT PACIFIC, INC.
In connection with the purchase by the undersigned of ___________
shares of the Common Stock (the "STOCK") of Tag-It Pacific, Inc., a Delaware
corporation (the "COMPANY"), upon exercise of that certain Common Stock Warrant
dated as of_______, the undersigned hereby represents and warrants as follows:
The shares of Stock to be received by the undersigned upon exercise of
the Warrant are being acquired for its own account, not as a nominee or agent,
and not with a view to resale or distribution of any part thereof, and the
undersigned has no present intention of selling, granting any participation in,
or otherwise distributing the same. The undersigned further represents that it
does not have any contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participation to such person or to any third
person, with respect to the Stock. The undersigned believes it has received all
the information it considers necessary or appropriate for deciding whether to
purchase the Stock.
The undersigned understands that the shares of Stock are characterized
as "restricted securities" under the federal securities laws inasmuch as they
are being acquired from the Company in transactions not involving a public
offering and that under such laws and applicable regulations such securities may
be resold without registration under the Securities Act of 1933, as amended (the
"ACT"), only in certain limited circumstances. In this connection, the
undersigned represents that it is familiar with SEC Rule 144, as presently in
effect, and understands the resale limitations imposed thereby and by the Act.
Without in any way limiting the representations set forth above, the
undersigned agrees not to make any disposition of all or any portion of the
Stock unless and until:
There is then in effect a registration statement under the Act
covering such proposed disposition and such disposition is made in accordance
with such registration statement; or
(i) The undersigned shall have notified the Company of the proposed
disposition and shall have furnished the Company with a detailed statement of
the circumstances surrounding the proposed disposition, and (ii) if requested,
the undersigned shall have furnished the Company with an opinion of counsel,
reasonably satisfactory to the Company that such disposition will not require
registration of such shares under the Act. The Company will not require an
opinion of counsel for sales made pursuant to Rule 144 except in unusual
circumstances.
The undersigned understands the instruments evidencing the Stock may
bear
17
<PAGE>
the following legend:
THIS CERTIFICATE AND THE SHARES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED AND MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED UNLESS THERE IS
AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR THE COMPANY RECEIVES AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH SALE OR TRANSFER IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
Dated:
---------------------------- --------------------------------
Name:
--------------------------------
Title:
--------------------------------
18
<PAGE>
EXHIBIT 2.1
EXCHANGE AGREEMENT
This Exchange Agreement (the "Agreement") is made and entered into this
17th day of October, 1997, by and among Tag-It Pacific L.L.C., a Delaware
limited liability company (the "Company"), Tag-It, Inc., a California
corporation ("Tag-It"), Tag-It Printing & Packaging Ltd., a BVI corporation
("Tag-It Hong Kong"), AGS Holdings L.L.C., a Delaware limited liability
company and a subsidiary of the Company ("AGS LLC"), AGS Stationery, Inc., a
California corporation ("AGS Stationery"), Pacific Trim & Belt, Inc., a
California corporation ("Pacific Trim"), each of the shareholders and warrant
holders of Tag-It listed on Attachment "A" hereto ("Tag-It Shareholders" and
"Tag-It Warrant Holders"), each of the shareholders of Tag-It Hong Kong
listed on Attachment "B" hereto ("Tag-It Hong Kong Shareholders"), each of
the shareholders and warrant holders of AGS Stationery listed on Attachment
"C" hereto ("AGS Stationery Shareholders" and "AGS Stationery Warrant
Holders"), each of the shareholders of Pacific Trim listed on Attachment "D"
hereto ("Pacific Trim Shareholders" and collectively with all of the other
shareholders listed on the attachments hereto, the "Shareholders") and Tag-It
Pacific, Inc., a Delaware corporation ("Tag-It Pacific").
R E C I T A L S
A. The Company was formed for the purposes of serving as the ultimate
parent corporation for Tag-It, Tag-It Hong Kong, AGS LLC, AGS Stationery and
Pacific Trim as well as Tag-It de Mexico, SA de CV, a wholly owned subsidiary
of Tag-It, and Tag-It Brands, Inc., a California corporation, a wholly owned
subsidiary of the Company (collectively the "Subsidiaries").
B. The Shareholders and the Company constitute all of the shareholders
of the Subsidiaries and the Tag-It Warrant Holders and AGS Stationery Warrant
Holders constitute all of the option or warrant holders of the Subsidiaries.
C. Each Tag-It Shareholder desires to contribute to the Company all of
the shares of capital stock of Tag-It (the "Tag-It Shares") set forth
opposite its name on Attachment "A" hereto, and in return, the Company
desires to issue to each Tag-It Shareholder the number of membership units
(the "Company Units") set forth opposite the Tag-It Shareholder's name on
Attachment "A" hereto and assume the obligations of Tag-It to each Tag-It
Warrant Holder set forth on Attachment "A" under each warrant to purchase
shares of capital stock of Tag-It (the "Tag-It Warrants") held by such holder.
D. Each Tag-It Hong Kong Shareholder desires to contribute to the
Company all of the shares of capital stock of Tag-It Hong Kong (the "Tag-It
Hong Kong Shares") set forth opposite its name on Attachment "B" hereto, and
in return, the Company desires to issue to each Tag-It Hong Kong Shareholder
the number of Company Units set forth opposite the Tag-It Hong Kong
Shareholder's name on Attachment "B" hereto.
<PAGE>
E. Each AGS Stationery Shareholder desires to contribute to AGS LLC all
of the shares of capital stock of AGS Stationery (the "AGS Stationery
Shares") set forth opposite its name on Attachment "C" hereto, and in return
for the transfer of such shares of capital stock of AGS Stationery from the
AGS Stationery Shareholders to AGS LLC, the Company desires to issue to each
AGS Stationery Shareholder the number of Company Units set forth opposite the
AGS Stationery Shareholder's name on Attachment "C" hereto and assume the
obligations of AGS Stationery to each AGS Stationery Warrant Holder set forth
on Attachment "C" under each warrant to purchase shares of capital stock of
AGS Stationery (the "AGS Stationery Warrants") held by such holder.
F. Each Pacific Trim Shareholder desires to contribute to the Company
all of the shares of capital stock of Pacific Trim (the "Pacific Trim
Shares") set forth opposite its name on Attachment "D" hereto, and in return,
the Company desires to issue to each Pacific Trim Shareholder the number of
Company Units set forth opposite the Pacific Trim Shareholder's name on
Attachment "D" hereto.
G. The Tag-It Shares, Tag-It Hong Kong Shares, AGS Stationery Shares
and Pacific Trim Shares are collectively referred to herein as the Subsidiary
Shares.
A G R E E M E N T
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. AUTHORIZATION OF THE SECURITIES; NATURE OF AGREEMENT
a. The Company has authorized the issuance pursuant to the terms
and conditions of this Agreement, of the following number of Company Units:
(1) With respect to the Tag-It Shareholders, that number of
Company Units as set forth opposite the names of the Tag-It Shareholders on
Attachment "A" hereto;
(2) With respect to the Tag-It Hong Kong Shareholders, that
number of Company Units as set forth opposite the names of the Tag-It Hong
Kong Shareholders on Attachment "B" hereto;
(3) With respect to the AGS Stationery Shareholders, that
number of Company Units as set forth opposite the names of the AGS Stationery
Shareholders on Attachment "C" hereto; and
(4) With respect to the Pacific Trim Shareholders, that number
of Company Units as set forth opposite the names of the Pacific Trim
Shareholders on Attachment "D" hereto.
2
<PAGE>
b. The Company has authorized the issuance to the Tag-It Warrant
Holders, upon exercise of the Tag-It Warrants in accordance with the terms
thereof, that number of Company Units as set forth opposite the names of the
Tag-It Warrant Holders on Attachment "A" hereto.
c. The Company has authorized the issuance to the AGS Stationery
Warrant Holders, upon exercise of the AGS Stationery Warrants in accordance
with the terms thereof, that number of Company Units as set forth opposite
the names of the Warrant Holders on Attachment "C" hereto.
d. This Agreement, insofar as it relates to the issuance of the
Company Units to any Shareholder, the assumption of any warrant held by any
Tag-It Warrant Holder or AGS Stationery Warrant Holder, is a separate
agreement between that Shareholder, Tag-It Warrant Holder or AGS Stationery
Warrant Holder and the Company. But this Agreement insofar as it relates to
the rights, duties and remedies of the Company and the several Shareholders,
Tag-It Warrant Holders and AGS Stationery Warrant Holders, from and after the
Effective Time hereunder, shall be deemed to be one agreement.
e. It is intended by the parties that the contribution by the
Shareholders of the Subsidiary Shares to the Company or to AGS LLC pursuant
to this Agreement shall constitute a contribution under Section 721 of the
Internal Revenue Code of 1986, as amended.
2. TRANSFER AND DELIVERY OF SHARES.
a. Each Tag-It Shareholder does hereby irrevocably assign, convey
and transfer to the Company, and does hereby deliver to the Company stock
certificates (the "Tag-It Certificates") representing, the number of Tag-It
Shares set forth opposite such Tag-It Shareholder's name on Attachment "A"
hereto, appropriately endorsed for transfer to the Company, subject to the
terms and conditions set forth herein.
b. Each Tag-It Hong Kong Shareholder does hereby irrevocably
assign, convey and transfer to the Company, and does hereby deliver to the
Company stock certificates (the "Tag-It Hong Kong Certificates")
representing, the number of Tag-It Hong Kong Shares set forth opposite such
Tag-It Hong Kong Shareholder's name on Attachment "B" hereto, appropriately
endorsed for transfer to Tag-It, subject to the terms and conditions set
forth herein.
c. Each AGS Stationery Shareholder does hereby irrevocably
assign, convey and transfer to AGS LLC, and does hereby deliver to AGS LLC
stock certificates (the "AGS Stationery Certificates") representing, the
number of AGS Stationery Shares set forth opposite such AGS Stationery
Shareholder's name on Attachment "C" hereto, appropriately endorsed for
transfer to AGS LLC, subject to the terms and conditions set forth herein.
d. Each Pacific Trim Shareholder does hereby irrevocably assign,
convey and transfer to the Company, and does hereby deliver to the Company
stock certificates (the
3
<PAGE>
"Pacific Trim Certificates") representing, the number of Pacific Trim Shares
set forth opposite such Pacific Trim Shareholder's name on Attachment "D"
hereto, appropriately endorsed for transfer to the Company, subject to the
terms and conditions set forth herein.
e. The foregoing deliveries are irrevocable, and neither the death
or disability of any of the Shareholders shall affect the transactions
contemplated hereby.
f. The term "Certificates" shall mean the certificates defined in
Sections 2(a) through (d) above.
3. TRANSFER OF THE SHARES. Each of the Company and AGS LLC, as
applicable, is authorized to hold the Certificates in its custody until the
Effective Time (as defined below), immediately thereafter, upon issuance by
the Company to the Shareholders of the Company Units pursuant to Section 4,
below, the Tag-It Certificates, Tag-It Hong Kong Certificates and Pacific
Trim Certificates shall be deemed to be transferred to the Company and the
AGS Stationery Certificates shall be deemed to be transferred to AGS LLC.
Promptly thereafter, each of the Subsidiaries shall effect such transfer on
the books of each respective Subsidiary, and shall issue to the Company or
AGS LLC, respectively, new certificates for such shares registered in the
name of the Company or AGS LLC, respectively. Until the Effective Time, each
Shareholder shall remain the owner of the Subsidiary Shares represented by
the Certificates delivered by such Shareholder to the Company pursuant to
Section 2 above and shall have the right to vote such shares and to receive
all dividends and distributions thereon.
4. ISSUANCE OF THE COMPANY UNITS.
a. In consideration of the transfer of the Tag-It Shares pursuant
to Section 2, above, the Company hereby agrees that it will, promptly
following the Effective Time, deliver to each Tag-It Shareholder the number
of Company Units set forth opposite such Tag-It Shareholder's name on
Attachment "A" hereto issued in the name of such Tag-It Shareholder.
b. In consideration of the transfer of the Tag-It Hong Kong Shares
pursuant to Section 2, above, the Company hereby agrees that it will,
promptly following the Effective Time, deliver to each Tag-It Hong Kong
Shareholder the number of Company Units set forth opposite such Tag-It Hong
Kong Shareholder's name on Attachment "B" hereto issued in the name of such
Tag-It Hong Kong Shareholder.
c. In consideration of the transfer of the AGS Stationery Shares
to AGS LLC, the Company hereby agrees that it will promptly following the
Effective Time deliver to each AGS Stationery Shareholder the number of
Company Units set forth opposite such AGS Stationery Shareholder's name on
Attachment "C" hereto issued in the name of such AGS Stationery Shareholder.
d. In consideration of the transfer of the Pacific Trim Shares
pursuant to Section 2, above, the Company hereby agrees that it will, promptly
following the Effective
4
<PAGE>
Time, deliver to each Pacific Trim Shareholder the number of Company Units
set forth opposite such Pacific Trim Shareholder's name on Attachment "D"
hereto issued in the name of such Pacific Trim Shareholder.
5. ASSUMPTION OF WARRANTS. Upon the Effective Time, each of the then
outstanding Tag-It Warrants and AGS Stationery Warrants ("Old Warrants"),
shall, subject to the terms of the Old Warrants, be assumed by the Company.
The Old Warrants assumed by the Company shall be exercisable upon the same
terms and conditions as under the agreements reflecting such Old Warrants,
except that (i) each such Old Warrant shall be exercisable for that number of
Company Units into which the number of shares of Tag-It or AGS Stationery
common stock, as the case may be, subject to such Old Warrant immediately
prior to the Effective Time would be converted under Sections 4(a) and 4(c)
of this Agreement, respectively (such number of Company Units being set forth
opposite the name of the holder of each Old Warrant on Attachment "A" and
Attachment "C" hereto, respectively), and (ii) the exercise price per Company
Unit shall be equal to (x) the per share exercise price of such Old Warrant
in effect immediately prior to the Effective Time multiplied by the number of
shares of Tag-It or AGS Stationery common stock, as the case may be, subject
to such Old Warrant immediately prior to the Effective Time, DIVIDED BY (y)
the number of Company Units subject to such Old Warrant immediately following
the Effective Time.
6. EFFECTIVE TIME. For purposes of this Agreement, the Effective Time
shall mean 5:00 p.m. on October 17, 1997.
7. TAG-IT PACIFIC EXCHANGE. The parties understand that the Company is
contemplating a public offering at some time following the Effective Time and
further understand and agree that there is no agreement or assurance that
such an offering will be consummated. If, however, the Company is able to
effect a public offering, in order to permit the offering to occur, the
parties agree that the Company will be converted in form to a corporation by
the exchange of all outstanding LLC Units for the same number of shares of
Common Stock of Tag-It Pacific immediately prior the time the offering is
declared effective by the Securities and Exchange Commission (the
"Commission"). Accordingly, immediately prior to the time at which a
registration statement relating to a public offering of the common stock, par
value $.001 per share (the "Common Stock") of Tag-It Pacific, is declared
effective by the Commission, without any action on the part of the Company,
Tag-It Pacific, the Shareholders, the Tag-It Warrant Holders or the AGS
Stationery Warrant Holders:
a. each Company Unit shall be automatically exchanged for a share
of Common Stock and, in connection therewith, each of the Shareholders will
be issued that number of shares of Common Stock which is equal to the number
of Company Units held by such Shareholder;
b. each Old Warrant shall be assumed by Tag-It Pacific and, subject
to all of the terms and conditions of such Old Warrant, become exercisable for
number of shares of
5
<PAGE>
Common Stock which is equal to the number of Company Units underlying the Old
Warrant then held by such Tag-It Warrant Holder or AGS Stationery Warrant
Holder; and
c. The Company will be dissolved.
Promptly following such issuance, Tag-It Pacific will deliver
certificates representing such shares of Common Stock to each of the
Shareholders.
d. It is intended by the parties that any exchange by the
Shareholders of their LLC Units to Tag-It Pacific as contemplated under this
Section 7 shall constitute a valid transaction under Section 351 of the
Internal Revenue Code of 1986, as amended.
8. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE SHAREHOLDERS AND
WARRANT HOLDERS. Each Shareholder, Tag-It Warrant Holder and AGS Stationery
Warrant Holder warrants, represents and covenants that:
a. it has good and marketable title to the Subsidiary Shares to be
transferred by it pursuant to Section 2 or Tag-It Warrants or AGS Stationery
Warrants, free and clear of all liens, claims and encumbrances of any kind;
b. the Subsidiary Shares to be transferred by such Shareholder
pursuant to Section 2 or Tag-It Warrants or AGS Stationery Warrants to be
assumed pursuant to Section 5 above constitute all of the Subsidiary Shares,
Tag-It Warrants or AGS Stationery Warrants owned or controlled (directly or
indirectly) beneficially or of record by such Shareholder, Tag-It Warrant
Holder or AGS Stationery Warrant Holder;
c. it is acquiring the Company Units, warrants to purchase Company
Units, shares of Common Stock and/or warrants to purchase Common Stock
(collectively, the "Securities") for its own account with the present
intention of holding such Securities for investment purposes only and not
with a view to, or for sale in connection with, any distribution of such
Securities (other than a distribution in compliance with all applicable
federal and state securities laws);
d. it is an experienced and sophisticated investor and has such
knowledge and experience in financial and business matters that it is capable
of evaluating the relative merits and the risks of an investment in the
Securities and of protecting its own interests in connection with this
transaction;
e. it is willing to bear and is capable of bearing the economic
risk of an investment in the Securities;
6
<PAGE>
f. it is an "accredited investor" as that term is defined under
Rule 501(a)(8) of Regulation D promulgated by the Commission under the
Securities Act of 1933, as amended (the "Act"); and
g. it understands that there can be no guarantee that a
registration statement relating to the initial public offering of the Common
Stock of Tag-It Pacific will be declared effective by the Commission and,
except as provided in Section 7 hereof, no section or provision of this
Agreement shall be conditioned upon or subject to any registration statement
being declared effective by the Commission or an initial public offering
being consummated by Tag-It Pacific.
9. RESTRICTIONS ON TRANSFER. Each Shareholder, Tag-It Warrant Holder
and AGS Stationery Warrant Holder agrees that it shall not sell, transfer
(with or without consideration), assign, pledge, hypothecate or otherwise
dispose of (collectively, "Transfer") any of the Securities unless such
Securities are disposed of pursuant to and in conformity with an effective
registration statement filed with the Commission pursuant to the Act, or
pursuant to an available exemption from the registration and prospectus
delivery requirements of the Act, and the proposed disposition will not
result in a violation of the securities laws of any state of the United
States.
If requested by the Company, such Shareholder, Tag-It Warrant Holder and
AGS Stationery Warrant Holder shall, prior to the transfer of any of the
Securities, deliver to the Company a written opinion of counsel, satisfactory
to the Company and its counsel, that the proposed disposition will comply
with the requirements set forth in this Section 9. Any attempted Transfer
which is not in full compliance with this Section 9 shall be null and void AB
INITIO, and of no force or effect.
Each Shareholder, Tag-It Warrant Holder and AGS Stationery Warrant Holder
further agrees that any certificate evidencing the Securities shall bear the
following legend:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
HAVE BEEN TAKEN FOR INVESTMENT, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE
DISPOSED OF EXCEPT IN ACCORDANCE WITH THE TERMS OF AN
AGREEMENT BETWEEN THE COMPANY AND THE ORIGINAL HOLDER
HEREOF, A COPY OF WHICH AGREEMENT IS ON FILE AT THE
PRINCIPAL OFFICES OF THE COMPANY.
Each Shareholder, Tag-It Warrant Holder and AGS Stationery Warrant Holder
further acknowledges and agrees that the Company may, at its option, place
notations evidencing the
7
<PAGE>
foregoing restrictions on transfer in its shareholders register, and may
place appropriate "stop transfer" instructions with its transfer agent, if
any.
Each Shareholder, Tag-It Warrant Holder and AGS Stationery Warrant Holder
further agrees that it shall not Transfer any of the Securities other than as
required by this Agreement until the Company or its successor shall have
completed at least 30 days of combined operations following the Effective
Time and prepared and distributed financial statements to the Shareholders
showing results of the Company's operation for a period of at least one
calendar month of combined operations following the Effective Time, and the
Company agrees to use its best efforts to promptly prepare and distribute
such financial statements.
10. MISCELLANEOUS.
a. The provisions of this Agreement may not be waived, altered,
amended or repealed in whole or in part except by a written instrument signed
by all parties.
b. The failure or delay on the part of any party to exercise any
right or remedy, power or privilege shall not operate as a waiver thereof. A
waiver, to be effective, must be in writing and signed by the party making
the waiver. A written waiver of a default shall not operate as a waiver of
any other default or of the same type of default on a future occasion.
c. Wherever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be prohibited by or invalid
under applicable law, such provision shall be ineffective to the extent of
such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
d. This Agreement shall be binding upon the parties, their
respective successors and assigns. No party may assign, transfer or delegate
its rights, obligations or duties hereunder without the express written
consent of all other parties.
e. IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY
AND PERFORMANCE, THIS AGREEMENT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE
GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF CALIFORNIA APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE,
WITHOUT REGARD TO THE PRINCIPLES THEREOF REGARDING CONFLICT OF LAWS.
f. This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original but all of which together shall constitute
one and the same instrument.
8
<PAGE>
This Agreement shall be effective as of the date first written above.
TAG-IT PACIFIC L.L.C.
By: /s/ COLIN DYNE
---------------------------
Its: Manager
---------------------------
TAG-IT, INC.
By: /s/ COLIN DYNE
---------------------------
Its: President
---------------------------
TAG-IT PRINTING & PACKAGING LTD.
By: /s/ JONATHAN MARKILES
---------------------------
Its: Managing Director
---------------------------
TAG-IT DE MEXICO, SA DE CV
By: /s/ JONATHAN MARKILES
---------------------------
Its: President
---------------------------
AGS HOLDINGS L.L.C.
By: /s/ COLIN DYNE
---------------------------
Its: Manager
---------------------------
AGS STATIONERY, INC.
By: /s/ COLIN DYNE
---------------------------
Its: President
---------------------------
(SIGNATURES CONTINUED)
<PAGE>
(SIGNATURES CONTINUED)
TAG-IT BRANDS, INC.
By: /s/ COLIN DYNE
---------------------------
Its: President
---------------------------
PACIFIC TRIM & BELT, INC.
By: /s/ HAROLD DYNE
---------------------------
Its: President
---------------------------
TAG-IT PACIFIC, INC.
By: /s/ COLIN DYNE
---------------------------
Its: Chief Executive Officer
---------------------------
/s/ MARK DYNE
---------------------------
MARK DYNE
/s/ COLIN DYNE
---------------------------
Colin Dyne
/s/ HAROLD DYNE
---------------------------
Harold Dyne
/s/ JONATHAN MARKILES
---------------------------
Jonathan Markiles
(SIGNATURES CONTINUED)
<PAGE>
(SIGNATURES CONTINUED)
/s/ JONATHAN BURSTEIN
---------------------------
Johnathan Burstein
/s/ KEVIN BERMEISTER
---------------------------
Kevin Bermeister
/s/ STAN MAGNUS
---------------------------
Stan Magnus
/s/ RAYMOND SPIRO
---------------------------
Raymond Spiro
/s/ LARRY DYNE
---------------------------
Larry Dyne
/s/ JAIME LABELLE
---------------------------
Jaime Labelle
/s/ DIANA MARANON
---------------------------
Diana Maranon
(SIGNATURES CONTINUED)
<PAGE>
(SIGNATURES CONTINUED)
SALONER FAMILY LIMITED PARTNERSHIP
By: /s/ ALAN SALONER
---------------------------
Its:
---------------------------
DAROSID N.V.
By: /s/
---------------------------
Its:
---------------------------
<PAGE>
ATTACHMENT "A"
LIST OF TAG-IT SHAREHOLDERS
========================================================================
SHAREHOLDER NUMBER OF NUMBER OF
TAG-IT SHARES COMPANY
TRANSFERRED UNITS ISSUED
- ------------------------------------------------------------------------
Colin Dyne 200.000 560,505
- ------------------------------------------------------------------------
Harold Dyne 200.000 560,505
- ------------------------------------------------------------------------
Mark Dyne 133.485 374,095
- ------------------------------------------------------------------------
Saloner Family Limited 47.835 134,060
Partnership
- ------------------------------------------------------------------------
Kevin Bermeister 33.485 93,842
- ------------------------------------------------------------------------
Larry Dyne 18.00 50,445
- ------------------------------------------------------------------------
Jonathan Markiles 5.000 14,013
========================================================================
LIST OF TAG-IT WARRANT HOLDERS
========================================================================
WARRANT HOLDER NUMBER OF NUMBER OF
TAG-IT SHARES COMPANY
UNDERLYING UNITS
WARRANTS UNDERLYING
WARRANTS
- ------------------------------------------------------------------------
Jonathan Markiles 14 39,235
========================================================================
<PAGE>
ATTACHMENT "B"
LIST OF TAG-IT HONG KONG SHAREHOLDERS
========================================================================
SHAREHOLDER NUMBER OF NUMBER OF
TAG-IT HONG COMPANY
KONG SHARES UNITS ISSUED
TRANSFERRED
- ------------------------------------------------------------------------
Mei Shing Trading Ltd. 1.0000 110,324
- ------------------------------------------------------------------------
Saloner Family Investments Limited 0.091 10,091
Partnership
- ------------------------------------------------------------------------
Mark Dyne 0.0640 7,063
- ------------------------------------------------------------------------
Kevin Bermeister 0.0640 7,063
========================================================================
<PAGE>
ATTACHMENT "C"
LIST OF AGS STATIONERY SHAREHOLDERS
SHAREHOLDER NUMBER OF AGS NUMBER OF
STATIONERY COMPANY
SHARES UNITS ISSUED
TRANSFERRED
========================================================================
Mark Dyne 474.265 80,243
- ------------------------------------------------------------------------
Harold Dyne 450.000 76,137
- ------------------------------------------------------------------------
Colin Dyne 142.000 24,026
- ------------------------------------------------------------------------
Saloner Family Investments Limited 94.665 16,017
Partnership
- ------------------------------------------------------------------------
Kevin Bermeister 66.265 11,212
- ------------------------------------------------------------------------
Jaime LaBelle 35.000 5,922
========================================================================
LIST OF AGS STATIONERY WARRANT HOLDERS
========================================================================
WARRANT HOLDER NUMBER OF AGS NUMBER OF
STATIONERY COMPANY
SHARES UNITS
UNDERLYING UNDERLYING
WARRANTS WARRANTS
- ------------------------------------------------------------------------
Diana Maranon 135 22,841
========================================================================
<PAGE>
ATTACHMENT "D"
LIST OF PACIFIC TRIM SHAREHOLDERS
========================================================================
SHAREHOLDER NUMBER OF NUMBER OF
PACIFIC TRIM COMPANY
SHARES UNITS ISSUED
TRANSFERRED
- ------------------------------------------------------------------------
Harold Dyne 6,183.395 152,865
- ------------------------------------------------------------------------
Raymond Spiro 3,264.000 80,692
- ------------------------------------------------------------------------
Jonathan Burstein 3,065.605 75,788
- ------------------------------------------------------------------------
Stan Magnus 1,015.000 25,093
========================================================================
<PAGE>
CERTIFICATE OF INCORPORATION
OF
TAG-IT PACIFIC, INC.
I.
The name of the Corporation is Tag-It Pacific, Inc.
II.
The address of the registered office of the Corporation in the State
of Delaware is 1209 Orange Street, City of Wilmington, County of New Castle,
Delaware l9901. The name of its registered agent at such address is The
Corporation Trust Company.
III.
The purpose of this Corporation is to engage in any lawful act or
activity for which Corporations may be organized under the General Corporation
Law of the State of Delaware (the "Delaware Law").
IV.
This Corporation is authorized to issue two classes of shares,
designated, respectively, "Preferred Stock" and "Common Stock." Each class of
stock shall have a par value of $.001 per share. The number of shares of
Preferred Stock authorized to be issued is 3,000,000 and the number of shares of
Common Stock authorized to be issued is 15,000,000.
The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, by filing a certificate (a
"Preferred Stock Designation") pursuant to the Delaware Law, to fix or alter
from time to time the designation, powers, preferences and rights of the shares
of each such series and the qualifications, limitations or restrictions of any
wholly unissued series of Preferred Stock, and to establish from time to time
the number of shares constituting any such series or any of them; and to
increase or decrease the number of shares of any series subsequent to the
issuance of shares of that series, but not below the number of shares of such
series then outstanding. In case the number of shares of any series shall be
decreased in accordance with the foregoing sentence, the shares constituting
such decrease shall resume the status that they had prior to the adoption of the
resolution originally fixing the number of shares of such series.
<PAGE>
V.
Except and to the extent designated with respect to the Preferred
Stock, all rights to vote and all voting power shall be vested in the Common
Stock and the holders thereof shall be entitled at all elections of directors to
one (1) vote per share. Special meetings of the stockholders of the Corporation
for any purpose or purposes may be called only by the Board of Directors, the
Chairman of the Board, the Chief Executive Officer or the President of the
Corporation.
VI.
The directors of the Corporation shall be divided into three classes,
designated Class I, Class II and Class III. The term of the initial Class I
directors shall terminate on the date of the 1998 annual meeting of
stockholders; the term of the Class II directors shall terminate on the date of
the 1999 annual meeting of stockholders; and the term of the Class III directors
shall terminate on the date of the 2000 annual meeting of stockholders. At each
annual meeting of stockholders beginning in 1998, successors to the class of
directors whose term expires at that annual meeting shall be elected for a
three-year term. If the number of directors is changed, any increase or decease
shall be apportioned among the classes so as to maintain the number of directors
in each class as nearly equal as reasonably possible, and any additional
directors of any class elected to fill a vacancy resulting form an increase in
such class shall hold office for a term that shall coincide with the remaining
term of that class, but in no case will a decrease in the number of directors
shorten the term of any incumbent directors. A director shall hold office until
the annual meeting for the year in which his term expires and until his
successor shall be elected and shall qualify, subject, however, to prior death,
resignation, retirement, disqualification or removal from office. Any vacancy
on the Board of Directors, however resulting, shall be filled only by a majority
of the directors then in office, even if less than a quorum, or by a sole
remaining director and not by the stockholders. Any director elected to fill a
vacancy shall hold office for a term that shall coincide with the terms of the
class to which such director shall have been elected.
Subject to the rights, if any, of the holders of shares of Preferred
Stock then outstanding, any or all of the directors of the Corporation may be
removed from office at any time, for cause only, by the affirmative vote of the
holders of a majority of the outstanding shares of the Corporation then entitled
to vote generally in the election of the directors, considered for purposes of
this Article VI as one class.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Preferred Stock issued by the Corporation shall have the
right, voting separately by class or series, to elect directors at an annual or
special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of this Certificate of Incorporation or the resolution or resolutions
adopted by the Board of Directors pursuant to the second paragraph of Article IV
applicable thereto, and such
2
<PAGE>
directors so elected shall not be divided into classes pursuant to this Article
VI unless expressly provided by such terms.
VII.
Elections of directors at an annual or special meeting of stockholders
need not be by written ballot unless the Bylaws of the Corporation shall
otherwise provide.
Any action required or permitted to be taken at any annual or special
meeting of stockholders may be taken only upon the vote of the stockholders at
an annual or special meeting duly noticed and called, as provided in the Bylaws
of the Corporation, and may not be taken by written consent of the stockholders
pursuant to the Delaware Law; PROVIDED, HOWEVER, if the Corporation has only one
stockholder, then any action required or permitted to be taken at any annual or
special meeting of stockholders may be taken by the written consent of such
stockholder.
VIII.
The officers of the Corporation shall be chosen in such a manner,
shall hold their offices for such terms and shall carry out such duties as are
determined solely by the Board of Directors, subject to the right of the Board
of Directors to remove any officer or officers at any time with or without
cause.
IX.
The Corporation shall indemnify to the fullest extent authorized or
permitted by law (as now or hereafter in effect) any person made, or threatened
to be made, a defendant or witness to any action, suit or proceeding (whether
civil or criminal or otherwise) by reason of the fact that she or he, her or his
testator or intestate, is or was a director, officer, employee or agent of the
Corporation or by reason of the fact that any person is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or
enterprise. Nothing contained herein shall affect any rights to indemnification
to which employees other than directors and officers may be entitled by law. No
amendment or repeal of this paragraph of Article IX shall apply to or have any
effect on any right to indemnification provided hereunder with respect to any
acts or omissions occurring prior to such amendment or repeal.
No director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for any breach of fiduciary
duty by such a director as a director. Notwithstanding the foregoing sentence,
a director shall be liable to the extent provided by applicable law (i) for any
breach of the director's duty of loyalty to the Corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the
Delaware Law, or (iv) for any transaction from which such director derived an
improper personal benefit. No
3
<PAGE>
amendment to or repeal of this paragraph of Article IX shall apply to or have
any effect on the liability or alleged liability of any director of the
Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment or repeal.
In furtherance and not in limitation of the powers conferred by
statute:
(i) the Corporation may purchase and maintain insurance on
behalf of any person who is or was a director or officer, employee or
agent of the Corporation, or is serving at the request of the
Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise against any liability asserted against him or her
and incurred by him or her in any such capacity, or arising out of his
or her status as such, whether or not the Corporation would have the
power to indemnify against such liability under the provisions of law;
and
(ii) the Corporation may create a trust fund, grant a
security interest and/or use other means (including, without
limitation, letters of credit, surety bonds and/or other similar
arrangements), as well as enter into contract providing indemnification
to the full extent authorized or permitted by law and including as part
thereof provisions with respect to any or all of the foregoing to
ensure the payment of such amounts as may become necessary to effect
indemnification as provided therein, or elsewhere.
X.
In furtherance and not in limitation of the powers conferred by the
laws of the State of Delaware, the Board of Directors of the corporation shall
have the sole authority to adopt, repeal, alter, amend or rescind the Bylaws of
the Corporation.
XI.
The Corporation reserves the right to amend or repeal any provision
contained in this Certificate of Incorporation in the manner prescribed by the
laws of the State of Delaware and all rights conferred upon stockholders are
granted subject to this reservation; PROVIDED, HOWEVER, that, notwithstanding
any other provision of this Certificate of Incorporation or any provision of law
which might otherwise permit a lesser vote, but in addition to any vote of the
holders of any class or series thereof of the stock of this Corporation required
by law or by this Certificate of Incorporation, the affirmative vote of the
holders of at least 66 2/3 percent of the combined voting power of the
outstanding shares of stock of all classes and series thereof of the Corporation
entitled to vote generally in the election of directors, voting together as a
single class, shall be required to amend, repeal or adopt any provision
inconsistent with (i) the second sentence of Article V, (ii) Article VI,
(iii) the second paragraph of Article VII, (iv) Article X or (v) this Article
XI.
4
<PAGE>
XII.
So long as he may be an officer or director of the Corporation, Mark
Dyne, acting in his capacity as an officer and/or director of the Corporation
shall not be required to present to the Corporation corporate opportunities
which he wishes to present to another company with which he is affiliated;
PROVIDED, HOWEVER, that Mr. Dyne is required to present to the Corporation any
corporate opportunities in the following industries: packaging, stationery,
label, garment or garment related design or manufacture.
XIII.
The name and mailing address of the incorporator of the Corporation is as
follows:
Name Address
---- -------
Colin Dyne c/o Tag-It Pacific, Inc.
3820 South Hill Street
Los Angeles, CA 90037
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Incorporation this 30th day of September, 1997.
/s/ Colin Dyne
---------------------------------------
Colin Dyne, Incorporator
5
<PAGE>
BYLAWS
OF
TAG-IT PACIFIC, INC.
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the corporation in
the State of Delaware shall be in the City of Dover, County of Kent.
SECTION 2. OTHER OFFICES. The corporation shall also have and maintain an
office or principal place of business at such place as may be fixed by the Board
of Directors, and may also have offices at such other places, both within and
without the State of Delaware as the Board of Directors may from time to time
determine or the business of the corporation may require.
ARTICLE II
CORPORATE SEAL
SECTION 1. CORPORATE SEAL. The corporate seal shall consist of a die
bearing the name of the corporation and the inscription, "Corporate
Seal-Delaware." Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE III
STOCKHOLDERS' MEETINGS
SECTION 1. PLACE OF MEETINGS. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 2 hereof.
SECTION 2. ANNUAL MEETING.
(a) The annual meeting of the stockholders of the corporation, for the
purpose of election of directors and for such other business as may lawfully
come before it, shall be held on such date and at such time as may be designated
from time to time by the Board of Directors.
(b) At an annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be: (A) specified in
the notice of meeting (or any supplement thereto) given by or at the direction
of the Board of Directors, (B) otherwise properly brought
<PAGE>
before the meeting by or at the direction of the Board of Directors, or (C)
otherwise properly brought before the meeting by a stockholder. For business to
be properly brought before an annual meeting by a stockholder, the stockholder
must have given timely notice thereof in writing to the Secretary of the
corporation. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the corporation not
later than the close of business on the sixtieth (60th) day nor earlier than the
close of business on the ninetieth (90th) day prior to the first anniversary of
the preceding year's annual meeting; provided, however, that in the event that
no annual meeting was held in the previous year or the date of the annual
meeting has been changed by more than thirty (30) days from the date
contemplated at the time of the previous year's proxy statement, notice by the
stockholder to be timely must be so received not earlier than the close of
business on the ninetieth (90th) day prior to such annual meeting and not later
than the close of business on the later of the sixtieth (60th) day prior to such
annual meeting or, in the event public announcement of the date of such annual
meeting is first made by the corporation fewer than seventy (70) days prior to
the date of such annual meeting, the close of business on the tenth (10th) day
following the day on which public announcement of the date of such meeting is
first made by the corporation. A stockholder's notice to the Secretary shall
set forth as to each matter the stockholder proposes to bring before the annual
meeting: (i) a brief description of the business desired to be brought before
the annual meeting and the reasons for conducting such business at the annual
meeting, (ii) the name and address, as they appear on the corporation's books,
of the stockholder proposing such business, (iii) the class and number of shares
of the corporation which are beneficially owned by the stockholder, (iv) any
material interest of the stockholder in such business and (v) any other
information that is required to be provided by the stockholder pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (the "1934
Act"), in his capacity as a proponent to a stockholder proposal.
Notwithstanding the foregoing, in order to include information with respect to a
stockholder proposal in the proxy statement and form of proxy for a
stockholder's meeting, stockholders must provide notice as required by the
regulations promulgated under the 1934 Act. Notwithstanding anything in these
Bylaws to the contrary, no business shall be conducted at any annual meeting
except in accordance with the procedures set forth in this paragraph (b). The
chairman of the annual meeting shall, if the facts warrant, determine and
declare at the meeting that business was not properly brought before the meeting
and in accordance with the provisions of this paragraph (b), and, if he should
so determine, he shall so declare at the meeting that any such business not
properly brought before the meeting shall not be transacted.
(c) Only persons who are confirmed in accordance with the procedures set
forth in this paragraph (c) shall be eligible for election as directors.
Nominations of persons for election to the Board of Directors of the corporation
may be made at a meeting of stockholders by or at the direction of the Board of
Directors or by any stockholder of the corporation entitled to vote in the
election of directors at the meeting who complies with the notice procedures set
forth in this paragraph (c). Such nominations, other than those made by or at
the direction of the Board of Directors, shall be made pursuant to timely notice
in writing to the Secretary of the corporation in accordance with the provisions
of paragraph (b) of this Section 5. Such stockholder's notice shall set forth
(i) as to each person, if any, whom the stockholder proposes to nominate for
election or re-election as a director: (A) the name, age, business address and
residence address of such person, (B) the principal occupation or employment of
such person,
2
<PAGE>
(c) the class and number of shares of the corporation which are beneficially
owned by such person, (D) a description of all arrangements or understandings
between the stockholder and each nominee and any other person or persons (naming
such person or persons) pursuant to which the nominations are to be made by the
stockholder, and (E) any other information relating to such person that is
required to be disclosed in solicitations of proxies for election of directors,
or is otherwise required, in each case pursuant to Regulation 14A under the 1934
Act (including without limitation such person's written consent to being named
in the proxy statement, if any, as a nominee and to serving as a director if
elected); and (ii) as to such stockholder giving notice, the information
required to be provided pursuant to paragraph (b) of this Section 5. At the
request of the Board of Directors, any person nominated by a stockholder for
election as a director shall furnish to the Secretary of the corporation that
information required to be set forth in the stockholder's notice of nomination
which pertains to the nominee. No person shall be eligible for election as a
director of the corporation unless nominated in accordance with the procedures
set forth in this paragraph (c). The chairman of the meeting shall, if the
facts warrant, determine and declare at the meeting that a nomination was not
made in accordance with the procedures prescribed by these Bylaws, and if he
should so determine, he shall so declare at the meeting, and the defective
nomination shall be disregarded.
(d) For purposes of this Section 5, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Exchange Act.
SECTION 3. SPECIAL MEETINGS.
(a) Special meetings of the stockholders of the corporation may be called,
for any purpose or purposes, by (i) the Chairman of the Board of Directors, (ii)
a Chief Executive Officer, or (iii) the Board of Directors pursuant to a
resolution adopted by a majority of the total number of authorized directors
(whether or not there exist any vacancies in previously authorized directorships
at the time any such resolution is presented to the Board of Directors for
adoption), and shall be held at such place, on such date, and at such time as
the Board of Directors, shall determine.
(b) If a special meeting is called by any person or persons other than the
Board of Directors, the request shall be in writing, specifying the general
nature of the business proposed to be transacted, and shall be delivered
personally or sent by registered mail or by telegraphic or other facsimile
transmission to the Chairman of the Board of Directors, a Chief Executive
Officer, or the Secretary of the corporation. No business may be transacted at
such special meeting otherwise than specified in such notice. The Board of
Directors shall determine the time and place of such special meeting, which
shall be held not less than thirty-five (35) nor more than one hundred twenty
(120) days after the date of the receipt of the request. Upon determination of
the time and place of the meeting, the officer receiving the request shall cause
notice to be given to the stockholders entitled to vote, in accordance with the
provisions of Section 7 of these Bylaws. If the notice is not given within
sixty (60) days after the receipt of the request, the person or persons
requesting the meeting may set the time and place of the meeting and give the
notice. Nothing contained in this paragraph (b) shall be construed as
3
<PAGE>
limiting, fixing, or affecting the time when a meeting of stockholders called by
action of the Board of Directors may be held.
SECTION 4. NOTICE OF MEETINGS. Except as otherwise provided by law or the
Certificate of Incorporation, written notice of each meeting of stockholders
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder entitled to vote at such meeting, such
notice to specify the place, date and hour and purpose or purposes of the
meeting. Notice of the time, place and purpose of any meeting of stockholders
may be waived in writing, signed by the person entitled to notice thereof,
either before or after such meeting, and will be waived by any stockholder by
his attendance thereat in person or by proxy, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Any stockholder so waiving notice of such meeting shall be
bound by the proceedings of any such meeting in all respects as if due notice
thereof had been given.
SECTION 5. QUORUM. At all meetings of stockholders, except where
otherwise provided by statute or by the Certificate of Incorporation, or by
these Bylaws, the presence, in person or by proxy duly authorized, of the
holders of a majority of the outstanding shares of stock entitled to vote shall
constitute a quorum for the transaction of business. In the absence of a
quorum, any meeting of stockholders may be adjourned, from time to time, either
by the chairman of the meeting or by vote of the holders of a majority of the
shares represented thereat, but no other business shall be transacted at such
meeting. The stockholders present at a duly called or convened meeting, at
which a quorum is present, may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum. Except as otherwise provided by law, the Certificate of Incorporation
or these Bylaws, all action taken by the holders of a majority of the votes
cast, excluding abstentions, at any meeting at which a quorum is present shall
be valid and binding upon the corporation; provided, however, that directors
shall be elected by a plurality of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote on the election of
directors. Where a separate vote by a class or classes or series is required,
except where otherwise provided by the statute or by the Certificate of
Incorporation or these Bylaws, a majority of the outstanding shares of such
class or classes or series, present in person or represented by proxy, shall
constitute a quorum entitled to take action with respect to that vote on that
matter and, except where otherwise provided by the statute or by the Certificate
of Incorporation or these Bylaws, the affirmative vote of the majority
(plurality, in the case of the election of directors) of the votes cast,
including abstentions, by the holders of shares of such class or classes or
series shall be the act of such class or classes or series.
SECTION 6. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting of
stockholders, whether annual or special, may be adjourned from time to time
either by the chairman of the meeting or by the vote of a majority of the shares
casting votes, excluding abstentions. When a meeting is adjourned to another
time or place, notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken.
At the adjourned meeting, the corporation may transact any business which might
have been transacted at the original meeting. If the adjournment is for more
than thirty (30) days or if after the adjournment a new record date is fixed for
the adjourned meeting,
4
<PAGE>
a notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting.
SECTION 7. VOTING RIGHTS. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the stock
records of the corporation on the record date, as provided in Section 12 of
these Bylaws, shall be entitled to vote at any meeting of stockholders. Every
person entitled to vote shall have the right to do so either in person or by an
agent or agents authorized by a proxy granted in accordance with Delaware law.
An agent so appointed need not be a stockholder. No proxy shall be voted after
three (3) years from its date of creation unless the proxy provides for a longer
period.
SECTION 8. JOINT OWNERS OF STOCK. If shares or other securities having
voting power stand of record in the names of two (2) or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common, tenants
by the entirety, or otherwise, or if two (2) or more persons have the same
fiduciary relationship respecting the same shares, unless the Secretary is given
written notice to the contrary and is furnished with a copy of the instrument or
order appointing them or creating the relationship wherein it is so provided,
their acts with respect to voting shall have the following effect: (a) if only
one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the
majority so voting binds all; (c) if more than one (1) votes, but the vote is
evenly split on any particular matter, each faction may vote the securities in
question proportionally, or may apply to the Delaware Court of Chancery for
relief as provided in the General Corporation Law of Delaware, Section 217(b).
If the instrument filed with the Secretary shows that any such tenancy is held
in unequal interests, a majority or even-split for the purpose of subsection (c)
shall be a majority or even-split in interest.
SECTION 9. LIST OF STOCKHOLDERS. The Secretary shall prepare and make, at
least ten (10) days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at said meeting, arranged in alphabetical order,
showing the address of each stockholder and the number of shares registered in
the name of each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten (10) days prior to the meeting, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not specified, at the place where
the meeting is to be held. The list shall be produced and kept at the time and
place of meeting during the whole time thereof and may be inspected by any
stockholder who is present.
SECTION 10. ACTION WITHOUT MEETING. No action shall be taken by the
stockholders except at an annual or special meeting of stockholders called in
accordance with these Bylaws, and no action shall be taken by the stockholders
by written consent.
SECTION 11. ORGANIZATION.
(a) At every meeting of stockholders, the Chairman of the Board of
Directors, or, if a Chairman has not been appointed or is absent, a Chief
Executive Officer, or, if both Chief Executive Officers are absent, a chairman
of the meeting chosen by a majority in interest of the
5
<PAGE>
stockholders entitled to vote, present in person or by proxy, shall act as
chairman. The Secretary, or, in his absence, an Assistant Secretary directed to
do so by a Chief Executive Officer, shall act as secretary of the meeting.
(b) The Board of Directors of the corporation shall be entitled to make
such rules or regulations for the conduct of meetings of stockholders as it
shall deem necessary, appropriate or convenient. Subject to such rules and
regulations of the Board of Directors, if any, the chairman of the meeting shall
have the right and authority to prescribe such rules, regulations and procedures
and to do all such acts as, in the judgment of such chairman, are necessary,
appropriate or convenient for the proper conduct of the meeting, including,
without limitation, establishing an agenda or order of business for the meeting,
rules and procedures for maintaining order at the meeting and the safety of
those present, limitations on participation in such meeting to stockholders of
record of the corporation and their duly authorized and constituted proxies and
such other persons as the chairman shall permit, restrictions on entry to the
meeting after the time fixed for the commencement thereof, limitations on the
time allotted to questions or comments by participants and regulation of the
opening and closing of the polls for balloting on matters which are to be voted
on by ballot. Unless and to the extent determined by the Board of Directors or
the chairman of the meeting, meetings of stockholders shall not be required to
be held in accordance with rules of parliamentary procedure.
ARTICLE IV
DIRECTORS
SECTION 1. NUMBER AND QUALIFICATION. The authorized number of directors
of the corporation shall be not less than two (2) nor more than nine (9) as
fixed from time to time by resolution of the Board of Directors; PROVIDED that
no decrease in the number of directors shall shorten the term of any incumbent
directors. Directors need not be stockholders unless so required by the
Certificate of Incorporation. If for any cause, the directors shall not have
been elected at an annual meeting, they may be elected as soon thereafter as
convenient at a special meeting of the stockholders called for that purpose in
the manner provided in these Bylaws.
SECTION 2. POWERS. The powers of the corporation shall be exercised, its
business conducted and its property controlled by the Board of Directors, except
as may be otherwise provided by statute or by the Certificate of Incorporation.
SECTION 3. ELECTION AND TERM OF OFFICE OF DIRECTORS. Members of the Board
of Directors shall hold office for the terms specified in the Certificate of
Incorporation, as it may be amended from time to time, and until their
successors have been elected as provided in the Certificate of Incorporation.
SECTION 4. VACANCIES. Unless otherwise provided in the Certificate of
Incorporation, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by stockholder vote, be
6
<PAGE>
filled only by the affirmative vote of a majority of the directors then in
office, even though less than a quorum of the Board of Directors. Any director
elected in accordance with the preceding sentence shall hold office for the
remainder of the full term of the director for which the vacancy was created or
occurred and until such director's successor shall have been elected and
qualified. A vacancy in the Board of Directors shall be deemed to exist under
this Bylaw in the case of the death, removal or resignation of any director.
SECTION 5. RESIGNATION. Any director may resign at any time by delivering
his written resignation to the Secretary, such resignation to specify whether it
will be effective at a particular time, upon receipt by the Secretary or at the
pleasure of the Board of Directors. If no such specification is made, it shall
be deemed effective at the pleasure of the Board of Directors. When one or more
directors shall resign from the Board of Directors, effective at a future date,
a majority of the directors then in office, including those who have so
resigned, shall have power to fill such vacancy or vacancies, the vote thereon
to take effect when such resignation or resignations shall become effective, and
each director so chosen shall hold office for the unexpired portion of the term
of the director whose place shall be vacated and until his successor shall have
been duly elected and qualified.
SECTION 6. REMOVAL. Subject to any limitations imposed by law, Section
A(3)(a) above shall no longer apply and subject to the rights of the holders of
any series of Preferred Stock, no director shall be removed without cause.
Subject to any limitations imposed by law, the Board of Directors or any
individual director may be removed from office at any time with cause by the
affirmative vote of the holders of a majority of the then-outstanding shares of
voting stock of the corporation entitled to vote at an election of directors
("Voting Stock").
SECTION 7. MEETINGS.
(a) ANNUAL MEETINGS. The annual meeting of the Board of Directors shall
be held immediately before or after the annual meeting of stockholders and at
the place where such meeting is held. No notice of an annual meeting of the
Board of Directors shall be necessary and such meeting shall be held for the
purpose of electing officers and transacting such other business as may lawfully
come before it.
(b) REGULAR MEETINGS. Except as hereinafter otherwise provided, regular
meetings of the Board of Directors shall be held in the office of the
corporation required to be maintained pursuant to Section 2 hereof. Unless
otherwise restricted by the Certificate of Incorporation, regular meetings of
the Board of Directors may also be held at any place within or without the state
of Delaware which has been designated by resolution of the Board of Directors or
the written consent of all directors.
(c) SPECIAL MEETINGS. Unless otherwise restricted by the Certificate of
Incorporation, special meetings of the Board of Directors may be held at any
time and place within or without the State of Delaware whenever called by the
Chairman of the Board, the President or any two of the directors.
7
<PAGE>
(d) TELEPHONE MEETINGS. Any member of the Board of Directors, or of any
committee thereof, may participate in a meeting by means of conference telephone
or similar communications equipment by means of which all persons participating
in the meeting can hear each other, and participation in a meeting by such means
shall constitute presence in person at such meeting.
(e) NOTICE OF MEETINGS. Notice of the time and place of all special
meetings of the Board of Directors shall be orally or in writing, by telephone,
facsimile, telegraph or telex, during normal business hours, at least
twenty-four (24) hours before the date and time of the meeting, or sent in
writing to each director by first class mail, charges prepaid, at least three
(3) days before the date of the meeting. Notice of any meeting may be waived in
writing at any time before or after the meeting and will be waived by any
director by attendance thereat, except when the director attends the meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
(f) WAIVER OF NOTICE. The transaction of all business at any meeting of
the Board of Directors, or any committee thereof, however called or noticed, or
wherever held, shall be as valid as though had at a meeting duly held after
regular call and notice, if a quorum be present and if, either before or after
the meeting, each of the directors not present shall sign a written waiver of
notice. All such waivers shall be filed with the corporate records or made a
part of the minutes of the meeting.
SECTION 8. QUORUM AND VOTING.
(a) Unless the Certificate of Incorporation requires a greater number and
except with respect to indemnification questions arising under Article XI
hereof, for which a quorum shall be one-third of the exact number of directors
fixed from time to time in accordance with the Certificate of Incorporation, a
quorum of the Board of Directors shall consist of a majority of the exact number
of directors fixed from time to time by the Board of Directors in accordance
with the Certificate of Incorporation provided, however, at any meeting whether
a quorum be present or otherwise, a majority of the directors present may
adjourn from time to time until the time fixed for the next regular meeting of
the Board of Directors, without notice other than by announcement at the
meeting.
(b) At each meeting of the Board of Directors at which a quorum is
present, all questions and business shall be determined by the affirmative vote
of a majority of the directors present, unless a different vote be required by
law, the Certificate of Incorporation or these Bylaws.
SECTION 9. ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and such writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
8
<PAGE>
SECTION 10. FEES AND COMPENSATION. Directors shall be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so approved, by resolution of the Board of Directors, a fixed sum
and expenses of attendance, if any, for attendance at each regular or special
meeting of the Board of Directors and at any meeting of a committee of the Board
of Directors. Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise and receiving compensation therefor.
SECTION 11. COMMITTEES.
(a) EXECUTIVE COMMITTEE. The Board of Directors may by resolution passed
by a majority of the whole Board of Directors appoint an Executive Committee to
consist of one (1) or more members of the Board of Directors. The Executive
Committee, to the extent permitted by law and provided in the resolution of the
Board of Directors shall have and may exercise all the powers and authority of
the Board of Directors in the management of the business and affairs of the
corporation, including without limitation the power or authority to declare a
dividend, to authorize the issuance of stock and to adopt a certificate of
ownership and merger, and may authorize the seal of the corporation to be
affixed to all papers which may require it; but no such committee shall have the
power or authority in reference to amending the Certificate of Incorporation
(except that a committee may, to the extent authorized in the resolution or
resolutions providing for the issuance of shares of stock adopted by the Board
of Directors fix the designations and any of the preferences or rights of such
shares relating to dividends, redemption, dissolution, any distribution of
assets of the corporation or the conversion into, or the exchange of such shares
for, shares of any other class or classes or any other series of the same or any
other class or classes of stock of the corporation or fix the number of shares
of any series of stock or authorize the increase or decrease of the shares of
any series), adopting an agreement of merger or consolidation, recommending to
the stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or amending the
bylaws of the corporation.
(b) OTHER COMMITTEES. The Board of Directors may, by resolution passed by
a majority of the whole Board of Directors, from time to time appoint such other
committees as may be permitted by law. Such other committees appointed by the
Board of Directors shall consist of one (1) or more members of the Board of
Directors and shall have such powers and perform such duties as may be
prescribed by the resolution or resolutions creating such committees, but in no
event shall such committee have the powers denied to the Executive Committee in
these Bylaws.
(c) TERM. Each member of a committee of the Board of Directors shall
serve a term on the committee coexistent with such member's term on the Board of
Directors. The Board of Directors, subject to the provisions of subsections (a)
or (b) of this Bylaw may at any time increase or decrease the number of members
of a committee or terminate the existence of a committee. The membership of a
committee member shall terminate on the date of his death or voluntary
resignation from the committee or from the Board of Directors. The Board of
Directors may at any time for any reason remove any individual committee member
and the
9
<PAGE>
Board of Directors may fill any committee vacancy created by death, resignation,
removal or increase in the number of members of the committee. The Board of
Directors may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee, and, in addition, in the absence or disqualification of any
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member.
(d) MEETINGS. Unless the Board of Directors shall otherwise provide,
regular meetings of the Executive Committee or any other committee appointed
pursuant to this Section 25 shall be held at such times and places as are
determined by the Board of Directors, or by any such committee, and when notice
thereof has been given to each member of such committee, no further notice of
such regular meetings need be given thereafter. Special meetings of any such
committee may be held at any place which has been determined from time to time
by such committee, and may be called by any director who is a member of such
committee, upon written notice to the members of such committee of the time and
place of such special meeting given in the manner provided for the giving of
written notice to members of the Board of Directors of the time and place of
special meetings of the Board of Directors. Notice of any special meeting of
any committee may be waived in writing at any time before or after the meeting
and will be waived by any director by attendance thereat, except when the
director attends such special meeting for the express purpose of objecting, at
the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. A majority of the authorized number
of members of any such committee shall constitute a quorum for the transaction
of business, and the act of a majority of those present at any meeting at which
a quorum is present shall be the act of such committee.
SECTION 12. ORGANIZATION. At every meeting of the directors, the Chairman
of the Board of Directors, or, if a Chairman has not been appointed or is
absent, the President, or if the President is absent, the most senior Vice
President, or, in the absence of any such officer, a chairman of the meeting
chosen by a majority of the directors present, shall preside over the meeting.
The Secretary, or in his absence, an Assistant Secretary directed to do so by
the President, shall act as secretary of the meeting.
ARTICLE V
OFFICERS
SECTION 1. OFFICERS DESIGNATED. The officers of the corporation shall
include, if and when designated by the Board of Directors, the Chairman of the
Board of Directors, one or more Chief Executive Officers, the President, one or
more Vice Presidents, the Secretary, the Chief Financial Officer, the Treasurer,
the Controller, all of whom shall be elected at the annual organizational
meeting of the Board of Direction. The Board of Directors may also appoint one
or more Assistant Secretaries, Assistant Treasurers, Assistant Controllers and
such other officers and agents with such powers and duties as it shall deem
necessary. The Board of Directors may assign such additional titles to one or
more of the officers as it shall deem
10
<PAGE>
appropriate. Any one person may hold any number of offices of the corporation
at any one time unless specifically prohibited therefrom by law. The salaries
and other compensation of the officers of the corporation shall be fixed by or
in the manner designated by the Board of Directors.
SECTION 2. TENURE AND DUTIES OF OFFICERS.
(a) GENERAL. All officers shall hold office at the pleasure of the Board
of Directors and until their successors shall have been duly elected and
qualified, unless sooner removed. Any officer elected or appointed by the Board
of Directors may be removed at any time by the Board of Directors. If the
office of any officer becomes vacant for any reason, the vacancy may be filled
by the Board of Directors.
(b) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the
Board of Directors, when present, shall preside at all meetings of the
stockholders and the Board of Directors. The Chairman of the Board of Directors
shall perform other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. If there is no President, then the Chairman
of the Board of Directors shall also serve as the Chief Executive Officer of the
corporation and shall have the powers and duties prescribed in paragraph (c) of
this Section 28.
(c) DUTIES OF PRESIDENT. The President shall preside at all meetings of
the stockholders and at all meetings of the Board of Directors, unless a Chief
Executive Officer or the Chairman of the Board of Directors has been appointed
and is present. Unless some other officer has been elected Chief Executive
Officer of the corporation, the President shall be the chief executive officer
of the corporation and shall, subject to the control of the Board of Directors,
have general supervision, direction and control of the business and officers of
the corporation. The President shall perform other duties commonly incident to
his office and shall also perform such other duties and have such other powers
as the Board of Directors shall designate from time to time.
(d) DUTIES OF VICE PRESIDENTS. The Vice Presidents may assume and perform
the duties of the President in the absence or disability of the President or
whenever the office of President is vacant. The Vice Presidents shall perform
other duties commonly incident to their office and shall also perform such other
duties and have such other powers as the Board of Directors or the President
shall designate from time to time.
(e) DUTIES OF SECRETARY. The Secretary shall attend all meetings of the
stockholders and of the Board of Directors and shall record all acts and
proceedings thereof in the minute book of the corporation. The Secretary shall
give notice in conformity with these Bylaws of all meetings of the stockholders
and of all meetings of the Board of Directors and any committee thereof
requiring notice. The Secretary shall perform all other duties given him in
these Bylaws and other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. The President may direct any Assistant
Secretary to assume and perform the duties of the Secretary in the absence or
disability of the Secretary, and each Assistant Secretary shall perform other
11
<PAGE>
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors or the President shall
designate from time to time.
(f) DUTIES OF CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall
keep or cause to be kept the books of account of the corporation in a thorough
and proper manner and shall render statements of the financial affairs of the
corporation in such form and as often as required by the Board of Directors or
the President. The Chief Financial Officer, subject to the order of the Board
of Directors, shall have the custody of all funds and securities of the
corporation. The Chief Financial Officer shall perform other duties commonly
incident to his office and shall also perform such other duties and have such
other powers as the Board of Directors or the President shall designate from
time to time. The President may direct the Treasurer or any Assistant
Treasurer, or the Controller or any Assistant Controller to assume and perform
the duties of the Chief Financial Officer in the absence or disability of the
Chief Financial Officer, and each Treasurer and Assistant Treasurer and each
Controller and Assistant Controller shall perform other duties commonly incident
to his office and shall also perform such other duties and have such other
powers as the Board of Directors or the President shall designate from time to
time.
SECTION 3. DELEGATION OF AUTHORITY. The Board of Directors may from time
to time delegate the powers or duties of any officer to any other officer or
agent, notwithstanding any provision hereof.
SECTION 4. RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Board of Directors or to a Chief Executive Officer, to the
President or to the Secretary. Any such resignation shall be effective when
received by the person or persons to whom such notice is given, unless a later
time is specified therein, in which event the resignation shall become effective
at such later time. Unless otherwise specified in such notice, the acceptance
of any such resignation shall not be necessary to make it effective. Any
resignation shall be without prejudice to the rights, if any, of the corporation
under any contract with the resigning officer.
SECTION 5. REMOVAL. Any officer may be removed from office at any time,
either with or without cause, by the affirmative vote of a majority of the
directors in office at the time, or by the unanimous written consent of the
directors in office at the time, or by any committee or superior officers upon
whom such power of removal may have been conferred by the Board of Directors.
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING
OF SECURITIES OWNED BY THE CORPORATION
SECTION 1. EXECUTION OF CORPORATE INSTRUMENT. The Board of Directors may,
in its discretion, determine the method and designate the signatory officer or
officers, or other person or persons, to execute on behalf of the corporation
any corporate instrument or document, or to sign on behalf of the corporation
the corporate name without limitation, or to
12
<PAGE>
enter into contracts on behalf of the corporation, except where otherwise
provided by law or these Bylaws, and such execution or signature shall be
binding upon the corporation.
Unless otherwise specifically determined by the Board of Directors or
otherwise required by law, promissory notes, deeds of trust, mortgages and other
evidences of indebtedness of the corporation, and other corporate instruments or
documents requiring the corporate seal, and certificates of shares of stock
owned by the corporation, shall be executed, signed or endorsed by the Chairman
of the Board of Directors, or a Chief Executive Officer, the President or any
Vice President, and by the Secretary or Treasurer or any Assistant Secretary or
Assistant Treasurer. All other instruments and documents requiting the
corporate signature, but not requiring the corporate seal, may be executed as
aforesaid or in such other manner as may be directed by the Board of Directors.
All checks and drafts drawn on banks or other depositaries on funds to the
credit of the corporation or in special accounts of the corporation shall be
signed by such person .or persons as the Board of Directors shall authorize so
to do.
Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any power
or authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or for any amount.
SECTION 2. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock and
other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman of the Board of Directors, the Chief Executive Officer, the
President, or any Vice President.
ARTICLE VII
SHARES OF STOCK
SECTION 1. FORM AND EXECUTION OF CERTIFICATES. Certificates for the
shares of stock of the corporation shall be in such form as is consistent with
the Certificate of Incorporation and applicable law. Every holder of stock in
the corporation shall be entitled to have a certificate signed by or in the name
of the corporation by the Chairman of the Board of Directors, or the President
or any Vice President and by the Treasurer or Assistant Treasurer or the
Secretary or Assistant Secretary, certifying the number of shares owned by him
in the corporation. Any or all of the signatures on the certificate may be
facsimiles. In case any officer, transfer agent, or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent, or registrar before such certificate is
issued, it may be issued with the same effect as if he were such officer,
transfer agent, or registrar at the date of issue. Each certificate shall state
upon the face or back thereof, in full or in summary, all of the powers,
designations, preferences, and rights, and the limitations or restrictions of
the shares authorized to be issued or shall, except as otherwise required by
law, set forth on the face
13
<PAGE>
or back a statement that the corporation will furnish without charge to each
stockholder who so requests the powers, designations, preferences and relative,
participating, optional, or other special rights of each class of stock or
series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights. Within a reasonable time after the issuance or
transfer of uncertificated stock, the corporation shall send to the registered
owner thereof a written notice containing the information required to be set
forth or stated on certificates pursuant to this section or otherwise required
by law or with respect to this section a statement that the corporation will
furnish without charge to each stockholder who so requests the powers,
designations, preferences and relative participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights. Except as
otherwise expressly provided by law, the rights and obligations of the holders
of certificates representing stock of the same class and series shall be
identical.
SECTION 2. LOST CERTIFICATES. A new certificate or certificates shall be
issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. The corporation may require, as a condition
precedent to the issuance of a new certificate or certificates, the owner of
such lost, stolen, or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall require or to
give the corporation a surety bond in such form and amount as it may direct as
indemnity against any claim that may be made against the corporation with
respect to the certificate alleged to have been lost, stolen, or destroyed.
SECTION 3. TRANSFERS.
(a) Transfers of record of shares of stock of the corporation shall be
made only upon its books by the holders thereof, in person or by attorney duly
authorized, and upon the surrender of a properly endorsed certificate or
certificates for a like number of shares.
(b) The corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock of
the corporation to restrict the transfer of shares of stock of the corporation
of any one or more classes owned by such stockholders in any manner not
prohibited by the General Corporation Law of Delaware.
SECTION 4. FIXING RECORD DATES.
(a) In order that the corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, the Board of Directors may fix, in advance, a record date, which record
date shall not precede the date upon which the resolution fixing the record date
is adopted by the Board of Directors, and which record date shall not be more
than sixty (60) nor less than ten (10) days before the date of such meeting. If
no record date is fixed by the Board of Directors, the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply
14
<PAGE>
to any adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
(b) In order that the corporation may determine the stockholders entitled
to receive payment of any dividend or other distribution or allotment of any
rights or the stockholders entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action, the Board of Directors may fix, in advance, a record date, which record
date shall not precede the date upon which the resolution fixing the record date
is adopted, and which record date shall be not more than sixty (60) days prior
to such action. If no record date is filed, the record date for determining
stockholders for any such purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
SECTION 5. REGISTERED STOCKHOLDERS. The corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
SECTION 1. EXECUTION OF OTHER SECURITIES. All bonds, debentures and other
corporate securities of the corporation, other than stock certificates (covered
in Section 34), may be signed by the Chairman of the Board of Directors, the
President or any Vice President, or such other person as may be authorized by
the Board of Directors, and the corporate seal impressed thereon or a facsimile
of such seal imprinted thereon and attested by the signature of the Secretary or
an Assistant Secretary, or the Chief Financial Officer or Treasurer or an
Assistant Treasurer; provided, however, that where any such bond, debenture or
other corporate security shall be authenticated by the manual signature, or
where permissible facsimile signature, of a trustee under an indenture pursuant
to which such bond, debenture or other corporate security shall be issued, the
signatures of the persons signing and attesting the corporate seal on such bond,
debenture or other corporate security may be the imprinted facsimile of the
signatures of such persons. Interest coupons appertaining to any such bond,
debenture or other corporate security, authenticated by a trustee as aforesaid,
shall be signed by the Treasurer or an Assistant Treasurer of the corporation or
such other person as may be authorized by the Board of Directors, or bear
imprinted thereon the facsimile signature of such person. In case any officer
who shall have signed or attested any bond, debenture or other corporate
security, or whose facsimile signature shall appear thereon or on any such
interest coupon, shall have ceased to be such officer before the bond, debenture
or other corporate security so signed or attested shall have been delivered,
such bond, debenture or other corporate security nevertheless may be adopted by
the corporation and issued and delivered as though the person who signed the
same or whose facsimile signature shall have been used thereon had not ceased to
be such officer of the corporation.
15
<PAGE>
ARTICLE IX
DIVIDENDS
SECTION 1. DECLARATION OF DIVIDENDS. Dividends upon the capital stock of
the corporation, subject to the provisions of the Certificate of Incorporation,
if any, may be declared by the Board of Directors pursuant to law at any regular
or special meeting. Dividends may be paid in cash, in property, or in shares of
the capital stock, subject to the provisions of the Certificate of
Incorporation.
SECTION 2. DIVIDEND RESERVE. Before payment of any dividend, there may be
set aside out of any funds of the corporation available for dividends such sum
or sums as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors shall think
conducive to the interests of the corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created.
ARTICLE X
FISCAL YEAR
SECTION 1. FISCAL YEAR. The fiscal year of the corporation shall be fixed
by resolution of the Board of Directors.
ARTICLE XI
INDEMNIFICATION
SECTION 1. INDEMNIFICATION OF DIRECTORS, EXECUTIVE OFFICERS, OTHER
OFFICERS, EMPLOYEES AND OTHER AGENTS.
(a) DIRECTORS OFFICERS. The corporation shall indemnify its directors and
officers to the fullest extent not prohibited by the Delaware General
Corporation Law; provided, however, that the corporation may modify the extent
of such indemnification by individual contracts with its directors and officers;
and, provided, further, that the corporation shall not be required to indemnify
any director or officer in connection with any proceeding (or part thereof)
initiated by such person unless (i) such indemnification is expressly required
to be made by law, (ii) the proceeding was authorized by the Board of Directors
of the corporation, (iii) such indemnification is provided by the corporation,
in its sole discretion, pursuant to the powers vested in the corporation under
the Delaware General Corporation Law or (iv) such indemnification is required to
be made under subsection (d).
(b) EMPLOYEES AND OTHER AGENTS. The corporation shall have power to
indemnify its employees and other agents as set forth in the Delaware General
Corporation Law.
16
<PAGE>
(c) EXPENSE. The corporation shall advance to any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was a director or officer, of
the corporation, or is or was serving at the request of the corporation as a
director or executive officer of another corporation, partnership, joint
venture, trust or other enterprise, prior to the final disposition of the
proceeding, promptly following request therefor, all expenses incurred by any
director or officer in connection with such proceeding upon receipt of an
undertaking by or on behalf of such person to repay said mounts if it should be
determined ultimately that such person is not entitled to be indemnified under
this Bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to
paragraph (e) of this Bylaw, no advance shall be made by the corporation to an
officer of the corporation (except by reason of the fact that such officer is or
was a director of the corporation in which event this paragraph shall not apply)
in any action, suit or proceeding, whether civil, criminal, administrative or
investigative, if a determination is reasonably and promptly made (i) by the
Board of Directors by a majority vote of a quorum consisting of directors who
were not parties to the proceeding, or (ii) if such quorum is not obtainable,
or, even if obtainable, a quorum of disinterested directors so directs, by
independent legal counsel in a written opinion, that the facts known to the
decision-making party at the time such determination is made demonstrate clearly
and convincingly that such person acted in bad faith or in a manner that such
person did not believe to be in or not opposed to the best interests of the
corporation.
(d) ENFORCEMENT. Without the necessity of entering into an express
contract, all rights to indemnification and advances to directors and officers
under this Bylaw shall be deemed to be contractual rights and be effective to
the same extent and as if provided for in a contract between the corporation and
the director or officer. Any right to indemnification or advances granted by
this Bylaw to a director or officer shall be enforceable by or on behalf of the
person holding such right in any court of competent jurisdiction if (i) the
claim for indemnification or advances is denied, in whole or in part, or (ii) no
disposition of such claim is made within ninety (90) days of request therefor.
The claimant in such enforcement action, if successful in whole or in part,
shall be entitled to be paid also the expense of prosecuting his claim. In
connection with any claim for indemnification, the corporation shall be entitled
to raise as a defense to any such action that the claimant has not met the
standard of conduct that make it permissible under the Delaware General
Corporation Law for the corporation to indemnify the claimant for the amount
claimed. In connection with any claim by an officer of the corporation (except
in any action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such officer is or was a director of
the corporation) for advances, the corporation shall be entitled to raise a
defense as to any such action clear and convincing evidence that such person
acted in bad faith or in a manner that such person did not believe to be in or
not opposed in the best interests of the corporation, or with respect to any
criminal action or proceeding that such person acted without reasonable cause to
believe that his conduct was lawful. Neither the failure of the corporation
(including its Board of Directors, independent legal counsel or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he has met the applicable standard of conduct set forth in the Delaware
General Corporation Law, nor an actual
17
<PAGE>
determination by the corporation (including its Board of Directors, independent
legal counsel or its stockholders) that the claimant has not met such applicable
standard of conduct, shall be a defense to the action or create a presumption
that claimant has not met the applicable standard of conduct. In any suit
brought by a director or officer to enforce a right to indemnification or to an
advancement of expenses hereunder, the burden of proving that the director or
officer is not entitled to be indemnified, or to such advancement of expenses,
under this Article XI or otherwise shall be on the corporation.
(e) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person by this
Bylaw shall not be exclusive of any other right which such person may have or
hereafter acquire under any statute, provision of the Certificate of
Incorporation, Bylaws, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office. The corporation is
specifically authorized to enter into individual contracts with any or all of
its directors, officers, employees or agents respecting indemnification and
advances, to the fullest extent not prohibited by the Delaware General
Corporation Law.
(f) SURVIVAL OF RIGHTS. The rights conferred on any person by this Bylaw
shall continue as to a person who has ceased to be a director, officer, employee
or other agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
(g) INSURANCE. To the fullest extent permitted by the Delaware General
Corporation Law, the corporation, upon approval by the Board of Directors, may
purchase insurance on behalf of any person required or permitted to be
indemnified pursuant to this Bylaw.
(h) AMENDMENTS. Any repeal or modification of this Bylaw shall only be
prospective and shall not affect the rights under this Bylaw in effect at the
time of the alleged occurrence of any action or omission to act that is the
cause of any proceeding against any agent of the corporation.
(i) SAVING CLAUSE. If this Bylaw or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director and officer to the full
extent not prohibited by any applicable portion of this Bylaw that shall not
have been invalidated, or by any other applicable law.
(j) CERTAIN DEFINITIONS. For the purposes of this Bylaw, the following
definitions shall apply:
(i) The term "proceeding" shall be broadly construed and shall
include, without limitation, the investigation, preparation, prosecution,
defense, settlement, arbitration and appeal of, and the giving of testimony
in, any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative.
(ii) The term "expenses" shall be broadly construed and shall
include, without limitation, court costs, attorneys' fees, witness fees,
fines, amounts paid in settlement or
18
<PAGE>
judgment and any other costs and expenses of any nature or kind incurred in
connection with any proceeding.
(iii) The term the "corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger which,
if its separate existence had continued, would have had power and authority
to indemnify its directors, officers, and employees or agents, so that any
person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent or
another corporation, partnership, joint venture, trust or other enterprise,
shall stand in the same position under the provisions of this Bylaw with
respect to the resulting or surviving corporation as he would have with
respect to such constituent corporation if its separate existence had
continued.
(iv) References to a "director," "executive officer," "officer,"
"employee," or "agent" of the corporation shall include, without
limitation, situations where such person is serving at the request of the
corporation as, respectively, a director, executive officer, officer,
employee, trustee or agent of another corporation, partnership, joint
venture, trust or other enterprise.
(v) References to "other enterprises" shall include employee
benefit plans; references to "fines" shall include any excise taxes
assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer,
employee, or agent with respect to an employee benefit plan, its
participants, or beneficiaries; and a person who acted in good faith and in
a manner he reasonably believed to be in the interest of the participants
and beneficiaries of an employee benefit plan shall be deemed to have acted
in a manner "not opposed to the best interests of the corporation" as
referred to in this Bylaw.
ARTICLE XII
NOTICES
SECTION 1. NOTICES.
(a) NOTICE TO STOCKHOLDERS. Whenever, under any provisions of these
Bylaws, notice is required to be given to any stockholder, it shall be given in
writing, timely and duly deposited in the United States mail, postage prepaid,
and addressed to his last known post office address as shown by the stock record
of the corporation or its transfer agent.
(b) NOTICE TO DIRECTORS. Any notice required to be given to any director
may be given by the method stated in subsection (a), or by facsimile, telex or
telegram, except that such notice other than one which is delivered personally
shall be sent to such address as such director
19
<PAGE>
shall have filed in writing with the Secretary, or, in the absence of such
filing, to the last known post office address of such director.
(c) AFFIDAVIT OF MAILING. An affIdavit of mailing, executed by a duly
authorized and competent employee of the corporation or its transfer agent
appointed with respect to the class of stock affected, specifying the name and
address or the names and addresses of the stockholder or stockholders, or
director or directors, to whom any such notice or notices was or were given, and
the time and method of giving the same, shall in the absence of fraud, be prima
facie evidence of the facts therein contained.
(d) TIME NOTICES DEEMED GIVEN. All notices given by mail, as above
provided, shall be deemed to have been given as at the time of mailing, and all
notices given by facsimile, telex or telegram shall be deemed to have been given
as of the sending time recorded at time of transmission.
(e) METHODS OF NOTICE. It shall not be necessary that the same method of
giving notice be employed in respect of all directors, but one permissible
method may be employed in respect of any one or more, and any other permissible
method or methods may be employed in respect of any other or others.
(f) FAILURE TO RECEIVE NOTICE. The period or limitation of time within
which any stockholder may exercise any option or right, or enjoy any privilege
or benefit, or be required to act, or within which any director may exercise any
power or right, or enjoy any privilege, pursuant to any notice sent him ill the
manner above provided, shall not be affected or extended in any manner by the
failure of such stockholder or such director to receive such notice.
(g) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL. Whenever notice
is required to be given, under any provision of law or of the Certificate of
Incorporation or Bylaws of the corporation, to any person with whom
communication is unlawful, the giving of such notice to such person shall not be
require and there shall be no duty to apply to any governmental authority or
agency for a license or permit to give such notice to such person. Any action
or meeting which shall be taken or held without notice to any such person with
whom communication is unlawful shall have the same force and effect as if such
notice had been duly given. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate shall state,
if such is the fact and if notice is required, that notice was given to all
persons entitled to receive notice except such persons with whom communication
is unlawful.
(h) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS. Whenever notice is
required to be given, under any provision of law or the Certificate of
Incorporation or Bylaws of the corporation, to any stockholder to whom (i)
notice of two consecutive annual meetings, and all notices of meetings or of the
taking of action by written consent without a meeting to such person during the
period between such two consecutive annual meetings, or (ii) all, and at least
two, payments (if sent by first class mail) of dividends or interest on
securities during a twelve-month period, have been mailed addressed to such
person at his address as shown on the records of the corporation and have been
returned undeliverable, the giving of such notice to such person
20
<PAGE>
shall not be required. Any action or meeting which shall be taken or held
without notice to such person shall have the same force and effect as if such
notice had been duly given. If any such person shall deliver to the corporation
a written notice setting forth his then current address, the requirement that
notice be given to such person shall be reinstated. In the event that the
action taken by the corporation is such as to require the filing of a
certificate under any provision of the Delaware General Corporation Law, the
certificate need not state that notice was not given to persons to whom notice
was not required to be given pursuant to this paragraph.
ARTICLE XII
AMENDMENTS
SECTION 1. AMENDMENTS.
Subject to paragraph (h) of Article XI of the Bylaws, the Bylaws may be
altered or amended or new Bylaws adopted by the affirmative vote of at least
sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the
then-outstanding shares of the Voting Stock. The Board of Directors shall also
have the power to adopt, amend, or repeal Bylaws.
ARTICLE XIV
LOANS TO OFFICERS
SECTION 1. LOANS TO OFFICERS. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee who
is a Director of the corporation or its subsidiaries, whenever, in the judgment
of the Board of Directors, such loan, guarantee or assistance may reasonably be
expected to benefit the corporation. The loan, guarantee or other assistance
may be with or without interest and may be unsecured, or secured in such manner
as the Board of Directors shall approve, including, without limitation, a pledge
of shares of stock of the corporation. Nothing in these Bylaws shall be deemed
to deny, limit or restrict the powers of guaranty or warranty of the corporation
at common law or under any statute.
21
<PAGE>
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("AGREEMENT") is made as of this _____ day
of _____, 199_, by and between Tag-It Pacific, Inc., a Delaware corporation (the
"COMPANY"), and __________________ ("INDEMNITEE").
RECITALS
A. The Company and Indemnitee recognize the increasing difficulty in
obtaining liability insurance for directors, officers, employees and agents, the
significant increases in the cost of such insurance and the general reductions
in the coverage of such insurance.
B. The Company and Indemnitee further recognize the substantial increase
in corporate litigation in general, subjecting directors, officers, employees,
and agents to expensive litigation risk at the same time that the availability
and coverage of liability insurance has been severely limited.
C. Indemnitee does not regard the current protection available as
adequate under the present circumstances, and Indemnitee and other directors,
officers, employers and agents of the Company may not be willing to continue to
serve as directors, officers, employees and agents without additional
protection.
D. The Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, to serve as directors, officers,
employees and agents of the Company and to indemnify its directors, officers,
employees and agents so as to provide them with the maximum protection permitted
by law.
AGREEMENT
The Company and Indemnitee hereby agree as follows:
1. AGREEMENT TO SERVE. Indemnitee agrees to serve and/or continue to
serve the Company, at the Company's will (or under separate written agreement
approved by the Board of Directors of the Company, if such agreement exists), in
the capacity Indemnitee currently serves the Company, as long as Indemnitee is
duly appointed or elected and qualified in accordance with the applicable
provisions of the Bylaws of the Company or any subsidiary of the Company or
(subject to any employment agreement between Indemnitee and the Company) until
such time as Indemnitee tenders a written resignation or is removed in
accordance with the Bylaws; PROVIDED, HOWEVER, that nothing contained in this
Agreement is intended to or shall create any right (express or implied) to
continued employment by Indemnitee.
<PAGE>
2. INDEMNIFICATION.
(a) THIRD PARTY PROCEEDINGS. The Company shall indemnify Indemnitee
if Indemnitee is or was a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Company) by reason of the fact that Indemnitee is or was a
director, officer, employee or agent of the Company, or any subsidiary of the
Company, by reason of any action or inaction on the part of Indemnitee while a
director, officer, employee or agent, or by reason of the fact that Indemnitee
is or was serving at the request of the Company as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including, without limitation, attorneys' fees,
disbursements and retainers, accounting and witness fees, travel and deposition
costs, and expenses of investigations), judgments, fines and amounts paid in
settlement (if such settlement is approved in advance by the Company) actually
and reasonably incurred by Indemnitee in connection with such action, suit or
proceeding if Indemnitee acted in good faith and in a manner Indemnitee
reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe Indemnitee's conduct was unlawful. The termination
of any action, suit or proceeding by judgment, order, settlement, conviction, or
upon a plea of NOLO CONTENDERE or its equivalent, shall not, of itself, create a
presumption that Indemnitee did not act in good faith and in a manner which
Indemnitee reasonably believed to be in or not opposed to the best interests of
the Company, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that Indemnitee's conduct was unlawful.
(b) PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY. The Company shall
indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made
a party to any threatened, pending or completed action or suit by or in the
right of the Company or any subsidiary of the Company to procure a judgment in
its favor by reason of the fact that Indemnitee is or was a director, officer,
employee or agent of the Company, or any subsidiary of the Company, by reason of
any action or inaction on the part of Indemnitee while a director, officer,
employee or agent, or by reason of the fact that Indemnitee is or was serving at
the request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including, without limitation, attorneys' fees, disbursements and
retainers, accounting and witness fees, travel and deposition costs, and
expenses of investigations) and, to the fullest extent permitted by law, amounts
paid in settlement, in each case to the extent actually and reasonably incurred
by Indemnitee in connection with the defense or settlement of such action or
suit (i) if Indemnitee acted in good faith and in a manner Indemnitee reasonably
believed to be in or not opposed to the best interests of the Company and its
stockholders, except that no indemnification shall be made in respect of any
claim, issue or matter as to which Indemnitee shall have been adjudged to be
liable to the Company in the performance of Indemnitee's duty to the Company and
its stockholders unless and only to the extent
2
<PAGE>
that the court in which such action or suit is or was pending shall determine
upon application that, in view of all the circumstances of the case, Indemnitee
is fairly and reasonably entitled to indemnity for expenses and then only to the
extent that the court shall determine; (ii) if Indemnitee is a director, to the
extent that the action or contemplated action seeks monetary damages for breach
of Indemnitee's duties to the Company and its stockholders in circumstances
under which Indemnitee's personal liability therefor has been eliminated as a
result of the provisions of Section 102(b)(7) of the Delaware General
Corporation Law; or (iii) if Indemnitee is an agent other than a director, to
the extent that, were Indemnitee a director, Indemnitee would have the right to
be indemnified under Section 2(b)(ii), above; and in the case of Section
2(b)(ii) and 2(b)(iii) above, indemnification shall include, to the extent not
prohibited by law, indemnification against all judgments, fines and amounts paid
in settlement actually and reasonably incurred by Indemnitee in connection with
such action, suit or proceeding.
(c) MANDATORY PAYMENT OF EXPENSES. To the extent that Indemnitee has
been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Sections 2(a) or (b) or in defense of any claim, issue
or matter therein, Indemnitee shall be indemnified against expenses (including,
without limitation, attorneys' fees, disbursements and retainers, accounting and
witness fees, travel and deposition costs, and expenses of investigations)
actually and reasonably incurred by Indemnitee in connection therewith.
(d) INDEMNIFICATION FOR SERVING AS A WITNESS. Notwithstanding any
other provision of this Agreement, to the extent that Indemnitee is, by reason
of Indemnitee's status as a director, officer, employee or agent of the Company,
a witness in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, Indemnitee shall be indemnified against
expenses actually and reasonably incurred by Indemnitee in connection therewith.
3. EXPENSES; INDEMNIFICATION PROCEDURE.
(a) ADVANCEMENT OF EXPENSES. The Company shall advance all
reasonable expenses incurred by Indemnitee in connection with the investigation,
defense, settlement or appeal of any civil, criminal, administrative or
investigative action, suit or proceeding referenced in Section 2(a) or (b)
hereof (but not amounts actually paid in settlement of any such action, suit or
proceeding). Indemnitee hereby undertakes to repay such amounts advanced only
if, and to the extent that, it shall ultimately be determined that Indemnitee is
not entitled to be indemnified by the Company as authorized hereby.
(b) NOTICE/COOPERATION BY INDEMNITEE. Indemnitee shall, as a
condition precedent to his right to be indemnified under this Agreement, give
the Company notice, in accordance with Section 14 hereof, of any claim made
against Indemnitee for which indemnification will or could be sought under this
Agreement. Notice to the Company shall be directed to the Chief Executive
Officer of the Company. In addition, Indemnitee shall give the Company such
information and cooperation as it may reasonably require and as shall be within
Indemnitee's power.
3
<PAGE>
(c) PROCEDURE. Any indemnification and advances provided for in
Section 2 and this Section 3 shall be made no later than 30 days after receipt
of the written request of Indemnitee. If a claim under this Agreement, under
any statute, or under any provision of the Company's Certificate of
Incorporation or Bylaws providing for indemnification, is not paid in full by
the Company within 30 days after a written request for payment thereof has first
been received by the Company, Indemnitee may, but need not, at any time
thereafter bring an action against the Company to recover the unpaid amount of
the claim and, subject to Section 13 of this Agreement, Indemnitee shall also be
entitled to be paid for the expenses (including attorneys' fees) of bringing
such action. It shall be a defense to any such action (other than an action
brought to enforce a claim for expenses incurred in connection with any action,
suit or proceeding in advance of its final disposition) that Indemnitee has not
met the standards of conduct which make it permissible under applicable law for
the Company to indemnify Indemnitee. Indemnitee shall be entitled to receive
interim payments of expenses pursuant to Section 3(a) unless and until such
defense may be finally adjudicated by court order or judgment from which no
further right of appeal exists. It is the intention of the parties that if the
Company contests Indemnitee's right to indemnification, the question of
Indemnitee's right to indemnification shall be for the court to decide, and
neither the failure of the Company (including its Board of Directors, any
committee or subgroup of the Board of Directors, independent legal counsel, or
its stockholders) to have made a determination that indemnification of
Indemnitee is proper in the circumstances because Indemnitee has met the
applicable standard of conduct required by applicable law, nor an actual
determination by the Company (including its Board of Directors, any committee or
subgroup of the Board of Directors, independent legal counsel, or its
stockholders) that Indemnitee has not met such applicable standard of conduct,
shall create a presumption that Indemnitee has or has not met the applicable
standard of conduct.
(d) NOTICE TO INSURERS. If, at the time of the receipt of a notice
of a claim pursuant to Section 3(b) hereof, the Company has director and officer
liability insurance in effect, the Company shall give prompt notice of the
commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of the Indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.
(e) SELECTION OF COUNSEL. In the event the Company shall be
obligated under Section 3(a) hereof to pay the expenses of any proceedings
against Indemnitee, the Company, if appropriate, shall be entitled to assume the
defense of such proceeding, with counsel approved by Indemnitee, upon the
delivery to Indemnitee of written notice of its election so to do. After
delivery of such notice, approval of such counsel by Indemnitee and the
retention of such counsel by the Company, the Company will not be liable to
Indemnitee under this Agreement for any fees of counsel subsequently incurred by
Indemnitee with respect to the same proceeding, provided that (i) Indemnitee
shall have the right to employ separate counsel in any such proceeding at
Indemnitee's expense; and (ii) if (A) the employment of counsel by Indemnitee
has been previously authorized by the Company, (B) Indemnitee shall have
reasonably concluded that there may be a conflict of interest between the
Company and
4
<PAGE>
Indemnitee in the conduct of any such defense, or (C) the Company shall not, in
fact, have employed counsel to assume the defense of such proceeding, then the
fees and expenses of Indemnitee's counsel shall be at the expense of the
Company.
4. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY.
(a) SCOPE. Notwithstanding any other provision of this Agreement,
the Company hereby agrees to indemnify the Indemnitee to the fullest extent
permitted by law, notwithstanding that such indemnification is not specifically
authorized by the other provisions of this Agreement, the Company's Certificate
of Incorporation, the Company's Bylaws or by statute. In the event of any
change in any applicable law, statute or rule which narrows the right of a
Delaware corporation to indemnify a member of its board of directors or its
officers, employees or agents, such change, to the extent not otherwise required
by such law, statute or rule to be applied to this Agreement, shall have no
effect on this Agreement or the parties' rights and obligations hereunder.
(b) NONEXCLUSIVITY. The indemnification provided by this Agreement
shall not be deemed exclusive of any rights to which Indemnitee may be entitled
under the Company's Certificate of Incorporation, its Bylaws, any agreement, any
vote of stockholders or disinterested Directors, the Delaware General
Corporation Law or otherwise, both as to action in Indemnitee's official
capacity and as to action in another capacity while holding such office. The
indemnification provided under this Agreement shall continue as to Indemnitee
for any action taken or not taken while serving in an indemnified capacity even
though he may have ceased to serve in such capacity at the time of any action,
suit or other covered proceeding.
5. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of the expenses, judgments, fines or penalties actually or reasonably
incurred by him in the investigation, defense, appeal or settlement of any civil
or criminal action, suit or proceeding, but not, however, for the total amount
thereof, the Company shall nevertheless indemnify Indemnitee for the portion of
such expenses, judgments, fines or penalties to which Indemnitee is entitled.
6. MUTUAL ACKNOWLEDGEMENT. Both the Company and Indemnitee acknowledge
that in certain instances, Federal law or applicable public policy may prohibit
the Company from indemnifying its directors, officers, employees and/or agents
under this Agreement or otherwise. Indemnitee understands and acknowledges that
the Company has undertaken or may be required in the future to undertake with
the Securities and Exchange Commission to submit the question of indemnification
to a court in certain circumstances for a determination of the Company's right
under public policy to indemnify Indemnitee.
7. LIABILITY INSURANCE. If the Company does not maintain a policy or
policies of officers and directors liability insurance with a reputable
insurance company(ies), upon written request of Indemnities, the Company shall,
from time to time, make the good faith determination whether or not it is
practicable for the Company to obtain and maintain such a policy or policies
5
<PAGE>
of insurance. Officers and directors liability insurance would cover, among
other things, coverage for losses from wrongful acts and/or to ensure the
Company's performance of its obligations under this Agreement. The Company
shall not be obligated to make such determination more than once in any 12-month
period based on written requests from Indemnities and any other persons with
similar rights. Among other considerations, the Company will weigh the costs of
obtaining such insurance coverage against the protection afforded by such
coverage. In all such policies of liability insurance, Indemnitee shall be
named as an insured in such a manner as to provide Indemnitee the same rights
and benefits as are accorded to the most favorably insured of the Company's
directors, if Indemnitee is a director; or of the Company's officers, if
Indemnitee is not an director of the Company but is an officer; or of the
Company's employees, if Indemnitee is not a director or officer but is an
employee; or of the Company's agents, if Indemnitee is not a director, officer
or employee but is an agent. Notwithstanding the foregoing, the Company shall
have no obligation to obtain or maintain such insurance if the Company
determines in good faith that such insurance is not reasonably available, if the
premium costs for such insurance are disproportionate to the amount of coverage
provided, if the coverage provided by such insurance is limited by exclusions so
as to provide an insufficient benefit, or if Indemnitee is covered by similar
insurance maintained by a subsidiary or parent of the Company.
8. SEVERABILITY. Nothing in this Agreement is intended to require or
shall be construed as requiring the Company to do or fail to do any act in
violation of applicable law. The Company's inability, pursuant to court order,
to perform its obligations under this Agreement shall not constitute a breach of
this Agreement. The provisions of this Agreement shall be severable as provided
in this Section 8. If this Agreement or any portion hereof shall be invalidated
on any ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify Indemnitee to the full extent permitted by any applicable
portion of this Agreement that shall not have been invalidated, and the balance
of this Agreement not so invalidated shall be enforceable in accordance with its
terms.
9. EXCEPTIONS. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance expenses
to Indemnitee with respect to proceedings or claims initiated or brought
voluntarily by Indemnitee and not by way defense, except with respect to
proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other statute or otherwise as required under Section 145
of the Delaware General Corporation Law, but such indemnification or advancement
of expenses may be provided by the Company in specific cases if the Board of
Directors has approved the initiation or bringing of such suit;
(b) LACK OF GOOD FAITH. To indemnify Indemnitee for any expenses
incurred by the Indemnitee with respect to any proceeding instituted by
Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material
6
<PAGE>
assertions made by the Indemnitee in such proceeding was not made in good faith
or was frivolous;
(c) INSURED CLAIMS. To indemnify Indemnitee for expenses or
liabilities of any type whatsoever (including, but not limited to, judgments,
fines, ERISA excise taxes or penalties, and amounts paid in settlement) which
have been paid directly to Indemnitee by an insurance carrier under a policy of
officers' and directors' liability insurance or other policy of insurance
maintained by the Company;
(d) CLAIMS UNDER SECTION 16(b). To indemnify Indemnitee for expenses
and the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of 1934,
as amended, or any similar successor statute;
(e) UNLAWFUL CLAIMS. To indemnify Indemnitee in any manner which is
contrary to public policy or which a court of competent jurisdiction has finally
determined to be unlawful;
(f) FAILURE TO SETTLE PROCEEDING. To indemnify Indemnitee for
liabilities in excess of the total amount at which settlement reasonably could
have been made, or for any cost and/or expenses incurred by Indemnitee following
the time such settlement reasonably could have been effected, if Indemnitee
shall have unreasonably delayed, refused or failed to enter into a settlement of
any action, suit or proceeding (or investigation or appeal thereof) recommended
in good faith, in writing, by the Company; or
(g) BREACH OF EMPLOYMENT AGREEMENT. To indemnify Indemnitee for any
breach by Indemnitee of any employment agreement between Indemnitee and the
Company or any of its subsidiaries.
10. CONSTRUCTION OF CERTAIN PHRASES.
For purposes of this Agreement, references to the "COMPANY" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, employees and/or agents, so that
if Indemnitee is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, Indemnitee shall stand in
the same position under the provisions of this Agreement with respect to the
resulting or surviving corporation as Indemnitee would have with respect to such
constituent corporation if its separate existence had continued.
For purposes of this Agreement, references to "OTHER ENTERPRISES"
shall include employee benefit plans; references to "FINES" shall include any
excise taxes assessed on
7
<PAGE>
Indemnitee with respect to an employee benefit plan; and references to "SERVING
AT THE REQUEST OF THE COMPANY" shall include any service as a director, officer,
employee or agent of the Company or any subsidiary of the Company which imposes
duties on, or involves services by, such director, officer, employee or agent
with respect to an employee benefit plan, its participants, or beneficiaries;
and if Indemnitee acted in good faith and in a manner Indemnitee reasonably
believed to be in the interest of the participants and beneficiaries of an
employee benefit plan, Indemnitee shall be deemed to have acted in a manner "NOT
OPPOSED TO THE BEST INTEREST OF THE COMPANY" as referred to in this Agreement.
11. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
12. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
Company and its successors and assigns, and shall inure to the benefit of
Indemnitee and Indemnitee's estate, heirs, legal representatives and assigns.
13. ATTORNEYS' FEES. In the event that any action is instituted by
Indemnitee under this Agreement to enforce or interpret any of the terms hereof,
Indemnitee shall be entitled to be paid all court costs and expenses, including
reasonable attorneys' fees, incurred by Indemnitee with respect to such action,
unless as a part of such action, the court of competent jurisdiction determines
that each of the material assertions made by Indemnitee as a basis for such
action were not made in good faith or were frivolous. In the event of an action
instituted by or in the name of the Company under this Agreement to enforce or
interpret any of the terms of this Agreement, Indemnitee shall be entitled to be
paid all court costs and expenses, including attorneys' fees, incurred by
Indemnitee in defense of such action (including with respect to Indemnitee's
counterclaims and cross-claims made in such action), unless as a part of such
action the court determines that each of Indemnitee's material defenses to such
action were made in bad faith or were frivolous.
14. NOTICE. All notices, requests, demands and other communications under
this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressee, on the date of such
receipt, or (ii) if mailed by domestic certified or registered mail with postage
prepaid, on the third business day after the date postmarked. Addresses for
notice to either party are as shown on the signature page of this Agreement, or
as subsequently modified by written notice.
15. CONSENT TO JURISDICTION. The Company and Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of California
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be brought only in the state courts of the State of California,
or in Federal courts located in such State.
16. CHOICE OF LAW. This Agreement shall be governed by and its provisions
construed in accordance with the laws of the State of Delaware.
8
<PAGE>
17. CALIFORNIA LAW. To the extent that the Company is subject to the
provisions of Section 317 of the California General Corporation Law pursuant to
Section 2115 of the California General Corporation Law, nothing in this
Agreement shall be deemed to require the Company to take any action which would
cause it to be in violation of Section 317 of the California General Corporation
Law.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
Tag-It Pacific, Inc., a Delaware
corporation, as the Company
By: _____________________________________________
Name: _______________________________________
Title:_______________________________________
Notice Address:
_____________________________________________
_____________________________________________
_____________________________________________
AGREED TO AND ACCEPTED:
INDEMNITEE:
________________________________________
________________________________________
Notice Address:
________________________________________
________________________________________
________________________________________
9
<PAGE>
MANUFACTURING LICENSE AGREEMENT
BETWEEN
GUESS ?, INC.
AND
AGS, INC.
Certain portions of this agreement have been omitted and filed separately
with the Securities and Exchange Commission pursuant to a request for an order
granting confidential treatment pursuant to Rule 406 of the General Rules and
Regulations under the Securities Act of 1933.
<PAGE>
TABLE OF CONTENTS
Page
1. CERTAIN DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . 2
2. TERM OF AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . 4
2.1 INITIAL TERM . . . . . . . . . . . . . . . . . . . . . . . 4
2.2 RENEWAL TERM . . . . . . . . . . . . . . . . . . . . . . . 4
3. GRANT OF LICENSE RIGHTS. . . . . . . . . . . . . . . . . . . . . . 4
3.1 RIGHTS GRANTED . . . . . . . . . . . . . . . . . . . . . . 4
3.2 RIGHTS NOT GRANTED . . . . . . . . . . . . . . . . . . . . 4
4. MANUFACTURING. . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.1 STANDARDS. . . . . . . . . . . . . . . . . . . . . . . . . 5
4.2 APPROVAL OF SUBCONTRACTOR. . . . . . . . . . . . . . . . . 5
4.3 INFORMATION ABOUT SUPPLIERS AND SUBCONTRACTORS . . . . . . 5
4.4 SUB-SUBCONTRACTOR. . . . . . . . . . . . . . . . . . . . . 6
4.5 SUPERVISION BY AND RESPONSIBILITY OF LICENSEE. . . . . . . 6
4.6 EXPIRATION/TERMINATION OF MANUFACTURERS AGREEMENT. . . . . 6
5. DESIGN STANDARDS . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.1 LICENSEE COLLECTION SUMMARY. . . . . . . . . . . . . . . . 6
5.2 STANDARDS AND MATERIALS/PRIOR APPROVAL . . . . . . . . . . 6
6. QUALITY CONTROL AND APPROVALS. . . . . . . . . . . . . . . . . . . 7
6.1 QUALITY CONTROL. . . . . . . . . . . . . . . . . . . . . . 7
6.2 STYLE NUMBER/AFFIXATION OF TRADEMARKS/THIRD PARTY
MATERIALS BEARING THE TRADEMARKS . . . . . . . . . . . . . 7
6.3 FINISHED PRODUCTS/PRIOR APPROVAL . . . . . . . . . . . . . 7
6.4 RIGHT TO INSPECT FACILITIES. . . . . . . . . . . . . . . . 8
6.5 CONSULTATION . . . . . . . . . . . . . . . . . . . . . . . 8
6.6 TRAVEL BY LICENSEE . . . . . . . . . . . . . . . . . . . . 8
6.7 TRAVEL BY GUESS. . . . . . . . . . . . . . . . . . . . . . 8
7. DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
7.1 MANNER AND SCOPE . . . . . . . . . . . . . . . . . . . . . 8
7.2 CUSTOMER APPROVAL. . . . . . . . . . . . . . . . . . . . . 9
7.3 TRADE DISCOUNT TO GUESS. . . . . . . . . . . . . . . . . . 9
7.4 EXTRA-TERRITORIAL DISTRIBUTION RIGHTS. . . . . . . . . . . 9
7.5 LICENSEE'S DUTIES. . . . . . . . . . . . . . . . . . . . . 10
8. ADVERTISING. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
8.1 PRIOR APPROVAL . . . . . . . . . . . . . . . . . . . . . . 13
8.2 MINIMUM ADVERTISING EXPENDITURE/BUDGET . . . . . . . . . . 13
8.3 ADVERTISING EXPENDITURE REPORT . . . . . . . . . . . . . . 14
i
<PAGE>
9. SHOWROOMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
10. INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
10.1 PROCUREMENT OF INSURANCE . . . . . . . . . . . . . . . . . 14
10.2 EVIDENCE OF INSURANCE. . . . . . . . . . . . . . . . . . . 15
11. OWNERSHIP AND PROTECTION OF TRADEMARKS AND IP RIGHTS . . . . . . . 15
11.1 OWNERSHIP. . . . . . . . . . . . . . . . . . . . . . . . . 15
11.2 REGISTRATION . . . . . . . . . . . . . . . . . . . . . . . 15
11.3 ASSIGNMENT OF RIGHTS . . . . . . . . . . . . . . . . . . . 15
11.4 PROHIBITED ACTS. . . . . . . . . . . . . . . . . . . . . . 16
11.5 MISUSE . . . . . . . . . . . . . . . . . . . . . . . . . . 17
11.6 REPORT TO GUESS. . . . . . . . . . . . . . . . . . . . . . 17
11.7 COMPLIANCE WITH RULES OF GUESS . . . . . . . . . . . . . . 18
12. TRADE SECRETS AND CONFIDENTIALITY. . . . . . . . . . . . . . . . . 18
13. PAYMENTS, REPORTS AND REQUIRED CAPITAL . . . . . . . . . . . . . . 18
13.1 ADVANCE. . . . . . . . . . . . . . . . . . . . . . . . . . 18
13.2 LETTER OF CREDIT . . . . . . . . . . . . . . . . . . . . . 18
13.3 ROYALTY BASIS. . . . . . . . . . . . . . . . . . . . . . . 19
13.4 DEDUCTIONS/RETURNS/CLOSEOUTS . . . . . . . . . . . . . . . 19
13.5 TRADEMARK ROYALTY AND ROYALTY MINIMUM PAYMENTS . . . . . . 20
13.6 REMITTANCE OF PAYMENT/WITHHOLDING. . . . . . . . . . . . . 20
13.7 QUARTERLY REPORTS. . . . . . . . . . . . . . . . . . . . . 21
13.8 MONTHLY SALES REPORT . . . . . . . . . . . . . . . . . . . 21
13.9 INVOICES . . . . . . . . . . . . . . . . . . . . . . . . . 21
13.10 RIGHT TO REVIEW. . . . . . . . . . . . . . . . . . . . . . 22
13.11 LATE PAYMENT . . . . . . . . . . . . . . . . . . . . . . . 22
13.12 FOREIGN CURRENCY CONVERSION. . . . . . . . . . . . . . . . 22
13.13 REQUIRED CAPITAL . . . . . . . . . . . . . . . . . . . . . 22
14. ACCOUNTING AND SYSTEMS . . . . . . . . . . . . . . . . . . . . . . 23
14.1 DUTY TO KEEP ACCOUNTS. . . . . . . . . . . . . . . . . . . 23
14.2 FINANCIAL STATEMENTS AND INVENTORY RECONCILIATION. . . . . 23
14.3 RIGHT OF INSPECTION BY GUESS . . . . . . . . . . . . . . . 23
14.4 FAILURE TO MAINTAIN RECORDS. . . . . . . . . . . . . . . . 24
14.5 SYSTEMS. . . . . . . . . . . . . . . . . . . . . . . . . . 24
15. FORCE MAJEURE. . . . . . . . . . . . . . . . . . . . . . . . . . . 24
16. BREACH AND TERMINATION . . . . . . . . . . . . . . . . . . . . . . 24
16.1 REMEDIES FOR BREACH. . . . . . . . . . . . . . . . . . . . 24
16.2 OTHER RIGHTS UNAFFECTED BY TERMINATION . . . . . . . . . . 25
16.3 TERMINATION OPTION FOR BREACH/CURE POSSIBLE. . . . . . . . 25
16.4 TERMINATION OPTION/NO CURE POSSIBLE/CHANGE OF OWNERSHIP. . 26
16.5 TERMINATION OPTION/NO CURE POSSIBLE/ADDITIONAL CAUSES. . . 27
ii
<PAGE>
16.6 NO ASSIGNEE. . . . . . . . . . . . . . . . . . . . . . . . 28
17. OBLIGATIONS AT TERMINATION OR EXPIRATION . . . . . . . . . . . . . 29
17.1 SIGNS AND PROMOTIONAL MATERIALS. . . . . . . . . . . . . . 29
17.2 DIRECTORIES AND LISTINGS . . . . . . . . . . . . . . . . . 29
17.3 SUBCONTRACTORS . . . . . . . . . . . . . . . . . . . . . . 29
17.4 INVENTORY; RIGHT TO PURCHASE . . . . . . . . . . . . . . . 29
17.5 REMAINING PRODUCTS . . . . . . . . . . . . . . . . . . . . 30
17.6 LICENSEE'S OBLIGATION REGARDING SALE OF PRODUCTS . . . . . 30
18. EFFECT OF TERMINATION OR EXPIRATION. . . . . . . . . . . . . . . . 31
18.1 TERMINATION OF RIGHTS. . . . . . . . . . . . . . . . . . . 31
18.2 NO USE OF TRADEMARKS AND IP RIGHTS . . . . . . . . . . . . 31
18.3 NO LIABILITY . . . . . . . . . . . . . . . . . . . . . . . 31
19. INDEMNIFICATION, REPRESENTATIONS AND WARRANTIES. . . . . . . . . . 32
19.1 INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . 32
19.2 DEFENSE COUNSEL. . . . . . . . . . . . . . . . . . . . . . 32
19.3 AUTHORITY. . . . . . . . . . . . . . . . . . . . . . . . . 32
19.4 COMPLIANCE WITH LAWS . . . . . . . . . . . . . . . . . . . 32
19.5 LICENSEE REPRESENTATIONS AND WARRANTIES. . . . . . . . . . 33
19.6 GUESS WARRANTY AND REPRESENTATION. . . . . . . . . . . . . 33
19.7 NO PUNITIVE DAMAGES. . . . . . . . . . . . . . . . . . . . 33
20. APPROVAL PROCEDURES. . . . . . . . . . . . . . . . . . . . . . . . 34
21. ARBITRATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
21.1 PARTIES' CONSENT TO ARBITRATION. . . . . . . . . . . . . . 34
21.2 POWERS . . . . . . . . . . . . . . . . . . . . . . . . . . 34
21.3 PROVISIONAL REMEDIES . . . . . . . . . . . . . . . . . . . 34
21.4 ENTITLEMENT TO COSTS . . . . . . . . . . . . . . . . . . . 35
22. GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . . . . 35
23. RELATIONSHIP OF PARTIES. . . . . . . . . . . . . . . . . . . . . . 35
24. ASSIGNABILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . 35
25. INTERPRETATION . . . . . . . . . . . . . . . . . . . . . . . . . . 36
26. WAIVER AND INTEGRATION . . . . . . . . . . . . . . . . . . . . . . 36
27. NOTICES AND COMMUNICATIONS . . . . . . . . . . . . . . . . . . . . 36
28. SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
29. SURVIVAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
iii
<PAGE>
30. CROSS DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . . . 38
31. EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
32. ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . 38
iv
<PAGE>
LIST OF EXHIBITS
EXHIBIT TITLE
------- -----
A Trademarks
B Products
C Licensee Collection Summary
D-1 Licensed Product Approval Form
D-2 Fabric and/or Color Approval Form
E Licensed Property Use Approval Form
F-1 Customer Profile Form
F-2 Foreign Distribution Approval Form
F-3 Distribution Approval Form
G-1 Advertising Approval Form
G-2 Advertising Budget Form
G-3 Advertising Expenditure Form
H Royalty Minimum
I Statement of Royalties
J Minimum Net Sales
K Monthly Sales Report
L Manufacturers Agreement
M List of Current Owners and Key Executives
N Systems Requirements List
O Permitted Distributors and Retailers
v
<PAGE>
MANUFACTURING LICENSE
AGREEMENT BETWEEN
GUESS ?, INC.
AND AGS INC.
THIS MANUFACTURING LICENSE AGREEMENT ("Agreement") is made and entered into
as of March 1, 1996 by and between GUESS ?, INC., a corporation organized under
the laws of the State of Delaware, with its principal place of business at 1444
South Alameda Street, Los Angeles, California 90021 ("GUESS") and AGS INC., a
corporation organized and existing under the laws of California with its
principal place of business at 3820 South Hill Street, Los Angeles, California
90037 ("LICENSE").
AGREEMENT BACKGROUND
A. GUESS is an internationally famous designer and manufacturer of high
quality fashionable clothing and fashion accessories and other products.
B. GUESS holds all right, title and interest in and to certain
trademarks, service marks, designs, patents and copyrights used in connection
with the manufacture and sale of such products.
C. The GUESS trademarks and service marks represent the substantial
goodwill created by GUESS through its use and sale of high quality products and
by GUESS's policy of distributing its products only through retail outlets that
conform to GUESS's strict standards for appearance, image, clientele, customer
service and overall high quality.
D. LICENSEE has represented to GUESS that it is experienced in the
manufacture and distribution of certain high quality stationery, school supplies
and related products.
E. LICENSEE desires to obtain the right to use certain of such
trademarks, service marks, designs, patents and copyrights solely in connection
with the manufacture and distribution of some of such products, and GUESS is
willing to grant to LICENSEE a license for this purpose under the terms and
conditions set forth in this Agreement.
In consideration of the covenants and agreements contained herein, and for
other good and valuable consideration, the receipt and sufficiency of which are
acknowledged by the execution hereof, the parties agree as follows.
1. CERTAIN DEFINITIONS
1.1 "Advertising" means any communication by or on behalf of the
LICENSEE or any of its distributors in any medium (including electronic and
computer-based systems) directed to the trade or the public, including trade and
public directory listings, store window displays, posters, point of sale
materials and billboards.
1
<PAGE>
1.2 "Allowances" means any written credits actually given by
LICENSEE to its customers for any purpose, other than Returns, Exempt Product
returns and Trade Discounts, and other than credits or reimbursements for
advertising, any other type of promotions and freight expenses.
1.3 "Closeouts" means Products sold at a reduction of CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION percent (CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION%) or more from the respective Distributor
or Retailer Listed Wholesale Prices.
1.4 "Contract Year" means each year of the Initial Term and Renewal
Term, if any, as those terms are defined in Section 2.
1.5 "Distributor Listed Wholesale Price" means the wholesale price
of a Product to be sold by LICENSEE to a distributor, as stared on the
applicable LICENSED PRODUCT APPROVAL FORMS submitted to GUESS pursuant to
Section 5.2.
1.6 "Exempt Products" means time dated Products and Products shipped
to customers on terms permitting return to LICENSEE of unsold Products.
1.7 "IP Rights" means all intellectual and industrial property
interests now or hereafter owned by GUESS, other than the Trademarks, whether or
not copyrightable or patentable, including, without limitation, patterns,
designs and trade dress in and to any Products and to any prints, package
designs, labels, Advertising and other promotional materials using or used in
conjunction with any of the Trademarks or the Products, whether created by or on
behalf of GUESS or LICENSEE.
1.8 "Gross Sales" means the sales of all Products by LICENSEE
multiplied by the respective Distributor or Retailer Listed Wholesale Prices, as
applicable.
1.9 "Minimum Net Sales" means the minimum amount of Net Sales of
Products that LICENSEE is required to achieve, and as set forth in Exhibit J
attached hereto.
1.10 "Net Sales" means the Gross Sales of Products less only credits
to customers for Returns, Exempt Product returns, Trade Discounts and
Allowances, as specifically permitted by this Agreement.
1.11 "Products" means only those items specified in Exhibit B attached
hereto.
1.12 "Quarter" means calendar quarters, i.e., each of the three-month
periods during each Contract Year from (i) January through March, (ii) April
through June, (iii) July through September and (iv) October through December.
2
<PAGE>
1.13 "Retailer Listed Wholesale Price" means the wholesale price of a
Product to be sold by LICENSEE to a retailer, as stated on the applicable
LICENSED PRODUCT APPROVAL FORMS submitted to GUESS pursuant to Section 5.2.
1.14 "Returns" means Products actually returned to LICENSEE by its
customers (except for Exempt Products) multiplied by the unit price actually
credited to the customer.
1.15 "Royalty Minimum" means the minimum amount of Trademark Royalty
payable by LICENSEE to GUESS hereunder for each Contract Year, as set forth in
Exhibit H attached hereto.
1.16 "Seconds" means damaged, imperfect, non-first quality or
defective
goods.
1.17 "Territory" means the United States, Canada, Mexico, Australia,
Brunei, Hong Kong, Indonesia, Malaysia, Singapore and Taiwan.
1.18 "Trade Discounts" means all discounts from the Distributor or
Retailer Listed Wholesale Price, as applicable, that are customary in the trade
and that are actually given by LICENSEE in writing prior to the delivery of the
specific Products.
1.19 "Trademarks" means only those trademarks as specified in Exhibit
A attached hereto. This Agreement does not grant to LICENSEE any right to any
variation of those trademarks.
1.20 "Trademark Royalty" means CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION percent
(CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION%) of the Net Sales of Products by LICENSEE, which represents
the amount payable by LICENSEE to GUESS hereunder as the consideration for the
grant by GUESS to LICENSEE of the right to use the Trademarks and IP Rights
hereunder.
1.21 "Trade Secrets" means information, including a formula, pattern,
compilation, program, device, method, technique or process that derives
independent economic value, actual or potential, from not being generally known
to the public or to other persons who can obtain economic value from its
disclosure or use and is the subject of efforts that are reasonable, under the
circumstances, to maintain its secrecy.
2. TERM OF AGREEMENT
2.1 INITIAL TERM. This Agreement shall be effective as of the date
specified on page 1 and shall end on December 31, 2001 ("Initial Term"), unless
terminated earlier or renewed. The first Contract Year of the Initial Term shall
commence May 1, 1996 and end on December 31, 1997. Thereafter, Contract Years
shall run from January 1 through
3
<PAGE>
December 31 of each year through the Initial Term, and if renewed, the Renewal
Term (unless terminated earlier).
2.2 RENEWAL TERM. This Agreement may be renewed for a five (5) year
term through December 31, 2006 ("Renewal Term"), if LICENSEE:
(a) requests renewal in writing at least ninety (90) days but no
more than one hundred twenty (120) days before the
expiration of the Initial Term;
(b) at the time it requests renewal, has not received a notice
of breach from GUESS (under any agreement between LICENSEE
and GUESS) and failed to completely cure such breach within
the applicable cure period;
(c) up to the time it requests renewal, has met the Minimum Net
Sales for the two (2) Contract Years prior to renewal; and
(d) agrees to meet the new Minimum Net Sales set forth on
Exhibit J.
3. GRANT OF LICENSE RIGHTS
3.1 RIGHTS GRANTED. Subject to the terms and conditions contained
herein, GUESS hereby grants to LICENSEE, and LICENSEE hereby accepts, the
following:
(a) a non-assignable, non-transferable exclusive right to use
the Trademarks and the IP Rights in connection with the
manufacture of Products but only at such places approved by
GUESS; and
(b) a non-assignable, non-transferable exclusive right to use
the Trademarks and IP Rights in connection with the
distribution at wholesale and Advertising of the Products in
the Territory.
3.2 RIGHTS NOT GRANTED. This Agreement is not an assignment or grant
to LICENSEE of any right, title or interest in or to the Trademarks or IP
Rights, or any of GUESS's other trademarks, other than the grant of rights to
use the Trademarks and IP Rights subject to the terms and conditions of this
Agreement. GUESS expressly does not grant to LICENSEE the right to use any
variation of the Trademarks that now exist or hereafter are developed by GUESS,
LICENSEE or any other person. LICENSEE agrees and acknowledges that GUESS
reserves the right to either manufacture, sell, or appoint other licensees to
manufacture or sell in the Territory lines of products whether similar or
dissimilar to the Products, that bear variations of the Trademarks, such as
"GUESS MEN'S CLASSICS" and "BABY GUESS."
4. MANUFACTURING
4
<PAGE>
4.1 STANDARDS. LICENSEE may manufacture Products at a factory or
factories that LICENSEE owns, or may employ independent subcontractors to
manufacture Products. In either case, LICENSEE is responsible for the lawful
manufacture of high quality Products that meet the standards prescribed by
GUESS.
4.2 APPROVAL OF SUBCONTRACTOR. In all cases, LICENSEE must obtain the
approval of GUESS in advance of contracting with any independent subcontractor,
if such subcontractor will manufacture one or more components equaling at least
fifty percent (50%) of a finished Product. GUESS shall have the right to approve
each such proposed subcontractor. To be approved by GUESS, the subcontractor
must demonstrate that it has the experience and skill needed to produce products
that meet the standards of GUESS and that it conducts its operations in
compliance with all applicable laws. All subcontractors utilized by LICENSEE,
including those which must be approved by GUESS, shall:
(a) enter into a Manufacturers Agreement (Exhibit L) and deliver
an executed copy thereof to GUESS and LICENSEE, before such
subcontractor may manufacture any Products; and
(b) fully perform and observe its obligations under the
Manufacturers Agreement and comply with all applicable laws
and with the applicable provisions of this Agreement.
4.3 INFORMATION ABOUT SUPPLIERS AND SUBCONTRACTORS. Not less than
thirty (30) days prior to the beginning of manufacture of a Product by a
subcontractor and at the end of each calendar year during the Term hereof,
LICENSEE shall provide GUESS with a list of all materials bearing Trademarks
used by LICENSEE and/or any subcontractor. Upon the request of GUESS, LICENSEE
shall provide GUESS with a current list of its subcontractors for the
manufacture of Products, together with addresses, telephone and facsimile number
and the names of contact persons relating thereto. All information provided by
LICENSEE pursuant to this Section 4.3 shall be considered confidential
information for purposes of Section 12 hereof.
4.4 SUB-SUBCONTRACTOR. LICENSEE shall cause its subcontractors to
notify LICENSEE of all subcontractors used by LICENSEE's subcontractors. Not
less than thirty (30) days prior to the beginning of manufacture of a Product by
a subcontractor and at the end of each calendar year during the Term hereof,
LICENSEE shall provide GUESS with a list of the names and addresses of all
subcontractors used by LICENSEE's subcontractors.
4.5 SUPERVISION BY AND RESPONSIBILITY OF LICENSEE. LICENSEE shall be
responsible for supervising and controlling the acts of its own factory(ies) and
of its manufacturing subcontractors and sub-subcontractors to prevent the
manufacturing or sale of Products that is not expressly authorized by GUESS. If
GUESS determines that LICENSEE permitted its own employees or a subcontractor or
sub-subcontractor to manufacture or sell Products without the authorization of
GUESS, or that LICENSEE knew or should have known about such manufacture or
sale, GUESS shall have the right to terminate this Agreement immediately and
shall hold LICENSEE liable for any losses suffered by GUESS as a result of such
unauthorized manufacture or sale.
5
<PAGE>
4.6 EXPIRATION/TERMINATION OF MANUFACTURERS AGREEMENT. GUESS shall
have the absolute right to require that LICENSEE terminate its relationship with
any subcontractor who, in the sole discretion of GUESS, is behaving in a manner
detrimental to GUESS. Upon the expiration or termination of any Manufacturers
Agreement, LICENSEE shall cause the subcontractor thereunder to immediately
cease the manufacture of Products and to fully perform and observe its
obligations under the Manufacturers Agreement and under this Agreement with
respect to such expiration or termination.
5. DESIGN STANDARDS
5.1 LICENSEE COLLECTION SUMMARY. Within sixty (60) days after the
date of this Agreement, and on each anniversary of the date of this Agreement,
LICENSEE shall submit to GUESS a completed LICENSE COLLECTION SUMMARY FORM
(Exhibit C).
5.2 STANDARDS AND MATERIALS/PRIOR APPROVAL. LICENSEE shall submit to
GUESS, for its prior written approval, (i) a complete set of actual production
standards, together with actual materials to be used in the Products, and (ii) a
style card showing each design proposed to be used for each Product type. The
production standards and materials shall be submitted with a completed LICENSED
PRODUCT APPROVAL FORM (Exhibit D4), and must be accompanied by additional
completed FABRIC AND/OR COLOR APPROVAL FORMS (Exhibit D-2), or such other forms
approved by GUESS. If LICENSEE wishes to submit separately any design bearing a
Trademark, it shall be submitted on the LICENSED PROPERTY USE APPROVAL FORM
(Exhibit E). Each design must be re-submitted for approval each Contract Year,
regardless of whether it was approved for a prior Contract Year. If GUESS
disapproves any previously approved design, LICENSEE will phase out all
manufacture and sales of Products bearing such design within six (6) months of
GUESS's disapproval. Depending upon the inventory level of such Products, GUESS
may give approval for a lengthier sell-off period.
6. QUALITY CONTROL AND APPROVALS
6.1 QUALITY CONTROL. LICENSEE acknowledges that the Trademarks and IP
Rights represent the prestige and goodwill that GUESS has earned for itself and
are well recognized in the minds of the public, and that it is of great
importance to each party that, in the manufacture and sale of Products, the high
standards, reputation and image established by GUESS be maintained at all times.
Accordingly, Products manufactured or caused to be manufactured by LICENSEE
shall be of high quality workmanship and materials with strict adherence to all
details and characteristics embodied in the IP Rights approved by GUESS or
embodied in items furnished by GUESS. Without limitation to the foregoing,
Products manufactured by and for LICENSEE and sold by LICENSEE shall strictly
adhere to the materials, color, workmanship, designs, dimensions, styling,
detail and quality previously approved by GUESS.
6.2 STYLE NUMBER/AFFIXATION OF TRADEMARKS/THIRD PARTY MATERIALS
BEARING THE TRADEMARKS. LICENSEE shall affix permanently to each Product a style
number which shall be identical to the style number used to identify the
respective Product in all of LICENSEE's books and records. Each Product shall
bear the Trademarks in the form
6
<PAGE>
required by GUESS, with all required legends, markings and notices. Without
limitation to the requirement of Section 4.3, if LICENSEE purchases labels, tags
or other materials bearing the Trademarks from third parties, LICENSEE shall
provide to GUESS, together with the quarterly Statement of Royalties, copies of
invoices for all such materials purchased. and shall obligate all providers of
such materials to comply with all applicable provisions of this Agreement
relating to the use and misuse of the Trademarks. If providers for such items
are not available to LICENSEE in the Territory, at the request of GUESS,
LICENSEE shall obtain any or all such items directly from GUESS.
6.3 FINISHED PRODUCTS/PRIOR APPROVAL. Within two (2) weeks after each
style is first manufactured as a finished Product, LICENSEE shall deliver to
GUESS by overnight courier at least one (1) representative finished Product of
each style with the actual design affixed for GUESS to determine in its sole
discretion whether such finished Product is in strict compliance with the
production standards and design previously approved by GUESS. At any time
following any such approval of production standards and design, if such Product
is, in the sole and subjective judgment of GUESS, not manufactured in strict
compliance with the materials, color, workmanship, designs, dimensions, styling,
detail and quality previously approved in writing, GUESS shall give LICENSEE
written notice of any such non-compliance, which notice shall specify the
details thereof. Within twenty (20) days after its receipt of such notice,
LICENSEE shall, if possible, promptly correct any problem specified by GUESS
therein. If such Product, as corrected by LICENSEE, is still not approved by
GUESS, or if LICENSEE fails or is unable to correct any such problem, the
Trademarks shall, if possible, be promptly removed from such Products, at the
option of and at no cost to GUESS, in which event such Products may be sold by
LICENSEE provided they are in no way identified as a product originating from or
authorized by GUESS, or otherwise identified with GUESS or any of the Trademarks
or IP Rights. As many as four (4) times per Quarter, upon request, LICENSEE
shall provide GUESS with a reasonable number of samples of current Products. If
LICENSEE cannot, using commercially reasonable efforts, correct the Product
problems specified by GUESS and also cannot remove the Trademarks from the
Products, LICENSEE will deliver a notice to GUESS describing its efforts and the
reasons why such requirements cannot be met. Any distribution or sale of such
Products must be specifically approved in advance and in writing by GUESS, and
LICENSEE will pay a Trademark Royalty on all such sales.
6.4 RIGHT TO INSPECT FACILITIES. LICENSEE shall ensure that GUESS
shall have the right, upon seventy-two (72) hours advance notice during normal
business hours, to inspect all facilities utilized by LICENSEE and its
subcontractors, sub-subcontractors and suppliers in connection with the
manufacture, storage or distribution of Products, and to examine Products in the
process of manufacture and all documents and records related thereto. In
addition, LICENSEE consents to GUESS's examination of Products held by its
customers for resale, upon reasonable notice during normal business hours,
provided LICENSEE has such right of examination.
6.5 CONSULTATION. Upon request by GUESS, LICENSEE shall make its
personnel and the personnel of any of its subcontractors, suppliers and other
resources available by appointment during normal business hours for consultation
with GUESS and its agents or representatives. LICENSEE shall make available to
GUESS, upon reasonable
7
<PAGE>
notice, marketing plans, reports and information that LICENSEE may have with
respect to Products.
6.6 TRAVEL BY LICENSEE. Upon two (2) weeks' prior written notice to
LICENSEE, but not more frequently than twice in a calendar year, GUESS may
require LICENSEE to meet with GUESS in the Los Angeles offices of GUESS
concerning any matter which is a subject of this Agreement. LICENSEE shall pay
all of its own costs and expenses relating to its attendance at such meetings.
6.7 TRAVEL BY GUESS. Once a year, LICENSEE shall pay all costs for
business class round trip travel and accommodations for five (5) days and five
(5) nights for two (2) representatives of GUESS to travel to LICENSEE's
principal place of business for any purpose related to this Agreement.
7. DISTRIBUTION
7.1 MANNER AND SCOPE. The manner and scope of the distribution of
Products, their availability, variety, fabrication, colors and sizes are
critical to the promotion of the Products and to the protection of the
Trademarks, the IP Rights and their associated goodwill. LICENSEE shall use
commercially reasonable efforts to exploit the rights granted hereunder
throughout the Territory, including, without limitation, selling commercial
quantities of the Products on a timely basis and maintaining a sales force
sufficient to provide effective distribution of the Products throughout the
Territory, and shall cooperate with GUESS's and GUESS's other licensees'
marketing, sales, anti-diversion and anti-counterfeiting programs.
7.2 CUSTOMER APPROVAL. GUESS hereby approves sales of Products by
LICENSEE to those retailers described on Exhibit O attached hereto. Following
execution of this Agreement, LICENSEE shall submit to GUESS for approval the
names of any additional intended customers for the Products on the CUSTOMER
PROFILE FORM (Exhibit F-1) prior to making sales to any such intended customers.
On each anniversary of the date of this Agreement, upon the request of GUESS,
LICENSEE shall send to GUESS a list of all current customers for all Products,
together with the LICENSEE COLLECTION SUMMARY FORM required under Section 5.1.
7.3 TRADE DISCOUNT TO GUESS. LICENSEE shall grant to GUESS a
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION percent (CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION%) Trade Discount on
purchases of Products by GUESS from LICENSEE for sale in GUESS's retail and/or
factory stores. LICENSEE shall accept from GUESS for full credit in the amount
originally invoiced to GUESS, the return of any unsold Products purchased by
GUESS from LICENSEE for sale in GUESS's retail and/or factory stores. At its
sole cost and expense, LICENSEE shall provide GUESS with fixtures for the sale
of the Products at GUESS's retail and/or factory stores, the type and cost of
which shall be subject to the mutual agreement of the parties.
8
<PAGE>
7.4 EXTRA-TERRITORIAL DISTRIBUTION RIGHTS. LICENSEE shall have the
non-exclusive right to distribute Products at wholesale outside the Territory
(the "Non-Exclusive Right"), subject to the following conditions:
(a) if LICENSEE wishes to distribute Products outside of the
Territory, LICENSEE shall submit to GUESS a list of the
country or countries to which LICENSEE wishes to distribute
the Products, together with the names and addresses of
proposed distributors and retailers, for GUESS's prior
written approval, using the FOREIGN DISTRIBUTION APPROVAL
FORM (Exhibit F-2);
(b) LICENSEE shall submit to GUESS, for GUESS's prior written
approval, a copy of any written agreement, or the terms and
conditions of any oral agreement, proposed to be entered
into between LICENSEE and any proposed distributor or
retailer. Each such agreement shall include provisions to
the effect that:
(i) such agreement will terminate when GUESS withdraws
LICENSEE's permission to sell to such distributor or
retailer, and that the distributor or retailer will
have no claims against either GUESS or LICENSEE for the
termination of the agreement; and
(ii) the distributor or retailer may not appoint
subdistributors or agents for the sale of Products, or
assign any rights under its agreement with LICENSEE
without GUESS's prior written permission;
(c) LICENSEE shall ensure that the termination of its agreement
with a distributor or retailer, whether oral or written,
will be enforceable under the laws of the country in
question without cost or liability to GUESS.
GUESS may deny approval to LICENSEE for distribution outside of the Territory,
in whole or in part, for any or no reason, in GUESS's sole and subjective
discretion. Upon ninety (90) days' prior written notice to LICENSEE, GUESS may
(a) withdraw its approval of any distributor or retailer previously approved by
GUESS, and/or (b) terminate the Non-Exclusive Right in its entirety, for any
reason or for no reason whatsoever, as GUESS may determine in its sole and
subjective discretion. Upon the effective date of the withdrawal by GUESS of any
approval of a distributor or retailer, LICENSEE shall cease any and all sales of
Products to such distributor or retailer.
7.5 LICENSEE'S DUTIES.
(a) Except as otherwise provided herein, the distribution of
Products in the Territory shall be performed only by
LICENSEE. If LICENSEE wishes to distribute Products through
independent
9
<PAGE>
distributors LICENSEE shall submit to GUESS the names and
addresses of its proposed distributors, for GUESS's prior
written approval, using the DISTRIBUTION APPROVAL FORM
(Exhibit F-3). GUESS hereby approves LICENSEE's distribution
of Products through the independent distributors described
on Exhibit O attached hereto. LICENSEE shall submit to
GUESS, for GUESS's prior written approval, a copy of any
written agreement, or the terms and conditions of any oral
agreement, proposed to be entered into between LICENSEE and
any proposed distributor. Each such agreement shall include
provisions to the effect that:
(i) such agreement will terminate when GUESS withdraws
LICENSEE's permission to sell to such distributor, and
that the distributor will have no claims against either
GUESS or LICENSEE for the termination of the agreement;
and
(ii) the distributor may not appoint subdistributors or
agents for the sale of Products, or assign any rights
under its agreement with LICENSEE without GUESS's prior
written permission.
LICENSEE shall ensure that the termination of its agreement
with a distributor, whether oral or written, will be
enforceable under the laws of the country in question
without cost or liability to GUESS.
(b) Except as permitted by GUESS pursuant to Section 7.4,
LICENSEE shall not market or promote or seek customers for
the Products outside of the Territory and LICENSEE shall not
establish or maintain inventories of the Products outside of
the Territory.
(c) LICENSEE shall exercise its best efforts, subject to the
provisions of Section 11.5, to safeguard the prestige and
goodwill represented by the Trademarks, the IP Rights and
the image associated therewith at the same level as
heretofore maintained by GUESS.
(d) LICENSEE shall exercise its best efforts to sell Products
directly to catalogues approved by GUESS and to retail store
operators who have agreed to enter into a retail store
agreement with GUESS or to stores that otherwise meet
GUESS's standards for quality, service and appearance and
that have been approved by GUESS under this Agreement or
pursuant to the CUSTOMER PROFILE FORM. Each of such retail
store operators for
10
<PAGE>
example, should establish a separate area in the store
devoted exclusively to the sale of Products; present a
comprehensive line of Products made available by LICENSEE;
agree to not ship any Products outside of the Territory; and
permit inspections by GUESS or its representatives of the
store facilities for the sale of Products during regular
business hours. GUESS may withdraw approval of any retail
store operator or any store at any time such operator or
store(s) fail to meet GUESS's standards for quality, service
and appearance. LICENSEE shall not sell any Products through
the Internet or any other electronic or competitor-based
systems, without GUESS's prior written consent.
(e) LICENSEE shall not use or permit any customer to use any
Products as giveaways, prizes or premiums except in
promotions that have received the prior written approval of
GUESS.
(f) LICENSEE shall not sell any Products that are Seconds
without the prior written approval of GUESS. All Seconds
approved for sale by GUESS shall be marked "Seconds" or
"Irregular" and all labels and other markings embodying the
Trademarks and IP Rights shall be removed therefrom (which
removal may be supervised by GUESS or its agent), if
possible, prior to sale. All Seconds not approved by GUESS
and/or not sold in accordance with GUESS's approval shall be
destroyed. LICENSEE shall be responsible for ensuring that
its manufacturing subcontractors comply with this
obligation.
(g) If LICENSEE sells Products through an authorized
distributor, LICENSEE shall ensure that the distributor will
comply with all reporting provisions required of LICENSEE
under this Agreement as well as with all obligations
necessary for protecting the Trademarks, the IP Rights and
the image associated therewith at the same level as
heretofore maintained by GUESS. LICENSEE will maintain such
reports on file, such that GUESS may, from time to time,
inspect CUSTOMER PROFILE FORMS, photographs of store
premises, etc., for retail store customers of the
distributors, in order for GUESS to ensure that the quality
and image associated with the Trademarks and the IP Rights
are being upheld by the distributors. GUESS may, after
notice to LICENSEE, withdraw approval of any of LICENSEE's
distributors at any time such distributor fails to meet
GUESS's standards for quality, service and appearance. If
GUESS determines such distributor could cure its failure to
meet such standards, GUESS will provide a reasonable
opportunity for it to do so.
11
<PAGE>
(h) Prior to LICENSEE's sale of any Closeouts, LICENSEE shall
furnish to GUESS a Product description of such Closeouts and
the proposed selling price. GUESS shall have the option (but
not the obligation) to purchase all or any part of such
Closeouts from LICENSEE prior to sale to any third party,
upon the following refills:
(i) the purchase price for Closeouts shall be the same price
LICENSEE plans to offer a third party; and
(ii) LICENSEE shall deliver Closeouts purchased by GUESS within
fifteen (15) days after receipt of the notice of GUESS's
intention to purchase.
(iii) LICENSEE shall obtain GUESS's consent prior to participating
in any tradeshow where the Products or any item bearing the
Trademarks will be displayed, including GUESS's consent to
any form of presentation to be used by LICENSEE. LICENSEE
shall provide GUESS with all information requested
concerning any such tradeshow.
(iv) GUESS shall notify LICENSEE of its intention, if any, to
exercise this option and which of the Closeouts are to be
purchased, within ten (10) days after GUESS's receipt of the
Product description of the Closeouts;
8. ADVERTISING
8.1 PRIOR APPROVAL. LICENSEE shall maintain the high standards and
consistency of the Trademarks, Products and image associated therewith in all
Advertising, packaging and promotion of Products. LICENSEE shall not use any
Advertising or packaging or other business materials relating to any Products or
bearing the Trademarks, including, without limitation, any business documents,
invoices, stationery, Advertising, promotions, labels and packaging that has not
been previously approved in writing by GUESS. Before the use of Advertising
items such as posters, packaging and point of sales materials, LICENSEE shall
submit such items to GUESS for approval using the LICENSED PROPERTY USE APPROVAL
FORM referenced in Section 5.2. Before the use or the publication of any media
Advertising to the public or trade, LICENSEE shall submit such Advertising to
GUESS for approval using the ADVERTISING APPROVAL FORM (Exhibit G-1). The right
of approval shall also encompass media placement and scheduling and creative
execution. No Advertising or promotional material shall refer to LICENSEE's name
except as required by law, however, at the option of GUESS, LICENSEE shall
include on its Advertising, packaging or other business materials an indication
of the relationship of the parties in a form approved in writing by GUESS.
8.2 MINIMUM ADVERTISING EXPENDITURE/BUDGET. Except as set forth
below, each Contract Year during the term of this Agreement, LICENSEE and its
distributors and
12
<PAGE>
retailers shall, in the aggregate, expend for Advertising an amount equal to
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION percent (CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION%) of the amount that is
the greater of (a) Net Sales and (b) Minimum Net Sales for such Contract Year
(the "Minimum Advertising Expenditure"). Notwithstanding the foregoing, LICENSEE
and its distributors and retailers shall, in the aggregate, expend for
Advertising at least US$CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION minimum for each of the first three
(3) Contract Years. The greater of (a) US$CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION per Contract Year,
and (b) the Minimum Advertising Expenditure defined above, shall constitute the
Minimum Advertising Expenditure for each of the first three (3) Contract Years.
Within sixty (60) days following execution of this Agreement and sixty (60) days
before the start of each subsequent Contract Year, LICENSEE shall submit to
GUESS for approval an Advertising budget for the next Contract Year, using the
ADVERTISING BUDGET FORM (Exhibit G-2), broken down by each country in the
Territory, and specifying the anticipated media, the date and the anticipated
time of publication of each Advertisement or occurrence of each promotional
event. If the Advertising expenditures actually made by LICENSEE during such
Contract Year are lower than the Minimum Advertising Expenditure corresponding
to such Contract Year, LICENSEE shall expend the difference during such period
in such manner as directed by GUESS. FOR PURPOSES OF ESTABLISHING THE
ADVERTISING BUDGET AND EXPENDITURES, ITEMS SUCH AS SHOWROOM FIXTURES,
FURNISHINGS, STORE WINDOW DISPLAYS AND PACKAGING FOR THE PRODUCTS, AND THE COSTS
AND EXPENSES ASSOCIATED WITH ADVERTISING AND PROMOTION OF THE PRODUCTS TO THE
TRADE, INCLUDING, WITHOUT LIMITATION, TRADE SHOWS, CO-OPS, PRESS RELEASES AND
CATALOGUES TO THE TRADE, ARE NOT CONSIDERED TO BE ADVERTISING.
8.3 ADVERTISING EXPENDITURE REPORT. Not later than thirty (30) days
after the end of each Quarter, LICENSEE shall submit to GUESS a report showing
Advertising expenditures actually made by LICENSEE during that Quarter, using
the ADVERTISING EXPENDITURE FORM (Exhibit G-3), together with advertising tear
sheets with respect to the Products for that Quarter. Advertising expenditures
made in a foreign currency shall be listed showing the foreign currency and the
conversion to U.S. Dollars using the exchange rate for the last business clay of
the relevant Quarter as set forth in the U.S. edition of THE WALL STREET
JOURNAL.
9. SHOWROOMS Omitted.
10. INSURANCE
10.1 PROCUREMENT OF INSURANCE. Without limiting LICENSEE's liability
under the indemnity provisions hereof, during the term of this Agreement, and
for three (3) years following the date of expiration or termination hereof,
LICENSEE shall maintain with reputable insurance companies reasonably
satisfactory to GUESS comprehensive general
13
<PAGE>
liability insurance in the amount of at least US$5,000,000.00 (US$3,000,000.00
single limit per occurrence) plus defense costs. This insurance shall include
broad form blanket contractual liability; contractor's protective; workers'
compensation; products liability and completed operations liability; advertising
injury, cross liability; special form "all risk" blanket property coverage
(including earthquake and flood protection) at replacement cost; selling price
or evidence of business interruption coverage of gross revenues for six (6)
months; brands and labels clause (with no salvage); an endorsement stating that
GUESS shall receive at least thirty (30) days written notice prior to
modification, cancellation or non-renewal of coverage; an endorsement naming
GUESS as an additional insured; an endorsement stating that the insurance shall
be primary and not contributory as to GUESS, and a waiver of subrogation in
favor of GUESS. During the term of this Agreement, LICENSEE may not engage in
the manufacture, sale or promotion of any Product unless the required insurance
coverage is in full force and effect.
10.2 EVIDENCE OF INSURANCE. No later than thirty (30) days before the
first shipment of Products, and no later than thirty (30) days before each
Renewal Term thereafter, if any, LICENSEE shall furnish to GUESS certificates of
insurance evidencing the required insurance policies. Upon request, LICENSEE
shall provide GUESS with copies of insurance policies and related endorsements
evidencing the insurance coverage required hereunder. The insurance set forth in
this Section 10 must cover the entire Territory.
11. OWNERSHIP AND PROTECTION OF TRADEMARKS AND IP RIGHTS
11.1 OWNERSHIP. LICENSEE acknowledges that GUESS is the exclusive
owner of the Trademarks and of the IP Rights and that all of LICENSEE's uses of
the Trademarks and the IP Rights shall inure to the exclusive benefit of GUESS.
LICENSEE shall place appropriate notices, including notice of copyright,
reflecting ownership of IP Rights by GUESS, on all plans, packaging tags, labels
and Advertising and promotional materials.
11.2 REGISTRATION. LICENSEE shall cooperate fully and in good faith
with GUESS for the purpose of securing and preserving GUESS's rights in and to
the Trademarks and IP Rights, including, without limitation, in the execution,
submission and prosecution of any trademark, service mark, copyright or patent
applications and similar applications for registration which GUESS may desire to
submit at any time and from time to time. LICENSEE shall not directly or
indirectly submit any application to register the Trademarks for the Products or
any other products or services, or for any other trademark or service mark,
copyright, design right or invention of GUESS, without the prior written
approval of GUESS.
11.3 ASSIGNMENT OF RIGHTS. LICENSEE shall disclose and freely make
available to GUESS any and all developments or improvements it makes or has made
to the Products, the Trademarks, or the IP Rights. This Agreement shall
constitute an assignment of all such developments and improvements to GUESS. If
any application must be made by LICENSEE or any third party which may have
created designs of Products hereunder, LICENSEE agrees to, and does hereby,
assign, and agrees to cause such third party to assign to GUESS, any and all
right, title and interest in all such applications and the resulting
14
<PAGE>
registrations or patents, as the case may be. If requested by GUESS, LICENSEE
shall make, procure and execute, and cause to be made, procured and executed,
all assignments and/or all other agreements, documents or instruments determined
by GUESS to be necessary or advisable to vest ownership of the Trademarks and IP
Rights (including any developments and improvements made by or on behalf of
LICENSEE to the Products, Trademarks and IP Rights) in GUESS. Additionally,
LICENSEE hereby grants, and agrees to cause the appropriate third party to grant
to GUESS an irrevocable power of attorney, on behalf of LICENSEE or such third
party, as the case may be, to execute any and all Trademarks and/or IP Rights
applications, and other related documentation that GUESS determines are
necessary or advisable in connection with the Products, Trademarks and IP Rights
(including any developments and improvements made by or on behalf of LICENSEE to
the Products, Trademarks and IP Rights).
11.4 PROHIBITED ACTS.
LICENSEE shall not, directly or indirectly:
(a) claim ownership of the Trademarks or the IP Rights;
(b) permit the use of the Trademarks or the IP Rights in such a
way as to give the impression that they are the property of
LICENSEE;
(c) use the Trademarks or the IP Rights or any confusingly
similar trademark or other similar intellectual or
industrial property in any manner not expressly authorized
by GUESS;
(d) engage in any activity that may contest, dispute, dilute or
otherwise impair the right, title, interest or goodwill of
GUESS in the Trademarks, including, without limitation, any
action to prevent or cancel any registration of the
Trademarks;
(e) use the Trademarks in any manner that is not necessary or
beneficial for the manufacture or distribution of the
Products;
(f) use any trademarks other than the Trademarks in connection
with the manufacture, promotion and distribution of the
Products or associate the Trademarks or the IP Rights with
any other name, trademark, service mark, character or
personality;
(g) use the Trademarks as part of LICENSEE's corporate or
commercial name unless expressly permitted by GUESS in
writing; or
(h) contest the fact that LICENSEE's rights under this Agreement
are solely those of a licensee and, subject to the
provisions of
15
<PAGE>
Section 17, cease upon termination or expiration of this
Agreement.
11.5 MISUSE. LICENSEE shall cooperate fully and promptly with GUESS in
the protection of GUESS's rights to the Trademarks and the IP Rights, as GUESS
may request from time to time. Without limitation to the foregoing, LICENSEE
shall be responsible for monitoring those countries in the Territory, where
LICENSEE or any retailer or distributor of LICENSEE is selling Products, for any
infringement, counterfeiting or other misuse of the Trademarks and the IP
Rights. LICENSEE, at its own expense, shall take action immediately to stop (a)
any MINOR infringement, counterfeiting or other misuse of the Trademarks or the
IP Rights in connection with the Products, and (b) any MINOR diversion of the
Products out of the Territory by any third party, of which LICENSEE becomes
aware. LICENSEE shall not be obligated to expend more than US$CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION for the Initial Term, and US$CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION for any Renewal
Term, for actions taken to stop the MINOR infringements and diversions described
in subsections (a) and (b) above. This limitation will not affect or limit
LICENSEE's obligation to reimburse GUESS for costs incurred in cases where GUESS
takes action, as described below. In all such actions, LICENSEE shall use
attorneys and investigators approved by GUESS. LICENSEE shall indemnify GUESS
against all losses, damages, attorneys' fees, judgments or other costs or
expenses incurred or suffered by GUESS as a result of negligent or unlawful
actions taken by LICENSEE. LICENSEE shall notify GUESS immediately by telephone
and facsimile of any and all SUBSTANTIAL cases of infringement, counterfeiting
or misuse of the Trademarks or IP Rights and SUBSTANTIAL cases of diversion of
the Products. In all cases, GUESS shall have the right, but not the obligation,
to participate with LICENSEE in any action to stop such activities, or to take
complete control over such action. In any case where GUESS takes action to stop
such activities, GUESS may charge LICENSEE up to CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION percent
(CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION%) of all costs reasonably incurred relating to such actions,
provided that such charges to LICENSEE will not exceed the lower of (i) in any
one Contract Year, CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION percent (CONFIDENTIAL INFORMATION OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION%) of Minimum
Net Sales for such Contract Year, and (ii) $CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION aggregate over the
Initial Term. Any monetary recovery obtained in actions taken at LICENSEE's sole
expense shall be for the account of LICENSEE. Any monetary recovery obtained in
actions taken at the sole expense of GUESS shall be for the account of GUESS.
Any monetary recovery obtained in actions where expenses have been shared by
both parties shall be shared PRO RATA in accordance with each party's expenses.
11.6 REPORT TO GUESS. Within thirty (30) days after the end of each
month during the term of this Agreement, LICENSEE shall submit a report to GUESS
summarizing
16
<PAGE>
all discovered cases of misuse or diversion with respect to the Trademarks, the
IP Rights and the Products or indicating that no such misuses have been
discovered, and summarizing the activities undertaken by LICENSEE to discover
misuses of the Trademarks or IP Rights, and diversion of Products. The report
shall also summarize the steps taken by LICENSEE, if any, to stop any such
misuse or diversion.
11.7 COMPLIANCE WITH RULES OF GUESS. GUESS may promulgate, from time
to time, rules and amendments thereto, relating to use of the Trademarks and the
IP Rights, and LICENSEE shall comply with all such rules and amendments. Such
rules and amendments shall be effective upon receipt thereof by LICENSEE. GUESS
shall attempt to use reasonable efforts to ensure that such rules and
amendments, when issued, do not have a material negative impact on those
Products already produced by LICENSEE.
12. TRADE SECRETS AND CONFIDENTIALITY
A confidential relationship is created by this Agreement. Except in
connection with their respective rights and obligations under this Agreement,
GUESS, LICENSEE and their respective affiliates, employees, attorneys and
accountants shall keep confidential and not take or use for its or their own
purpose Trade Secrets of the other or the terms of this Agreement, unless with
the prior written consent of the other party hereto, or as may be required by
law, or in connection with regulatory or administrative proceedings and only
then with reasonable advance notice of such disclosure to the other party
hereto. In the course of arbitration or litigation, LICENSEE shall not have any
right of access to GUESS's Trade Secrets and LICENSEE waives any right to see
such Trade Secrets.
13. PAYMENTS, REPORTS AND REQUIRED CAPITAL
13.1 ADVANCE. In consideration for the rights granted by GUESS
hereunder, LICENSEE shall pay to GUESS upon execution of this Agreement the non-
refundable amount of US$CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION (which is equal to CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION percent (CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION%) of the Royalty Minimum for the first
Contract Year) which shall be applied as a credit against the Royalty Minimum
for the first Contract Year.
13.2 LETTER OF CREDIT. LICENSEE must ensure the payment of the balance
of the Royalty Minimum for the first Contract Year with an irrevocable standby
letter of credit naming GUESS as the sole beneficiary and containing such terms
and conditions approved by GUESS. The letter of credit must be established
before GUESS executes this Agreement. An irrevocable standby letter of credit
shall secure the Royalty Minimum for the second Contract Year. If thirty (30)
days prior to the expiration of the first Contract Year, a letter of credit is
not provided to GUESS to secure the Royalty Minimum for the second Contract
Year, GUESS may cause the existing letter of credit to be paid to it in full,
without waiving its right to terminate this Agreement. All letters of credit
shall be issued and confirmed by banks in Los Angeles, California suitable to
GUESS. LICENSEE shall pay all fees related to
17
<PAGE>
the establishment of all letters of credit. GUESS may draw down on any letter of
credit if GUESS does not receive ANY sum due from LICENSEE within ten (10) days
of when it is due, and in such case LICENSEE shall restore the full amount of
the credit obligation within ten (10) days after the draw down.
13.3 ROYALTY BASIS. The Trademark Royalty shall be calculated on the
basis of the Distributor Listed Wholesale Prices for the Products with respect
to sales made to distributors, and on the basis of the Retailer Listed Wholesale
Prices for the Products with respect to sales made to retailers, regardless of
whether LICENSEE sells Products in arms' length transactions or in transactions
with any of its affiliates or itself. All related party sales shall be stated
separately for the relevant period on the STATEMENT OF ROYALTIES FORM
(Exhibit 1). A Product shall be considered "sold" upon the date when such
Product is invoiced, shipped or paid for, whichever event occurs first. Sales of
all Products are subject to payment of the Trademark Royalty. Sales of products
embodying an IP Right, whether bearing the Trademarks or not, are also subject
to payments at the same royalty rate. All sales of Products by LICENSEE shall be
documented by invoices numbered sequentially from the first sale under this
Agreement to the last.
13.4 DEDUCTIONS/RETURNS/CLOSEOUTS. Only the following deductions from
Gross Sales will be permitted for each Contract Year for the purpose of
calculating Net Sales (and for the purpose of calculating the amount of
allowable deductions from Gross Sales, Gross Sales of Closeouts and Exempt
Products shall be excluded):
(a) Allowances shall not exceed CONFIDENTIAL INFORMATION OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION percent (CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION%) of the Gross Sales of the Products sold;
(b) Trade Discounts (excluding the CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION percent (CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION%) Trade Discount granted to GUESS
pursuant to Section 7.3) shall not exceed CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION percent (CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION%) of the Gross Sales of the Products
sold;
(c) Returned units of Products (not including Exempt Products or
Closeouts) shall not exceed the following percentages of
total Product units sold (not including units of Closeouts
or Exempt
18
<PAGE>
Products): (i) first Contract Year (May 1, 1996 - December
31, 1997)-CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION%;
(ii) second Contract Year (January 1, 1998 - December 31,
1998)-CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION%; and (iii)
third Contract Year (January 1, 1999 - December 31, 1999)
and thereafter for the remainder of this Agreement -
CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION%;
(d) Closeouts shall not exceed CONFIDENTIAL INFORMATION OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION percent (CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION%) of total Product units sold (not including
units of Closeouts or Exempt Products); and
(e) Amounts actually credited to a customer for the actual
return of an Exempt Product to LICENSEE will be deducted in
full.
Without limitation to any other rights that GUESS may have under this Agreement,
if (i) Allowances exceed the permitted percentage described in subsection (a)
above for a Contract Year, or (ii) Trade Discounts exceed the permitted
percentage described in subsection (b) above for a Contract Year; GUESS shall
have the right in each case to adjust LICENSEE's Net Sales requirement upward by
the amount of the overage.
Without limitation to any other rights that GUESS may have under this Agreement,
if returned units of Products (not including Exempt Products) exceed the
permitted percentage for the applicable Contract Year, GUESS shall have the
right to adjust LICENSEE's Net Sales requirement upward by the amount that is
the product of (i) the average price of the returned Products during the
Contract Year, multiplied by (ii) the number of units in excess of the maximum
percentage of returned Products permitted.
Without limitation to any other rights that GUESS may have under this Agreement,
if Closeouts exceed the permitted percentage for a Contract Year, GUESS shall
have the right to adjust LICENSEE's Net Sales requirement upward by the amount
that is the product of (i) the average discount given on Closeouts during the
Contract Year, multiplied by (ii) the number of units in excess of the maximum
percentage of Closeouts permitted.
Notwithstanding anything contained herein, no deductions whatsoever will be
permitted for reserves of any kind, including reserves for bad debts, nor for
any actual write-offs of bad debts.
19
<PAGE>
13.5 TRADEMARK ROYALTY AND ROYALTY MINIMUM PAYMENTS. LICENSEE shall
pay to GUESS quarterly during the Initial Term and any Renewal Term of this
Agreement the Trademark Royalty, as follows: the payment for January, February
and March of each year shall be due MAY 1; the payment for April, May and June
shall be due AUGUST 1; the payment for July, August and September shall be due
NOVEMBER 1; and the payment for October, November and December shall be due
FEBRUARY 1. Within thirty (30) days after the end of each Contract Year,
LICENSEE shall pay GUESS the amount, if any, by which the Royalty Minimum (as
specified in Exhibit H attached hereto) for such Contract Year exceeds the
Trademark Royalty due for such Contract Year. LICENSEE will not be relieved of
paying the Trademark Royalty by virtue of having met the Royalty Minimum, if
LICENSEE's Net Sales yield Trademark Royalty obligations in excess of the
Royalty Minimum. The obligation of LICENSEE to pay the Trademark Royalty or the
Royalty Minimum, as the case may be, is absolute, notwithstanding any claim that
LICENSEE may assert against GUESS. LICENSEE shall not have the right to set-off,
compensate or make any deduction from payments of the Trademark Royalty or the
Royalty Minimum for any reason whatsoever.
13.6 REMITTANCE OF PAYMENT/WITHHOLDING. Unless otherwise requested by
GUESS, all payments shall be made in U.S. dollars by wire transfer to the
account of Guess?, Inc., Account No. 0492-13946, at Sanwa Bank California (ABA
No. 122003516), 601 South Figueroa Street, Los Angeles, California 90017, or to
such other account as GUESS may designate in writing to LICENSEE from time to
time, net of bank wire or other charges. If any amount payable to GUESS is
subject to any tax, charge or duty in the Territory (excluding any income tax
imposed by the State of California or the United States and payable by GUESS),
LICENSEE shall furnish to GUESS official proof of such payment. If GUESS does
not receive full and complete U.S. tax credit for any such tax, charge or duty,
then the amount payable by LICENSEE shall be increased to provide to GUESS such
amount as would be payable to GUESS in the absence of any such tax, charge, duty
or impost.
13.7 QUARTERLY REPORTS. Not later than thirty (30) days after the end
of each Quarter, LICENSEE shall send to GUESS by overnight courier service or
personal delivery reports that contain all of the information required by the
STATEMENT OF ROYALTIES FORM (Exhibit 1) as modified by GUESS from time to time.
The reports shall also include:
(a) the quantity of Products sold to each customer during the
Quarter;
(b) the total amount of Product units sold during such Quarter
which constitute Closeouts;
(c) the total amount of Exempt Product units shipped and
returned during such Quarter;
(d) any other information relating to the Products that may be
reasonably requested by GUESS, including the information
referred to in Section 6.2 above; and
20
<PAGE>
(e) a separate STATEMENT OF ROYALTIES FORM applicable to
Closeouts only.
All information for the STATEMENT OF ROYALTIES FORM shall be separately stated
for each country in the Territory (and outside the Territory to which LICENSEE
sells Products pursuant to the Non-Exclusive Right granted under Section 7.4),
and for each distributor, independent contractor and retail store, wherever
located.
13.8 MONTHLY SALES REPORT. Not later than thirty (30) days after the
end of each of the first two (2) months of each Quarter, LICENSEE shall send to
GUESS by facsimile a report that shall contain all of the information required
by the MONTHLY SALES REPORT FORM (Exhibit K) as modified by GUESS from time to
time.
13.9 INVOICES. Upon the request of GUESS, LICENSEE shall submit to
GUESS, its agents and/or representatives, copies of invoices, credit memoranda,
line sheets and customer lists related to the sale of Products. All Trade
Discounts (other than confidential corporate rebates, which must be disclosed to
GUESS at the time such rebates are granted) must appear on the face of each
invoice and each such Discount must be itemized as a percentage reduction in the
list price.
13.10 RIGHT TO REVIEW. Receipt or acceptance by GUESS of any
statement furnished, or of any sums paid by LICENSEE, shall not preclude
GUESS from questioning the completeness or accuracy of such statement or
payment at any time within four (4) years after the date of such statement or
payment.
13.11 LATE PAYMENT. If any payment of the Royalty Minimum, the
Trademark Royalty or any other amounts due from LICENSEE hereunder are
delayed for any reason, interest shall accrue on the unpaid principal amount
from and after the date on which the same became due at the highest rate
permitted by law in the State of California.
13.12 FOREIGN CURRENCY CONVERSION. Net Sales made in a foreign
currency shall be listed showing the foreign currency and the conversion to
U.S. Dollars using the exchange rate for the fifteenth (15th) day of the
relevant month (or the next business day if such day falls on a weekend or a
holiday) as set forth in the U.S. edition of THE WALL STREET JOURNAL.
13.13 REQUIRED CAPITAL. In order to develop and grow its business,
LICENSEE shall invest or make available for investment pursuant to lines of
credit available to LICENSEE at least US$CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION in capital
("Required Capital"). For these purposes, "Capital" is defined as loans or
other funding to LICENSEE, cash invested or personal loans obtained by
LICENSEE's shareholders for the sole purpose of financing the operation of
LICENSEE's business. A minimum of US$CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION in cash,
consisting of cash capital and/or the proceeds of shareholder loans, must be
invested in LICENSEE in installments as follows: $CONFIDENTIAL INFORMATION
OMITTED AND FILED SEPARATELY
21
<PAGE>
WITH THE SECURITIES AND EXCHANGE COMMISSION as of March 31, 1996; an
additional $CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION as of June 30, 1996; and an additional
$CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION as of April 30, 1997. Such amounts cannot be
withdrawn or repaid, as the case may be, until December 31, 1998. If
reasonably required in order for LICENSEE to meet the Minimum Net Sales and
Royalty Minimums hereunder, GUESS may require that the additional
$CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION be invested in LICENSEE. LICENSEE shall make such
investment within thirty (30) days of notice from GUESS. If the investment is
not made within such period, GUESS may immediately terminate this Agreement
without any right to cure. LICENSEE shall present GUESS with such
documentation and statements that GUESS may require in order to evidence, to
GUESS's satisfaction, the existence of the Required Capital and the requisite
minimum cash investment (and any required additions thereto), by the dates
described above.
14. ACCOUNTING AND SYSTEMS
14.1 DUTY TO KEEP ACCOUNTS. LICENSEE shall at all times keep and
maintain an accurate account of all operations within the scope of this
Agreement for a period of at least four (4) years after the date of such
information, including, without limitation, separate and appropriate books of
account and records sufficient to reconcile the number of Product units
manufactured with the number of Product units sold. LICENSEE shall establish a
separate income statement and separate books of account to track the sales of
the Products.
14.2 FINANCIAL STATEMENTS AND INVENTORY RECONCILIATION.
(a) LICENSEE shall provide GUESS with annual reviewed financial
statements of LICENSEE, within sixty (60) days after the end
of each of its fiscal years, and if requested by GUESS,
internal six (6) month interim statements within twenty (20)
days of GUESS's request. Within thirty (30) days after the
end of each Contract Year LICENSEE shall also provide to
GUESS a composite royalty statement showing the aggregate
Gross Sales, Trade Discounts, Returns, Exempt Product
returns, Allowances and Closeouts, and any other deduction
taken pursuant to Section 13.4 above to arrive at the Net
Sales price of all Products sold by LICENSEE. The composite
annual statement shall be certified by the chief financial
officer of LICENSEE.
(b) LICENSEE shall provide GUESS with an annual inventory
reconciliation, within ninety (90) days after the end of
each of its fiscal years. Such reconciliation shall (i) be
certified by a certified public accountant, (ii) confirm
actual reconciliation of
22
<PAGE>
the inventory to LICENSEE's general ledger and (iii) include
computer reports summarizing inventory by style.
14.3 RIGHT OF INSPECTION BY GUESS. At all times during this Agreement,
and for a period of one hundred and twenty (120) days after termination or
expiration of the Agreement, the internal control report (if any) and the books
of account of LICENSEE with respect to the sales of Products shall be available
for inspection, copying and audit by GUESS, its agent or representative during
normal business hours, upon not less than seventy-two (72) hours advance notice,
and shall be made by GUESS at its own expense, except as provided below. If the
audit reveals that LICENSEE's reporting and record keeping are not in accordance
with GUESS's requirements or that there is an error in favor of LICENSEE in
excess of the lesser of US$CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION and CONFIDENTIAL INFORMATION OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION percent
(CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION%) of royalties with respect to any Quarter or Contract Year
in computing such royalties, all costs and expenses incurred by GUESS in
connection with such inspection and audit shall be borne by LICENSEE. The
internal control report means the report prepared by LICENSEE's auditors upon
their completion of an audit, addressing the auditors' findings and
recommendations.
14.4 FAILURE TO MAINTAIN RECORDS. LICENSEE acknowledges that its
failure to maintain the books of accounts and records required hereunder in a
manner which fairly presents the financial operations of LICENSEE, will
constitute a material breach of its obligations and will cause substantial
damage to GUESS. GUESS may, therefore, in addition to exercising any other
rights hereunder, charge LICENSEE a fee of the greater of (a) US$CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION, or (b) CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION percent (CONFIDENTIAL INFORMATION OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION%) of the
Trademark Royalty for the applicable Contract Year; upon LICENSEE's breach of
its obligations under this Section 14. LICENSEE shall pay such fee within five
(5) days of demand by GUESS. GUESS may also charge such fee against the letter
of credit described in Section 13.2.
14.5 SYSTEMS. LICENSEE will obtain and maintain such accounting,
information, communication and operating systems and capabilities as GUESS may
reasonably require from time to time and which are appropriate for LICENSEE's
business. GUESS's current requirements are described on the SYSTEMS REQUIREMENTS
LIST (Exhibit N), which is subject to change in GUESS's sole discretion upon
notice to LICENSEE.
15. FORCE MAJEURE
Neither GUESS nor LICENSEE shall be held responsible for any loss,
damage or delay suffered by the other party owing to any cause that is beyond
the reasonable control
23
<PAGE>
of the defaulting party and cannot be attributed to negligence or willful
nonperformance of its obligation. Such causes include, but are not limited to,
wars, embargoes, riots, civil disturbances, fires, storms, floods, typhoons,
earthquakes and other natural calamities, strikes and labor disputes, government
acts and restrictions, and other causes that cannot be overcome or prevented by
due diligence. Either party wishing to invoke this Section shall give notice to
the other party stating the relevant cause. The defaulting party shall promptly
resume performance of its obligations the moment such cause or causes cease to
operate; provided, however, that if the condition continues with respect to
LICENSEE for a period of more than Sixty (60) days, GUESS shall have the right
to terminate this Agreement.
16. BREACH AND TERMINATION
16.1 REMEDIES FOR BREACH. In addition to any other rights or remedies
that GUESS may have (including without limitation, any right to immediately
terminate this Agreement), upon the occurrence of any event described in
Sections 16.4 or 16.5, or upon LICENSEE's breach of any material provision of
this Agreement which breach is not cured within any applicable cure period
therefor, GUESS may immediately take any, or all of the following actions:
(a) revise the products (including deleting one or more
products) which constitute Products hereunder;
(b) revise the area (including deleting one or more countries)
which comprises the Territory hereunder; and
(c) revise the right to use the Trademarks and the IP Rights
from an exclusive to a non-exclusive basis.
16.2 OTHER RIGHTS UNAFFECTED BY TERMINATION. It is understood and
agreed that termination of this Agreement by GUESS on any ground shall be
without prejudice to any other rights or remedies that GUESS may have.
16.3 TERMINATION OPTION FOR BREACH/CURE POSSIBLE.
(a) Except as otherwise provided in this Agreement, if LICENSEE
breaches any of its obligations under this Agreement, GUESS
may terminate this Agreement by giving a notice of breach to
LICENSEE. In the case of a breach involving a failure by
LICENSEE to make any payment required or contemplated
hereunder or relating to the Products or this Agreement
(including payments owed to GUESS and any agent or licensee
of GUESS), termination will become effective automatically
unless LICENSEE completely cures the breach within ten (10)
days after the giving of the notice. In the case of any
other breach (and except as otherwise provided herein),
termination will become effective automatically unless
LICENSEE takes actual and substantial steps in good faith to
diligently commence
24
<PAGE>
to cure such breach (and presents GUESS with evidence of
such actions) within ten (10) days after the giving of the
notice, and actually completely cures the breach within
twenty (20) days after the giving of the notice of breach.
Pending cure of any breach described in this subsection (a),
LICENSEE shall ship no Products for sale without the prior
written consent of GUESS; if LICENSEE does ship any Products
without the prior written consent of GUESS, it shall forfeit
its right to cure and its rights under this Agreement shall
be terminated automatically. To fully cure any breach
described herein, LICENSEE must also reimburse GUESS for its
reasonable attorneys' fees incurred in investigating and
analyzing the breach and issuing the notice of breach and
any other communication in connection herewith. Upon the
giving of a notice of breach of any material provision of
this Agreement for the third time during the Term of the
Agreement, for any reason, LICENSEE shall no longer have the
right to cure any violation, and termination shall be
effective upon the giving of said third notice.
(b) GUESS may also terminate this Agreement by giving a notice
of breach to LICENSEE if any of the following events occur:
(i) returned Products (not including Exempt Products)
exceed CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
percent (CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION%) of total Product units sold in any
Contract Year, PROVIDED HOWEVER, that LICENSEE may
request in writing at least sixty (60) days prior to
the end of such Contract Year that GUESS approve such
excess returned Products; whereby GUESS may in its sole
and absolute discretion approve or disapprove same;
(ii) the combined total of Trade Discounts (excluding the
ten percent (CONFIDENTIAL INFORMATION OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION%) Trade Discount granted to GUESS pursuant
to Section 7.3) and Allowances exceed CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION percent
(CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY
WITH THE SECURITIES
25
<PAGE>
AND EXCHANGE COMMISSION%) of Gross Sales of Products
for any Contract Year; or
(iii) Closeouts exceed CONFIDENTIAL INFORMATION OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION percent (CONFIDENTIAL INFORMATION OMITTED
AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION%) of total Product units sold for any
Contract Year.
Termination under this subsection (b) will become effective
automatically, as of the end of the next Contract Year, if the
same breach occurs during such next Contract Year.
16.4 TERMINATION OPTION/NO CURE POSSIBLE/CHANGE OF OWNERSHIP. The
parties mutually acknowledge that this Agreement is being entered into based
upon GUESS's evaluation of and reliance upon the current ownership, management
and control of LICENSEE. Exhibit M is a list of the current owners (who,
together with any family trust, or other corporation, limited liability company
or partnership in which ONLY Mark Dyne and Colin Dyne together at all times hold
in excess of fifty percent (50%) of the outstanding voting securities, in the
case of a corporation, or in excess of fifty percent (50%) of the outstanding
voting power or beneficial interest in the case of other entities, are referred
to as the "Current Owners") and two key executives (the "Key Executives") of
LICENSEE. On the basis of the information provided by LICENSEE to GUESS, GUESS
has determined that current management of LICENSEE has the technical, marketing
and sales expertise, business reputation and sensitivity to GUESS's unique image
and to the goodwill represented by the Trademarks, all of which are necessary to
carry out the purposes of this Agreement. Therefore, the written consent of
GUESS shall be required prior to the consummation by LICENSEE of any "Control
Change Transaction" (as defined below); and consolidations, sales and mergers
which do not constitute Control Change Transactions are hereby permitted,
PROVIDED that LICENSEE gives GUESS prior written notice of such transactions.
For purposes of this Agreement, a "Control Change Transaction" means any
consolidation, sale or merger if the Current Owners do not, subsequent to the
consolidation, sale or merger, directly or indirectly retain the power to vote
or direct the voting of more than fifty percent (50%) of the outstanding voting
securities of LICENSEE. Further, if (i) Colin Dyne leaves the employment of
LICENSEE or otherwise fails to devote the vast majority of his time and efforts
to the daily management of LICENSEE's business, or if Mark Dyne ceases to exert,
on a regular basis, actual and bona fide management control and oversight over
LICENSEE's business, in each case for any reason other than death or total
disability; or (ii) both Key Executives listed in Exhibit M die or become
totally disabled; then in any such case GUESS shall have the right to terminate
this Agreement immediately WITHOUT ANY RIGHT TO CURE. If only one of the Key
Executives listed in Exhibit M dies or becomes totally disabled, GUESS will not
have the right to terminate this Agreement on the grounds of such death or
disability, PROVIDED, that in the case of Mark Dyne's death or total disability,
Colin Dyne continues to devote the vast majority of his time and efforts to the
daily management of LICENSEE's business for the remainder of the Initial Term
and any Renewal Term; or in
26
<PAGE>
the case of Colin Dyne's death or total disability, Mark Dyne continues to
exert, on a regular basis, actual and bona fide management control and oversight
over LICENSEE's business for the remainder of the Initial Term and any Renewal
Term; and PROVIDED FURTHER, that LICENSEE is otherwise not in breach, and does
not become in breach, of this Agreement. Upon GUESS's request, Mark Dyne shall
present proof of his actual and bona fide involvement, on a regular basis, in
the management control and oversight of LICENSEE's business.
16.5 TERMINATION OPTION/NO CURE POSSIBLE/ADDITIONAL CAUSES. GUESS may
terminate this Agreement immediately WITHOUT ANY RIGHT TO CURE if any of the
following events occur:
(a) LICENSEE fails to establish the letter of credit as required
under Section 13.2;
(b) Except as permitted in Section 16.4, LICENSEE merges or
consolidates with or into any other corporation or other
entity, or directly or indirectly sells or otherwise
transfers, sells or disposes of all or a substantial portion
of its business or assets (except for a sale of Products in
the ordinary course of its business);
(c) the Net Sales for any Contract Year do not meet or exceed
the Minimum Net Sales required for such Contract Year as
stated in Exhibit J;
(d) LICENSEE intentionally reports incorrect or false
manufacturing, sales or financial information and reports or
statements related to this Agreement;
(e) LICENSEE is declared bankrupt or is dissolved either
compulsorily or voluntarily, or a petition is presented or
an order is made or an effective resolution is passed or
analogous proceedings are taken for bankruptcy, dissolution,
composition, concordance, reorganization or winding-up of
LICENSEE, or if LICENSEE convenes a meeting for the purpose
of making, or proposes or enters into, any arrangement or
composition for the benefit of its creditors, or if an
encumbrancer takes possession of, or a receiver or other
similar officer is appointed for, the whole or any part of
the assets or undertakings of LICENSEE, or if LICENSEE stops
payment to its creditors generally, or ceases or threatens
to cease to carry on its business or any substantial part
thereof, or becomes insolvent or unable to pay or discharge
its liabilities in the ordinary course of business, or if
LICENSEE assigns the whole or any substantial part of its
assets or undertakings for the benefit of creditors;
27
<PAGE>
(f) a manufacturing subcontractor retained by LICENSEE
manufactures or sells Products without the express
authorization of GUESS and LICENSEE permitted such
manufacture or sale, or knew about (and failed to prevent),
or should have known about, such manufacture or sale;
(g) any other agreement between GUESS and LICENSEE relating to
the Products expires or is terminated due to breach and
following any applicable cure period; or
(h) LICENSEE fails to invest and retain at least US$CONFIDENTIAL
INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION cash in its business in the
installment amounts and by the dates described in Section
13.13.
16.6 NO ASSIGNEE. No assignee for the benefit of creditors, receiver,
liquidator, sequestrator, trustee in bankruptcy, sheriff or any other officer of
the court or official charged with taking over custody of LICENSEE's assets or
business shall have any right to continue the performance or rights of LICENSEE
under this Agreement.
17. OBLIGATIONS AT TERMINATION OR EXPIRATION
17.1 SIGNS AND PROMOTIONAL MATERIALS. Within seven (7) days after the
expiration or termination of this Agreement for any reason, LICENSEE shall
remove and deliver to GUESS, and cause its retailers and distributors to so
remove and deliver to GUESS, all exterior and interior signs and displays which
bear the Trademarks or the IP Rights as well as all other promotional materials,
including brochures, tags, business cards and letterhead, bearing the Trademarks
or the IP Rights.
17.2 DIRECTORIES AND LISTINGS. Within seven (7) days after the
expiration or termination of this Agreement for any reason, LICENSEE shall
notify in writing all telephone companies, business directories, chambers of
commerce and appropriate governmental agencies of the expiration or termination
of this Agreement to terminate their listings under any of the Trademarks and
shall provide GUESS with copies of such notices.
17.3 SUBCONTRACTORS. If LICENSEE has retained manufacturing
subcontractors hereunder, LICENSEE shall be responsible for their compliance of
any and all obligations under this Agreement that are applicable to such
subcontractors.
17.4 INVENTORY; RIGHT TO PURCHASE. Not later than forty-five (45) days
prior to the expiration of this Agreement or within seven (7) days after the
termination of LICENSEE's rights under this Agreement, LICENSEE shall furnish to
GUESS a certificate listing its inventory of Products on hand (which shall
include, without limitation, all materials and packaging for the manufacture and
marketing of Products) and work in progress together with the location thereof.
GUESS shall have the right to conduct a physical inventory of such Products and
work in progress. GUESS shall have the option (but not the
28
<PAGE>
obligation) to purchase from LICENSEE all or any part of its respective
inventory of Products on hand (which shall include without limitation, all
materials and packaging for the manufacture and marketing of Products) upon the
following terms:
(a) GUESS shall notify LICENSEE of its intention, if any, to
exercise this option within thirty (30) days after GUESS's
receipt of such certificate and shall specify which of the
Products are to be purchased;
(b) the price for Products shall be no greater than LICENSEE's
actual manufacturing cost;
(c) LICENSEE shall deliver Products purchased by GUESS within
fifteen (15) days after receipt of the notice of GUESS's
intention to purchase the inventory; and
(d) payment shall be due upon delivery; provided, however, that
GUESS may deduct from the purchase price for such Products
any amounts owed it by LICENSEE.
17.5 REMAINING PRODUCTS. Products not sold by LICENSEE in accordance
with this Section 17.5 shall be destroyed or may be sold only after the
Trademarks and features embodying IP Rights have been removed therefrom (which
removal may be inspected by GUESS, its agents and/or representatives) prior to
sale, unless the parties agree otherwise in writing.
(a) IF AGREEMENT EXPIRED. In the event this Agreement has
expired in accordance with its terms, as to any Products on
hand (which shall include, without limitation, all materials
and packaging for the manufacture and marketing of Products)
not purchased by GUESS, LICENSEE may sell such Products on a
non-exclusive basis in accordance with this Agreement;
provided, however, LICENSEE shall have only six (6) months
after the date of expiration to sell and ship such Products.
(b) IF AGREEMENT TERMINATED. If the rights granted to LICENSEE
under this Agreement have been terminated, as to any
Products on hand (which shall include, without limitation,
all materials and packaging for the manufacture and
marketing of Products) not purchased by GUESS, LICENSEE may
sell such Products on a non-exclusive basis in accordance
with this Agreement; provided, however, LICENSEE shall have
only ninety (90) days after the date of termination to sell
and ship such Products.
17.6 LICENSEE'S OBLIGATION REGARDING SALE OF PRODUCTS.
29
<PAGE>
In the event that LICENSEE sells any Products in accordance with
this Section, LICENSEE shall:
(a) send to GUESS by facsimile the information required on the
MONTHLY SALES REPORT attached hereto as Exhibit K, within
thirty (30) days after the end of each month during the
selling period permitted under Section 17.5, except the last
month thereof;
(b) send by overnight air courier service the information
required on the STATEMENT OF ROYALTIES attached hereto as
Exhibit I, within thirty (30) days after the end of such
permitted selling period, with respect to all sales of
Products by LICENSEE during the relevant periods; and
(c) pay to GUESS, within thirty (30) days after the expiration
of such permitted selling period, the appropriate amount of
Trademark Royalty due with respect to sales of Products by
LICENSEE during such period.
18. EFFECT OF TERMINATION OR EXPIRATION
18.1 TERMINATION OF RIGHTS. Except as specifically provided in
Section 17 above, upon the termination of the rights granted hereunder to
LICENSEE under this Agreement or upon the expiration of this Agreement, all
rights of LICENSEE to use the Trademarks and the IP Rights, intending, without
limitation, rights to manufacture, distribute, offer to sell, sell and advertise
Products, shall terminate or, as appropriate, be assigned to GUESS. LICENSEE
shall execute any instruments requested by GUESS which are necessary or
desirable to accomplish or confirm the foregoing. Any such assignment, transfer
or conveyance shall be without consideration other than the mutual covenants
contained in this Agreement. GUESS may thereafter license the right to use the
Trademarks and/or the IP Rights in connection with the manufacture, wholesale,
offer for sale at wholesale, distribution and advertising of the Products in the
Territory without any restriction or obligation to LICENSEE.
18.2 NO USE OF TRADEMARKS AND IP RIGHTS. Except as permitted by GUESS,
after the termination of the rights granted to LICENSEE or upon the expiration
of this Agreement, LICENSEE shall refrain from further use of the Trademarks and
the IP Rights or any other trademark, trade name or other industrial or
intellectual property that is:
(a) confusingly similar to the Trademarks;
(b) substantially similar to the IP Rights; or
(c) associated with, or suggests an association with, the
Trademarks and the IP Rights in any way.
30
<PAGE>
18.3 NO LIABILITY. Under no circumstances shall LICENSEE be entitled,
directly or indirectly, to any form of compensation or indemnity from GUESS, or
its affiliates, licensees or distributors, as a consequence of the expiration or
termination of this Agreement, whether as a result of the passage of time, or as
the result of any other cause of termination referenced in this Agreement.
LICENSEE waives any claim that it has or that it may have in the future against
GUESS or its affiliates, licensees or distributors arising from any alleged
goodwill created by LICENSEE with respect to the Products or from its alleged
creation or the increase of a market for the Products in the Territory. In
particular, nothing herein shall be interpreted as making LICENSEE the
commercial agent of GUESS; it being understood and agreed by the parties that:
(a) all promotional efforts by LICENSEE are under the strict
direction and control of GUESS; and
(b) LICENSEE's rights under this Agreement may be terminated at
any time it breaches the terms hereof or upon expiration of
the Initial Term (if LICENSEE is not then entitled to renew
this Agreement pursuant to Section 2.2) or any Renewal Term
hereof, and that in such event LICENSEE is not entitled to
compensation, indemnification, or other form of payment from
GUESS.
19. INDEMNIFICATION, REPRESENTATIONS AND WARRANTIES
19.1 INDEMNIFICATION. LICENSEE shall indemnify, protect, hold harmless
and defend GUESS, its officers, directors, affiliates, agents and employees from
and against any and all claims, suits, losses, liabilities, expenses and
damages, including costs of suit and attorneys' fees arising out of or in any
way connected with the manufacture, sale, or advertisement of any Product by
LICENSEE; the claim of any broker, finder or agent in connection with the making
of this Agreement or any transactions contemplated by this Agreement; the claim
of any landlord that termination or expiration of this Agreement caused it
damage; the breach of this Agreement; or the inaccuracy of any representation or
warranty made by LICENSEE herein. Compliance by LICENSEE with the insurance
provisions of this Agreement shall not relieve LICENSEE of its duty to indemnify
and defend GUESS under this Section. The duty to indemnify and defend survives
the termination or expiration of this Agreement.
19.2 DEFENSE COUNSEL. LICENSEE shall defend GUESS, with counsel
acceptable to GUESS, with respect to each and every claim for which GUESS is
indemnified by LICENSEE under this Agreement. LICENSEE shall pay for the
services of such counsel upon counsel's presentation of reasonable legal bills
or requests for retainer.
19.3 AUTHORITY. Each of the parties represents and warrants that it
has the full right, power and authority to enter into this Agreement and to
perform all of its respective obligations, that it is under no legal impediment
which would prevent its entering
31
<PAGE>
into and performing fully its obligations under this Agreement, and that it is
financially capable of performing such obligations.
19.4 COMPLIANCE WITH LAWS. LICENSEE shall take all actions required by
any local, provincial, national, state or regional agency, government or
commission to carry out the purposes of the rights licensed hereunder in
compliance with applicable law. LICENSEE shall immediately provide GUESS with
copies of any communication to or from any such agency, government or commission
that relates to or affects this Agreement or the Trademarks or the IP Rights.
Without limitation to the foregoing, LICENSEE shall not engage in any unfair or
illegal trade practices or commit any acts or engage in any transactions that
would reflect adversely upon the goodwill associated with GUESS, the Trademarks,
the IP Rights, or the Products.
19.5 LICENSEE REPRESENTATIONS AND WARRANTIES. LICENSEE represents and
warrants to GUESS that:
(a) LICENSEE is a corporation duly incorporated, validly
existing and in good standing under the laws of California;
(b) the financial statements previously furnished to GUESS by
LICENSEE are complete and correct in all material respects
and represent accurately the financial position of LICENSEE
at the time this Agreement is executed;
(c) no event has occurred that would have a material impact on
the business, operations or condition (financial or
otherwise) of LICENSEE;
(d) LICENSEE has the ability and capacity to perform its
obligations hereunder or to cause such obligations to be
performed; and
(e) any designs submitted by LICENSEE to GUESS, for approval are
original and do not infringe the rights of any other person.
Upon request, LICENSEE shall provide GUESS with a written certification that all
such representations and warranties remain true and accurate as of the date of
such certification.
19.6 GUESS WARRANTY AND REPRESENTATION. GUESS represents and warrants
to LICENSEE that (i) the trademark information set forth in Exhibit A is true
and correct, (ii) GUESS owns the trademarks which are shown as registered on
Exhibit A, and (iii) GUESS has full corporate power and authority to enter into
this Agreement. Except as expressly set forth above, GUESS makes no
representation or warranty, either express or implied, as to any matter
whatsoever, including, without limitation, the design, merchantability,
durability, suitability of any product or other item or the fitness of any
product or other item for a particular purpose.
32
<PAGE>
19.7 NO PUNITIVE DAMAGES. Notwithstanding anything contained herein,
in no event shall either party be liable to the other for punitive damages.
20. APPROVAL PROCEDURES
The approval of GUESS or the exercise of its discretion as to any
request or proposal made by LICENSEE under any section of this Agreement shall
be at the absolute and sole subjective discretion of GUESS. A submission for
approval shall be deemed DISAPPROVED unless GUESS delivers a notice of approval
within twenty (20) business days. GUESS has no obligation to approve, review or
consider any item that does not strictly comply with the required submission
procedures. GUESS shall designate the procedure that was not followed. Approval
by GUESS shall not be construed as a determination that the approved matter
complies with all applicable regulations and laws.
21. ARBITRATION
21.1 PARTIES' CONSENT TO ARBITRATION. Except as otherwise provided in
this Agreement, GUESS and LICENSEE consent and submit to the exclusive
jurisdiction and venue of the Stare of California, for the adjudication of any
dispute between GUESS and LICENSEE pertaining to this Agreement or the alleged
breach of any provision hereof. Except as provided in this Agreement, any
dispute, controversy or claim arising out of or relating to this Agreement or
breach thereof shall be settled by binding arbitration heard by three (3)
arbitrators, in accordance with the Commercial Arbitration Rules ("Rules") of
the American Arbitration Association. The arbitrators shall be appointed in
accordance with the Rules. The parties hereto agree that the venue of such
arbitration shall be the City of Los Angeles, Los Angeles County, California.
21.2 POWERS. The arbitrators shall be bound by the terms and
conditions of this Agreement and shall have no power, in rendering the award, to
alter or depart from any express provision of this Agreement, and their failure
to observe this limitation shall constitute grounds for vacating their award.
Except as otherwise provided in this Agreement, the arbitrators shall apply the
law specified in Section 22 below. Any award of the arbitrators shall be final
and binding upon the parties and judgment may be entered in any court of
competent jurisdiction, including, without limitation, the courts of the State
of California or any federal court in California, or any court of competent
jurisdiction within the Territory. The award and judgment thereon shall include
interest at the legal rate from the date that the sum awarded to the prevailing
party was originally due and payable, and attorneys' fees and other arbitration
costs, including, without limitation, costs associated with expert witnesses.
21.3 PROVISIONAL REMEDIES. All provisional remedies shall be the
exclusive jurisdiction of the courts. The parties may seek and obtain
provisional remedies prior to or contemporaneously with arbitration. LICENSEE
acknowledges and admits that the Trademarks and the IP Rights possess a special,
unique and extraordinary character, which makes difficult the assessment of
monetary damages that GUESS might sustain by any use which is inconsistent with
this Agreement, and that irreparable injury would be caused to GUESS by any use
of the Trademarks and/or IP Rights that is inconsistent with this Agreement,
such that injunctive and similar relief would be appropriate. Accordingly,
33
<PAGE>
without prejudice to any other right and/or remedy GUESS may have under this
Agreement or the law, if, after notice by GUESS, LICENSEE fails to take any
action that LICENSEE is obligated to take under this Agreement, pertaining to
the protection of the Trademarks and the IP Rights, then GUESS shall be entitled
to an award of injunctive relief and/or specific performance to compel such
action.
21.4 ENTITLEMENT TO COSTS. If any legal action or dispute arises under
this Agreement, arises by reason of any asserted breach of it, or arises between
the parties and is related in any way to the subject matter of the Agreement,
the prevailing party shall be entitled to recover all costs and expenses,
including reasonable attorneys' fees, investigative costs, reasonable accounting
fees and charges for experts. The "prevailing party" shall be the party who
obtains a provisional remedy such as a preliminary injunction or who is entitled
to recover its reasonable costs of suit, whether or not the suit proceeds to
final judgment; if there is no court action, the prevailing party shall be the
party who wins any dispute. A party need not be awarded money damages or all
relief sought in order to be considered the "prevailing party" by the
arbitrator(s) or a court.
22. GOVERNING LAW
All questions concerning this Agreement, the rights and obligations of
the parties, enforcement and validity, effect, interpretation and construction
which are governed by state law shall be determined under the laws of the State
of California. United States federal law shall apply to all other issues;
however, if a provisional remedy is sought, the low of the place where such
remedy is sought shall apply.
23. RELATIONSHIP OF PARTIES
This Agreement shall not be construed to place the parties in the
relationship of legal representatives, partners, joint venturers or agents of or
with each other. Under this Agreement, LICENSEE is an independent contractor and
shall be solely responsible for the payment of all income tax withholding,
payroll taxes, contributions and other obligations relating to LICENSEE's
employment and compensation of its employees and consultants. No party shall
have any power to obligate or bind any other party in any manner whatsoever,
except as specifically provided herein.
24. ASSIGNABILITY
This Agreement shall be binding upon and inure to the benefit of the
successors and permitted assigns of the parties. GUESS may freely assign all of
its rights, duties and obligations. The rights granted to LICENSEE hereunder are
unique and personal in nature, and neither this Agreement nor the rights granted
to LICENSEE hereunder may be assigned, transferred, pledged or hypothecated by
LICENSEE without GUESS's prior written approval. Any attempt by LICENSEE to
transfer any of its rights or obligations under this Agreement, whether by
assignment, sublicense or otherwise, without having received the prior written
approval of GUESS, shall constitute a default hereunder, but shall otherwise be
null and void.
34
<PAGE>
25. INTERPRETATION
This Agreement shall be interpreted to give GUESS maximum control
of the Trademarks and IP Rights and their usage. Any uncertainty or ambiguity
with respect to any provision of this Agreement shall not be construed for or
against any party based on attribution of drafting to either party. The headings
contained herein are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
26. WAIVER AND INTEGRATION
The failure of a party to insist upon strict adherence to any
term or provision of this Agreement, or to object to any failure to comply with
any term or provision of this Agreement, shall not be a waiver of that term or
provision, estop that party from enforcing that term or provision, or preclude
that party from enforcing that term or provision by estoppel or by laches. The
receipt by a party of any benefit from this Agreement shall neither constitute
such party's waiver nor effect an estoppel on the right of that party to enforce
any provision hereof. None of the terms of this Agreement shall be deemed to be
waived or modified, except by an express agreement in writing, signed by an
authorized officer of the party against whom enforcement of the waiver or
modification is sought, supported by new consideration.
27. NOTICES AND COMMUNICATIONS
Any notice, communication or legal service of process required or
permitted under this Agreement shall be effective when personally delivered in
writing; or on the date when the notice, service or communication is transmitted
by telex or by electronic facsimile (with a confirmation copy to be sent by
mail) or the day after the notice, service or communication is sent by overnight
air courier service; or five (5) days after the date of mailing. All notices
shall be sent to the parties at the notice addresses listed below or to such
other persons and notice addresses as may be designated in writing by the
parties to each other. The date a notice shall be deemed to be transmitted, sent
via overnight air courier or mailed shall be the date at the notifier's place of
business at the time of the transmission, sending or mailing.
TO GUESS: GUESS ?, INC.
1444 South Alameda Street
Los Angeles, California 90021, U.S.A.
Attention: Licensing Department
Telephone: (213) 765-3100
Facsimile: (213) 765-3666
with a copy to: GUESS ?, INC.
1444 South Alameda Street
Los Angeles, California 90021, U.S.A.
Attention: General Counsel/Licensing
Telephone: (213) 765-3100
35
<PAGE>
Facsimile: (213) 744-7821
TO LICENSEE: AGS INC.
3820 South Hill Street
Los Angeles, California 90037
Attention: Colin Dyne
Telephone: (213) 234-9606
Facsimile: (213) 234-9610
with a copy to: TROOP, MEISINGER, STEUBER & PASICH
109405 Wilshire Boulevard
Los Angeles, California 90024-3902
Attention: Murray Markiles, Esq.
Telephone: (310) 443-7601
Facsimile: (310) 443-8601
28. SEVERABILITY
The provisions of this Agreement are severable, and if any provision
shall be held invalid or unenforceable, in whole or in part, in any
jurisdiction, then such invalidity or unenforceability shall affect only such
provision, and shall not affect such provision in any other jurisdiction. To the
extent legally permissible, a provision which reflects the original intent of
the parties shall be substituted for such invalid or unenforceable provision.
29. SURVIVAL
All obligations of the parties of a continuing nature, including
without limitation those concerning trademark rights, indemnities and trade
secrets, shall survive the termination or expiration of this Agreement.
30. CROSS DEFAULT
A breach or default under any other agreement between GUESS and
LICENSEE or any of LICENSEE's parents, subsidiaries and shareholders, shall, if
not cured within any applicable cure period, be deemed to be a breach of this
Agreement.
31. EXHIBITS
The Exhibits attached hereto and as revised by agreement of the
parties from time to time are hereby incorporated by reference and form integral
parts hereof. The reporting, approval and other similar forms of GUESS attached
as Exhibits hereto may be revised by GUESS at any time and from time to time.
32. ENTIRE AGREEMENT
This Agreement, including all Exhibits, constitutes the entire
agreement between the parties with respect to, and supersedes all prior
negotiations and agreements
36
<PAGE>
between the parties concerning the subject matter hereof. This writing is
intended as the final, complete and exclusive statement of the terms of the
agreement between the parties with respect to the subject matter hereof and
may only be amended or terminated in writing.
IN WITNESS WHEREOF, the parties hereto have caused their duly-
authorized representatives execute this Agreement as of the date first-above
written.
AGS INC. GUESS?, INC.
By: /s/ Colin Dyne By: /s/
---------------------------- ----------------------
Colin Dyne Paul Marciano
President President
Reviewed and approved as to form By: /s/
on behalf of LICENSEE: ----------------------
Armand Marciano
Senior Executive Vice President
By:_____________________________
Name: Murray Markiles
Title: Attorney for Licensee
37
<PAGE>
EXHIBIT A
TRADEMARKS
A. TRADEMARKS
GUESS?
GUESS? AND TRIANGLE DESIGN
TRIANGLE W/? DESIGN
B. REGISTRATIONS AND APPLICATIONS
INTERNATIONAL CLASS 16:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MARK COUNTRY APPL. NO. REG. NO. STATUS
- --------------------------------------------------------------------------------
GUESS? UNITED STATES 1847684 REGISTERED
GUESS? AND TRIANGLE DESIGN UNITED STATES 1435363 REGISTERED
GUESS/ AND TRIANGLE DESIGN CANADA 373753 REGISTERED
GUESS? MEXICO 319468 REGISTERED
GUESS? MEXICO 319469 REGISTERED
GUESS? MEXICO 326588 REGISTERED
GUESS? MEXICO 302554 REGISTERED
GUESS? PARIS AND MEXICO 325546 REGISTERED
TRIANGLE DESIGN
GUESS? PARIS AND MEXICO 309462 REGISTERED
TRIANGLE DESIGN
GUESS? PARIS AND MEXICO 319485 REGISTERED
TRIANGLE DESIGN
GUESS? PARIS AND MEXICO 342181 REGISTERED
TRIANGLE DESIGN
TRIANGLE W/? DESIGN MEXICO 366693 REGISTERED
GUESS? AUSTRALIA A444173 REGISTERED
GUESS? AND TRIANGLE DESIGN AUSTRALIA A444194 REGISTERED
NO FILINGS FOR IC 16 BRUNEI TO BE FILED
- --------------------------------------------------------------------------------
38
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MARK COUNTRY APPL. NO. REG. NO. STATUS
- --------------------------------------------------------------------------------
GUESS ? AND TRIANGLE (SERIES) HONG KONG 1401A-G/86 REGISTERED
GUESS ? AND TRIANGLE (SERIES) HONG KONG 866A-D/89 REGISTERED
NO FILINGS FOR IC 16 INDONESIA* TO BE FILED*
TRIANGLE W/? DESIGN MALAYSIA MA/B1946/86 REGISTERED
GUESS? SINGAPORE 3598/86 REGISTERED
GUESS? AND TRIANGLE DESIGN SINGAPORE 3563 REGISTERED
TRIANGLE W/? DESIGN SINGAPORE 3575/86 REGISTERED
GUESS? TAIWAN 345835 REGISTERED
GUESS? AND TRIANGLE DESIGN TAIWAN 345817 REGISTERED
GUESS? AND TRIANGLE DESIGN TAIWAN 323062 REGISTERED
GUESS? AND TRIANGLE DESIGN TAIWAN 337507 REGISTERED
TRIANGLE W/? DESIGN TAIWAN 359805 REGISTERED
TRIANGLE W/? DESIGN TAIWAN 355498 REGISTERED
TRIANGLE W/? DESIGN TAIWAN 345836 REGISTERED
TRIANGLE W/? DESIGN TAIWAN 352451 REGISTERED
TRIANGLE W/? DESIGN TAIWAN 352504 REGISTERED
* Trademark has been pirated in certain classes; awaiting results of appeal
in Indonesian Supreme Court.
39
<PAGE>
INTERNATIONAL CLASS 18
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MARK COUNTRY APPL. NO. REG. NO. STATUS
- --------------------------------------------------------------------------------
GUESS? AND TRIANGLE DESIGN UNITED STATES 1435363 REGISTERED
GUESS? AND TRIANGLE DESIGN CANADA TO BE FILED
GUESS? MEXICO 323627 REGISTERED
GUESS? MEXICO 326589 REGISTERED
TRIANGLE W/? DESIGN MEXICO 366693 REGISTERED
GUESS? AUSTRALIA A444174 REGISTERED
GUESS? AND TRIANGLE DESIGN AUSTRALIA A409357 REGISTERED
GUESS? BRUNEI BRU/24109 PENDING
GUESS? AND TRIANGLE DESIGN BRUNEI BRU/24107 PENDING
TRIANGLE W/? DESIGN BRUNEI BRU/24108 PENDING
GUESS? AND TRIANGLE (SERIES) HONG KONG 1402A-G/86 REGISTERED
GUESS? AND TRIANGLE HONG KONG 1119/85 REGISTERED
TRIANGLE W/? DESIGN (SERIES) HONG KONG 4094A-D88 REGISTERED
GUESS? INDONESIA 2187 PENDING
GUESS? AND TRIANGLE DESIGN INDONESIA 2175 PENDING
TRIANGLE W/? DESIGN INDONESIA H4HC010 18916 PENDING
GUESS? MALAYSIA 86/00897 REGISTERED
GUESS? AND TRIANGLE DESIGN MALAYSIA MA/797/86 REGISTERED
TRIANGLE W/? DESIGN MALAYSIA MA/B1936/86 REGISTERED
GUESS? SINGAPORE 3599/86 REGISTERED
GUESS? AND TRIANGLE DESIGN SINGAPORE 3562/86 REGISTERED
GUESS? TAIWAN 330915 REGISTERED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
40
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MARK COUNTRY APPL. NO. REG. NO. STATUS
- --------------------------------------------------------------------------------
TRIANGLE W/? DESIGN SINGAPORE 3576/86 REGISTERED
GUESS? AND TRIANGLE DESIGN TAIWAN 265783 REGISTERED
GUESS? AND TRIANGLE DESIGN TAIWAN 331592 REGISTERED
TRIANGLE W/? DESIGN TAIWAN 377114 REGISTERED
TRIANGLE W/ ? DESIGN TAIWAN 353833 REGISTERED
TRIANGLE W/? DESIGN TAIWAN 371354 REGISTERED
- --------------------------------------------------------------------------------
41
<PAGE>
EXHIBIT B
PRODUCTS
Stationery and the following school supplies - binders, notebooks, composition
books, file folders, note pads, agendas/day planners, pencil holders, envelopes
and letterhead, photo albums, index books, book bags, open portfolio covers, and
calendars.
42
<PAGE>
EXHIBIT C
LICENSEE COLLECTION SUMMARY
<PAGE>
GUESS?, INC. SUBMIT TO THE ATTENTION OF: GUESS?, INC. - LICENSING
1444 South Alameda Street
FORM MUST BE SUBMITTED COMPLETE Los Angeles, CA 90021
Phone (213) 765-3551
FAX (213) 744-1169
LICENSEE COLLECTION SUMMARY
Name of Licensee __________________________________________________________
___________________________
Address __________________________________________________________
___________________________
__________________________________________________________
___________________________
__________________________________________________________
___________________________
Licensed Territory __________________________________________________________
___________________________
Licensed Product __________________________________________________________
___________________________
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
SEASON LICENSEE APPROX. DATE LICENSEE LICENSEE LINE BREAK LICENSEE
CONCEPT BOARDS 1ST SAMPLES LINE BREAK LOCATION SHIPPING DATES
COMPLETE (IF RECEIVED DATE (START/SHIP) (END/SHIP)
APPLICABLE)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
</TABLE>
----------------------------------------------------
Licensee Signature
<PAGE>
EXHIBIT D-1
LICENSED PRODUCT APPROVAL FORM
<PAGE>
GUESS?, INC. GUESS?, INC./ LICENSING DEPARTMENT
1444 South Alameda, Street
Los Angeles, CA 90021
LICENSED PRODUCT APPROVAL FORM
(FOR STYLE ONLY! SEE FABRIC/COLOR APPROVAL FORM FOR FABRIC)
Name of Licensee
----------------------------------------------------------------
- ----------------
Licensed Product
----------------------------------------------------------------
- ----------------
Licensee's Address
----------------------------------------------------------------
- ----------------
Season
---------------------------------------
Style #
--------------------------------------
Fabrication
----------------------------------
Wholesale Price ATTACH PHOTO OF STYLE HERE
------------------------------
Colors
---------------------------------------
Sizes
----------------------------------------
Start Taking Orders
--------------------------
End Taking Orders
----------------------------
Start Ship
-----------------------------------
End Ship
-------------------------------------
- ---------------------------------------------- -----------------------------
Signature of Licensee Signature of Licensor
/ / Approved / / Disapproved
------------------------ ------------------------
Comments
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Date returned to Licensee
-------------------------------------------------------
<PAGE>
- -C- GUESS?, INC, 1993 FORM NOT 3990. 3154
EXECUTIVE OFFICES: 1444 SOUTH ALAMEDA STREET, LOS ANGELES, CALIFORNIA 90021
- -PHONE: (213) 765-3100 FAX (213) 744-1169
EXHIBIT D-2
FABRIC AND/OR COLOR APPROVAL FORM
<PAGE>
GUESS?, INC. GUESS?, INC./ LICENSING DEPARTMENT
1444 South Alameda, Street
Los Angeles, CA 90021
FABRIC AND/OR COLOR APPROVAL FORM
(FABRIC AND COLOR ONLY! SEE LICENSED PRODUCT APPROVAL FORM FOR STYLE)
Name of Licensee
---------------------------------------------------------------
- -----------------------
Licensed Product
---------------------------------------------------------------
- -----------------------
Licensee's Address
-------------------------------------------------------------
- -----------------------
Season
-------------------------------------------------------------------------
- -----------------------
List style numbers of garments to be manufactured in this fabric
---------------
- --------------------------------------------------------------------------------
- -----------------------
Fabric # and name of supplier
---------------------------------------------------
- --------------------------------------------------------------------------------
- ------------------------------
Fabric content and weight
- -------------------------------------------------------
- ------------------------------
PLEASE ATTACH 1 SET OF SWATCHES BELOW
Beside each swatch provide the name of color
If denim, list names of washes
/ / Approved / / Disapproved
------------------------ -------------------------
- ------
Comments
------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- -----------------------
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------- ---------------------------------
Signature of Licensee Signature of Licensor
Date returned to Licensee
----------------------------------
- -C- GUESS?, INC, 1993 FORM NO. 3990. 3155
EXECUTIVE OFFICES: 1444 SOUTH ALAMEDA STREET, LOS ANGELES, CALIFORNIA 90021 -
PHONE: (213) 765-3100 FAX (213) 744-1169
<PAGE>
EXHIBIT E
LICENSED PROPERTY USE APPROVAL FORM
<PAGE>
GUESS?, INC. GUESS?, INC./ LICENSING DEPARTMENT
1444 South Alameda, Street
Los Angeles, CA 90021
LICENSED PROPERTY USE APPROVAL FORM
ALL USES OF GUESS TRADEMARKS THAT ARE NOT ADVERTISING (E.G. TRIM, LABELS
STATIONARY, PACKAGING, DISPLAYS, ETC.)
Name of Licensee
-----------------------------------
- -------------- (GUESS USE ONLY)
Licensed Product
-----------------------------------
- -------------- Date Use Submitted----------
Date Use Returned-----------
Description of use
--------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ---------------------------------------------------
/ / Concept Design / / Color Indication / / Finished Art
/ / Production Sample / / Final Sample
/ / Approved / / Disapproved
---------------------- -------------------------
Comments/Suggestions:
-----------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------
If submission is a label or hangtag, name and address of supplier
----------------
- --------------------------------------------------------------------------------
- ------------------------------------------------
ATTACH A SAMPLE OF USE IN THIS SPACE OR AFFIX TO A SEPARATE PAGE
<PAGE>
- --------------------------------- --------------------------------
- ---------
Signature of Licensee Signature of Licensor
- -C- GUESS?, INC, 1993 FORM NO. 3990. 2152
EXECUTIVE OFFICES: 1444 SOUTH ALAMEDA STREET, LOS ANGELES, CALIFORNIA 90021
- -PHONE: (213) 765-3100 FAX (213) 744-1169
<PAGE>
EXHIBIT F-1
CUSTOMER PROFILE FORM
<PAGE>
- --------------------------------------------------------------------------------
TAG GUESS? CUSTOMER PROFILE FORM
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CORPORATE NAME DBA NAME
- --------------------------------------------------------------------------------
OWNERS NAME BUYERS NAME
- --------------------------------------------------------------------------------
ADDRESS CITY
- --------------------------------------------------------------------------------
STATE COUNTRY ZIP
- --------------------------------------------------------------------------------
PHONE(S) FAX DATE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S><C>
1. Type of Account: / / Speciality / / Department / / Other
-------------------------------------------
Year Business Established At present location since
------------------------------------ ------------------------------------
2. Are you currently doing business with GUESS? / / No / / Yes Account # Division
------------------- ---------------------
3. Check the type(s) of merchandise you currently carry in your store(s).
/ / Pre-teens / / Juniors / / Misses / / Mens / / Boys
/ / Infants / / Kids / / Footwear / / Accessories / / Other
---------------------------------------------------
4. List the key manufacturers you currently carry in your store(s). (Include GUESS? Licensees, if applicable)
a. d.
------------------------------------------------ ---------------------------------------------------
b. e.
------------------------------------------------ ---------------------------------------------------
c. f.
------------------------------------------------ ---------------------------------------------------
5. Number of stores that you currently operate List your store locations. (Attach additional sheets, if
necessary) -----------------
Check stores where Guess? will be carried:
/ / / /
--------------------------------------------- ------------------------------------------------------
/ / / /
--------------------------------------------- ------------------------------------------------------
/ / / /
--------------------------------------------- ------------------------------------------------------
6. Comments
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
------------------------------------------------- ----------------------------------------------------------
GUESS? Decline GUESS? Approval
</TABLE>
Please submit typed profile to:
NOTE: SUSAN MOCK (OF OUR PRODUCT DEPARTMENT), WILL SEND A CUSTOMIZED FORM ONCE
THE CONTRACT HAS BEEN SIGNED
<PAGE>
EXHIBIT F-2
FOREIGN DISTRIBUTION APPROVAL FORM
<PAGE>
Page ____ of _____
Date ____/___/____
Tag GUESS?, INC.
FORM MUST BE SUBMITTED COMPLETE & SENT TO:
GUESS? INC./ LICENSING DEPT.
1444 SOUTH ALAMEDA AVENUE
LOS ANGELES, CA 90021
FOREIGN DISTRIBUTION APPROVAL FORM
Name of Licensee
-------------------------------------------------------
Licensed Product
-------------------------------------------------------
Country you are interested in distributing in / shipping to:
(PLEASE USE ON FORM FOR EACH COUNTRY)
-------------------------------------------
Describe what method of distribution you are planning to use
/ / you will ship directly to / / you are proposing
GUESS Retail Stores ONLY To assign a distributor
PLEASE CONTINUE ONLY IF YOU ARE ASSIGNING A DISTRIBUTOR TO SHIP THROUGHOUT
THE TERRITORY. IF NOT, PLEASE SKIP TO #6.
1. Please give us the name of the distributor, the various
products/labels they currently distribute as well as the volume they
shipped the last 3 years for each brand.
Name:
--------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
BRAND YEAR 1 YEAR 2 YEAR 3
U.S. $ U.S. $ U.S. $
- --------------- -------------- ----------- ------------
U.S. $ U.S. $ U.S. $
- --------------- -------------- ----------- ------------
U.S. $ U.S. $ U.S. $
- --------------- -------------- ----------- ------------
</TABLE>
2. If your distributor is planning to distribute full-scale throughout the
country, please tell us the amount they are guaranteeing to purchase from you
for the next 3 years.
UNITS DOLLARS
Year 1 U.S. $
-------------- -----------
Year 2 U.S. $
-------------- -----------
Year 3 U.S. $
-------------- -----------
FOREIGN DISTRIBUTION APPROVAL FORM Page _____ of _____
<PAGE>
Date ____/____/____
3. Have you reviewed the proposed distributor's financial and find them
acceptable?
/ / Yes / / No
Comments:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4. The following items must accompany this form if you are seeking to assign a
distributor to sell throughout the territory:
Brochure of distributor (if available)
- ------
Background information / history
- ------ (i.e. how long they have been in business, levels of distribution,
Experience in the marketplace, references, etc.)
Pictures of the distributor's showroom (if applicable)
- ------
5. Please list the full address, fax number and a contact name of the proposed
distributor.
Address:
------------------------------------------------------------------
Fax Number:
---------------------------------------------------------------
Contact Name:
-------------------------------------------------------------
6.
------------------------------------- -----------------------------------
Signature of License Signature of Licensor - GUESS? Inc.
/ / Approved / / Disapproved
Date: ____/____/____
<PAGE>
EXHIBIT F-3
DISTRIBUTION APPROVAL FORM
<PAGE>
GUESS?, INC.
Page ____ of _____
Date ____/___/____
FORM MUST BE SUBMITTED COMPLETE & SENT TO: GUESS? INC./ LICENSING DEPT.
1444 SOUTH ALAMEDA AVENUE
LOS ANGELES, CA 90021
DISTRIBUTION APPROVAL FORM
Name of Licensee
-----------------------------------------------------------
Licensed Product
-----------------------------------------------------------
Country in the territory you are interested in distributing in / shipping to:
(PLEASE USE ON FORM FOR EACH COUNTRY)
---------------------------------
1. Please give us the name of the distributor, the various products/labels
they currently distribute as well as the volume they shipped the last 3 years
for each brand.
Name:
--------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
BRAND YEAR 1 YEAR 2 YEAR 3
U.S. $ U.S. $ U.S. $
- --------------- -------------- ----------- ------------
U.S. $ U.S. $ U.S. $
- --------------- -------------- ----------- ------------
U.S. $ U.S. $ U.S. $
- --------------- -------------- ----------- ------------
</TABLE>
2. If your distributor is planning to distribute full-scale throughout the
country, please tell us the amount they are guaranteeing to purchase from you
for the next 3 years.
UNITS DOLLARS
Year 1 U.S. $
-------------- -----------
Year 2 U.S. $
-------------- -----------
Year 3 U.S. $
-------------- -----------
<PAGE>
DISTRIBUTION APPROVAL FORM Page _____ of _____
ate ____/____/____
3. Have you reviewed the proposed distributor's financial and find them
acceptable?
/ / Yes / / No
Comments:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4. The following items must accompany this form if you are seeking to assign a
distributor to sell throughout the territory:
Brochure of distributor (if available)
- ------
Background information / history
- ------ (i.e. how long they have been in business, levels of distribution,
experience in the marketplace, references, etc.)
Pictures of the distributor's showroom (if applicable)
- ------
5. Please list the full address, fax number and a contact name of the proposed
distributor.
Address:
-----------------------------------------------------------------
Fax Number:
---------------------------------------------------------------
Contact Name:
------------------------------------------------------------
6.
------------------------------ ---------------------------------
Signature of License Signature of Licensor - GUESS? Inc.
/ / Approved / / Disapproved
Date:
------------------
<PAGE>
EXHIBIT G-1
ADVERTISING APPROVAL FORM
<PAGE>
TAG GUESS?, INC.
ADVERTISING APPROVAL FORM FOR LICENSEES
SUBMISSIONS MAY BE APPROVED ONLY IN WRITING AND ONLY IF ALL CHANGES ARE MADE
Name of Licensee:
-------------------------------------------------------------
Licensed Product:
-------------------------------------------------------------
- -------------------------------------------------------------------------------
ARTWORK SUBMISSION
- -------------------------------------------------------------------------------
Please check the media of advertising:
/ / Full page ad / / Billboard / / Other
-----------------------------
Name of publication:
---------------------------------------------------------
Issue date:
-------------------------------------------------------------------
Ad position (as detailed as possible):
----------------------------------------
/ / Left hand page / / Right hand page / /Full page spread
- -------------------------------------------------------------------------------
F O R G U E S S U S E O N L Y
Please follow the applicable instructions:
/ / Add photo credits Date submitted
--------------------
/ / Add copyright notice Date Returned
---------------------
/ / Add GUESS? Triangle logo
/ / Use GUESS? Standard red for logo (PMS 185)
Special instructions:
----------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------- -------------------------------------------
Approved Approved with changes
Disapproved
- -------------------------------------------------------------------------------
PUBLICATION SUBMISSION
- -------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------------------------------------------
Name of publication:
(A copy of the magazine or newspaper must be included)
Frequency (check one): / / Daily / / Weekly / / Monthly / / Other
----------
Comments/Suggestions:
---------------------------------------------------------
- ------------------------------- -------------------------------
Approved Disapproved
- -------------------------------------------------------------------------------
EXECUTIVE OFFICES: 1444 SOUTH ALAMEDA STREET, LOS ANGELES, CALIFORNIA 90021 -
PHONE (213) 765-3100 FAX (213) 744-1169
Form No. 3390.3159 Rev. 1/95
EXHIBIT G-2
ADVERTISING BUDGET FORM
<PAGE>
Date ____/___/___
TAG GUESS?, INC.
ADVERTISING BUDGET FORM
Name of Licensee
---------------------------------
Licensed Product
---------------------------------
Territory/Country
---------------------------------
Projected Sales $________ Period from ___/___/___ to ___/___/___
Projected Advertising Expenses $_______ Period from ___/___/___ to ___/___/___
/ / 6 Month Budget / / 1 Year Budget
- -------------------------------------------------------------------------------
* IF YOU HAVE MORE THAN ONE PRODUCT LINE, OR SALES OUTSIDE OF THE U.S. OR IN
MORE THAN ONE COUNTRY, PLEASE USE A SEPARATE FORM FOR EACH COUNTRY
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
TYPE OF ADVERTISING DOLLAR AMOUNT
- -------------------------------------------------------------------------------
Consumer Advertising (List publications):
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Trade Advertising (List publications):
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Co-Op Advertising
- -------------------------------------------------------------------------------
Newspapers
- -------------------------------------------------------------------------------
Charity
- -------------------------------------------------------------------------------
Sponsorships
- -------------------------------------------------------------------------------
Special Events
- -------------------------------------------------------------------------------
Billboards
- -------------------------------------------------------------------------------
Promotional Items
- -------------------------------------------------------------------------------
Production Fees\Shoot Fees
- -------------------------------------------------------------------------------
PR Consultants Fees
- -------------------------------------------------------------------------------
TV/Cinema
- -------------------------------------------------------------------------------
Radio
- -------------------------------------------------------------------------------
Bus Shelters
- -------------------------------------------------------------------------------
Posters & Banners
- -------------------------------------------------------------------------------
Other
- -------------------------------------------------------------------------------
TOTAL:
- -------------------------------------------------------------------------------
<PAGE>
EXHIBIT G-3
ADVERTISING EXPENDITURE FORM
<PAGE>
TAG GUESS?, INC.
Page ____ of ____
Date ____/___/___
SUBMIT TO THE ATTENTION TO: GUESS? INC./ LICENSING DEPT.
1444 SOUTH ALAMEDA AVENUE
LOS ANGELES, CA 90021
ADVERTISING EXPENDITURE FORM
Name of Licensee:
-------------------------------------------------------------
Licensed Product:
-------------------------------------------------------------
Country:
-------------------------------------------------------------
Expenditures reflect the period to
----------------------
- --------------------------------
Exchange Rate (when applicable)
----------------
- -------------------------------------------------------------------------------
INVOICE VENDOR NAME TYPE OF ADVERTISEMENT AMOUNT SPENT
DATE (IN US $)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
All tear sheets and advertising invoices must accompany this form
<PAGE>
ADVERTISING EXPENDITURE FORM
Page ____ of _____
Date ____/___/____
- -------------------------------------------------------------------------------
INVOICE VENDOR NAME TYPE OF ADVERTISEMENT AMOUNT SPENT
DATE (IN US $)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
EXHIBIT H
ROYALTY MINIMUM
Contact Year Royalty Minimum
------------ ---------------
Initial Term
------------
First Contract Year US$CONFIDENTIAL INFORMATION
May 1, 1996 - December 31, 1997 OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND
EXCHANGE COMMISSION
Second Contract Year US$CONFIDENTIAL INFORMATION
January 1, 1998 - December 31, 1998 OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND
EXCHANGE COMMISSION
Third Contract Year US$CONFIDENTIAL INFORMATION
January 1, 1999 - December 31, 1999 OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND
EXCHANGE COMMISSION
Fourth Contract Year US$CONFIDENTIAL INFORMATION
January 1, 2000 - December 31, 2000 OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND
EXCHANGE COMMISSION
Fifth Contract Year US$CONFIDENTIAL INFORMATION
January 1, 2001 - December 31, 2001 OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND
EXCHANGE COMMISSION
Renewal Term (if any)
---------------------
Sixth Contract Year US$CONFIDENTIAL INFORMATION
January 1, 2002 - December 31, 2002 OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND
EXCHANGE COMMISSION
Seventh Contract Year US$CONFIDENTIAL INFORMATION
January 1, 2003 - December 31, 2003 OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND
EXCHANGE COMMISSION
Eighth Contract Year US$CONFIDENTIAL INFORMATION
January 1, 2004 - December 31, 2004 OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND
EXCHANGE COMMISSION
Ninth Contract Year US$CONFIDENTIAL INFORMATION
January 1, 2005 - December 31, 2005 OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND
EXCHANGE COMMISSION
<PAGE>
Tenth Contract Year US$CONFIDENTIAL INFORMATION
January 1, 2006 - December 31, 2006 OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND
EXCHANGE COMMISSION
<PAGE>
EXHIBIT I
STATEMENT OF ROYALTIES
<PAGE>
STATEMENT OF ROYAL
GUESS?, INC. FOR TO
---------- ---------
ROYALTY %
----------
Licensee Name
------------------------------------
License Address
------------------------------------
Licensee Product(s)/
-------------------------------
Territory
-----------------------------------------
Item/ Number of Number of Number of Listed Gross Less Less
Style Units Close-outs Units Wholesale Sales Allowances**
No. Sold* Sold Returned Price
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
TOTALS
-------------------------------------------------------------------------
I CERTIFY THAT THE ABOVE IS ACCURATE
* Unit sold include close-outs.
** Please see the license agreement for -------------------------------
amount of permissible deductions. Signature
-------------------------------
Name
<PAGE>
EXHIBIT J
MINIMUM NET SALES
Contact Year Minimum Net Sales
------------ -----------------
Initial Term
------------
First Contract Year US$CONFIDENTIAL INFORMATION OMITTED
May 1, 1996 - December 31, 1997 AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION
Second Contract Year US$CONFIDENTIAL INFORMATION MITTED
January 1, 1998 - December 31, AND FILED SEPARATELY WITH THE
1998 SECURITIES AND EXCHANGE COMMISSION
Third Contract Year US$CONFIDENTIAL INFORMATION OMITTED
January 1, 1999 - December 31, AND FILED SEPARATELY WITH THE
1999 SECURITIES AND EXCHANGE COMMISSION
Fourth Contract Year US$CONFIDENTIAL INFORMATION OMITTED
January 1, 2000 - December 31, AND FILED SEPARATELY WITH THE
2000 SECURITIES AND EXCHANGE COMMISSION
Fifth Contract Year US$CONFIDENTIAL INFORMATION OMITTED
January 1, 2001 - December 31, AND FILED SEPARATELY WITH THE
2001 SECURITIES AND EXCHANGE COMMISSION
Renewal Term (if any)
---------------------
Sixth Contract Year US$CONFIDENTIAL INFORMATION OMITTED
January 1, 2002 - December 31, AND FILED SEPARATELY WITH THE
2002 SECURITIES AND EXCHANGE COMMISSION
Seventh Contract Year US$CONFIDENTIAL INFORMATION OMITTED
January 1, 2003 - December 31, AND FILED SEPARATELY WITH THE
2003 SECURITIES AND EXCHANGE COMMISSION
Eighth Contract Year US$CONFIDENTIAL INFORMATION OMITTED
January 1, 2004 - December 31, AND FILED SEPARATELY WITH THE
2004 SECURITIES AND EXCHANGE COMMISSION
Ninth Contract Year US$CONFIDENTIAL INFORMATION OMITTED
January 1, 2005 - December 31, AND FILED SEPARATELY WITH THE
2005 SECURITIES AND EXCHANGE COMMISSION
Tenth Contract Year US$CONFIDENTIAL INFORMATION OMITTED
January 1, 2006 - December 31, AND FILED SEPARATELY WITH THE
2006 SECURITIES AND EXCHANGE COMMISSION
<PAGE>
EXHIBIT K
MONTHLY SALES REPORT
<PAGE>
GUESS?, INC.
FORM MUST BE COMPLETED AND SUBMITTED TO:
GUESS? INC./ LICENSING DEPT.
1444 SOUTH ALAMEDA AVENUE
LOS ANGELES, CA 90021
MONTHLY SALES REPORT
NAME OF LICENSEE:
-----------------------------------
LICENSED PRODUCTS:
-----------------------------------
MONTH REPORTED:
-----------------------------------
GROSS SALES
-----------------
DEDUCTIONS
-----------------
NET SALES
-----------------
PLEASE FAX THIS FORM TO GUESS, INC., NOT LATER THAN THIRTY DAYS AFTER
THE END OF EACH OF THE FIRST TWO MONTHS OF EACH QUARTER.
FAX: 213/765-3666
<PAGE>
EXHIBIT L
MANUFACTURERS AGREEMENT
LICENSOR: GUESS?, INC.
LICENSEE:
-----------------------------------
TRADEMARKS:
-----------------------------------
PRODUCTS:
-----------------------------------
UNDERLYING LICENSE
AGREEMENT DATE: , 199
------------------- --
EXPIRATION DATE OF
UNDERLYING LICENSE AGREEMENT
(unless sooner terminated or
extended): , 199
------------------- --
NAME AND ADDRESS OF
MANUFACTURER:
-----------------------------------
-----------------------------------
LICENSED TERRITORY:
-----------------------------------
Manufacturer understands and agrees that the underlying License Agreement
permits Licensee to have manufactured on its behalf Products utilizing the
Trademarks and Products utilizing Licensor's designs (hereinafter collectively
the "Licensed Products"). In order to induce Licensor to consent to the
manufacture of the Licensed Products by Manufacturer on behalf of Licensee,
Manufacturer agrees that:
(1) It will not manufacture the Licensed Products for anyone but Licensee
without the prior express written consent of Licensor, which may be
withheld for any reason whatsoever or for no reason;
(2) It will manufacture only such Licensed Products and only such quantities of
such Licensed Products as are ordered by Licensee from time to time and
will sell any and all of such Licensed Products only to Licensee. If for
any reason the quantity of manufactured Licensed Products is in excess of
the quantity ordered by Licensee, at Licensee's option, Manufacturer shall
deliver the excess to Licensee without cost;
(3) It will cease manufacturing the Licensed Products upon expiration or
termination of the underlying License Agreement or this Agreement and
thereafter Manufacturer shall promptly deliver to Licensee all remaining
Licensed Products and components thereof including without limitation
materials, trim, tags, labels, patterns, artwork and molds;
<PAGE>
EXHIBIT L CONTINUED
(4) It will not authorize any other party to manufacture the Licensed Products,
or any components thereof bearing the Trademarks or other trademarks owned
by Licensor or embodying Licensor's designs, without the prior express
written consent of Licensor, which may be withheld for any reason
whatsoever or for no reason;
(5) It will permit representatives of Licensor at all reasonable hours upon not
less than seventy-two (72) hours notice (by facsimile or otherwise) to
inspect the operations and facilities involved in the manufacture of the
Licensed Products, to consult with Manufacturer's personnel, and to inspect
and copy the books and records relating to the production and shipment of
the Licensed Products. All such books and records shall be meticulously
kept and shall be maintained for at least two (2) years at the premises of
Manufacturer;
(6) It acknowledges that the worldwide right, title and interest to the
Trademarks and Licensor's designs of the Products are owned by Licensor. It
shall not do anything to impair Licensor's right, title and interest to
such properties. All goodwill associated with the manufacture and sale of
the Licensed Products shall inure to the benefit of Licensor;
(7) It will not offer for sale, sell, give away, distribute or use for any
purpose whatsoever any Licensed Products or components thereof including
without limitation materials, trim, labels and tags, which are damaged,
defective, are seconds, or otherwise fail to meet the specifications and/or
quality standards and/or trademark usage and notice requirements of the
underlying License Agreement (hereinafter collectively, "Unsalable Licensed
Products and Components"). All Unsalable Licensed Products and Components
shall be delivered to Licensee without cost promptly after discovery
thereof;
(8) It will not use the Trademarks or Licensed Products in any advertisements
or promotional materials without the prior express written consent of
Licensor, which may be withheld for any reason whatsoever or for no reason;
(9) It will not use the Trademarks or Licensor's designs of the Products for
any purpose except to manufacture the Licensed Products for Licensee
pursuant to the underlying License Agreement.
<PAGE>
EXHIBIT L CONTINUED
(10) It will look solely to Licensee for payment for Licensed Products ordered
by Licensee and it shall not hold Licensor responsible for any such
payment.
(11) If Licensor discovers that Manufacturer has transferred to any entity other
than Licensee or Licensor any of the Licensed Products, components thereof
including without limitation materials, trim, tags, labels, patterns,
artwork and molds, or any of the Unsalable Licensed Products and
Components, or colorable imitations of any of the foregoing, Licensor shall
have the option of acquiring such materials and Manufacturer shall upon the
written request of Licensor immediately reimburse Licensor for its cost of
acquiring such materials.
(12) All patentable subject matter and copyrightable subject matter developed by
Manufacturer pursuant to the manufacture of the Licensed Products shall be
assigned to Licensor upon request and without cost.
(13) It will indemnify, protect, defend and hold Licensor harmless from and
against any claims. damages, costs, attorneys' fees or other liabilities of
any nature whatsoever which may be sustained by Licensor arising out of or
in any way connected with (i) detects in the manufactured Licensed
Products, (ii) injury resulting from use of the Licensed Products, or (iii)
breach of any obligation of Manufacturer hereunder.
(14) It shall maintain strictly confidential the terms of this Agreement and any
confidential information of Licensor.
(15) It acknowledges that it is cognizant of certain terms and conditions set
forth in the underlying License Agreement and agrees to be bound to all
such terms and conditions which are applicable to its functions as
manufacturer of the Licensed Products.
(16) In addition to all other remedies available to Licensor, if Manufacturer
violates any of the above, Licensor may terminate this Agreement. In
addition, Manufacturer acknowledges that any such violation will
irreparably and immediately harm Licensor and Manufacturer consents to a
temporary restraining order and preliminary injunction enjoining such
violation.
Manufacturer
DATED:
------------------------
By:
--------------------------
Its:
--------------------------
<PAGE>
EXHIBIT M
LIST OF CURRENT OWNERS AND KEY EXECUTIVES
SHAREHOLDERS PERCENTAGE OWNERSHIP
- ------------ --------------------
Colin Dyne 45%
Mark Dyne 45%
Jaime LaBelle 10%
KEY EXECUTIVES TITLE
- -------------- -----
Colin Dyne. President
Mark Dyne Executive Vice President
<PAGE>
EXHIBIT N
SYSTEMS REQUIREMENTS LIST
[TO BE SUPPLIED BY GUESS]
<PAGE>
EXHIBIT O
PERMITTED DISTRIBUTORS AND RETAILERS
<PAGE>
SAFCOR INC.
8474 COMMERCE AVE, STE B
SAN DIEGO
CA 92121
Tel No: (6[9) 549-0668 Fax No: (619) 549-3815
- --------------------------------------------------------------------------------
June 13th, 1997
AGS, Inc
3820 South Hill Street
Los Angeles, CA 90037
RE: Collection Date Factoring Agreement
Gentlemen:
The following shall constitute the terms upon which we shall act as your factor
(see Section 12 for the definition of certain capitalized terms):
SECTION 1. SALE AND APPROVAL OF ACCOUNTS
1.1 You hereby sell, assign and transfer to us and we hereby purchase from you
certain Accounts, with full power to collect and otherwise deal therewith
as the sole and exclusive owner thereof.
1.2 (a) You will submit for our credit approval your customer's credit
requirements, a description of your normal selling terms and such other
information as we may request concerning your customers. We may, in our
sole credit judgement, establish credit lines for sales to your customers
on your normal selling terms and all sales to such customers within the
established credit line will be Approved Accounts provided that delivery or
performance is completed while the credit line remains in effect. You may
also submit for credit approval specific orders from your customers and we
may, in our sole credit judgement, approve such orders on a single order
approval basis. All of our credit approvals will be in writing.
(b) We reserve the right to amend or withdraw a credit line at any time by
advice to you, which advice will be promptly confirmed in writing.
(c) We may withdraw a single order credit approval by notifying you
verbally and/or in writing at any time prior to the delivery of goods or
performance of services. A single order credit approval will be
automatically withdrawn: (i)
<PAGE>
in the event delivery or performance is not made on or prior to the
expiration date indicated on the written single order credit confirmation
form we send to you; or (ii) in the event any change is made in the payment
terms or delivery date of the Account.
(d) We shall have no liability to you or to any customer for our refusal to
credit approve an Account or our withdrawal of a credit approval.
1.3 We will assume the Credit Risk on all Approved Accounts. We shall have
full recourse to you for all Non-Approved Accounts.
1.4 In the event that monies shall, at any time, be owing from one of your
customers for both Approved Accounts and Non-Approved Accounts, we will
apply all payments received as follows:
(a) if we issued single order approvals, all payments received will be
first applied to the approved Accounts;
(b) if we established a credit line for the customer, (i) provided that the
amount of outstanding Accounts did not at any time exceed twice the
established credit line and the credit line is still in effect at the time
payment is received, all payments shall first be applied to the Non-
Approved Accounts; (ii) if the amount of outstanding Accounts did at any
time exceed twice the established credit line or if prior to the receipt of
payment we have withdrawn the credit line, all payments received shall
first be applied to Approved Accounts;
(c) if an insolvency proceeding has been instituted by or against the
customer, we shall share all payments pro rata.
SECTION 2. PAYMENT AND FEES
2.1 We will purchase each Account on the longest or shortest selling terms, at
our option, and will pay you as the purchase price the net amount thereof
calculated by deducting from the gross amount of each Account the discount,
if any, our factoring commission and all credits, including, without
limitation, merchandise returns, allowances, and chargebacks and all other
charges provided for hereunder. The purchase price less advances, interest
and any other amounts due to us will be credited to your account on the
Collection Date.
2.2 At the time we purchase each Account, or thereafter, we may, upon your
request, and in our sole discretion, advance to you up to eighty percent
(80%) of the purchase price of such Account; PROVIDED, HOWEVER, that if at
2
<PAGE>
any time the aggregate Net Amount of Accounts arising from sales to a
single customer exceeds an amount equal to twenty-five percent (25%) of the
total Net Amount of all Accounts from all customers outstanding at such
time, we shall not make any advances on any such Accounts in excess of said
amount.
2.3 At the time we purchase each Account, you will pay us a factoring
commission of one and a half percent (1.5%) of the Net Amount. If you
factor a credit memo relating to an Account for which you paid a factoring
commission, we will refund a portion of the commission pro rated according
to the amount of the credit memo.
2.4 We will charge your account our standard wire transfer fee on all wire
transfers, and you will reimburse us for exchanges on checks, charges for
returned items and all other bank charges. We may also, at our option,
charge your account for all amounts owing by you to us under this Agreement
and for all other Obligations.
SECTION 3. INTEREST AND COLLECTION CLEARANCE CHARGE
3.1 You will pay us interest on the daily balance of all monies we advance to
you or for your account net of all payments received from you or on your
behalf and net of the purchase price of Accounts. Interest will be
calculated daily at a rate per annum equal to two and a half percent (2.5%)
plus the Base Rate (the "Interest Rate") and will be charged to your
factoring account monthly at the end of each month. The Interest Rate will
also be charged to you on all other indebtedness due by you to us under
this Agreement and on all Obligations, except those specifying a different
rate, from the date incurred through the date paid. Any publicly announced
decrease or increase in the Base Rate shall result in an adjustment to the
Interest Rate on the next business day. Interest shall be calculated on
the basis of a 360-day year for the actual number of days elapsed. In no
event shall the interest Rate exceed the maximum rate permitted by
applicable law and in the event excess interest paid, it shall be
considered a repayment of principal.
3.2 To allow for collection clearance on all checks and other payments remitted
by your customers, you will, in addition to interest, pay us a collection
clearance charge computed as follows: (a) total cash collections for the
month, multiplied by (b) 4 days, multiplied by (c) the Interest Rate,
divided by (d) 250 days. We will charge your account at the end of each
month for the collection clearance charge.
3.3 If funds remain with us past the Collection Date ("matured funds"), we will
pay you interest on such matured funds at the rate per annum equal to the
3
<PAGE>
Base Rate minus three percent (3.0%). Any change in the Base Rate shall
result in an adjustment in the matured funds rate on the next business day.
3.4 If an Approved Account is charged back to you after the date described in
subsection 12.4 (b), you will pay us interest at the Interest Rate on the
Net Amount from such date to the chargeback date.
SECTION 4. REPRESENTATIONS, WARRANTIES AND COVENANTS
4.1 You represent, warrant and covenant as to each Account sold and assigned
hereunder that, at the time of its creation, the Account is a valid, bona
fide account, representing an undisputed indebtedness incurred by the named
account debtor for goods actually sold and delivered or for services
completely rendered; there are no setoffs, offsets or counterclaims,
genuine or otherwise, against the Account; the Account does not represent a
sale to a parent, subsidiary or affiliate or a consignment, sale or return
or a bill and hold transaction; no agreement exists permitting any
deduction or discount (other than the discount stated on the invoice); you
are the lawful owner of the Account and have the right to sell and assign
the same to us; the Account is free of all security interests, liens and
encumbrances other than those in our favor, and the Account is due and
payable in accordance with its terms.
4.2 You shall not grant or suffer to exist any lien upon or security interest
in your inventory in favor of any party other than us without our written
consent.
4.3 You are a solvent corporation; duly incorporated and in good standing under
the laws of the State of California and qualified in all States where such
qualification is required; the execution, delivery and performance of this
Agreement have been duly authorized and are not in contravention of any
applicable law, your corporate charter or by-laws or any agreement or order
by which you are bound.
4.4 You shall not change your corporate name or the location of your office or
open any new offices without giving us at least thirty (30) days prior
written notice. At the present time, you carry on business only at the
above address and the addresses set forth below.
NONE
4.5 All books and records pertaining to the Accounts or to any inventory owned
by you shall be maintained solely and exclusively at the above address or
the addresses listed in Section 4.4 hereof and no such books and records
shall be moved or transferred without giving us thirty (30) days prior
written
4
<PAGE>
notice.
4.6 You shall not sell, lease, transfer or otherwise dispose of all or
substantially all of your property or assets, or consolidate with or merge
into or with any corporation or entity without our prior written consent.
4.7 After our request, you shall hold all returned, replevied or reclaimed
goods coming into your possession in trust for us and all such goods shall
be segregated and identified as held in trust for our benefit and you
shall, at our request, and at your expense, deliver such goods to such
place or places as we may designate.
4.8 The trade names or styles set for the below are the only trade names or
styles under which you transact business; Accounts sold to us hereunder and
represented by invoices bearing such trade names or styles are wholly owned
by you; the undertaking, representations and warranties made in connection
therewith shall be identical to and of the same force and effect as those
made with respect to invoices bearing your corporate name; your use of any
trade names or styles is in compliance with all laws regarding the use of
such trade names or styles. You shall give us thirty (30) days prior
written notice of the change of any trade name or style or your use of any
new trade name or style.
GUESS? STATIONERY
4.9 No discounts, credits or allowances will be issued, granted or allowed by
you to customers and no returns will be accepted without our prior written
consent; provided, however, that until we notify you to the contrary, you
may presume our consent. Discounts, credits or allowances once issued may
be claimed only by the customer.
SECTION 5. DISPUTES, CHARGEBACKS AND RESERVES
5.1 With respect to any Account, upon the occurrence of a breach of any of the
representations or warranties contained in Section 4.1, or upon the
assertion by a customer of a Dispute, we may charge back such Account to
you.
5.2 You shall notify us immediately in the event that a customer alleges any
Dispute, or returns or desires to return any goods purchased from you. We
may but are not obligated to settle, compromise, adjust or litigate all
such Disputes or returns upon such terms as we deem advisable. If an
unadjusted Dispute delays the payment of any Approved Account when due, we
shall have the right to charge back to you that Account.
5
<PAGE>
5.3 We may, at our option, charge back to you all amounts owing on Non-Approved
Accounts which are not paid when due.
5.4 We shall have the right to charge back to you any payment which we receive
with respect to a Non-Approved Account if such payment is subsequently
disgorged by us, whether as a result of any proceeding in bankruptcy or
otherwise.
5.5 A chargeback shall not constitute a resale to you of said Accounts;
however, upon payment by you to us of all monies due with respect to such
charged back Account, title thereto shall revert to you, subject, however,
to our security interest therein. You agree to indemnify and save us
harmless from and against any and all loss, costs and expenses caused by or
arising out of disputed Accounts, including, but not limited to, collection
expenses and attorney's fees incurred with respect thereto.
5.6 We may maintain such reserves as we, in our sole discretion, deem advisable
as security for the payment and performance of the obligations.
SECTION 6. ADMINISTRATION
6.1 (a) You shall, from time to time, execute and deliver to us confirmatory
schedules of Accounts sold to us, together with one copy of each invoice
and, upon request, acceptable evidence of shipment and such other
documentation and proofs of delivery as we may require. Each invoice and
all copies thereof shall bear a notice, in form satisfactory to us, that it
has been sold and assigned to and is payable only to us. You agree to
prepare and mail all invoices, but we may do so at our option. You agree
to execute and deliver to us such further instruments of assignment,
financing statements and instruments of further assurance as we may
reasonably require. You authorize us to execute on your behalf and file
such UCC financing statements as we may deem necessary in order to perfect
and maintain the security interests granted by you in accordance with this
Agreement and any other agreement between you and us, and you further agree
that we may file this agreement or a copy thereof as such UCC financing
fees, filing taxes, search reports, legal fees and other charges incurred
by us in the perfection, protection and preservation of the rights and
collateral security herein granted to us. You also agree to promptly pay
all fees, costs and expenses (including, without limitation, attorneys fees
and allocated costs of internal counsel) incurred in connection with the
administration of this Agreement or any related instruments, documents and
documentation of any waivers, forbearances, amendments or other
modifications relating to this Agreement or any such related agreements and
all such fees, costs and expenses shall be part of the obligations, shall
be
6
<PAGE>
payable on demand and shall be secured by any collateral in which you have
granted us a security interest under this Agreement or any related
agreements.
(b) If any remittances are made directly to you, your employees or agents,
you shall act as trustee of an express trust for our benefit, hold the same
as our property and deliver the same to us forthwith in kind. We and/or
such designee as we may from time to time appoint are hereby appointed your
attorney-in-fact to endorse your name on any and all checks or other forms
of remittances received by us where such endorsement is required to effect
collection and to transmit notices to customers, in your name or in ours,
that amounts owing by them have been assigned and are payable, directly to
us; this power, being coupled with an interest, is irrevocable.
(c) We may, at all times, have access to, inspect and make extracts from
all of your records, files and books of account. We may, at any time after
default by you hereunder, remove from your premises all such record, files
and books relating to Accounts. You will promptly furnish us with all
statements prepared by or for you showing your financial condition and the
results of your operations and such other statements as we may reasonably
require. You authorize us to communicate directly with your independent
certified public accountants and authorize such accountants to discuss your
financial condition and statements directly with us.
6.2 If we determine that the credit standing of a customer has deteriorated
after we have assumed the Credit Risk on an Account, you shall, at our
request, exercise such rights as you may have to reclaim or stop the goods
in transit, and you hereby grant us the right to take such steps in your
name or ours.
6.3 We shall render a monthly statement of account to you within twenty (20)
days after the end of each month. Such statement of account shall
constitute an account stated unless you make written objection thereto
within thirty (30) days from the date such statement is mailed to you.
6.4 You authorize us to disclose such information as we deem appropriate to
persons making credit inquiries about you.
SECTION 7. COLLATERAL SECURITY
As collateral security for all obligations, you hereby assign and grant to
us a continuing security interest in: (i) all of your presently existing
and hereafter created Accounts and general intangibles and the proceeds
thereof; (ii) all monies, securities and other property now or hereafter
held or received by, or in transit to us from or for you, whether for
safekeeping, pledge,
7
<PAGE>
custody, transmission, collection or otherwise, and all of your deposits
and credit balances in our possession; (iii) all returned, reclaimed or
repossessed goods and the documents evidencing or relating to such goods;
(iv) all books, records and other property at any time evidencing or
relating to the Accounts; and (v) the proceeds of any insurance policies
covering any of the foregoing. Recourse to the collateral security herein
provided shall not be required, and you shall at all times remain liable
for the payment and performance of the obligations upon demand by us.
SECTION 8. EVENTS OF DEFAULT
The occurrence of any of the following acts or events shall constitute an
Event of Default: (a) if you fail to make payment of any of the obligations
when due; (b) if you fail to make; any remittance required by this
Agreement; (c) if you commit any breach of any of the terms,
representations, warranties, covenants, conditions or provisions of this
Agreement, or of any present or future supplement or amendment hereto or of
any other agreement between us; (d) if you become insolvent or unable to
meet your debts as they mature; (e) if you deliver to us a false financial
statement; (f) if you call, or have called by a third party, a meeting of
creditors; (g) if you have commenced by or against you any bankruptcy
proceeding, insolvency arrangement or similar proceeding; (h) if you
suspend or discontinue doing business for any reason; (i) if a receiver or
trustee of any kind is appointed for you or any of your property; (j) if
any guarantor of your Obligations shall become insolvent or have commenced
by or against such guarantor any bankruptcy proceeding, insolvency
arrangement or similar proceeding; (k) if any guaranty of your Obligations
is terminated; (l) if any change of ownership occurs with respect to more
than forty (40%) percent of your capital stock; or (m) if a notice of lien,
levy or assessment is filed of record with respect to all or any of your
assets by the United States or any department, agency or instrumentality
thereof or by any state, county, municipal or other governmental agency.
Upon the occurrence of an Event of Default, we shall have the right to
terminate this Agreement and all other arrangements existing between us
forthwith and without notice, and the Obligations shall mature and become
immediately due and payable and we shall have the right to withhold any
further payments to you until all Obligations have been paid in full. In
addition we shall have all of the rights of a secured party under the
Uniform Commercial Code, including, without limitation, the right to take
possession of any collateral in which we have a security interest and to
dispose of same at public or private sale and you will be liable for any
deficiency. We shall not be required to proceed against any collateral but
may proceed against you directly. In the event any action is brought to
enforce, contest,
8
<PAGE>
challenge, modify or invalidate the terms of this Agreement, including, but
not limited to, any lawsuit or arbitration, you agree to pay our costs and
reasonable attorney's fees incurred therein.
SECTION 9. TERM AND TERMINATION
This Agreement shall continue in force and effect until terminated by
either party hereto giving the other party not less than sixty (60) days
prior written notice thereof. Notice of termination shall be given by
messenger, registered or certified mail or commercial delivery service;
provided, however, that you shall not terminate this Agreement so long as
you are indebted or obligated to us in connection with any other financing
arrangements. Notwithstanding such notice of termination, our respective
rights and obligations arising out of transactions having their inception
prior to the specified date of terminations shall not be affected by such
termination and all terms, provisions and conditions hereof, including but
not limited to, the security interests hereinabove granted to us, shall
continue in full force and effect until all Obligations have been paid in
full. All of the representations, warranties and covenants made herein
shall survive the termination of this Agreement.
SECTION 10. MODIFICATIONS, WAIVERS AND MISCELLANEOUS PROVISIONS
This Agreement cannot be changed or terminated orally; it constitutes the
entire agreement between us and shall be binding upon our respective
successors and assigns, but may not be assigned by you without our prior
written consent. No delay or failure on our part in exercising any right,
privilege, or option hereunder shall operate as a waiver thereof or of any
other right, privilege or option. No waiver whatsoever shall be valid
unless in writing, signed by us, and then only to the extent therein set
forth. If under any statute, rule or regulation of any jurisdiction
provisions shall not be affected but shall remain in full force and effect.
We conduct business under California Commercial Finance Lender License
number 603 4441.
SECTION 11. GOVERNING LAW, VENUE AND WAIVER OF JURY
THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF CALIFORNIA. YOU HEREBY CONSENT TO THE JURISDICTION OF
ANY LOCAL, STATE OR FEDERAL COURT, LOCATED WITHIN THE STATE OF CALIFORNIA.
IF YOU PRESENTLY ARE, OR IN THE FUTURE BECOME, A NON-RESIDENT OF THE STATE
OF CALIFORNIA, YOU HEREBY WAIVE PERSONAL SERVICE OF ANY AND ALL PROCESS AND
AGREE THAT ALL SUCH SERVICE OF PROCESS
9
<PAGE>
MAY BE MADE BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED,
DIRECTED TO YOU, AT YOUR ADDRESS APPEARING IN OUR RECORDS AND SERVICE SO
MADE SHALL BE COMPLETE TEN (10) DAYS AFTER THE SAME HAS BEEN POSTED AS
AFORESAID.
WAIVER OF JURY TRIAL YOU AND WE HEREBY WAIVE OUR RESPECTIVE RIGHTS TO A
JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF
THIS AGREEMENT OR ANY OTHER DOCUMENTS EXECUTED IN CONNECTION WITH THIS
AGREEMENT, OR ANY DEALINGS BETWEEN US RELATING TO THE SUBJECT MATTER OF
THIS TRANSACTION AND THE BUSINESS RELATIONSHIP THAT IS BEING ESTABLISHED.
YOU AND WE ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER
INTO A BUSINESS RELATIONSHIP, THAT EACH OF US HAS ALREADY RELIED ON THE
WAIVER IN ENTERING INTO THIS AGREEMENT AND THAT EACH OF US WILL CONTINUE TO
RELY ON THE WAIVER IN OUR RELATED FUTURE DEALINGS. YOU AND WE FURTHER
WARRANT AND REPRESENT THAT WE KNOWINGLY AND VOLUNTARILY WAIVE OUR
RESPECTIVE JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
SECTION 12. DEFINITIONS
12.1 "Accounts" - All presently existing and hereafter created accounts,
contract rights and general intangibles relating thereto, notes drafts and
other forms of obligations owed to or owned by you arising or resulting
from the sale of goods or the rendering of services, all proceeds thereof,
all guaranties and security therefor, and all goods and rights represented
thereby or arising therefrom including, but not limited to, the right of
stoppage in transit, replevin and reclamation.
12.2 "Approved Account" - An Account with respect to which we have issued a
credit approval which has not subsequently been withdrawn.
12.3 "Base Rate" - The rate of interest publicly announced from time to time by
Bank of America National Trust and Savings Association as its prime or base
rate (or equivalent).
12.4 "Collection Date" - (a) the date on which we receive payment of an Account,
or (b) in the event an Approved Account remains unpaid, the date which is
120 days after the due date of such Account, provided that the customer has
not asserted a Dispute.
12.5 "Credit Risk" - The risk that a customer will be financially unable to pay
an Account at maturity, provided that the merchandise has been received or
10
<PAGE>
services rendered and accepted by the customer without Dispute.
12.6 "Dispute" - A dispute or claim, bona fide or otherwise, as to price, terms
quantity, quality, delivery of goods or any cause or defense to payment
whatsoever other than financial inability to pay.
12.7 "Net Amount" - The gross face amount of an Account less the discount
offered by you and taken by us.
12.8 "Non-Approved Account" - An Account with respect to which we have not
issued a credit approval or have subsequently withdrawn a credit approval.
12.9 "Obligations" - All loans, advances, debts, liabilities, obligations,
covenants and duties owing by you to us, direct or indirect, absolute or
contingent, due or to become due, now existing or hereafter arising,
including, without limitations, invoices for goods or services purchased by
you from any company whose accounts are factored or financed by us and
indebtedness arising under any guaranty made by you or issued by us on your
behalf.
SECTION 13. ACCEPTANCE
This proposal is submitted to you unsigned and shall constitute an
agreement between us only when signed by us.
Very truly yours, ACCEPTED AND AGREED
SAFCOR INC. A.G.S., INC.
By: /s/ Alan Saloner By: /s/ Colin Dyne
------------------------------ ------------------------
Title: President Title: President
--------------------------- ---------------------
11
<PAGE>
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE-NET
(DO NOT USE THIS FORM FOR MULTI-TENANT PROPERTY)
1. BASIC PROVISIONS ("BASIC PROVISIONS")
1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes only, MAY
1,, 1994, is made by and between D.P.S. ASSOCIATES ("LESSOR") and PACIFIC TRIM &
BELT, INC., A CALIFORNIA CORPORATION ("LESSEE"), (collectively the "PARTIES," or
individually a "PARTY").
1.2 PREMISES: That certain real property, including all improvements
therein or to be provided by Lessor under the terms of this Lease, and commonly
known by the street address of 3820 SOUTH HILL STREET, LOS ANGELES, CALIFORNIA,
located in the County of LOS ANGELES, State of CALIFORNIA, and generally
described as (describe briefly the nature of the property) APPROXIMATELY 18,145
SQUARE FOOT COMMERCIAL BUILDING ("PREMISES"). (See Paragraph 2 for further
provisions).
1.3 TERM: SIX (6) years and __ months ("ORIGINAL TERM") commencing
MAY 1, 1994 ("COMMENCEMENT DATE") and ending APRIL 30, 2000 ("EXPIRATION
DATE"). (See Paragraph 3 for further provisions.)
1.4 EARLY POSSESSION:_____________ ("EARLY POSSESSION DATE"). (See
Paragraphs 3.2 and 3.3 for further provisions.)
1.5 BASE RENT: $9,072.50 per month ("BASE RENT"), payable on the FIRST day
of each month commencing MAY 1, 1994. (See Paragraph 4 for further provisions.)
[ ] If this box is checked, there are provisions in this Lease for the Base
Rent to be adjusted.
1.6 BASE RENT PAID UPON EXECUTION: $9,072.50 is Base Rent for the period
MAY, 1994.
1.7 SECURITY DEPOSIT: $ NONE ("SECURITY DEPOSIT"). (See Paragraph 5
for further provisions.)
1.8 PERMITTED USE: MANUFACTURE OF BELTS AND OTHER APPAREL ITEMS; WHOLESALE
OF APPAREL ACCESSORIES. (See Paragraph 6 for further provisions.)
1.9 INSURING PARTY: Lessor is the "INSURING PARTY" unless otherwise
stated herein. (See Paragraph 8 for further provisions.)
1.10 REAL ESTATE BROKERS: The following real estate brokers (collectively,
the "Brokers") and brokerage relationships exist i this transaction and are
consented to by the Parties (check applicable boxes):
<PAGE>
NONE represents [ ] Lessor exclusively ("LESSOR'S BROKER"); [ ] both
Lessor and Lessee, and
_______________________________________________________ represents [ ] Lessee
exclusively ("LESSEE'S BROKER"); [ ] both Lessee and Lessor. (See Paragraph
15 for further provisions.)
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to be
guaranteed by NONE ("GUARANTOR"). (See Paragraph 37 for further
provisions.)
1.12 ADDENDA. Attached hereto is an Addendum or Addenda consisting of
Paragraphs 49 through __ and Exhibits __ all of which constitute a part of
this Lease.
2. PREMISES.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases
from Lessor, the Premises, for the term, at the rental, and upon all of the
terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of square footage set forth in this Lease, or
that may have been used in calculating rental, is an approximation which Lessor
and Lessee agree is reasonable and the rental based thereon is not subject to
revision whether or not the actual square footage is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and free
of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, fire sprinkler system, lighting, air conditioning, heating, and
loading doors, if any, in the Premises, other than those constructed by Lessee,
shall be in good operating condition on the Commencement date. If a
non-compliance with said warranty exists as of the Commencement Date, Lessor
shall except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and extent
of such non-compliance, rectify same at Lessor's expense. If Lessee does not
give Lessor written notice of a non-compliance with this warranty within thirty
(30) days after the Commencement Date, correction of that non-compliance shall
be the obligation of Lessee at Lessee's sole cost and expense.
2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE. Lessor
warrants to Lessee that the Improvements on the Premises comply with all
applicable covenants or restrictions of record and applicable building codes,
regulations and ordinances in effect on the Commencement Date. Said warranty
does not apply to the use to which Lessee will put the Premises or to any
Alterations or Utility Installations (as defined in Paragraph 7.3(a)) made or to
be made by Lessee. If the Premises do not comply with said warranty, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and extent
of such non-compliance, rectify the same at Lessor's expense. If Lessee does
not give Lessor written notice of a non-compliance with this warranty within
2
<PAGE>
six (6) months following the Commencement Date, correction of that
non-compliance shall be the obligation of Lessee at Lessee's sole cost and
expense.
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it has
been advised by the Brokers to satisfy itself with respect to the condition of
the Premises (including but not limited to the electrical and fire sprinkler
systems, security, environmental aspects, compliance with Applicable Law, as
defined in Paragraph 6.3) and the present and future suitability of the Premises
for Lessee's intended use, (b) that Lessee has made such investigation as it
deems necessary with reference to such matters and assumes all responsibility
therefor as the same relate to Lessee's occupancy of the Premises and/or the
term of this Lease, and (c) that neither Lessor, nor any of Lessor's agents, has
made any oral or written representations or warranties with respect to the said
matters other than as set forth in this Lease.
2.5 LESSEE PRIOR OWNER/OCCUPANT. The warranties made by Lessor in this
Paragraph 2 shall be of no force or effect if immediately prior to the date set
forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In
such event, Lessee shall, at Lessee's sole cost and expense, correct any
non-compliance of the Premises with said warranties.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of
this Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If Lessee totally or partially occupies the
Premises prior to the Commencement Date, the obligation to pay Base Rent shall
be dated for the period of such early possession. All other terms of this
Lease, however, (including but not limited to the obligations to pay Real
Property Taxes and Insurance premiums and to maintain the Premises) shall be in
effect during such period. Any such early possession shall not affect nor
advance the Expiration Date of the Original Term.
3.3 DELAY IN POSSESSION. If for any reason Lessor cannot deliver
possession of the Premises to Lessee as agreed herein by the Early Possession
Date, if one is specified in Paragraph 1.4, or, if no Early Possession Date is
specified, by the Commencement Date, Lessor shall not be subject to any
liability therefor, nor shall such failure affect the validity of this Lease, or
the obligations of Lessee hereunder, or extend the term hereof, but in such
case, Lessee shall not, except as otherwise provided herein, be obligated to pay
rent or perform any other obligation of Lessee under the terms of this Lease
until Lessor delivers possession of the Premises to Lessee. If possession of
the Premises is not delivered to Lessee within sixty (60) days after the
Commencement Date, Lessee may at its option, by notice in writing ten (10) days
thereafter, cancel this Lease, in which event the Parties shall be discharged
from all obligations hereunder; provided, however, that if such written notice
by Lessee is not received by Lessor within
3
<PAGE>
said ten (10) day period, Lessee's right to cancel this Lease shall terminate
and be of no further force or affect. Except as may be otherwise provided, and
regardless of when the term actually commences, if possession is not tendered to
Lessee when required by this Lease and Lessee does not terminate this Lease, as
aforesaid, the period free of the obligation to pay Base Rent, if any, that
Lessee would otherwise have enjoyed shall run from the date of delivery of
possession and continue for a period equal to what Lessee would otherwise have
enjoyed under the terms hereof, but minus any days of delay caused by the acts,
changes or omissions of Lessee.
4. RENT.
4.1 BASE RENT. Lessee shall cause payment of Base Rent and other rent or
charges, as the same may be adjusted from time to time, to be resolved by Lessor
in lawful money of the United States, without offset of deduction, on or before
the day on which it is due under the terms of this Lease. Base Rent and all
other charges for any period during the term hereof which is for less than one
(1) full calendar month shall be prorated based upon the actual number of days
of the calendar month involved. Payment of Base Rent and other charges shall be
made to Lessor at its address stated herein or to such other person or at such
other address as Lessor may from time to time designate in writing to Lessee.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
the Security Deposit set forth in Paragraph 1.7 as security for Lessee's
faithful performance of Lessee's obligations under this Lease. If Lessee fails
to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults
under this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain
all or any portion of said Security Deposit for the payment of any amount due
Lessor or to reimburse or compensate Lessor for any liability, cost, expense,
loss or damage (including attorneys' fees) which Lessor may suffer or incur by
reason thereof. If Lessor uses or applies all or any portion of said Security
Deposit, Lessee shall within ten (10) days after written request therefor
deposit moneys with Lessor sufficient to restore said Security Deposit to the
full amount required by this Lease. Any time the Base Rent increases during
the term of this Lease, Lessee shall, upon written request form Lessor, deposit
additional moneys with Lessor sufficient to maintain the same ratio between the
Security Deposit and the Base Rent as those amounts are specified in the Basic
Provisions. Lessor shall not be required to keep all or any part of the
Security Deposit separate from its general accounts. Lessor shall, at the
expiration or earlier termination of the term hereof and after all or any part
of the Security Deposit separate from its general accounts. Lessor shall, at
the expiration or earlier termination of the term hereof and after Lessee has
vacated the Premise, return to Lessee (or, at Lessor's option, to the last
assignee, if any, of Lessee's interest herein), that portion of the Security
Deposit not used or applied by Lessor. Unless otherwise expressly agreed in
writing by Lessor, no part of the Security Deposit shall be considered to be
held in trust, to bear interest
4
<PAGE>
or other increment for its use, or to be prepayment for any moneys to be paid by
Lessee under this Lease.
6. USE.
6.1 USE. Lessee shall use and occupy the Premises only for the purposes
set forth in Paragraph 1.8, or any other use which is comparable thereto, and
for no other purpose. Lessee shall not use or permit the use of the Premises in
a manner that creates waste or a nuisance, or that disturbs owners and/or
occupants of, or causes damage to, neighboring premises or properties. Lessor
hereby agrees to not unreasonably withhold or delay its consent to any written
request by Lessee, Lessees assignees or subtenants, and by prospective assignees
and subtenants of the Lessee, its assignees and subtenants, for a modification
of said permitted purpose for which the premises may be used or occupied so long
as the same will not impair the structural integrity of the improvements on the
Premises, the mechanical or electrical systems therein, is not significantly
more burdensome to the Premises and the improvements thereon, and is otherwise
permissible pursuant to this Paragraph 6. If Lessor elect to withhold such
consent, Lessor shall within five (5) business days give a written notification
of same, which notice shall include an expiration of Lessor's reasonable
objections to the change in use.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "Hazardous Substance" as
used in this Lease shall mean any product, substance, chemical, material or
waste whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect, either by
itself or in combination with other materials expected to be on the Premises, is
either (i) potentially injurious to the public health, safety or welfare, the
environment or the Premises, (ii) regulated or modified by any governmental
authority, or (iii) a basis for liability of Lessor to any governmental agency
or third party under any applicable statute or common law theory. Hazardous
Substance shall include, but not be limited to, hydrocarbons, petroleum,
gasoline, crude oil or any other products, by-products or fractions thereof.
Lessee shall not engage in any activity in, or about the Premises which
constitutes a Reportable Use (as hereinafter defined) of Hazardous Substances
without the express prior written consent of Lessor and compliance in a timely
manner (at Lessee's sole cost and expense) with all Applicable Law (as defined
in Paragraph 6.3). "REPORTABLE USE" shall mean (i) the installation or use of
any above or below ground storage tank, (ii) the generation, possession,
storage, use, transportation, or disposal of a Hazardous Substance that requires
a permit from or with respect to which a report, notice, registration or
business plan is required to be filed with any governmental authority.
Reportable Use shall also include Lessee's being responsible for the presence
in, on or about the Premises of a Hazardous Substance with respect to which any
Applicable Law requires that a notice be given to persons entering or occupying
the Premises or neighboring properties. Notwithstanding the
5
<PAGE>
foregoing, Lessee may, without Lessor's prior consent, but in compliance with
all Applicable Law, use any ordinary and customary materials reasonably required
to be used by Lessee in the normal course of lessee's business permitted on the
Premises, so long as such use is not a Reportable Use and does not expose the
Premises or neighboring properties to any meaningful risk of contamination or
damage or expose Lessor to any liability therefor. In addition, Lessor may (but
without any obligation to do so) condition its consent to the use or presence of
any Hazardous Substance, activity or storage tank by Lessee upon Lessee's giving
Lessor such additional assurances as Lessor, in its reasonable direction, claims
necessary to protect itself, the public, the Premises and the environment
against damage, contamination or injury and/or liability therefrom or therefor,
including, but not limited to, the installation (and removal on or before Lease
expiration or earlier termination) of reasonably necessary protective
modifications to the Premises (such as concrete encasements) and/or the deposit
of an additional Security Deposit under Paragraph 5 hereof.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable cause to
believe, that a Hazardous Substance, or a condition involving or resulting from
same, has come to be located in, on, under or about the Premises, other than as
previously consented to by Lessor, Lessee shall immediately give written notice
of such fact to Lessor. Lessee shall also immediately give Lessor a copy of any
statement, report, notice, registration, application, permit, business plan,
license, claim, action or proceeding given to, or received from, any
governmental authority or private party, or persons entering or occupying the
Premises, concerning the presence, spill, release, discharge of, or exposure to,
any Hazardous Substance or contamination in, on, or about the Premises,
including but not limited to all such documents as may be involved in any
Reportable Uses Involving the Premises.
(c) INDEMNIFICATION. Lessee shall indemnify, protect, defend and hold
Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all loss of rents and/or damages,
liabilities, judgments, costs, claims, liens, expenses, penalties, permits and
attorney's and consultant's fees arising out of or involving any Hazardous
Substance or storage tank brought onto the Premises by or for Lessee or under
Lessee's control. Lessee's obligations under this Paragraph 6 shall include,
but not be limited to, the effects of any contamination or injury to person,
property or the environment created or suffered by Lessee, and the cost of
investigation (including consultant's and attorney's fees and testing), removal,
remediation, restoration and/or abatement thereof, or of any contamination
therein involved, and shall survive the expiration or earlier termination of
this Lease. No termination, cancellation or release agreement entered into by
Lessor and Lessee shall release Lessee from its obligations under this Lease
with respect to Hazardous Substances or storage tanks, unless specifically so
agreed by Lessor in writing at the time of such agreement.
6
<PAGE>
6.3 LESSEE'S COMPLIANCE WITH LAW. Except as otherwise provided in this
Lease, Lessee, shall, at Lessee's sole cost and expense, fully, diligently and
in a timely manner, comply with all "APPLICABLE LAW," which term is used in this
Lease to include all laws, rules, regulations, ordinances, directives,
covenants, easements and restrictions of record, permits, the requirements of
any applicable fire insurance underwriter or rating bureau, and the
recommendations of Lessor's engineers and/or consultants, relating in any manner
to the Premises (including but not limited to matters pertaining to (i)
industrial ____________ (ii) environmental conditions on, in, under or about the
Premises, including soil and groundwater conditions, and (iii) the use,
generation, manufacture, production, installation, ___________, removal,
transportation, ___________________________________________________ or which may
hereafter come into effect, and whether or not reflecting a change in policy
from any previously existing policy. Lessee shall, within five (5) days after
receipt of Lessor's written request, provide Lessor with copies of all documents
and information, including, but not limited to, permits, registrations,
manifests, applications, reports and certificates, evidencing Lessee's
compliance with any Applicable Law specified by Lessor, and shall immediately
upon receipt, notify Lessor in writing (with copies of any documents involved)
of any threatened or actual claim, notice, citation, warning, complaint or
report pertaining to or involving failure by Lessee or the Premises to comply
with any Applicable Law.
6.4 INSPECTION; COMPLIANCE. Lessor and Lessor's Lender(s) (as defined in
Paragraph 8.3(a)) shall have the right to enter the Premises at any time, in the
case of an emergency, and otherwise at reasonable times, for the purpose of
inspecting the condition of the Premises and for verifying compliance by Lessee
with this Lease and all Applicable Laws (as defined in Paragraph 6.3), and to
employ experts and/or consultants in connection therewith and/or to advise
Lessor with respect to Lessee's activities, including but not limited to the
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance or storage tank on or from the Premises. The costs and
expenses of any such inspections shall be paid by the party requesting same,
unless a Default or Breach of this Lease, violation of Applicable Law, or a
contamination, caused or materially contributed to by Lessee is found to exist
or be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination. In any such case, Lessee shall upon request reimburse Lessor
or Lessor's Lender, as the case may be, for the costs and expenses of such
inspections.
7. MAINTENANCE; REPAIRS, UTILITY INSTALLATIONS; TRADE FIXTURES AND
ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraphs 2.2 (Lessor's warranty as
to condition), 2.3 (Lessor's warranty as to
7
<PAGE>
compliance with covenants, etc.), 7.2 (Lessor's obligations to repair), 9
(damage and destruction), and 14 (condemnation) Lessee shall, at Lessee's sole
cost and expense and at all times, keep the Premises and every part thereof in
good order, condition and repair, structural and non-structural (whether or not
such portion of the Premises requiring repairs, or the means of repairing the
same, are reasonably or readily accessible to Lessee, and whether or not the
need for such repairs occurs as a result of Lessee's use, any prior use, the
elements or the age of such portion of the Premises), including, without
limiting the generality of the foregoing, all equipment or facilities serving
the Premises, such as plumbing, heating, air conditioning, ventilating,
electrical, lighting facilities, boilers, fired or unfired pressure vessels,
fire sprinkler and/or standpipe and hose or other automatic fire extinguishing
system, including fire alarm and/or smoke detection systems and equipment, fire
hydrants, fixtures, walls (interior and exterior), foundations, ceilings, roofs,
floors, windows, doors, plate glass, skylights, landscaping, driveways, parking
lots, fences, retaining walls, signs, sidewalks and parkways located in, on,
about, or adjacent to the Premises. Lessee shall not cause or permit any
Hazardous Substance to be spilled or released in, on, under or about the
Premises (including through the plumbing or sanitary sewer system) and shall
promptly, at Lessee's expense, take all investigatory and/or remedial action
reasonably recommended, whether or not formally ordered or required, for the
cleanup of any contamination of, and for the maintenance, security and/or
monitoring of the Premises, the elements surrounding same, or neighboring
properties, that was caused or materially contributed to by Lessee, or
pertaining to or involving any Hazardous Substance and/or storage tank brought
into the Premises by or for Lessee or under its control. Lessee, in keeping the
Premises in good order, condition and repair, shall exercise and perform good
maintenance practices. Lessee's obligations shall include restorations,
replacements or renewals when necessary to keep the Premises and all
improvements thereon or a part thereof in good order, condition and state of
repair. If Lessee occupies the Premises for seven (7) years or more, Lessor may
require Lessee to repaint the exterior of the buildings on the Premises as
reasonably required, but not more frequently than once every seven (7) years.
(b) Lessee shall, at Lessee's sole cost and expense, procure and maintain
contracts, with copies to Lessor, in customary form and substance for, and with
contractors specializing and experienced in, the inspection, maintenance and
service of the following equipment and improvements, if any, located on the
Premises: (i) the heating, air conditioning and ventilation equipment, (ii)
boiler, fired or unfired pressure vessels, (iii) fire sprinkler and/or standpipe
and hose or other automatic fire extinguishing systems, including fire alarm
and/or smoke detection, (iv) landscaping and irrigation systems, (v) roof
covering and drain maintenance and (vi) asphalt and parking lot maintenance.
7.2 LESSOR'S OBLIGATIONS. Except for the warranties and agreements of
Lessor contained in Paragraphs 2.2 (relating to condition of the Premises), 2.3
(relating to compliance with
8
<PAGE>
covenants, restrictions and building code), 9 (relating to destruction of the
Premises), and 14 (relating to condemnation of the Premises), it is intended by
the Parties hereto that Lessor have no obligation, in any manner whatsoever, to
repair and maintain the Premises, the improvements located thereon, or the
equipment therein, whether structural or non structural, all of which
obligations are intended to be that of the Lessee under Paragraph 7.1 hereof.
It is the intention of the Parties that the terms of this Lease govern the
respective obligations of the Parties as to maintenance and repair of the
Premises. Lessee and Lessor expressly waive the benefit of any statute now or
hereafter in effect to the extent it is inconsistent with the terms of this
Lease with respect to, or which affords Lessee the right to make repairs at the
expense of Lessor or to terminate this Lease by reason of any needed repairs.
7.2 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY INSTALLATIONS" is
used in this Lease to refer to all carpeting, window coverings, air lines, power
panels, electrical distribution, security, fire protection systems,
communication systems, lighting fixtures, heating, ventilation, and air
conditioning equipment, plumbing, and fencing in, or about the Premises. The
term "TRADE FIXTURES" shall mean Lessee's machinery and equipment that can be
removed without doing material damage to the Premises. The term "ALTERATIONS"
shall mean any modification of the improvements on the Premises from that which
are provided by Lessor under the terms of the Lease, other than Utility
Installations or Trade Fixtures, whether by addition or deletion. "LESSEE OWNED
ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined as Alterations and/or
Utility Installations made by lessee that are not owned by Lessor as defined in
Paragraph 7.4(a). Lessee shall not make any alterations or Utility
Installations in, on, under or about the Premises without Lessor's prior written
consent. Lessee may, however, make non-structural Utility Installations to the
interior of the Premises (excluding the roof), as long as they are not visible
from the outside, do not involve puncturing, relocating or removing the roof or
any existing walls, and the cumulative cost thereof during the term of this
Lease as extended does not exceed $25,000.
(b) CONSENT. Any Alterations or Utility Installations that Lessee shall
desire to make and which require the consent of the Lessor shall be presented to
Lessor in written form with proposed detailed plans. All consents given by
Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific consent,
shall be deemed conditioned upon: (i) Lessee's acquiring all applicable permits
required by governmental authorities, (ii) the furnishing of copies of such
permits together with a copy of the plans and specifications for the Alteration
or Utility Installation to Lessor prior to commencement of the work thereon, and
(iii) the compliance by Lessee with all conditions of said permits in a prompt
and expeditious manner. Any Alterations or Utility Installations by Lessee
during the term of this Lease shall be done in a good and workmanlike manner,
with good and sufficient materials, and in
9
<PAGE>
compliance with all Applicable Law. Lessee shall promptly upon completion
thereof furnish Lessor with as-built plans and specifications therefor. Lessor
may (but without obligation to do so) condition its consent to any requested
Alteration or Utility Installation that costs $10,000 or more upon Lessee's
providing Lessor with a lien and completion bond in an amount equal to one and
one-half times the estimated cost of such Alteration or Utility installation
and/or upon Lessee's posting an additional Security Deposit with Lessor under
Paragraph 36 hereof.
(c) INDEMNIFICATION. Lessee shall pay, when due, all claims for labor or
materials furnished or alleged to have been furnished to or for Lessee at or for
use on the Premises, which claims are or may be secured by any mechanics' or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in, on or about the Premises, and Lessor shall have the right to post
notices of non-responsibility in or on the Premises as provided by law. If
Lessee shall, in good faith, contest the validity of any such lien, claim or
demand, then Lessee shall, at its sole expense defend and protect itself, Lessor
and the Premises against the same and shall pay and satisfy any such adverse
judgment that may be rendered thereon before the enforcement thereof against the
Lessor or the Premises. If Lessor shall require, Lessee shall furnish to Lessor
a surety bond satisfactory to Lessor in an amount equal to one and one-half
times the amount of such contested lien claim or demand, indemnifying Lessor
against liability for the same, as required by law for the holding of the
Premises free from the effect of such lien or claim. In addition, Lessor may
require Lessee to pay Lessor's attorney's fees and costs in participating in
such action if Lessor shall decide it is to its best interest to do so.
7.3 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require their removal or
become the owner thereof as hereinafter provided in this Paragraph 7.4, all
Alterations and Utility Additions made to the Premises by Lessee shall be the
property of and owned by Lessee, but considered a part of the Premises. Lessor
may, at any time and at its option, elect in writing to Lessee to be the owner
of all or any specified part of the Lessee Owned Alterations and Utility
Installations. Unless otherwise instructed per subparagraph 7.4(b) hereof, all
Lessee Owned Alterations and Utility Installations shall, at the expiration or
earlier termination of this Lease, become the property of Lessor and remain upon
and be surrendered by Lessee with the Premises.
(b) REMOVAL. Unless otherwise agreed in writing, Lessor may require
that any or all Lessee Owned Alterations or Utility Installations be removed by
the expiration or earlier termination of this Lease, notwithstanding their
installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Lessee Owned Alterations or
Utility Installations made without the required consent of Lessor.
10
<PAGE>
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by
the end of the last day of the Lease term or any earlier termination date, with
all of the improvements, parts and surfaces thereof clean and free of debris and
in good operating order, condition and state of repair, ordinary wear and tear
excepted. "ORDINARY WEAR AND TEAR" shall not include any damage or
deterioration that would have been prevented by good maintenance practice or by
Lessee performing all of its obligations under this Lease. Except as otherwise
agreed or specified in writing by Lessor, the Premises, as surrendered, shall
include the Utility installations. The obligation of Lessee shall include the
repair of any damage occasioned by the installation, maintenance or removal of
Lessee's Trade Fixtures, furnishings, equipment, and Alterations and/or Utility
Installations, as well as the removal of any storage tank installed by
Applicable Law and/or good service practice. Lessee's Trade Fixtures shall
remain the property of Lessee and shall be removed by Lessee subject to its
obligation to repair and restore the Premises per this Lease.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT FOR INSURANCE. Regardless of whether the Lessor or Lessee is
the Insuring Party, Lessee shall pay for all insurance required under this
__________________________ cost attributable to liability insurance ___________
per occurrence. Premiums for policy periods commencing prior to or extending
beyond the Lease term shall be prorated to correspond to the Lease term.
Payment shall be made by Lessee to Lessor within ten (10) days following receipt
of an invoice for any amount due.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force during
the term of this Lease a Commercial General Liability policy of insurance
protecting Lessee and Lessor (as an additional insured) against claims for
bodily injury, personal injury and property damage based upon, involving or
arising out of the ownership, use occupancy or maintenance of the Premises and
all areas appurtenant thereto. Such insurance shall be on an occurrence basis
providing single limit coverage in an amount not less than $1,000,000 per
occurrence with an "Additional Insured-Managers or Lessors of Premises"
Endorsement and contain the "Amendment of the Pollution Exclusion" for damage
caused by heat, smoke or fumes from a hostile fire. The policy shall not
contain any intra-insured exclusions as between insured persons or
organizations, but shall include coverage for liability assumed under this Lease
as an "insured contract" for the performance of Lessee's indemnity obligations
under this Lease. The limits of said Insurance required by this Lease or as
carried by Lessee shall not, however, limit the liability of Lessee nor relieve
Lessee of any obligations hereunder. All insurance to be carried by Lessee
shall be primary to and not contributory with any similar insurance carried by
Lessor, whose Insurance shall be considered excess Insurance only.
11
<PAGE>
(b) CARRIED BY LESSOR. In the event Lessor is the Insuring Party,
Lessor shall also maintain liability insurance described in Paragraph 8.2(a),
above, in addition to, and not in lieu of, the insurance required to be
maintained by Lessee. Lessee shall not be named as an additional insured
therein.
8.3 PROPERTY INSURANCE - BUILDING. IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. The Insuring Party shall obtain and
keep in force during the term of the Lease a policy or policies in the name of
Lessor, with loss payable to Lessor and to the holders of any mortgages, deeds
of trust or ground leases on the Premises ("LENDER(S)"), insuring loss or damage
to the Premises. The amount of such insurance shall be equal to the full
replacement cost of the Premises, as the same shall exist from time to time, or
the amount required by Lenders, but in no event more than the commercially
reasonable and available insurable value thereof if, by reason of the unique
nature or age of the improvements involved, such latter amount is less than full
replacement cost. If Lessor is the Insuring Party, however, Lessee Owned
Alterations and Utility Installations shall be insured by Lessee under Paragraph
8.4 rather than by Lessor. If the coverage is available and commercially
appropriate, such policy or policies shall insure against all risks of direct
physical loss or damage (except the perils of flood and/or earthquake unless
required by a Lender), including coverage for any additional costs resulting
from debris removal and reasonable amounts of coverage for the enforcement of
any ordinance or law regulating the reconstruction or replacement of any
undamaged sections of the Premises required to be demolished or removed by
reason of the enforcement of any building, zoning, safety or land use laws as
the result of a covered cause of loss. Said policy or policies shall also
contain an agreed valuation provision in lieu of any coinsurance clause, waiver
of subrogation, and inflation guard protection causing an increase in the annual
property insurance coverage amount by a factor of not less than the adjusted
U.S. Department of Labor Consumer Price Index for All Urban Consumers for the
city nearest to where the Premises are located. If such insurance coverage has
a deductible clause, the deductible amount shall not exceed $1,000 per
occurrence, and Lessee shall be liable for such deductible amount in the event
of an insured Loss as defined in Paragraph 9.1(c).
(b) RENTAL VALUE. The Insuring Party shall, in addition, obtain and
keep in force during the term of this Lease a policy or policies in the name of
Lessor, with loss payable to Lessor and Lender(s), insuring the loss of the full
rental and other charges payable by Lessee to Lessor under this Lease for one
(1) year (including all real estate taxes, insurance costs, and any scheduled
rental increases). Said insurance shall provide that in the event the Lease is
terminated by reason of an insured loss, the period of indemnity for such
coverage shall be extended beyond the date of the completion of repairs or
replacement of the Premises, to provide for one full year's loss of rental
revenues from the
12
<PAGE>
date of any such loss. Said insurance shall contain an agreed valuation
provision in lieu of any coinsurance clause, and the amount of coverage shall be
adjusted annually to reflect the projected rental income, property taxes,
insurance premium costs and other expenses, if any, otherwise payable by Lessee,
for the next twelve (12) month period. Lessee shall be liable for any
deductible amount in the event of such loss.
(c) ADJACENT PREMISES. If the Premises are part of a larger
building, or if the Premises are part of a group of buildings owned by Lessor
which are adjacent to the Premises, the Lessee shall pay for any increase in the
premiums for the property insurance of such building or buildings if said
increase is caused by Lessee's acts, omissions, use or occupancy of the
Premises.
(d) TENANT'S IMPROVEMENTS. If the Lessor is the Insuring Party, the
Lessor shall not be required to Insure Lessee Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease. If Lessee is the Insuring Party, the policy
carried by Lessee under this Paragraph 8.3 shall insure Lessee Owned Alterations
and Utility Installations.
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of Paragraph
8.5, Lessee at its cost shall either by separate policy or, at Lessor's option,
by endorsement to a policy already carried, maintain insurance coverage on all
of Lessee's personal property, Lessee Owned Alterations and Utility
Installations in, on, or about the Premises similar in coverage to that carried
by the Insuring Party under Paragraph 8.3. Such insurance shall be full
replacement cost coverage with a deductible of not to exceed $1,000 per
occurrence. The proceeds from any such insurance shall be used by Lessee for
the replacement of personal property or the restoration of Lessee Owned
Alterations and Utility Installations. Lessee shall be the Insuring Party with
respect to the insurance required by this Paragraph 8.4 and shall provide Lessor
with written evidence that such insurance is in force.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in
companies duly licensed to transact business in the state where the Premises are
located, and maintaining during the policy term a "General Policyholders Rating"
of at least B+, V, or such other rating as may be required by a Lender having a
lien on the Premises, as set forth in the most current issue of "Best's
Insurance Guide." Lessee shall not do or permit to be done anything which shall
invalidate the insurance policies referred to in this Paragraph 8. If Lessee is
the Insuring Party, Lessee shall cause to be delivered to Lessor certified
copies of policies of such insurance or certificates evidencing the existence
and amounts of such Insurance with the Insureds and loss payable clauses as
required by this Lease. No such policy shall be cancellable or subject to
modification except after thirty (30) days prior written notice to Lessor.
Lessee shall at least thirty (30) days prior to the expiration of such policies,
furnish Lessor with evidence of renewals or "insurance binders" evidencing
renewal thereof, or
13
<PAGE>
Lessor may order such insurance and charge the cost thereof to Lessee, which
amount shall be payable Lessee to Lessor upon demand. If the Insuring Party
shall fail to procure and maintain the insurance required to be carried by eh
Insuring Party under this Paragraph 8, the other Party may, but shall not be
required to, procure and maintain the same, but at Lessee's expense.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or
remedies, Lessee and Lessor ("Waiving Party") each hereby release and relieve
the other, and waive their entire right to recover damages (whether in contract
or in tort) against the other, for loss of or damage to the Waiving Party's
property arising out of or incident to the perils required to be insured against
under Paragraph 8. The effect of such releases and waivers of the right to
recover damages shall not be limited by the amount of insurance carried or
required, or by any deductibles applicable thereto.
8.7 INDEMNITY. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
costs, liens, judgments, penalties, permits, attorney's and consultant's fees,
expenses and/or liabilities arising out of, involving, or in dealing with, the
occupance of the Premises by Lessee, the conduct of Lessee's business, any act,
omission or neglect of Lessee, its agents, contractors, employees or invitees,
and out of any Default or Breach by Lessee in the performance in a timely manner
of any obligation on Lessee's part to be performed under this Lease. The
foregoing shall include, but not be limited to, the defense or pursuit of any
claim or any action or proceeding involved therein, and whether or not (in the
case of claims made against Lessor) litigated and/or reduced to judgment, and
whether well founded or not. In case any action or proceeding be brought
against Lessor by reason of any of the foregoing matters, Lessee upon notice
from Lessor shall defend the same at Lessee's expense by counsel reasonably
satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense.
Lessor need not have first paid any such claim in order to be so indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury in caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether the said injury or damage results from conditions arising upon
the Premises or upon other portions of the building of which the Premises are a
part, or from other sources or places, and regardless of whether the cause of
such damage or injury or the means of repairing the same in accessible or not.
Lessor shall not be liable for any damages arising from any act or neglect of
any other tenant of Lessor.
14
<PAGE>
Notwithstanding Lessor's negligence or breach of this Lease, Lessor shall under
no circumstances be liable for injury to Lessee's business or for any loss of
income or profit therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to the
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is less than 50%
of the then Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction to
the Premises, other than Lessee Owned Alterations and Utility Installations, the
repair cost of which damage or destruction is 50% or more of the then
Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(c) "INSURED LOSS" shall mean damage or destruction to improvements
on the Premises, other than Lessee Owned Alterations and Utility Installations,
which was caused by an event required to be covered by the insurance described
in Paragraph 8.3(a), irrespective of any deductible amounts or overage limits
involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal nd
upgrading required by the operation of applicable building codes, ordinances or
laws, and without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence
_____________________________________ a Hazardous Substance as defined in
Paragraph 6.2(a), in, on, or under the Premises.
9.2 PARTIAL DAMAGE - INSURED LOSS. If a Premises Partial Damage that is
an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such
damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect; provided, however, that Lessee shall, at Lessor's
election, make the repair of any damage or destruction the total cost to repair
of which is $10,000 or less, and, in such event, Lessor shall make the insurance
proceeds available to Lessee on a reasonable basis for that purpose.
Notwithstanding the foregoing, if the required insurance was not in fore or the
insurance proceeds are not sufficient to effect such repair, the Insuring Party
shall promptly contribute the shortage in proceeds (except as to the
15
<PAGE>
deductible which is Lessee's responsibility) as and when required to complete
said repairs. In the event, however, the shortage in proceeds was due to the
fact that, by reason of the unique nature of the improvements, full replacement
cost insurance coverage was not commercially reasonable and available, Lessor
shall have no obligation to pay for the shortage in insurance proceeds or to
fully restore the unique aspects of the Premises unless Lessee provides Lessor
with the funds to cover same, or adequate assurance thereof, within ten (10)
days following receipt of written notice of such shortage and request therefor.
If Lessor receives said funds or adequate assurance thereof within said ten (10)
day period, the party responsible for making the repairs shall complete them as
soon as reasonably possible and this Lease shall remain in full force and
effect. If Lessor does not receive such funds or assurance within said period,
Lessor may nevertheless elect by written notice to Lessee within ten (10) days
thereafter to make such restoration and repair as is commercially reasonable
with Lessor paying any shortage in proceeds, in which case this Lease shall
remain in full force and effect. If in such case Lessor does not so elect, then
this Lease shall terminate sixty (60) days following the occurrence of the
damage or destruction. Unless otherwise agreed, Lessee shall in no event have
any right to reimbursement from Lessor for any funds contributed by Lessee to
repair any such damage or destruction. Premises Partial Damage due to flood or
earthquake shall be subject to Paragraph 9.3 rather than Paragraph 9.2,
notwithstanding that there may be some insurance coverage, but the net proceeds
of any such insurance shall be made available for the repairs if made by either
Party.
9.3 PARTIAL DAMAGE - UNINSURED LOSS. If a Premises Partial Damage that is
not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13), Lessor may at Lessor's option, either: (i) repair
such damage as soon as reasonably possible at Lessor's expense, in which event
this Lease shall continue in full force and effect, or (ii) give written notice
to Lessee within thirty (30) days after receipt by Lessor of knowledge of the
occurrence of such damage of Lessor's desire to terminate this Lease as of the
date sixty (60) days following the giving of such notice. In the event Lessor
elects to give such notice of Lessor's intention to terminate this Lease, Lessee
shall have the right within ten (10) days after the receipt of such notice to
give written notice to Lessor of Lessee's commitment to pay for the repair of
such damage totally at Lessee's expense and without reimbursement from Lessor.
Lessee shall provide Lessor with the required funds or satisfactory assurance
thereof within thirty (30) days following Lessee's said commitment. In such
event this Lease shall continue in full force and effect, and Lessor shall
proceed to make such repairs as soon as reasonably possible and the required
funds are available. If Lessee does not give such notice and provide the funds
or assurance thereof within the times specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination.
16
<PAGE>
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if a
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 8.6.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6)
months of the term of this Lease there is damage for which the cost to repair
exceeds one (1) month's Base Rent, whether or not an Insured Loss, Lessor may,
at Lessor's option, terminate this Lease effective sixty (60) days following the
date of occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30 days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by, within twenty (20 days following the occurrence of the damage, or
before the expiration of the time provided in such option for its exercise,
whichever is earlier ("Exercise Period"), (i) exercising such option and (ii)
providing Lessor with any shortage in insurance proceeds (or adequate assurance
thereof) needed to make the repairs. If Lessee duly exercises such option
during said Exercise Period and provides Lessor with funds (or adequate
assurance thereof) to cover any shortage in insurance proceeds, Lessor shall, at
Lessor's expense repair such damage as soon as reasonably possible and this
Lease shall continue in full force and effect. If Lessee fails to exercise such
option and provide such funds or assurance during said Exercise Period, then
Lessor may at Lessor's option terminate this Lease as of the expiration of said
sixty (60) day period following the occurrence of such damage by giving written
notice to Lessee of Lessor's election to do so within ten (10) days after the
expiration of the Exercise Period, notwithstanding any term or provision in the
grant of option to the contrary.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of damage described in Paragraph 9.2 (Partial Damage
- - Insured), whether or not Lessor or Lessee repairs or restores the Premises,
the Base Rent, Real Property Taxes, insurance premiums, and other charges, if
any, payable by Lessee hereunder for the period during which such damage, its
repair or the restoration continues (not to exceed the period for which rental
value insurance is required under Paragraph 8.3(b)), shall be abated in
proportion to the degree to which Lessee's use of the Premises is impaired.
Except for abatement of Base Rent, Real Property Taxes, insurance premiums, and
other charges, if any, as aforesaid, all other obligations of Lessee hereunder
shall be performed by Lessee, and Lessee shall have no claim against Lessor
17
<PAGE>
for any damage suffered by reason of any such repair or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall accrue, Lessee may, at any time
prior to the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate this Lease on a date not less than sixty (60) days following the
giving of such notice. If Lessee gives such notice to Lessor and such Lenders
and such repair or restoration is not commenced within thirty (30) days after
receipt of such notice, this Lease shall terminate as of the date specified in
said notice. If Lessor or a Lender commences the repair or restoration of the
Premises within thirty (30) days after receipt of such notice, this Lease shall
continue in full force and effect. "COMMENCE" as used in this Paragraph shall
mean either the unconditional authorization of the preparation of the required
plans, or the beginning of the actual work on the Premises, whichever first
occurs.
9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable Law
and this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13), Lessor may at Lessor's option either (i) investigate
and remediate such Hazardous Substance Condition if required, as soon as
reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) if the estimated cost to investigate
and remediate such condition exceeds twelve (12) times the then monthly Base
Rent or $100,000, which ever is greater, give written notice to Lessee within
thirty (30) days after receipt by Lessor of knowledge of the occurrence of such
Hazardous Substance Condition of Lessor's desire to terminate this Lease as of
the date sixty (60) days following the giving of such notice. In the event
Lessor elects to give such notice of Lessor's intention to terminate this Lease,
Lessee shall have the right within ten (10) days after the receipt of such
notice to give written notice to Lessor of Lessee's commitment to pay for the
investigation and remediation of such Hazardous Substance Condition totally at
Lessee's expense and without reimbursement from Lessor except to the extent of
an amount equal to twelve (12) times the then monthly Base Rent of $100,000,
whichever is greater, Lessee shall provide Lessor with the funds required of
Lessee or satisfactory assurance thereof within thirty (30) days following
Lessee's said commitment. In such event this Lease shall continue in full force
and effect, and Lessor shall proceed to make such investigation and remediation
as soon as reasonably possible and the required funds are available. If Lessee
does not give such notice and provide the required funds or assurance thereof
within the times specified above, this Lease shall terminate as of the date
specified in Lessor's notice of termination. If a Hazardous
18
<PAGE>
Substance Condition occurs for which Lessee is not legally responsible, there
shall be abatement of Lessee's obligations under this Lease to the same extent
as provided in Paragraph 9.8(a) for a period of not to exceed twelve (12)
months.
9.8 TERMINATION - ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this Paragraph 9, an equitable adjustment shall be made concerning
advance Base Rent and any other advance payments made by Lessee to Lessor.
Lessor shall, in addition, return to Lessee so much of Lessee's Security Deposit
as has not been, or is not then required to be, used by Lessor under the terms
of this Lease.
9.9 WAIVE STATUTES. Lessor and Lessee agree that the terms of this Lease
shall govern the effect of any damage to or destruction of the Premises with
respect to the termination of this Lease and thereby waive the provisions of any
present or future statute to the extent inconsistent herewith.
10. REAL PROPERTY TAXES.
10.1 (a) PAYMENT OF TAXES. Lessee shall pay the Real Property Taxes, as
defined in Paragraph 10.2, applicable to the Premises during the terms of this
Lease. Subject to Paragraph 10.1(b), all such payments shall be made at least
ten (10) days prior to the delinquency date of the applicable installment.
Lessee shall promptly furnish Lessor with satisfactory evidence that such taxes
have been paid. If any such taxes to be paid by Lessee shall cover any period
of time prior to or after the expiration or earlier termination of the term
hereof, Lessee's share of such taxes shall be equitably prorated to cover only
the period of time within the tax fiscal year this Lease is in effect, and
Lessor shall reimburse Lessee for any overpayment after such proration. If
Lessee shall fail to pay any Real Property Taxes required by this Lease to be
paid by Lessee, Lessor shall have the right to pay the same, and Lessee shall
reimburse Lessor therefor upon demand.
(b) ADVANCE PAYMENT. In order to insure payment when due and before
delinquency of any or all Real Property Taxes, Lessor reserves the right, at
Lessor's option, to estimate the current Real Property Taxes applicable to the
Premises, and to require such current year's Real Property Taxes to be paid in
advance to Lessor by Lessee, either: (i) in a lump sum amount equal to the
installment due, at least twenty (20) days prior to the applicable delinquency
date, or (ii) monthly in advance with the payment of the Base Rent. If Lessor
elects to require payment monthly in advance, the monthly payment shall be that
equal monthly amount which, over the number of months remaining before the month
in which the applicable tax installment would become delinquent (and without
interest thereon), would provide a fund large enough to fully discharge before
delinquency the estimated installment of taxes to be paid. When the actual
amount of the applicable tax bill in known, the amount of such equal monthly
advance payment shall be adjusted as _____________________ applicable taxes
before
19
<PAGE>
delinquency ____________________________ _____________ Paragraph are
insufficient to discharge the obligations of Lessee to pay such Real Property
Taxes as the same become due, Lessee shall pay to Lessor, upon Lessor's demand,
such additional sums as are 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 Breach by Lessee in the
performance of the obligations of Lessee under this Lease, then any balance of
funds paid to Lessor under the provisions of this Paragraph may, subject to
proration as provided in Paragraph 10.1(a), at the option of Lessor, be treated
as an additional Security Deposit under Paragraph 5.
10.2 DEFINITION OF "REAL PROPERTY TAXES." As used herein, the term "REAL
PROPERTY TAXES" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed upon the Premises by any authority
having the direct or indirect power to tax, including any city, state or federal
government, or any school, agricultural, sanitary, fire, street, drainage or
other improvement district thereof, levied against any legal or equitable
interest of Lessor in the Premises or in the real property of which the Premises
are a part, Lessor's right to rent or other income therefrom, and/or Lessor's
business of leasing the Premises. The term "REAL PROPERTY TAXES" shall also
include any tax, fee, levy, assessment or charge, or any increase therein,
imposed by reason of event occurring, or changes in applicable law taking
effect, during the term of this Lease, including but not limited to a change in
the ownership of the Premises or in the improvements thereon, the execution of
this Lease or any modification, amendment or transfer thereof, and whether or
not contemplated by the Parties.
10.3 JOINT 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.
10.4 PERSONAL PROPERTY TAXES. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee Owned Alterations, Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or elsewhere. When possible, Lessee shall
cause its Trade Fixtures, furnishings, equipment and all other personal property
to be assessed and billed separately from the real property of Lessor. If any
of Lessee's said personal property shall be assessed with Lessor's real
property, Lessee shall pay Lessor the taxes attributable to Lessee within ten
(10) days after receipt of a written statement setting forth the taxes
applicable to Lessor's property or, at Lessor's option, as provided in Paragraph
10.1(b).
20
<PAGE>
11. UTILITIES. Lessor shall pay for all water, gas, heat,light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor, of all charges jointly metered with other premises.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively,
"assignment") or sublet all or any part of Lessor's interest in this Lease or in
the Premises without Lessor's prior written consent given under and subject to
the terms of Paragraph 36.
(b) A change in the control of Lessee shall constitute an assignment
requiring Lessor's consent. The transfer, on a cumulative basis, of twenty-five
percent (25%) or more of the voting control of Lessee shall constitute a change
for this purpose.
(c) The involvement of Lessee or its assets in any transaction, or
series of transactions (by way of merger, sale, acquisition, financing,
refinancing, transfer, leveraged buy-out or otherwise), whether or not a formal
assignment or hypothecation of this Lease or Lessee's assets occurs, which
results or will result in a reduction of the Net Worth of Lessee, as hereinafter
defined, by an amount equal to or greater than twenty-five percent (25%) of such
Net Worth of Lessee as it was represented to Lessor at the time of the execution
by Lessor of this Lease or at the time of the most recent assignment to which
Lessor has consented, or as it exists immediately prior to said transaction or
transactions constituting such reduction, at whichever time said Net Worth or
Lessee was or is greater, shall be considered an assignment of this Lease by
Lessee to which Lessor may reasonably withhold its consent, "NET WORTH OF
LESSEE" for purposes of this lease shall be the net worth of Lessee (excluding
any guarantors) established under generally accepted accounting principles
consistently applied.
(d) An assignment or subletting of Lessee's interest in this lease
without Lessor's specific prior written consent shall, at Lessor's option, be a
Default curable after notice per Paragraph 13.1(c), or a noncurable Breach
without the necessity of any notice and grace period. If Lessor elects to treat
such unconsented to assignment or subletting as a noncurable Breach, Lessor
shall have the right to either: (i) terminate this Lease, or (ii) upon thirty
(30) days written notice ("Lessor's Notice"). Increase the monthly Rent to fair
market rental value or one hundred ten percent (110%) of the Base Rent then in
effect, whichever is greater. Pending determination of the now fair market
rental value, if disputed by Lessee, Lessee shall pay the amount set forth in
Lessor's Notice,
21
<PAGE>
with any overpayment credited against the next installment(s) of Base Rent
coming due, and any underpayment for the period retroactively to the effective
date of the adjustment being due and payable immediately upon the determination
thereof. Further, in the event of such Breach and market value adjustment, (i)
the purchase price of any option to purchase the Premises held by Lessee shall
be subject to similar adjustment to the then fair market value (without the
Lease being considered an encumbrance or any deduction for depreciation or
obsolescence, and considering the Premises as its highest and best use and in
good condition), or one hundred ten percent (110%) of the price previously in
effect, whichever is greater, (ii) any index-oriented rental or price adjustment
formulas contained in this Lease shall be adjusted to require that the base
index be determined with reference to the index applicable to the time of such
adjustment, and (iii) any fixed rental adjustments scheduled during the
remainder of the Lease term shall be increased in the same ratio as the new
market rental bears to the Base Rent in effect immediately prior to the market
value adjustment.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by Lessor
shall be limited to compensatory damages and injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting
shall not, (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, or (iii) after the primary
liability of Lessee for the payment of Base Rent and other sums due Lessor
hereunder or for the performance of any other obligations to be performed by
Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessor's obligations
from any person other than Lessee pending approval or disapproval of an
assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent or performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the sublessee.
However, Lessor may consent to subsequent sublettings and assignments of the
sublease or any amendments or notifications thereto without notifying Lessee or
anyone also liable on the Lease or sublease and without obtaining their consent,
and such action shall not relieve such persons from liability under this Lease
or sublease.
22
<PAGE>
(d) In the event of any Default or Breach of Lessee's obligations
under this Lease, Lessor may proceed directly against Lessee, any Guarantors or
any one else responsible for the performance of the Lessor's obligations under
this Lease, including the sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor or Lessee.
(e) Each request for consent to an assignment or subletting shall be
in writing, accompanied by information relevant to Lessor's determination as to
the financial and operational responsibility and appropriateness of the proposed
assignee or sublessee, including but not limited to the intended use and/or
required modification of the Premises, if any, together with a non-refundable
deposit of $1,000 or ten percent (10%) of the current monthly Base Rent,
whichever is greater, as reasonable consideration for Lessor's considering and
processing the request for consent. Lessee agrees to provide Lessor with such
other or additional information and/or documentation as may be reasonably
requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by reason
of accepting such assignment or entering into such sublease, be deemed, for the
benefit of Lessor, to have assumed and agreed to conform and comply with each
and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
(g) The occurrence of a transaction described in Paragraph 12.1(c)
shall give Lessor the right (but not the obligation) to require that the
Security Deposit be increased to an amount equal to six (6) times the then
monthly Base Rent, and Lessor may make the actual receipt by Lessor of the
amount required to establish such Security Deposit a condition to Lessor's
consent to such transaction.
(h) Lessor, as a condition to giving its consent to my assignment or
subletting, may require that the amount and adjustment structure of the rent
payable under the Lease be adjusted to what is then the market value and/or
adjustment structure for property similar to the Premises as then constituted.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a portion
of the Premises heretofore or hereafter made by Lessee, and Lessor may collect
such rent and
23
<PAGE>
income and apply same toward Lessee's obligations under this Lease, provided,
however, that until a Breach (as defined in Paragraph 13.1) shall occur in the
performance of Lessee's obligations under this Lease. Lessee may, except as
otherwise provided in this Lease, receive, collect and enjoy the rents accruing
under such sublease. Lessor shall not, by reason of this or any other
assignment of such sublease to Lessor, nor by reason of the collection of the
rents from a sublessee, be deemed liable to the sublessee for any failure of
Lessee to perform and comply with any of Lessee's obligations to such sublessee
under such sublease. Lessee hereby irrevocably authorizes and directs any such
sublessee, upon receipt of a written notice from Lessor stating that a Breach
exists in the performance of Lessee's obligations under this Lease, to pay to
Lessor the rents and other charges due and to become due under the sublease.
Sublessee shall rely upon any _____________________________________ shall pay
such rents and ___________________________________________________ such Breach
exists and notwithstanding any notice from or claim for Lessee to the contrary,
Lessee shall have no right or claim against said sublessee, or, until the Breach
has been cured, against Lessor, for any such rents and other charges so paid by
said sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessor or for any other prior Defaults
or Breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor under
a sublease shall also require the consent of Lessor herein.
(d) No sublessee shall further assign or sublet all or any part of
the Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach by
Lessee to the sublessee, who shall have the right to cure the Default of Lessee
within the grace period, if any, specified in such notice. The sublessee shall
have a right of reimbursement and offset from and against Lessee for any such
Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may
24
<PAGE>
include the cost of such services and costs in said notice as rent due and
payable to cure said Default. A "Default" is defined as a failure by the Lessee
to observe, comply with or perform any of the terms, covenants, conditions or
rules applicable to Lessee under this Lease. A "Breach" is defined as the
occurrence of any one or more of the following Defaults, and, where a grace
period for cure after notice is specified herein, the failure by Lessee to cure
such Default prior to the expiration of the applicable grace period, shall
entitle Lessor to pursue the remedies set forth in Paragraphs 13.2 and/or 13.3:
(a) The vacating of the Premises without the intention to reoccupy
same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the failure
by Lessee to make any payment of Base Rent or any other monetary payment
required to be made by Lessee hereunder, whether to Lessor or to a third party,
as and when due, the failure by Lessee to provide Lessor with reasonable
evidence of insurance or surety bond required under this Lease, or the failure
of Lessee to fulfill any obligation under this Lease which endangers or
threatens life or property, where such failure continues for a period of three
(3) days following written notice thereof by or on behalf of Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the failure
by Lessee to provide Lessor with reasonable written evidence (in duly executed
original term, if applicable) of (i) compliance with Applicable Law _________
Paragraph __, (ii) the ________________, maintenance and
_______________________________ required under Paragraph 7.1(b), (iii) the
__________ of an unauthorized assignment or subletting per Paragraph 12.1(b),
(iv) a Tenancy Statement per Paragraphs 18 or 37, (v) the subordination or
non-subordination of this Lease per Paragraph 30, (vi) the guaranty of the
performance of Lessee's obligations under this Lease if required under
Paragraphs 1.11 and 37, (vii) the execution of any document requested under
Paragraph 42 (easements), or (viii) any other documentation or information which
Lessor may reasonably require of Lessee under the terms of this Lease, where any
such failure continues for a period of ten (10) days following written notice by
or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof,
that are to be observed, complied with or performed by Lessee, other than those
described in subparagraphs (a), (b) or (c), above, where such Default continues
for a period of thirty (30) days after written notice thereof by or on behalf of
Lessor to Lessee; provided, however, that if the nature of Lessee's Default is
such that more than thirty (30) days are reasonably required for its cure, then
it shall not be deemed to be a Breach of this Lease by Lessee if Lessee
commences such cure within said thirty (30) day period and thereafter diligently
prosecutes such cure to completion.
25
<PAGE>
(e) The occurrence of any of the following events: (i) the making by
Lessee of any general arrangement or assignment for the benefit of creditors;
(ii) Lessee's becoming a "debtor" as defined in 11 U.S.C. Section 101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of
a trustee or receiver to take possession of substantially all of Lessee's assets
located at the Premises or of Lessor'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 Lessor's assets
located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty (30) days; provided, however, in the
event that any provision of this subparagraph (e) is contrary to any applicable
law, such provision shall be of no force or affect, and not affect the validity
of the remaining provisions.
(f) The discovery by Lessor that any financial statement given to
Lessor by Lessee or any Guarantor of Lessee's obligations hereunder was
materially false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed; (i) the death of a guarantor, (ii) the termination of a guarantor's
liability with respect to this Lease other than in accordance with the terms of
such guaranty, (iii) a guarantor's becoming insolvent or the subject of a
bankruptcy filing, (iv) a guarantor's refusal to honor the guaranty, or (v) a
guarantor's breach of its guaranty obligation on an anticipatory breach basis,
and Lessee's failure, within sixty (60) days following written notice by or on
behalf of Lessor to Lessee of any such event, to provide Lessor with written
alternative assurance or security, which, when coupled with the then existing
resources of Lessee, equals or exceeds the combined financial resources of
Lessee and not guarantors that existed at the time of execution of this Lease.
13.2 REMEDIES. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written notice
to Lessee (or in case of an emergency, without notice), Lessor may at its option
(but without obligation to do so), perform such duty or obligation on Lessee's
behalf, including but not limited to the obtaining of reasonably required bonds,
insurance policies, or governmental licenses, permits or approvals. The costs
and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at its option,
may require all future payments to be made under this Lease by Lessee to be made
only by cashier's check. In the event of a Breach of this Lease by Lessee, as
defined in Paragraph 13.1, with or without further notice or demand, and without
limiting Lessor in the exercise of any right or remedy which Lessor may have by
reason of such Breach, Lessor may:
26
<PAGE>
(a) Terminate Lessee's right to possession of the Premises by any lawful
means, in which case this Lease and the term hereof shall terminate and Lessee
shall immediately surrender possession of the Premises to Lessor. In such event
Lessor shall be entitled to recover from Lessee: (i) the worth at the time of
the award of the unpaid rent which had been earned at the time of termination;
(ii) the worth at the time of award of the amount by which the unpaid rent which
would have been earned after termination until the time of award exceeds the
amount of such rental loss that the Lessee proves could have been reasonably
avoided; (iii) the worth at the time of award of the amount by which the unpaid
rent for the balance of the term after the time of award exceeds the amount of
such rental loss that the Lessee proves could be reasonably avoided; and (iv)
any other amount necessary to compensate Lessor for all the detriment
proximately caused by the Lessee's failure to perform its obligations under this
Lease or which in the ordinary course of things would be likely to result
therefrom, including but not limited to the cost of recovering possession of the
Premises, expenses of reletting, including necessary renovation and alteration
of the Premises, reasonable attorneys' fees, and that portion of the housing
commission paid by Lessor applicable to the unexpired term of this Lease. The
worth at the time of award of the amount referred to in provision (iii) of the
prior sentence shall be computed by discounting such amount of the discount rate
of the Federal Reserve Bank of San Francisco at the time of award plus one
percent (1%). Efforts by Lessor to mitigate damages caused by Lessee's Default
of Breach of this Lease shall not waive Lessor's right to recover damages under
this Paragraph. If termination of this Lease is obtained through the
provisional remedy of unlawful detainer, Lessor shall have the right to recover
in such proceeding the unpaid rent and damages as are recoverable therein, or
Lessor may reserve therein the right to recover all or any part thereof in a
separate suit for such rent and/or damages. If a notice and grace period
required under subparagraphs 13.1(b), (c) or (d) was not previously given, a
notice to pay rent or quit, or to perform or quit, as the case may be, given to
Lessee under any statute authorizing the forfeiture of losses for unlawful
detainer shall also constitute the applicable notice for grace period purposes
required by subparagraphs 13.1(b), (c) or (d). In such case the applicable
grace period under subparagraphs 13,1(b), (c) or (d) and under the unlawful
detainer statute shall run concurrently after the one such statutory notice, and
the failure of Lessee to cure the Default within the greater of the two such
grace periods shall constitute both an unlawful detainer and a Breach of this
Lease entitling Lessor to the remedies provided for in this Lease and/or by said
statute.
(b) Continue the Lease and Lessee's right to possession in effect (in
California under California Civil Code Section 1951.4) after Lessee's Breach and
abandonment and recover the rent as it becomes due, provided lessee has the
right to sublet or assign, subject only to reasonable limitations. See
Paragraphs 12 and 36 for the limitations on assignment and subletting which
limitations Lessee and Lessor agree are reasonable. Acts of maintenance or
preservation, efforts to sublet the Premises, or the appointment of
27
<PAGE>
a receiver to protect the Lessor's Interest under the Lease, shall not
constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor under the
laws of judicial decisions of the state wherein the Premises are located.
(d) The expiration of this Lease and/or the termination of Lessee's right
to possession shall not relieve Lessee from liability under any indemnity
provisions of this Lease as to matters occurring or accruing during the term
hereof or by reason of Lessee's occupancy of the Premises.
13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by Lessor for
free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "Inducement Provisions," shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach of this Lease by Lessee, as defined in Paragraph 13.1, any such
inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other change, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph shall not be deemed a waiver by Lessor of the provisions of this
Paragraph unless specifically so stated in writing by Lessor at the time of such
acceptance.
13.4 _______________________ that late payment by Lessee to Lessor
_______________________________ to incur costs not contemplated by this Lease,
the exact amount of which will be extremely difficult to ascertain. Such costs
include, but are not limited to, processing and accounting charges, and late
charges which may be imposed upon Lessor by the terms of any ground lease,
mortgage or trust deed covering the Premises. Accordingly, if any installment
of rent or any other sum due from Lessee shall not be received by Lessor or
Lessor's designee within five (5) days after such amount shall be due, then,
without any requirement for notice to Lessee, Lessee shall pay to Lessor a late
charge equal to six percent (6%) of such overdue amount. The parties hereby
agree that such late charge represents a fair and reasonable estimate of the
costs Lessor will incur by reason of late payment by Lessee. Acceptance of such
late charge by Lessor shall in no event constitute a waiver of Lessee's Default
of Breach with respect to such overdue amount, nor prevent Lessor from
exercising any of the other rights and remedies granted hereunder. In the event
that a late charge is payable hereunder, whether or not collected, for
28
<PAGE>
three (3) consecutive installments of Base Rent, then notwithstanding Paragraph
4.1 or any other provision of this Lease to the contrary, Base Rent shall, at
Lessor's option, become due and payable quarterly in advance.
13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of this Lease
unless Lessor fails within a reasonable time to perform an obligation required
to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor,
and by the holders of any ground lease, mortgage or deed of trust covering the
Premises whose name and address shall have been furnished Lessee in writing for
such purpose, of written notice specifying wherein such obligation of Lessor has
not been performed; provided, however, that if the nature of Lessor's obligation
is such that more than thirty (3) days after such notice are reasonably required
for its performance, then Lessor shall not be in breach of this Lease if
performance is commenced within such thirty (30) day period and thereafter
diligently pursued to completion.
14. CONDEMNATION. If the Premises or any portion thereof are taken under
the power of eminent domain or sold under the threat of the exercise of said
power (all of which are herein called "condemnation"), this Lease shall
terminate as to the part so taken as of the date the condemning authority takes
title or possession, whichever first occurs. If more than ten percent (10%) of
the floor area of the Premises, or more than twenty-five percent (25%) of the
land area not occupied by any building, is taken by condemnation, Lessee may, at
Lessee's option, to be exercised in writing within ten (10) days after Lessor
shall have given Lessee written notice of such taking (or in the absence of such
notice, within ten (10) days after the condemning authority shall have taken
possession, terminate this Lease as of the date the condemning authority takes
such possession. If Lessee does not terminate this Lease in accordance with the
foregoing, this Lease shall remain in full force and effect as to the portion of
the Premises remaining, except that the Base Rent shall be reduced in the same
proportion as the rentable floor area of the Premises taken bears to the total
rentable floor area of the building located on the Premises. No reduction of
Base Rent shall occur if the only portion of the Premises taken is land on which
there is no building. Any award for the taking of all or any part of the
Premises under the power of eminent domain or any payment made under threat of
the exercise of such power shall be the property of Lessor, whether such award
shall be made as compensation for diminution in value of the household or for
the taking of the fee, or as severance damages; provided, however, that Lessee
shall be entitled to any compensation separately awarded to Lessee for Lessee's
relocation expenses and/or loss of Lessee's Trade Fixtures in the event that
this Lease is not terminated by reason of such condemnation, Lessor shall to the
extent of its net severance damages received, over and above the legal and other
expenses incurred by lessor in the condemnation matter, repair any damage to the
Premises caused by such condemnation, except to the extent that Lessee has been
reimbursed therefor by the condemning authority
29
<PAGE>
Lessee shall be responsible for the payment of any amount in excess of such net
severance damages required to complete such repair.
15. BROKER'S FEE.
15.1 The Brokers named in Paragraph 1.10 are the procuring causes of this
Lease.
15.2 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 fee as set forth in a separate written agreement between Lessor and
said Brokers (or in the event there is no separate written agreement between
Lessor and said Brokers, the sum of $________) for brokerage services rendered
by said Brokers to Lessor in this transaction.
15.3 Unless Lessor and Brokers have otherwise agreed in writing, Lessor
further agrees that: (a) if Lessee exercises any Option (as defined in Paragraph
39.1) or any Option subsequently granted which is substantially similar to an
Option granted to Lessee in this Lease, or (b) 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 (c) if Lessee remains in possession of the Premises,
with the consent of Lessor, after the expiration of the term of the Lease after
having failed to exercise an Option, or (d) if said Brokers are the procuring
cause of any other lease or sale entered into between the Parties pertaining to
the Premises and/or any adjacent property in which Lessor has an Interest, or
(e) if Base Rent is increased, whether by agreement or operation of an
escalation clause herein, then as to any of said transactions, Lessor shall pay
said Brokers a fee in accordance with the schedule of said Brokers in effect at
the time of the execution of this Lease.
15.4 Any buyer or transferee of Lessor's Interest in this Lease, whether
such transfer is by agreement or by operation of law, shall be deemed to have
assumed Lessor's obligation under this Paragraph 15. Each Broker shall be a
third party beneficiary of the provisions of this Paragraph 15 to the extent of
its interest in any commission arising from this Lease and may enforce that
right directly against Lessor and its successors.
15.5 Lessee and Lessor each represent and warrant to the other that it has
had no dealing with any person, firm, broker or finder (other than the Brokers,
if any named in Paragraph 1.10) in connection with the negotiation of this Lease
and/or the consummation of the transaction contemplated hereby, and that no
broker or other person, firm or entity other than said named Brokers is entitled
to any commission or finder's fee in connection with said transaction. Lessee
and Lessor do each hereby agree to indemnify, protect, defend and hold the other
harmless from and against liability for compensation or charges which may be
claimed by any such unnamed broker, finder or other similar party by reason of
any dealings or actions of the indemnifying Party, including any
30
<PAGE>
costs, expenses, attorneys' fees reasonably incurred with respect thereto.
15.6 Lessor and Lessee hereby consent to and approve all agency
relationships, including any dual agencies, indicated in Paragraph 1.10.
16. TENANCY STATEMENT.
16.1 Each Party (as "RESPONDING PARTY") shall within ten (10) days after
written notice from the other Party (the "REQUESTING PARTY") executed,
acknowledge and deliver to the Requesting Party a statement in writing in form
similar to the then most current "TENANCY STATEMENT" form published by the
American Industrial Real Estate Association, plus such additional information,
confirmation and/or statements as may be reasonably requested by the Requesting
Party
16.2 If Lessor desires to finance, refinance, or sell the Premises, any
part thereof, or the building of which the Premises are a part, Lessee and all
Guarantors of Lessee's performance hereunder shall deliver to any potential
lender or purchaser designated by Lessor such financial statements of Lessee and
such Guarantors as may be reasonably required by such lender or purchaser,
including but not limited to Lessee's financial statements for the past three
(3) years. All such financial statements shall be received by Lessor and such
lender or purchaser in confidence and shall be used only for the purposes herein
set forth.
17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean the owner
or owners at the time in question of the fee title to the Premises, or, if this
is a sublease, of the Lessee's interest in the prior lease. In the event of a
transfer of Lessor's title or interest in the Premises or in this Lease, Lessor
shall deliver to the transferee or assignee (in cash or by credit) any unused
Security Deposit held by Lessor at the time of such transfer or assignment.
Except as provided in Paragraph 15, upon such transfer or assignment and
delivery of the Security Deposit, as aforesaid, the prior Lessor shall be
relieved of all liability with respect to the obligations and/or covenants under
this Lease thereafter to be performed by the Lessor. Subject to the foregoing,
the obligations and/or covenants in this Lease to be performed by the Lessor
shall be binding only upon the Lessor as hereinabove defined.
18. SEVERABILITY. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor
hereunder, other than late charges, not received by Lessor within thirty (30)
days following the date on which it was due, shall bear interest from the
thirty-first (31st) day after it was due at the rate of 12% per annum, but not
exceeding the maximum
31
<PAGE>
rate allowed by law, in addition to the late charge provided for in Paragraph
13.4.
20. TIME OF ESSENCE. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by other Party.
23. NOTICES.
23.1 All notices required or permitted by this Lease shall be in writing
and may be delivered in person (by hand or by messenger or courier service) or
may be sent by regular, certified or registered mail or U.S. Postal Service
Express Mail, with postage prepaid, or by facsimile transmission, and shall be
deemed sufficiently given if served in a manner specified in this Paragraph 23.
The addresses noted adjacent to a Party's signature on this Lease shall be that
Party's address for delivery or mailing of notice purposes. Either Party may by
written notice to the other specify a different address for notice purposes,
except that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for the purpose of mailing or delivering notices to
Lessee. A copy of all notices required or permitted to be given to Lessor
hereunder shall be concurrently transmitted to such party or parties at such
addresses as Lessor may from time to time hereinafter designate by written
notice to Lessee.
23.2 Any notice sent by registered or certified mail, return receipt
requested, shall be deemed given on the date of delivery shown on the receipt
card, or if no delivery date is shown, the postmark thereon. If sent by regular
mail the notice shall be deemed given forty-eight (48) hours after the same is
addressed as required herein and mailed with postage prepaid. Notices delivered
by United States Express Mail or overnight courier that guarantees next day
delivery shall be _____________________ twenty-four (24) hours after delivery of
the same to the United States Post Office or courier. If any notice is
transmitted by facsimile transmission or similar means, the same shall be deemed
served or delivered upon telephone confirmation or receipt of the transmission
thereof, provided a copy is also delivered via delivery or mail. If notice
32
<PAGE>
is received on a Sunday or legal holiday, it shall be deemed received on the
next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by Lessee, shall be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or of any other term, covenant or condition hereof. Lessor's
consent to, or approval of, any act shall not be deemed to render unnecessary
the obtaining of Lessor's consent to, or approval of, any subsequent or similar
act by Lessee, or be construed as the basis of an estoppel to enforce the
provision or provisions of this Lease requiring such consent. Regardless of
Lessor's knowledge of a Default or Breach at the time of accepting rent, the
acceptance of rent by Lessor shall not be a waiver of any preceding Default or
Breach by Lessee of any provision hereof, other than the failure of Lessee to
pay the particular rent so accepted. Any payment given Lessor by Lessee may be
accepted by Lessor on account of moneys or damages due Lessor, notwithstanding
any qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the
parties, their personal representatives, successors and assigns and be governed
by the laws of the State in which the Premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "Security Device"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to
33
<PAGE>
any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default and
allow such Lender thirty (30) days following receipt of such notice for the cure
of said default before invoking any remedies Lessee may have by reason thereof.
If any Lender shall elect to have this Lease and/or any Option granted hereby
superior to the lien of its Security Device and shall give written notice
thereof to Lessee, this Lease and such Options shall be deemed prior to such
Security Device, notwithstanding the relative dates of the documentation or
recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one (1) month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "non-disturbance agreement") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorneys to the record owner of the Premises.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall be
effective without the execution of any further documents; provided, however,
that, upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of the Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. ATTORNEYS' FEES. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) or Broker in any such proceeding, action, or appeal thereon,
shall be entitled to reasonable attorney's fees. Such fees may be awarded in
the same suit or recovered in a separate suit, whether or not such action or
proceeding is pursued to decision or judgment. The term, "Prevailing Party"
shall include, without limitation, a Party or Broker who substantially obtains
or defeats the relief sought, as the case may be, whether by compromise,
settlement, judgment, or the abandonment by the other Party or Broker of its
claim or
34
<PAGE>
defense. The attorney's fees award shall not be computed in accordance with any
court fee schedule, but shall be such as to fully reimburse all attorney's fees
reasonably incurred. Lessor shall be entitled to attorney's fees, costs and
expenses incurred in the preparation and service of notices of Default and
consultations in connection therewith, whether or not a legal action is
subsequently commenced in connection with such Default or resulting Breach.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times for the purpose of showing the same
to prospective purchasers, lenders, or lessees, and making such alternations,
repairs, improvements or additions to the Premises or to the building of which
they are part, as Lessor may reasonably deem necessary. Lessor may at any time
place on or about the Premises or building any ordinary "For Sale" signs and
Lessor may at any time during the last one hundred twenty (120) days of the term
hereof place on or about the Premises any ordinary "For Lease" signs. All such
activities of Lessor shall be without abatement of rent or liability to Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the Premises, except that
Lessee may, with Lessor's prior written consent, install (but not on the roof)
such signs as are reasonably required to advertise Lessee's own business. The
installation of any sign on the Premises by or for Lessee shall be subject to
the provisions of Paragraph 7 (Maintenance, Repairs, Utility Installations,
Trade Fixtures and Alternations). Unless otherwise expressly agreed herein,
Lessor reserves all rights to the use of the roof and the right to install, and
all revenues from the installation of, such advertising signs on the Premises,
including the roof, as do not unreasonably interfere with the conduct of
Lessee's business.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lessor estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing substances. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such Lessor Interest, shall constitute Lessor's election to have such
event constitute the termination of such Interest.
35
<PAGE>
36. CONSENTS.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in this Lease the consent of a Party is required to an act by
or for the other Party, such consent shall not be unreasonably withheld or
delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' or other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment, a subletting or the presence or use of a
Hazardous Substance, practice or storage tank, shall be paid by Lessee to Lessor
upon receipt of an invoice and supporting documentation therefor. Subject to
Paragraph 12.2(e) (applicable to assignment or subletting), Lessor may, as a
condition to considering any such request by Lessee, require that Lessee deposit
with Lessor an amount of money (in addition to the Security Deposit held under
Paragraph 5) reasonably calculated by Lessor to represent the cost Lessor will
incur in considering and responding to Lessee's request. Except as otherwise
provided, any unused portion of said deposit shall be refunded to Lessee without
interest. Lessor's consent to any act, assignment of this Lease or subletting
of the Premises by Lessee shall not constitute an acknowledgement that no
Default or Breach by Lessee of this Lease exists, nor shall such consent by
deemed a waiver of any then existing Default or Breach, except as may be
otherwise specifically stated in writing by Lessor at the time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the imposition by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. GUARANTOR.
37.1 If there are to be any Guarantors of this Lease per Paragraph 1.11,
the form of the guaranty to be executed by each such Guarantor shall be in the
form most recently published by the American Industrial Real Estate Association,
and each said Guarantor shall have the same obligations as Lessee under this
Lease, including but not limited to the obligation to provide the Tenancy
Statement and information called for by Paragraph 16.
37.2 It shall constitute a Default of the Lessee under this Lease if any
such Guarantor fails or refuses, upon reasonable request by Lessor to give:(a)
evidence of the due execution of the guaranty called for by this Lease,
including the authority of the Guarantor (and of the party signing on
Guarantor's behalf) to obligate such Guarantor on said guaranty, and including
in the case of a corporate Guarantor, a certified copy of a resolution of its
board of directors authorizing the making of such guaranty,
36
<PAGE>
together with a certificate of incumbency showing the signature of the persons
authorized to sign on its behalf,(b) current financial statements of Guarantor
as may from time to time be requested by Lessor,(c) a Tenancy Statement, or (d)
written ______________.
38. QUIET POSSESSION. Upon payment by Lessee of the rent for the Premises and
the observance and performance of all of the covenants, conditions and
provisions on Lessee's part to be observed and performed under this Lease,
Lessee shall have quiet possession of the Premises for the entire term hereof
subject to all of the provisions of this Lease.
39. OPTIONS.
39.1 DEFINITION. As used in this Paragraph 39 the word "Option" has the
following meaning:(a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property of
Lessor; (b)the right of first refusal to lease the Premises or the right of
first offer to lease the Premises or the right of first refusal to lease other
property of Lessor or the right of first offer to lease other property of
Lessor;(c) the right to purchase the Premises, or the right of first refusal to
purchase the Premises, or the first of first offer to purchase the Premises, or
the right to purchase other property of Lessor, or the right of first refusal to
purchase other property of Lessor, or the right of first offer to purchase other
property of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to Lessee in
this Lease is personal to the original Lessee named in Paragraph 1.1 hereof, and
cannot be voluntarily or involuntarily assigned or exercised by any person or
entity other than said original Lessee while the original Lessee is in full and
actual possession of the Premises and without the intention of thereafter
assigning or subletting. The Options, if any, herein granted to Lessee are not
assignable, either as a part of an assignment of this Lease or separately or
apart therefrom, and no Option may be separated from this Lease in any manner,
by reservation or otherwise.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any Multiple Options
to extend or renew this Lease, a later option cannot be exercised unless the
prior Options to extend or renew this Lease have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option, notwithstanding
any provision in the grant of Option to the contrary; (i) during the period
commencing with the given of any notice of Default under Paragraph 13.1 and
continuing until the noticed Default is cured, or (ii) during the period of time
any monetary obligation due Lessor from Lessee is unpaid (without regard to
whether notice thereof is given Lessee), or (iii) during the time Lessee is in
Breach of this Lease, or (iv) in the event
37
<PAGE>
that Lessor has given to Lessee three (3) or more notices of Default under
Paragraph 13.1, whether or not the Defaults are cured, during the twelve (12)
month period immediately preceding the exercise of the Option.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to
Lessee three (3) or more notices of Default under Para graph 13.1 during any
twelve (12) month period, whether or not the Defaults are cured, or (iii) if
Lessee commits a Breach of this Lease.
40. MULTIPLE BUILDINGS. If the Premises are part of a group of buildings
controlled by Lessor, Lessee agrees that it will abide by, keep and observe all
reasonable rules and regulations which Lessor may make from time to time for the
management, safety, care, and cleanliness of the grounds, the parking and
unloading of vehicles and the preservation of good order, as well as for the
convenience of other occupants or tenants of such other buildings and their
invitees, and that Lessee will pay its fair share of common expenses incurred in
connection therewith.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. RESERVATIONS. Lessor reserves to itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded
38
<PAGE>
as a voluntary payment and there shall survive the right on the part of said
Party to institute suit for recovery of such sum. If it shall be adjudged that
there was no legal obligation on the part of said Party to Pay such sum or any
part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
44. AUTHORITY. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the typewritten
or handwritten provisions.
46. OFFER. Preparation of this Lease by Lessor's agent and submission of same
to Lessee shall not be deemed an offer to lease to Lessee. This Lease is not
intended to be binding until executed by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
Parties in Interest at the time of the modification. The parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional, insurance company, or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such Multiple Parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREED THAT, AT THE
TIME THIS LEASE WAS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY
REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH
RESPECT TO THE PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO
EVALUATE THE CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE OF
ASBESTOS, STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO
39
<PAGE>
REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL
ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKER(S) OR THEIR AGENTS OR
EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF
THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES; THE PARTIES SHALL RELY
SOLELY UPON THE ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX
CONSEQUENCES OF THIS LEASE. IF THE SUBJECT PROPERTY IS LOCATED IN A STATE
OTHER THAN CALIFORNIA, AN ATTORNEY FROM THE STATE WHERE THE PROPERTY IS
LOCATED SHOULD BE CONSULTED.
The parties hereto have executed this Lease at the place on the dates specified
above to their respective signatures.
Executed at LOS ANGELES, CA Executed at LOS ANGELES, CA
on May 1, 1994 on May 1, 1994
--------------------------- ---------------------------
By LESSOR: By LESSEE:
D.P.S. ASSOCIATES PACIFIC TRIM & BELT, INC.
- ------------------------------ ------------------------------
By: By:
- ------------------------------ ------------------------------
Frank Peck, Partner
By: By:
------------------------- ---------------------------
Name Printed: Harold Dyne Name Printed: Harold Dyne
--------------- ---------------
Title: Partner Title: President
---------------------- ----------------------
By: By:
------------------------- ---------------------------
Name Printed: Raymond Spiro Name Printed:
---------------- ---------------
Title: Partner Title:
---------------------- ----------------------
Address: 3820 South Hill St. Address: 3820 South Hill St.
--------------------- ---------------------
Los Angeles, CA 90037 Los Angeles, CA 90037
- ------------------------------ ------------------------------
Tel. No. ( ) Tel. No. ( )
---------------- ----------------
Fax No. ( ) Fax No. ( )
------------------ ------------------
NET
NOTICE: These forms are often modified to meet changing requirements of law
and Industry needs. Always write or call to make sure you are
utilizing the most current form. American Industrial Real Estate
Association, 345 South Figueroa Street, Suite M-1, Los Angeles, CA
90071, (213) 687-8777, Fax No. (213) 687-8616
Copyright 1990 - By American Industrial Real Estate Association.
All rights reserved.
No part of these works may be reproduced in any form
without permission in writing.
FORM 204N-0-1/91
40
<PAGE>
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE--GROSS
(DO NOT USE THIS FORM FOR MULTI-TENANT PROPERTY)
1. BASIC PROVISIONS ("BASIC PROVISIONS")
1.1 PARTIES: This Lease ("Lease"), dated for reference purposes only,
September 6, 1996 is made by and between S & S PARTNERSHIP ("Lessor") and TAG
IT, INC., a California Corporation ("Lessee"), (collectively, the "Parties," or
individually a "Party").
1.2 PREMISES: That certain real property, including all improvements
therein or to be provided by Lessor under the terms of this Lease, and commonly
known by the street address of 3838 S. Hill Street, Los Angeles located in the
County of Los Angeles, State of California and generally described as (describe
briefly the nature of the property) A single story industrial building of +
5,000 sq. ft. on + 7,500 sq. ft. of land. ("Premises"). (See Paragraph 2 for
further provisions.)
1.3 TERM: Two years and 0 months ("Original Term") commencing October 1,
1996 ("Commencement Date") and ending September 31, 1998 ("Expiration Date").
(See Paragraph 3 for further provisions.)
1.4 EARLY POSSESSION: Upon execution ("Early Possession Date"). (See
Paragraphs 3.2 and 3.3 for further provisions.)
1.5 BASE RENT: $2,500.00 per month ("Base Rent"), payable on the 1st day of
each month commencing November 1, 1996; beginning October 1, 1997, the monthly
rent shall be $2,600.00. (See Paragraph 4 for further provisions.)
[ ] If this box is checked, there are provisions in this Lease for the Base Rent
to be adjusted.
1.6 BASE RENT PAID UPON EXECUTION: $2,500.00 as Base Rent for the period
October, 1996.
1.7 SECURITY DEPOSIT: $ 5,000.00 ("Security Deposit"). (See Paragraph 5
for further provisions.)
1.8 PERMITTED USE: Warehousing and packing of hang tags, printed paper
products and all allied activities. (See Paragraph 6 for further provisions.)
1.9 INSURING PARTY: Lessor is the "lnsuring Party," $________ is the "Base
Premium." (See Paragraph 8 for further provisions.)
1.10 REAL ESTATE BROKERS: The following real estate brokers (collectively,
the "Brokers") and brokerage relationships exist in this transaction and are
consented to by the Parties (check applicable boxes): Sterling Industrial
Properties represents
[ ] Lessor exclusively ("Lessor's Broker"); [x] both Lessor and Lessee, and
<PAGE>
__________________________________________________________________
represents
[ ] Lessee exclusively ("Lessee's Broker"); [ ] both Lessee and Lessor. (See
Paragraph 15 for further provisions.)
1.11 GUARANTOR: The obligations of the Lessee under this Lease are to be
guaranteed by _____________________________("Guarantor"). (See Paragraph 37 for
further provisions.)
1.12 ADDENDA: Attached hereto is an Addendum or Addenda consisting of
Paragraphs 49 through 51 and Exhibits ______ all of which constitute a part of
this Lease.
2. PREMISES.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases
from Lessor, the Premises, for the term, at the rental, and upon all of the
terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of square footage set forth in this Lease, or
that may have been used in calculating rental, is an approximation which Lessor
and Lessee agree is reasonable and the rental based thereon is not subject to
revision whether or not the actual square footage is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and free
of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, fire sprinkler system, lighting, air conditioning, heating, and
loading doors, if any, in the Premises, other than those constructed by Lessee,
shall be in good operating condition on the Commencement Date. If a non-
compliance with said warranty exists as of the Commencement Date, Lessor shall,
except as otherwise provided in this Lease, promptly after receipt of written
notice from Lessee setting forth with specificity the nature and extent of such
non-compliance, rectify same at Lessor's expense. If Lessee does not give
Lessor written notice of a non-compliance with this warranty within thirty (30)
days after the Commencement Date, correction of that non-compliance shall be the
obligation of Lessee at Lessee's sole cost and expense.
2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE. Lessor
warrants to Lessee that the improvements on the Premises comply with all
applicable covenants or restrictions of record and applicable building codes,
regulations and ordinances in effect on the Commencement Date. Said warranty
does not apply to the use to which Lessee will put the Premises or to any
Alterations or Utility Installations (as defined in Paragraph 7.3(a)) made or to
be made by Lessee. It the Premises do not comply with said warranty, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and extent
of such non-compliance, rectify the same at Lessor's expense. If Lessee does
not give Lessor written notice of a non-compliance with this warranty within six
(6) months following the Commencement Date, correction of that non-compliance
shall be the obligation of Lessee at Lessees sole cost and expense.
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it has
been advised by the Brokers to satisfy itself with respect to the condition of
the Premises (including but not limited to the electrical and fire sprinkler
systems, security, environmental aspects,
2
<PAGE>
compliance with Applicable Law, as defined in Paragraph 6.3) and the present and
future suitability of the Premises for Lessees intended use, (b) that Lessee has
made such investigation as it deems necessary with reference to such matters and
assumes all responsibility therefor as the same relate to Lessee's occupancy of
the Premises and/or the term of this Lease, and (c) that neither Lessor, nor any
of Lessor's agents, has made any oral or written representations or warranties
with respect to the said matters other than as set forth in this Lease.
2.5 LESSEE PRIOR OWNER/OCCUPANT. The warranties made by Lessor in this
Paragraph 2 shall be of no force or effect if immediately prior to the date set
forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In
such event, Lessee shall, at Lessee's sole cost and expense, correct any non-
compliance of the Premises with said warranties.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of
this Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If Lessee totally or partially occupies the
Premises prior to the Commencement Date, the obligation to pay Base Rent shall
be abated for the period of such early possession. All other terms of this
Lease, however, shall be in effect during such period. Any such early possession
shall not affect nor advance the Expiration Date of the Original Term.
3.3 DELAY IN POSSESSION. If for any reason Lessor cannot deliver
possession of the Premises to Lessee as agreed herein by the Early Possession
Date, if one is specified in Paragraph 1.4, or, If no Early Possession Date is
specified, by the Commencement Date, Lessor shall not be subject to any
liability therefor, nor shall such failure effect the validity of this Lease, or
the obligations of Lessee hereunder, or extend the term hereof, but in such
case, Lessee shall not, except as otherwise provided herein, be obligated to pay
rent or perform any other obligation of Lessee under the terms of this Lease
until Lessor delivers possession of the Premises to Lessee. If possession of
the Premises is not delivered to Lessee within sixty (60) days after the
Commencement Date, Lessee may, at its option, by notice in writing to Lessor
within ten (10) days thereafter, cancel this Lease, in which event the Parties
shall be discharged from all obligations hereunder; provided, however, that if
such written notice by Lessee is not received by Lessor within said ten (10) day
period, Lessee's right to cancel this Lease shall terminate and be of no further
force or effect. Except as may be otherwise provided, and regardless of when
the term actually commences, if possession is not tendered to Lessee when
required by this Lease and Lessee does not terminate this Lease, as aforesaid,
the period free of the obligation to pay Base Rent, if any, that Lessee would
otherwise have enjoyed shall run from the date of delivery of possession and
continue for a period equal to what Lessee would otherwise have enjoyed under
the terms hereof, but minus any days of delay caused by the acts, changes or
omissions of Lessee.
4. RENT.
4.1 BASE RENT. Lessee shall cause payment of Base Rent and other rent or
charges, as the same may be adjusted from time to time, to be received by Lessor
in lawful money of the United States, without offset or deduction, on or before
the day on which it is due under the
3
<PAGE>
terms of this Lease. Base Rent and all other rent and charges for any period
during the term hereof which is for less than one (1) full calendar month shall
be prorated based upon the actual number of days of the calendar month involved.
Payment of Base Rent and other charges shall be made to Lessor at its address
stated herein or to such other persons or at such other addresses as Lessor may
from time to time designate in writing to Lessee.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
the Security Deposit set forth in Paragraph 1.7 as security for Lessee's
faithful performance of Lessee's obligations under this Lease. If Lessee fails
to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults
under this Lease (as (defined in Paragraph 13.1), Lessor may use, apply or
retain all or any portion of said Security Deposit for the payment of any amount
due Lessor or to reimburse or compensate Lessor for any liability, cost,
expense, loss or damage (including attorneys' fees) which Lessor may suffer or
incur by reason thereof. If Lessor uses or applies all or any portion of said
Security Deposit, Lessee shall within ten (10) days after written request
therefor deposit moneys with Lessor sufficient to restore said Security Deposit
to the full amount required by this Lease. Any time the Base Rent increases
during the term of this Lease, Lessee shall; upon written request from Lessor,
deposit additional moneys with Lessor sufficient to maintain the same ratio
between the Security Deposit and the Base Rent as those amounts are specified in
the Basic Provisions. Lessor shall not be required to keep all or any part of
the Security Deposit separate from its general accounts. Lessor shall, at the
expiration or earlier termination of the term hereof and after Lessee has
vacated the Premises, return to Lessee (or, at Lessor's option, to the last
assignee, if any, of Lessee's interest herein), that portion of the Security
Deposit not used or applied by Lessor. Unless otherwise expressly agreed in
writing by Lessor, no part of the Security Deposit shall be considered to be
held in trust, to bear interest or other Increment for its use, or to be
prepayment for any moneys to be paid by Lessee under this Lease.
6. USE.
6.1 USE. Lessee shall use and occupy the Premises only for the purposes
set forth in Paragraph 1.8, or any other use which is comparable thereto, and
for no other purpose. Lessee shall not use or permit the use of the Premises in
a manner that creates waste or a nuisance, or that disturbs owners and/or
occupants of, or causes damage to, neighboring premises or properties. Lessor
hereby agrees to not unreasonably withhold or delay its consent to any written
request by Lessee, Lessees assignees or subtenants, and by prospective assignees
and subtenants of the Lessee, its assignees and subtenants, for a modification
of said permitted purpose for which the premises may be used or occupied, so
long as the same will not impair the structural integrity of the improvements on
the Premises, the mechanical or electrical systems therein, is not significantly
more burdensome to the Premises and the improvements thereon, and is otherwise
permissible pursuant to this Paragraph 6. If Lessor elects to withhold such
consent, Lessor shall within five (5) business days give a written notification
of same, which notice shall include an explanation of Lessor's reasonable
objections to the change in use.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "Hazardous Substance"
as used in this Lease shall mean any product, substance, chemical, material or
waste whose
4
<PAGE>
presence, nature, quantity and/or intensity of existence. use, manufacture,
disposal, transportation, spill, release or effect, either by itself or in
combination with other materials expected to be on the Premises, is either: (i)
potentially injurious to the public health, safety or welfare, the environment
or the Premises, (ii) regulated or monitored by any governmental authority, or
(iii) a basis for liability of Lessor to any governmental agency or third party
under any applicable statute or common law theory. Hazardous Substance shall
include, but not be limited to, hydrocarbons, petroleum, gasoline, crude oil or
any products, by-products or fractions thereof. Lessee shall not engage in any
activity in, on or about the Premises which constitutes a Reportable Use (as
hereinafter defined) of Hazardous Substances without the express prior written
consent of Lessor and compliance in a timely manner (at Lessee's sole cost and
expense) with all Applicable Law (as defined in Paragraph 6.3). "Reportable
Use" shall mean (i) the installation or use of any above or below ground storage
tank, (ii) the generation, possession, storage, use, transportation, or disposal
of a Hazardous Substance that requires a permit from, or with respect to which a
report, notice, registration or business plan is required to be filed with, any
governmental authority. Reportable Use shall also include Lessee's being
responsible for the presence in, on or about the Premises of a Hazardous
Substance with respect to which any Applicable Law requires that a notice be
given to persons entering or occupying the Premises or neighboring properties.
Notwithstanding the foregoing, Lessee may, without Lessor's prior consent, but
in compliance with all Applicable Law, use any ordinary and customary materials
reasonably required to be used by Lessee in the normal course of Lessees
business permitted on the Premises, so long as such use is not a Reportable Use
and does not expose the Premises or neighboring properties to any meaningful
risk of contamination or damage or expose Lessor to any liability therefor. In
addition, Lessor may (but without any obligation to do so) condition its consent
to the use or presence of any Hazardous Substance, activity or storage tank by
Lessee upon Lessee's giving Lessor such additional assurances as Lessor, in its
reasonable discretion, deems necessary to protect itself, the public, the
Premises and the environment against damage, contamination or injury and/or
liability therefrom or therefor, including, but not limited to, the installation
(and removal on or before Lease expiration or earlier termination) of reasonably
necessary protective modifications to the Premises (such as concrete
encasements) and/or the deposit of an additional Security Deposit under
Paragraph 5 hereof.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable cause to
believe, that a Hazardous Substance, or a condition involving or resulting from
same, has come to be located in, on, under or about the Premises, other than as
previously consented to by Lessor, Lessee shall immediately give written notice
of such fact to Lessor. Lessee shall also immediately give Lessor a copy of any
statement, report, notice, registration, application, permit, business plan,
license, claim, action or proceeding given to, or received from, any
governmental authority or private party, or persons entering or occupying the
Premises, concerning the presence, spill, release, discharge of, or exposure to,
any Hazardous Substance or contamination in, on, or about the Premises,
including but not limited to all such documents as may be involved in any
Reportable Uses involving the Premises.
(c) INDEMNIFICATION. Lessee shall indemnify, protect, defend and hold
Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all loss of rents and/or damages,
liabilities, judgments, costs, claims, liens, expenses, penalties, permits and
attorney's and consultant's fees arising out of or involving any
5
<PAGE>
Hazardous Substance or storage tank brought onto the Premises by or for Lessee
or under Lessees control. Lessees obligations under this Paragraph 6 shall
include, but not be limited to, the effects of any contamination or injury to
person, property or the environment created or suffered by Lessee, and the cost
of investigation (including consultant's and attorney's fees and testing),
removal, remediation, restoration and/or abatement thereof, or of any
contamination therein involved, and shall survive the expiration or earlier
termination of this Lease. No termination, cancellation or release agreement
entered into by Lessor and Lessee shall release Lessee from its obligations
under this Lease with respect to Hazardous Substances or storage tanks, unless
specifically so agreed by Lessor in writing at the time of such agreement.
5.3 LESSEE'S COMPLIANCE WITH LAW. Except as otherwise provided in this
Lease, Lessee, shall, at Lessee's sole cost and expense, fully, diligently and
in a timely manner, comply with all "Applicable Law," which term is used in this
Lease to include all laws, rules, regulations, ordinances, directives,
covenants, easements and restrictions of record, permits, the requirements of
any applicable fire insurance underwriter or rating bureau, and the
recommendations of Lessor's engineers and/or consultants, relating in any manner
to the Premises (including but not limited to matters pertaining to (i)
industrial hygiene, (ii) environmental conditions on, in, under or about the
Premises, including soil and groundwater conditions, and (iii) the use,
generation, manufacture, production, installation, maintenance, removal,
transportation, storage, spill or release of any Hazardous Substance or storage
tank), now in effect or which may hereafter come into effect, and whether or not
reflecting a change in policy from any previously existing policy. Lessee
shall, within five (5) days after receipt of Lessor's written request, provide
Lessor with copies of all documents and information, including, but not limited
to, permits, registrations, manifest, applications, reports and certificates,
evidencing Lessee's compliance with any Applicable Law specified by Lessor, and
shall immediately upon receipt, notify Lessor in writing (with copies of any
documents involved) of any threatened or actual claim, notice, citation,
warning, complaint or report pertaining to or involving failure by Lessee or the
Premises to comply with any Applicable Law.
6.4 INSPECTION; COMPLIANCE. Lessor and Lessor's Lender(s) (as defined in
Paragraph 8.3(a)) shall have the right to enter the Premises at any time, in the
case of an emergency, and otherwise at reasonable times, for the purpose of
inspecting the condition of the Premises and for verifying compliance by Lessee
with this Lease and all Applicable Laws (as defined in Paragraph 6.3), and to
employ experts and/or consultants in connection therewith and/or to advise
Lessor with respect to Lessee's activities, including but not limited to the
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance or storage tank on or from the Premises. The costs and
expenses of any such inspections shall be paid by the party requesting same,
unless a Default or Breach of this Lease, violation of Applicable Law, or a
contamination, caused or materially contributed to by Lessee is found to exist
or be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination. In any such case, Lessee shall upon request reimburse Lessor
or Lessor's Lender, as the case may be, for the costs and expenses of such
inspections.
7. MAINTENANCE; REPAIRS; UTILITY INSTALLATIONS; TRADE FIXTURES AND
ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
6
<PAGE>
(a) Subject to the provisions of Paragraphs 2.2 (Lessor's warranty as
to condition), 2.3 (Lessor's warranty as to compliance with covenants, etc. 7.2
(Lessor's obligations to repair), 9 (damage and destruction), and 14
(condemnation), Lessee shall, at Lessee's sole cost and expense and at all
times, keep the Premises and every part thereof in good order, condition and
repair, (whether or not such portion of the Premises requiring repair, or the
means of repairing the same, are reasonably or readily accessible to Lessee, and
whether or not the need for such repairs occurs as a result of Lessee's use, any
prior use, the elements or the age of such portion of the Premises), including,
without limiting the generality of the foregoing, all equipment or facilities
serving the Premises, such as plumbing, heating, air conditioning, ventilating,
electrical, lighting facilities, boilers, fired or unfired pressure vessels,
fire sprinkler and/or standpipe and hose or other automatic fire extinguishing
system, including fire alarm and/or smoke detection systems and equipment, fire
hydrants, fixtures, walls (interior and exterior), ceilings, floors, windows,
doors, plate glass, skylights, landscaping, driveways, parking lots, fences,
retaining walls, signs, sidewalks and parkways located in, on, about, or
adjacent to the Premises, but excluding foundations, the exterior roof and the
structural aspects of the Premises. Lessee shall not cause or permit any
Hazardous Substance to be spilled or released in, on, under or about the
Premises (including through the plumbing or sanitary sewer system) and shall
promptly, at Lessee's expense, take all investigatory and/or remedial action
reasonably recommended, whether or not formally ordered or required, for the
cleanup of any contamination of, and for the maintenance, security and/or
monitoring of, the Premises, the elements surrounding same, or neighboring
properties, that was caused or materially contributed to by Lessee, or
pertaining to or involving any Hazardous Substance and/or storage tank brought
onto the Premises by or for Lessee or under its control. Lessee, in keeping the
Premises in good order, condition and repair, shall exercise and perform good
maintenance practices, Lessee's obligations shall include restorations,
replacements or renewals when necessary to keep the Premises and all
improvements thereon or a part thereof in good order, condition and state of
repair.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain contracts, with copies to Lessor, in customary form and substance for,
and with contractors specializing and experienced in, the inspection.
maintenance and service of the following equipment and improvements, if any,
located on the Premises: (i) heating, air conditioning and ventilation
equipment, (ii) boiler, fired or unfired pressure vessels, (iii) fire sprinkler
and/or standpipe and hose or other automatic fire extinguishing systems,
including fire alarm and/or smoke detection, (iv) landscaping and irrigation
systems, (v) root covering and drain maintenance and (vi) asphalt and parking
lot maintenance.
7.2 LESSOR'S OBLIGATIONS. Upon receipt of written notice of the need for
such repairs and subject to Paragraph 13.5, Lessor shall, at Lessor's expense,
keep the foundations, exterior roof and structural aspects of the Premises in
good order, condition and repair. Lessor shall not, however, be obligated to
paint the exterior surface of the exterior walls or to maintain the windows,
doors or plate glass or the interior surface of exterior walls. Lessor shall
not, in any event, have any obligation to make any repairs until Lessor receives
written notice of the need for such repairs. It is the intention of the Parties
that the terms of this Lease govern the respective obligations of the Parties as
to maintenance and repair of the Premises. Lessee and Lessor expressly waive the
benefit of any statute now or hereafter in effect to the extent it is
inconsistent with the terms of this Lease with respect to, or which affords
Lessee the right to
7
<PAGE>
make repairs at the expense of Lessor or to terminate this Lease by reason of,
any needed repairs.
7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "Utility Installations" is
used in this Lease to refer to all carpeting, window coverings, air lines, power
panels, electrical distribution, security, fire protection systems,
communication systems, lighting fixtures, heating, ventilating, and air
conditioning equipment, plumbing, and fencing in, on or about the Premises. The
term "Trade Fixtures" shall mean Lessee's machinery and equipment that can be
removed without doing material damage to the Premises. The term "Alterations"
shall mean any modification of the improvements on the Premises from that which
are provided by Lessor under the terms of this Lease, other than Utility
installations or Trade Fixtures, whether by addition or deletion. "Lessee Owned
Alterations and/or Utility Installations" are defined as Alterations and/or
Utility Installations made by lessee that are not yet owned by Lessor as defined
in Paragraph 7.4(a). Lessee shall not make any Alterations or Utility
Installations in, on, under or about the Premises without Lessor's prior written
consent. Lessee may, however, make non-structural Utility Installations to the
interior of the Premises (excluding the roof), as long as they are not visible
from the outside, do not involve puncturing, relocating or removing the roof or
any existing wells, and the cumulative cost thereof during the term of this
Lease as extended does not exceed $25,000.
(b) CONSENT. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with proposed detailed plans. All consents
given by Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific
consent, shall be deemed conditioned upon: (i) Lessee's acquiring all applicable
permits required by governmental authorities, (ii) the furnishing of copies of
such permits together with a copy of the plans and specifications for the
Alteration or Utility Installation to Lessor prior to commencement of the work
thereon, and (iii) the compliance by Lessee with all conditions of said permits
in a prompt and expeditious manner. Any Alterations or Utility Installations by
Lessee during the term of this Lease shall be done in a good and workmanlike
manner, with good and sufficient materials, and in compliance with all
Applicable Law. Lessee shall promptly upon completion thereof furnish Lessor
with as-built plans and specifications therefor. Lessor may (but without
obligation to do so) condition its consent to any requested Alteration or
Utility Installation that costs $10,000 or more upon Lessee's providing Lessor
with a lien and completion bond in an amount equal to one and one-half times the
estimated cost of such Alteration or Utility Installation and/or upon Lessee's
posting an additional Security Deposit with Lessor under Paragraph 36 hereof.
(c) INDEMNIFICATION. Lessee shall pay, when due, all claims for labor
or materials furnished or alleged to have been furnished to or for Lessee at or
for use on the Premises, which claims are or may be secured by any mechanics' or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in, on or about the Premises, and Lessor shall have the right to post
notices of non-responsibility in or on the Premises as provided by law. If
Lessee shall, in good faith, contest the validity of any such lien, claim or
demand, then Lessee shall, at its sole expense defend and protect itself, Lessor
and the Premises against the same and shall pay and
8
<PAGE>
satisfy any such adverse judgment that may be rendered thereon before the
enforcement thereof against the Lessor or the Premises. If Lessor shall require,
Lessee shall furnish to Lessor a surety bond satisfactory to Lessor in an amount
equal to one and one-half times the amount of such contested lien claim or
demand, indemnifying Lessor against liability for the same, as required by law
for the holding of the Premises free from the effect of such lien or claim. In
addition, Lessor may require Lessee to pay Lessor's attorney's fees and costs in
participating in such action if Lessor shall decide it is to its best interest
to do so.
7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require their removal or
become the owner thereof as hereinafter provided in this Paragraph 7.4, all
Alterations and Utility Additions made to the Premises by Lessee shall be the
property of and owned by Lessee, but considered a part of the Premises. Lessor
may, at any time and at its option, elect in writing to Lessee to be the owner
of all or any specified part of the Lessee Owned Alterations and Utility
Installations. Unless otherwise instructed per subparagraph 7.4(b) hereof, all
Lessee Owned Alterations and Utility Installations shall, at the expiration or
earlier termination of this Lease, become the property of Lessor and remain upon
and be surrendered by Lessee with the Premises.
(b) REMOVAL. Unless otherwise agreed in writing, Lessor may require
that any or all Lessee Owned Alterations or Utility Installations be removed by
the expiration or earlier termination of this Lease, notwithstanding their
installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Lessee Owned Alterations or
Utility Installations made without the required consent of Lessor.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by the
end of the last day of the Lease term or any earlier termination date, with all
of the improvements, parts and surfaces thereof clean and free of debris and in
good operating order, condition and state of repair, ordinary wear and tear
excepted. "Ordinary wear and tear" shall not include any damage or deterioration
that would have been prevented by good maintenance practice or by Lessee
performing all of its obligations under this Lease. Except as otherwise agreed
or specified in writing by Lessor, the Premises, as surrendered, shall include
the Utility Installations. The obligation of Lessee shall include the repair of
any damage occasioned by the installation, maintenance or removal of Lessee's
Trade Fixtures, furnishings, equipment, and Alterations and/or Utility
Installations, as well as the removal of any storage tank installed by or for
Lessee, and the removal, replacement, or remediation of any soil, material or
ground water contaminated by Lessee, all as may then be required by Applicable
Law and/or good service practice. Lessee's Trade Fixtures shall remain the
property of Lessee and shall be removed by Lessee subject to its obligation to
repair and restore the Premises per this Lease.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT OF PREMIUM INCREASES.
(a) Lessee shall pay to Lessor any insurance cost increase ("Insurance
Cost Increase") occurring during the term of this Lease. "Insurance Cost
Increase" is defined as any
9
<PAGE>
increase in the actual cost of the insurance required under Paragraphs 8.2(b),
8.3(a) and 8.3(b). ("Required Insurance"), over and above the Base Premium, as
hereinafter defined, calculated on an annual basis. "Insurance Cost Increase"
shall include, but not be limited to, increases resulting from 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, and/or a premium rate increase. If the parties insert a dollar amount
in Paragraph 1.9, such amount shall be considered the "Base Premium." In lieu
thereof, if the Premises have been previously occupied, the "Base Premium" shall
be the annual premium applicable to the most recent occupancy. If the Premises
have never been occupied, the "Base Premium" shall be the lowest annual premium
reasonably obtainable for the Required Insurance as of the commencement of the
Original Term, assuming the most nominal use possible of the Premises. 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) (Liability Insurance Carried By Lessor).
(b) Lessee shall pay any such Insurance Cost Increase to Lessor within
thirty (30) days after receipt by Lessee of a copy of the premium statement or
other reasonable evidence of the amount due. If the insurance policies
maintained hereunder cover other property besides the Premises, Lessor shall
also deliver to Lessee a statement of the amount of such Insurance Cost Increase
attributable only to the Premises showing in reasonable detail the manner in
which such amount was computed. Premiums for policy periods commencing prior to,
or extending beyond, the term of this Lease shall be prorated to coincide with
the corresponding Commencement or Expiration of the Lease term.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force during
the term of this Lease a Commercial General Liability policy of insurance
protecting Lessee and Lessor (as an additional insured) against claims for
bodily injury, personal injury and property damage based upon, involving or
arising out of the ownership, use, occupancy or maintenance of the Premises and
all areas appurtenant thereto. Such insurance shall be on an occurrence basis
providing single limit coverage in an amount not less than $1,000,000 per
occurrence with an "Additional Insured-Managers or Lessors of Premises"
Endorsement and contain the "Amendment of the Pollution Exclusion" for damage
caused by heat, smoke or fumes from a hostile fire. The policy shall not contain
any intra-insured exclusions as between insured persons or organizations, but
shall include coverage for liability assumed under this Lease as an "insured
contract" for the performance of Lessee's indemnity obligations under this
Lease. The limits of said insurance required by this Lease or as carried by
Lessee shall not, however, limit the liability of Lessee nor relieve Lessee of
any obligation hereunder. All insurance to be carried by Lessee shall be primary
to and not contributory with any similar insurance carried by Lessor, whose
insurance shall be considered excess insurance only.
(b) CARRIED BY LESSOR. In the event Lessor is the Insuring Party,
Lessor shall also maintain liability insurance described in Paragraph 8.2(a),
above, in addition to, and not in lieu of, the insurance required to be
maintained by Lessee. Lessee shall not be named as an additional insured
therein.
10
<PAGE>
8.3 PROPERTY INSURANCE-BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. The Insuring Party shall obtain and
keep in force during the term of this Lease a policy or policies in the name of
Lessor, with loss payable to Lessor and to the holders of any mortgages, deeds
of trust or ground leases on the Premises ("Lender(s)"), insuring loss or damage
to the Premises. The amount of such insurance shall be equal to the full
replacement cost of the Premises, as the same shall exist from time to time, or
the amount required by Lenders, but in no event more than the commercially
reasonable and available insurable value thereof if, by reason of the unique
nature or age of the improvements involved, such latter amount is less than full
replacement cost. Lessee Owned Alterations and Utility installations shall be
insured by Lessee under Paragraph 8.4. If the coverage is available and
commercially appropriate, such policy or policies shall insure against all risks
of direct physical loss or damage (except the perils of flood and/or earthquake
unless required by a Lender), including coverage for any additional costs
resulting from debris removal and reasonable amounts of coverage for the
enforcement of any ordinance or law regulating the reconstruction or replacement
of any undamaged sections of the Premises required to be demolished or removed
by reason of the enforcement of any building, zoning, safety or land use laws as
the result of a covered cause of loss, but not including plate glass insurance.
Said policy or policies shall also contain an agreed valuation provision in lieu
of any coinsurance clause, waiver of subrogation, and inflation guard protection
causing an increase in the annual properly insurance coverage amount by a factor
of not less than the adjusted U.S Department of Labor Consumer Price Index for
All Urban Consumers for the city nearest to where the Premises are located.
(b) RENTAL VALUE. Lessor shall, in addition, obtain and keep in force
during the term of this Lease a policy or policies in the name of Lessor, with
loss payable to Lessor and Lender(s), insuring the loss of the full rentals and
other charges payable by Lessee to Lessor under this Lease for one (1) year
(including all real estate taxes, insurance costs, and any scheduled rental
increases). Said insurance shall provide that in the event the Lease is
terminated by reason of an insured loss the period of indemnity for such
coverage shall be extended beyond the date of the completion of repairs or
replacement of the Premises, to provide for one full year's loss of rental
revenues from the date of any such loss. Said insurance shall contain an agreed
valuation provision in lieu of any coinsurance clause, and the amount of
coverage shall be adjusted annually to reflect the projected rental income,
property taxes, insurance premium costs and other expenses, if any, otherwise
payable by Lessee, for the next twelve (12) month period.
(c) ADJACENT PREMISES. If the Premises are part of a larger building,
or if the Premises are part of a group of buildings owned by Lessor which are
adjacent to the Premises, the Lessee shall pay for any increase in the premiums
for the property insurance of such building or buildings if said increase is
caused by Lessee's acts, omissions, use or occupancy of the Premises.
(d) TENANT'S IMPROVEMENTS. Since Lessor is the Insuring Party, the
Lessor shall not be required to insure Lessee Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease.
11
<PAGE>
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of Paragraph
8.5, Lessee at its cost shall either by separate policy or, at Lessor's option,
by endorsement to a policy already carried, maintain insurance coverage on all
of Lessee's personal property, Lessee Owned Alterations and Utility
installations in, on, or about the Premises similar in coverage to that carried
by the Insuring Party under Paragraph 8.3. Such insurance shall be full
replacement cost coverage with a deductible of not to exceed $1,000 per
occurrence. The proceeds from any such insurance shall be used by Lessee for the
replacement of personal property or the restoration of Lessee Owned Alterations
and Utility Installations. Lessee shall be the Insuring Party with respect to
the insurance required by this Paragraph 8.4 and shall provide Lessor with
written evidence that such insurance is in force.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in companies
duly licensed to transact business in the state where the Premises are located,
and maintaining during the policy term a "General Policyholders Rating" of at
least B +, V or such other rating as may be required by a Lender having a lien
on the Premises, as set forth in the most current issue of "Best's Insurance
Guide." Lessee shall not do or permit to be done anything which shall invalidate
the insurance policies referred to in this Paragraph 8. Lessee shall cause to be
delivered to Lessor certified copies of or certificates evidencing the existence
and amounts of, the insurance, and with the additional insureds, required under
Paragraph 8.2(a) and 8.4. No such policy shall be cancelable or subject to
modification except after thirty (30) days prior written notice to Lessor.
Lessee shall at least thirty (30) days prior to the expiration of such policies,
furnish Lessor with evidence of renewals or "insurance binders" evidencing
renewal thereof, or Lessor may order such insurance and charge the cost thereof
to Lessee, which amount shall be payable by Lessee to Lessor upon demand.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or remedies,
Lessee and Lessor ("Waiving Party") each hereby release and relieve the other,
and waive their entire right to recover damages (whether in contract or in tort)
against the other, for loss of or damage to the Waiving Party's property arising
out of or incident to the perils required to be insured against under Paragraph
8. The effect of such releases and waivers of the right to recover damages
shall not be limited by the amount of insurance carried or required, or by any
deductibles applicable thereto.
8.7 INDEMNITY. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
costs, liens, judgments, penalties, permits, attorney's and consultant's fees,
expenses and/or liabilities arising out of, involving, or in dealing with, the
occupancy of the Premises by Lessee, the conduct of Lessee's business, any act,
omission or neglect of Lessee, its agents, contractors, employees or invitees,
and out of any Default or Breach by Lessee in the performance in a timely manner
of any obligation on Lessee's part to be performed under this Lease. The
foregoing shall include, but not be limited to, the defense or pursuit of any
claim or any action or proceeding involved therein, and whether or not (in the
case of claims made against Lessor) litigated and/or reduced to judgment, and
whether well founded or not. In case any action or proceeding be brought
against Lessor by reason of any of the foregoing matters, Lessee upon notice
from Lessor shall defend the same at Lessee's
12
<PAGE>
expense by counsel reasonably satisfactory to Lessor and Lessor shall cooperate
with Lessee in such defense. Lessor need not have first paid any such claim in
order to be so indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether the said injury or damage results from conditions arising upon
the Premises or upon other portions of the building of which the Premises are a
part, or from other sources or places, and regardless of whether the cause of
such damage or injury or the means of repairing the same is accessible or not.
Lessor shall not be liable for any damages arising from any act or neglect of
any other tenant of Lessor. Notwithstanding Lessor's negligence or breach of
this Lease, Lessor shall under no circumstances be liable for injury to Lessee's
business or for any loss of income or profit therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "Premises Partial Damage" shall mean damage or destruction to the
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is less than 50%
of the then Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(b) "Premises Total Destruction" shall mean damage or destruction to
the Premises, other than Lessee Owned Alterations and Utility Installations, the
repair cost of which damage or destruction is 50% or more of the then
Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(c) "Insured Loss" shall mean damage or destruction to improvements on
the Premises, other than Lessee Owned Alterations and Utility Installations,
which was caused by
an event required to be covered by the insurance described in Paragraph 8.3(a),
irrespective of any deductible amounts or coverage limits involved.
(d) "Replacement Cost" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal end
upgrading required by the operation of applicable building codes, ordinances or
laws, and without deduction for depreciation.
(e) "Hazardous Substance Condition" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6 2(a), in on or under the Premises.
13
<PAGE>
9.2 PARTIAL DAMAGE-INSURED LOSS. If a Premises Partial Damage that is an
Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such damage
(but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue, in
full force and effect. Notwithstanding the foregoing, if the required insurance
was not in force or the insurance proceeds are not sufficient to effect such
repair, the Insuring Party shall promptly contribute the shortage in proceeds as
and when required to complete said repairs. In the event, however, the shortage
in proceeds was due to the fact that, by reason of the unique nature of the
improvements, full replacement cost insurance coverage was not commercially
reasonable and available, Lessor shall have no obligation to pay for the
shortage in insurance proceeds or to fully restore the unique aspects of the
Premises unless Lessee provides Lessor with the funds to cover same, or adequate
assurance thereof, within ten (10) days following receipt of written notice of
such shortage and request therefor. If Lessor receives said funds or adequate
assurance thereof within said ten (10) day period, the party responsible for
making the repairs shall complete them as soon as reasonably possible and this
Lease shall remain in full force and effect. If Lessor does not receive such
funds or assurance within said period, Lessor may nevertheless elect by written
notice to Lessee within ten (10) days thereafter to make such restoration and
repair as is commercially reasonable with Lessor paying any shortage in
proceeds, in which case this Lease shall remain in full force and effect. If in
such case Lessor does not so elect then this Lease shall terminate sixty (60)
days following the occurrence of the damage or destruction. Unless otherwise
agreed, Lessee shall in no event have any right to reimbursement from Lessor for
any funds contributed by Lessee the repair any such damage or destruction.
Premises Partial Damage due to flood or earthquake shall be subject to Paragraph
9.3 rather than Paragraph 9.2, notwithstanding that there may be some insurance
coverage, but the net proceeds of any such insurance shall be made available for
the repairs if made by either Party.
9.3 PARTIAL DAMAGE-UNINSURED LOSS. If a Premises Partial Damage that is
not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13), Lessor may at Lessor's option, either: (i) repair
such damage as soon as reasonably possible at Lessor's expense, in which
event this Lease shall continue in full force and effect, or (ii) give
written notice to Lessee within thirty (30) days after receipt by Lessor of
knowledge of the occurrence of such damage of Lessor's desire to terminate
this Lease as of the date sixty (60) days following the giving of such
notice. In the event Lessor elects to give such notice of Lessor's intention
to terminate this Lease, Lessee shall have the right within ten (10) days
after the receipt of such notice to give written notice to Lessor of Lessee's
commitment to pay for the repair of such damage totally at Lessee's expense
and without reimbursement from Lessor. Lessee shall provide Lessor with the
required funds or satisfactory assurance thereof within thirty (30) days
following Lessee's said commitment. In such event this Lease shall continue
in full force and effect, and Lessor shall proceed to make such repairs as
soon as reasonably possible and the required funds are available. If Lessee
does not give such notice and provide the funds or assurance thereof within
the times specified above, this Lease shall terminate as of the date
specified in Lessor's notice of termination.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if a
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction,
14
<PAGE>
whether or not the damage or destruction is an Insured Loss or was caused by a
negligent or willful act of Lessee. In the event, however, that the damage or
destruction was caused by Lessee, Lessor shall have the right to recover
Lessor's damages from Lessee except as released and waived in Paragraph 8.6.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6) months
of the term of this Lease there is damage for which the cost to repair exceeds
one (1) month's Base Rent, whether or not an Insured Loss, Lessor may, at
Lessor's option, terminate this Lease effective sixty (60) days following the
date of occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by, within twenty (20) days following the occurrence of the damage, or
before the expiration of the time provided in such option for its exercise,
whichever is earlier ("Exercise Period"), (i) exercising such option and (it)
providing Lessor with any shortage in insurance proceeds (or adequate assurance
thereof) needed to make the repairs. If Lessee duly exercises such option during
said Exercise Period and provides Lessor with funds (or adequate assurance
thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessor's
expense repair such damage as soon as reasonably possible and this Lease shall
continue in full force and effect. If Lessee fails to exercise such option and
provide such funds or assurance during said Exercise Period, then Lessor may at
Lessor's option terminate this Lease as of the expiration of said sixty (60) day
period following the occurrence of such damage by giving written notice to
Lessee of Lessor's election to do so within ten (10) days after the expiration
of the Exercise Period, notwithstanding any term or provision in the grant of
option to the contrary.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of damage described in Paragraph 9.2 (Partial Damage-
- -Insured), whether or not Lessor or Lessee repairs or restores the Premises, the
Base Rent, Real Property Taxes, insurance premiums, and other charges, if any,
payable by Lessee hereunder for the period during which such damage, its repair
or the restoration continues (not to exceed the period for which rental value
insurance is required under Paragraph 8.3(b)), shall be abated in proportion to
the degree to which Lessee's use of the Premises is impaired. Except for
abatement of Base Rent, Real Property Taxes, insurance premiums, and other
charges, if any, as aforesaid, all other obligations of Lessee hereunder shall
be performed by Lessee, and Lessee shall have no claim against Lessor for any
damage suffered by reason or any such repair or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall accrue, Lessee may, at any time
prior to the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate this Lease on a date not less then sixty (60) days following the
giving of such notice. If Lessee gives such notice to Lessor and such Lenders
and such repair or restoration is not commenced within thirty (30) days after
receipt of such notice, this Lease shall terminate as of the date specified in
said notice. If Lessor or a Lender commences the repair or restoration of
15
<PAGE>
the Premises within thirty (30) days after receipt of such notice, this Lease
shall continue in full force and effect. "Commence" as used in this Paragraph
shall mean either the unconditional authorization of the preparation of the
required plans, or the beginning of the actual work on the Premises, whichever
first occurs.
9.7 HAZARDOUS SUBSTANCE CONDITION. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable Law
and this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13), Lessor may at Lessor's option either (i) investigate
and remediate such Hazardous Substance Condition, if required, as soon as
reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) if the estimated cost to investigate
and remediate such condition exceeds twelve (12) times the then monthly Base
Rent or $100,000, whichever is greater, give written notice to Lessee within
thirty (30) days after receipt by Lessor of knowledge of the occurrence of such
Hazardous Substance Condition of Lessor's desire to terminate this Lease as of
the date sixty (60) days following the giving of such notice. In the event
Lessor elects to give such notice of Lessor's intention to terminate this Lease,
Lessee shall have the right within ten (10) days after the receipt of such
notice to give written notice to Lessor of Lessee's commitment to pay for the
investigation and remediation of such Hazardous Substance Condition totally at
Lessee's expense and without reimbursement from Lessor except to the extent of
an amount equal to twelve (12) times the then monthly Base Rent or $100,000,
whichever is greater. Lessee shall provide Lessor with the funds required of
Lessee or satisfactory assurance thereof within thirty (30) days following
Lessee's said commitment. In such event this Lease shall continue in full force
and effect, and Lessor shall proceed to make such investigation and remediation
as soon as reasonably possible and the required funds are available. If Lessee
does not give such notice and provide the required funds or assurance thereof
within the times specified above, this Lease shall terminate as of the date
specified in Lessor's notice of termination. If a Hazardous Substance Condition
occurs for which Lessee is not legally responsible, there shall be abatement of
Lessee's obligations under this Lease to the same extent as provided in
Paragraph 9.6(a) for a period of not to exceed twelve (12) months.
9.8 TERMINATION-ADVANCE PAYMENTS. Upon termination of this Lease pursuant
to this Paragraph 9, an equitable adjustment shall be made concerning advance
Base Rent and any other advance payments made by Lessee to Lessor. Lessor shall,
in addition, return to Lessee so much of Lessee's Security Deposit as has not
been, or is not then required to be, used by Lessor under the terms of this
Lease.
9.9 WAIVE STATUTES. Lessor and Lessee agree that the terms of this Lease
shall govern the effect of any damage to or destruction of the Premises with
respect to the termination of this Lease and hereby waive the provisions of any
present or future statute to the extent inconsistent herewith.
10. REAL PROPERTY TAXES.
10.1 (a) PAYMENT OF TAXES. Lessor shall pay the Real Property Taxes,
as defined in Paragraph 10.2, 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
16
<PAGE>
increase over the fiscal tax year during which the Commencement Date occurs
("Tax Increase"). Subject to Paragraph 10.l(b), payment of any such Tax Increase
shall be made by Lessee within thirty (30) days after receipt of Lessor's
written statement setting forth the amount due and the computation thereof.
Lessee shall promptly furnish Lessor with satisfactory evidence that such taxes
have been paid. If any such taxes to be paid by Lessee shall cover any period of
time prior to or after the expiration or earlier termination of the term hereof,
Lessee's share of such taxes shall be equitably prorated to cover only the
period of time within the tax fiscal year this Lease is in effect, and Lessor
shall reimburse Lessee for any overpayment after such proration.
(b) ADVANCE PAYMENT. In order to insure payment when due and before
delinquency of any or all Real Property Taxes, Lessor reserves the right, at
Lessor's option, to estimate the current Real Property Taxes applicable to the
Premises, and to require such current year's Tax Increase to be paid in advance
to Lessor by Lessee, either: (i) in a lump sum amount equal to the amount due,
at least twenty (20) days prior to the applicable delinquency date, or (ii)
monthly in advance with the payment of the Base Rent. If Lessor elects to
require payment monthly in advance, the monthly payment shall be that equal
monthly amount which, over the number of months remaining before the month in
which the applicable tax installment would become delinquent (and without
interest thereon), would provide a fund large enough to fully discharge before
delinquency the estimated Tax Increase to be paid. When the actual amount of the
applicable Tax Increase is known, the amount of such equal monthly advance
payment shall be adjusted as required to provide the fund needed to pay the
applicable Tax Increase before delinquency. 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 Tax Increase as the same becomes due, Lessee
shall pay to Lessor, upon Lessor's demand, such additional sums as are necessary
to pay such obligation. 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 Breach by Lessee in the performance of the obligations of Lessee
under this Lease, then any balance of funds paid to Lessor under the provisions
of this Paragraph may, subject to proration as provided In Paragraph 10.1(a), at
the option of Lessor, be treated as an additional Security Deposit under
Paragraph 5.
(c) ADDITIONAL IMPROVEMENTS. Notwithstanding Paragraph 10.1(a) hereof,
Lessee shall pay to Lessor upon demand therefor the entirety of any increase in
Real Property Taxes assessed by reason of Alterations or Utility Installations
placed upon the Premises by Lessee or at Lessees request.
10.2 DEFINITION OF "REAL PROPERTY TAXES." As used herein, the term "Real
Property Taxes" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other then inheritance,
personal income or estate taxes) imposed upon 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, fire, street, drainage or
other improvement district thereof, levied against any legal or equitable
interest of Lessor in the Premises or in the real property of which the Premises
are a part, Lessor's right to rent or other income therefrom, and/or Lessor's
business of leasing the Premises. The term "Real Property Taxes" shall also
include any tax, fee, levy, assessment or charge, or any increase therein,
imposed by reason of events occurring, or changes in applicable law taking
effect, during the term of this Lease,
17
<PAGE>
including but not limited to a change in the ownership of the Premises or in the
improvements thereon, the execution of this Lease, or any modification,
amendment or transfer thereof, and whether or not contemplated by the Parties.
10.3 JOINT 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.
10.4 PERSONAL PROPERTY TAXES. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee Owned Alterations, Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or elsewhere. When possible, Lessee shall
cause its Trade Fixtures, furnishings, equipment and all other personal property
to be assessed and billed separately from the real property of Lessor. If any of
Lessee's said personal property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee within ten (10) days
after receipt of a written statement setting forth the faxes applicable to
Lessee's property or, at Lessor's option, as provided in Paragraph 10.1(b).
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor, of all charges jointly metered with other premises.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively,
"assignment") or sublet all or any part of Lessee's interest in this Lease or in
the Premises without Lessor's prior written consent given under and subject to
the terms of Paragraph 36.
(b) A change in the control of Lessee shall constitute an assignment
requiring Lessor's consent. The transfer, on a cumulative basis, of twenty-five
percent (25%) or more of the voting control of Lessee shall constitute a change
in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction, or
series of transactions (by way of merger, sale, acquisition, financing,
refinancing, transfer, leveraged buy-out or otherwise), whether or not a formal
assignment or hypothecation of this Lease or Lessee's assets occurs, which
results or will result in a reduction of the Net Worth of Lessee, as hereinafter
defined, by an amount equal to or greater than twenty-five percent (25%) of such
Net Worth of Lessee as it was represented to Lessor at the time of the execution
by Lessor of this Lease or at the time of the most recent assignment to which
Lessor has consented, or as it exists immediately prior to said transaction or
transactions constituting such reduction, at whichever
18
<PAGE>
time said Net Worth of Lessee was or is greater, shall be considered an
assignment of this Lease by Lessee to which Lessor may reasonably withhold its
consent. "Net Worth of Lessee" for purposes of this Lease shall be the net worth
of Lessee (excluding any guarantors) established under generally accepted
accounting principles consistently applied.
(d) An assignment or subletting of Lessee's interest in this Lease
without Lessor's specific prior written consent shall, at Lessor's option, be a
Default curable after notice per Paragraph 13.1 (c), or a noncurable Breach
without the necessity of any notice and grace period. If Lessor elects to treat
such unconsented to assignment or subletting as a noncurable Breach, Lessor
shall have the right to either: (i) terminate this Lease, or (ii) upon thirty
(30) days written notice ("Lessor's Notice"), increase the monthly Base Rent to
fair market rental value or one hundred ten percent (110%) of the Base Rent then
in effect whichever is greater. Pending determination of the new fair market
rental value, if disputed by Lessee, Lessee shall pay the amount set forth in
Lessor's Notice, with any overpayment credited against the next installment(s)
of Base Rent coming due, and any underpayment for the period retroactively to
the effective date of the adjustment being due and payable immediately upon the
determination thereof. Further, in the event of such Breach and market value
adjustment, (i) the purchase price of any option to purchase the Premises held
by Lessee shall be subject to similar adjustment to the then fair market value
(without the Lease being considered an encumbrance or any deduction for
depreciation or obsolescence, and considering the Premises at its highest and
best use and in good condition), or one hundred ten percent (110%) of the price
previously in effect, whichever is greater, (ii) any index-oriented rental or
price adjustment formulas contained in this Lease shall be adjusted to require
that the base Index be determined with reference to the index applicable to the
time of such adjustment, and (iii) any fixed rental adjustments scheduled during
the remainder of the Lease term shall be increased in the same ratio as the new
market rental bears to the Base Rent in effect immediately prior to the market
value adjustment.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by Lessor
shall be limited to compensatory damages and injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting shall
not: (i) be effective without the express written assumption by such assignee or
sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of
any obligations hereunder, or (iii) alter the primary liability of Lessee for
the payment of Base Rent and other sums due Lessor hereunder or for the
performance of any other obligations to be performed by Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's obligations
from any person, other than Lessee pending approval or disapproval of an
assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent or performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the sublessee. However,
Lessor may consent to
19
<PAGE>
subsequent sublettings and assignments of the sublease or any amendments or
modifications thereto without notifying Lessee or anyone else liable on the
Lease or sublease and without obtaining their consent, and such action shall not
relieve such persons from liability under this Lease or sublease.
(d) In the event of any Default or Breach of Lessee's obligations
under this Lease, Lessor may proceed directly against Lessee, any Guarantors or
any one else responsible for the performance of the Lessee's obligations under
this Lease, including the sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor or Lessee.
(e) Each request for consent to an assignment or subletting shall be
in writing, accompanied by information relevant to Lessor's determination as the
financial and operational responsibility and appropriateness of the proposed
assignee or sublessee, including but not limited to the intended use and/or
required modification of the Premises, if any, together with a non-refundable
deposit of $1,000 or ten percent (10%) of the current monthly Base Rent,
whichever is greater, as reasonable consideration for Lessor's considering and
processing the request for consent. Lessee agrees to provide Lessor with such
other or additional information and/or documentation as may be reasonably
requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by reason
of accepting such assignment or entering into such sublease, be deemed, for the
benefit of Lessor, to have assumed and agreed to conform and comply with each
and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
(g) The occurrence of a transaction described in Paragraph 12 (c)
shall give Lessor the right (but not the obligation) to require that the
Security Deposit be increased to an amount equal to six (6) times the then
monthly Base Rent, and Lessor may make the actual receipt by Lessor of the
amount required to establish such Security Deposit a condition to Lessor's
consent to such transaction
(h) Lessor, as a condition to giving its consent to any assignment or
subletting, may require that the amount and adjustment structure of the rent
payable under this Lease be adjusted to what is then the market value and/or
adjustment structure for property similar to the Premises as then constituted.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a portion
of the Premises heretofore or hereafter made by Lessee, and Lessor may collect
such rent and income and apply same toward Lessee's obligations under this
Lease; provided, however, that until a Breach (as defined in
20
<PAGE>
Paragraph 13.1) shall occur in the performance of Lessee's obligations under
this Lease, Lessee may, except as otherwise provided in this Lease, receive,
collect and enjoy the rents accruing under such sublease. Lessor shall not, by
reason of this or any other assignment of such sublease to Lessor, nor by reason
of the collection of the rents from a sublessee, be deemed liable to the
sublessee for any failure of Lessee to perform and comply with any of Lessee's
obligations to such sublessee under such sublease. Lessee hereby irrevocably
authorizes and directs any such sublessee, upon receipt of a written notice from
Lessor stating that a Breach exists in the performance of Lessee's obligations
under this Lease, to pay to Lessor the rents and other charges due and to become
due under the sublease. Sublessee shall rely upon any such statement and request
from Lessor and shall pay such rents and other charges to Lessor without any
obligation or right to inquire as to whether such Breach exists and
notwithstanding any notice from or claim from Lessee to the contrary. Lessee
shall have no right or claim against said sublessee, or until the Breech has
been cured, against Lessor, for any such rents and other charges so paid by said
sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessor or for any other prior Defaults
or Breaches of such sublessor under such sublease
(c) Any matter or thing requiring the consent of the sublessor under
a sublease shall also require the consent of Lessor herein.
(d) No sublessee shall further assign or sublet all or any part of
the Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach by
Lessee to the sublessee, who shall have the right to cure the Default of Lessee
within the grace period if any, specified in such notice. The sublessee shall
have a right of reimbursement and offset from and against Lessee for any such
Defaults cured by the sublessee.
13 DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined). $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default and that Lessor may include the cost of such services and costs in said
notice as rent due and payable to cure said Default. A "Default" is defined as a
failure by the Lessee to observe, comply with or perform any of the terms,
covenants, conditions or rules applicable to Lessee under this Lease. A "Breach"
is defined as the occurrence of any one or more of the following Defaults, and,
where a grace period for cure after notice is specified herein, the failure by
Lessee to cure such Default prior to the expiration of the applicable grace
period, shall entitle Lessor to pursue the remedies set forth in Paragraphs 13.2
and/or 13.3:
21
<PAGE>
(a) The vacating of the Premises without the intention to reoccupy
same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the failure
by Lessee to make any payment of Base Rent or any other monetary payment
required to be made by Lessee hereunder, whether to Lessor or to a third party,
as and when due, the failure by Lessee to provide Lessor with reasonable
evidence of insurance or surety bond required under this Lease, or the failure
of Lessee to fulfill any obligation under this Lease which endangers or
threatens life or property, where such failure continues for a period of three
(3) days following written notice thereof by or on behalf of Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the failure
by Lessee to provide Lessor with reasonable written evidence (in duly executed
original form, if applicable) of (i) compliance with applicable law per
Paragraph 6.3, (ii) the inspection, maintenance and service contracts required
under Paragraph 7.1(b), (iii) the recision of an unauthorized assignment or
subletting per Paragraph 12.1 (b), (iv) a Tenancy Statement per Paragraphs 16 or
37, (v) the subordination or non-subordination of this Lease per Paragraph 30,
(vi) the guaranty of the performance of Lessee's obligations under this Lease if
required under Paragraphs 1.11 and 37, (vii) the execution of any document
requested under Paragraph 42 (easements), or (viii) any other documentation or
information which Lessor may reasonably require of Lessee under the terms of
this Lease, where any such failure continues for a period of ten (10) days
following written notice by or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof,
that are to be observed, complied with or performed by Lessee, other than those
described in subparagraphs (a), (b) or (c), above, where such Default continues
for a period of thirty (30) days after written notice thereof by or on behalf of
Lessor to Lessee; provided, however, that if the nature of Lessee's Default is
such that more than thirty (30) days are reasonably required for its cure, then
it shall not be deemed to be a Breach of this Lease by Lessee if Lessee
commences such cure within said thirty (30) day period and thereafter diligently
prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) The making by
lessee of any general arrangement or assignment for the benefit of creditors;
(ii) Lessee's becoming a "debtor" as defined in 11 U.S.C. Section 101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of
a trustee or receiver to take possession of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where possession
is not restored to Lessee within thirty (30) days; or (iv) the attachment,
execution or other judicial seizure of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty (30) days; provided, however, in the
event that any provision of this subparagraph (e) is contrary to any applicable
law, such provision shall be of no force or effect, and not effect the validity
of the remaining provisions.
(f) The discovery by Lessor that any financial statement given to
Lessor by Lessee or any Guarantor of Lessee's obligations hereunder was
materially false.
22
<PAGE>
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a guarantor, (ii) the termination of a guarantor's
liability with respect to this Lease other than in accordance with the terms of
such guaranty, (iii) a guarantor's becoming insolvent or the subject of a
bankruptcy filing, (iv) a guarantor's refusal to honor the guaranty, or (v) a
guarantor's breach of its guaranty obligation on an anticipatory breach basis,
and Lessee's failure, within sixty (60) days following written notice by or on
behalf of Lessor to Lessee of any such event, to provide Lessor with written
alternative assurance or security, which, when coupled with the existing
resources of Lessee, equals or exceeds the combined financial resources of
Lessee and the guarantors that existed at the time of execution of this Lease.
13.2 REMEDIES. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written notice
to Lessee (or in case of an emergency, without notice), Lessor may at its option
(but without obligation to do so), perform such duty or obligation on Lessee's
behalf, including but not limited to the obtaining of reasonably required bonds,
insurance policies, or governmental licenses, permits or approvals. The costs
and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at its option,
may require all future payments to be made under this Lease by Lessee to be made
only by cashier's check. In the event of a Breach of this Lease by Lessee, as
defined in Paragraph 13.1, with or without further notice or demand, and without
limiting Lessor in the exercise of any right or remedy which Lessor may have by
reason of such Breach, Lessor may:
(a) Terminate Lessees right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In such
event Lessor shall be entitled to recover from Lessee: (i) the worth at the time
of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably avoided; (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessees failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of recovering
possession of the Premises, expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorneys' fees, and that
portion of the leasing commission paid by Lessor applicable to the unexpired
term of this Lease. The worth at the time of award of the amount referred to in
provision (iii) of the prior sentence shall be computed by discounting such
amount at the discount rate of the Federal Reserve Bank of San Francisco at the
time of award plus one percent (1%). Efforts by Lessor to mitigate damages
caused by Lessee's Default or Breach of this Lease shall not waive Lessor's
right to recover damages under this Paragraph. If termination of this Lease is
obtained through the provisional remedy of unlawful detainer, Lessor shall have
the right to recover in such proceeding the unpaid rent and damages as are
recoverable therein, or Lessor may reserve therein the right to recover all or
any part thereof in a separate suit for such rent and/or damages. If a notice
and grace period required under subparagraphs 13.1(b), (c) or (d) was not
previously given, a notice
23
<PAGE>
to pay rent or quit, or to perform or quit, as the case may be, given to Lessee
under any statute authorizing the forfeiture of leases for unlawful detainer
shall also constitute the applicable notice for grace period purposes required
by subparagraphs 13.1 (b), (c) or (d). In such case, the applicable grace period
under subparagraphs 13.1 (b), (c) or (d) and under the unlawful detainer statute
shall run concurrently after the one such statutory notice, and the failure of
Lessee to cure the Default within the greater of the two such grace periods
shall constitute both an unlawful detainer and a Breach of this Lease entitling
Lessor to the remedies provided for in this Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in effect (in
California under California Civil Code Section 1951.4) after Lessees Breach and
abandonment and recover the rent as it becomes due, provided Lessee has the
right to sublet or assign, subject only to reasonable limitations. See
Paragraphs 12 and 36 for the limitations on assignment and subletting which
limitations Lessee and Lessor agree are reasonable. Acts of maintenance or
preservation, efforts to relet the Premises, or the appointment of a receiver to
protect the Lessor's interest under the Lease, shall not constitute a
termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor under
the laws or Judicial decisions of the state wherein the Premises are located.
(d) The expiration or termination of this Lease and/or the termination
of Lessee's right to possession shall not relieve Lessee from liability under
any indemnity provisions of this Lease as to matters occurring or accruing
during the term hereof or by reason of Lessee's occupancy of the Premises.
13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by Lessor for
free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "Inducement Provisions," shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach of this Lease by Lessee, as defined in Paragraph 13.1, any such
inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abetted, given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph shall not be deemed a waiver by Lessor of the provisions of this
Paragraph unless specifically so stated in writing by Lessor at the time of such
acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee
to Lessor of rent and other sums due hereunder will cause Lessor to incur costs
not contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed upon Lesser by the
terms of any ground lease, mortgage or trust deed covering the
24
<PAGE>
Premises. Accordingly, if any installment of rent or any other sum due from
Lessee shall not be received by Lessor or Lessor's designee within five (5) days
after such amount shall be due, then, without any requirement for notice to
Lessee, Lessee shall pay to Lessor a late charge equal to six percent (6%) of
such overdue amount. The parties hereby agree that such late charge represents a
fair and reasonable estimate of the costs Lessor will incur by reason of late
payment by Lessee. Acceptance of such late charge by Lessor shall in no event
constitute a waiver of Lessee's Default or Breach with respect to such overdue
amount, nor prevent Lessor from exercising any of the other rights and remedies
granted hereunder. In the event that a late charge is payable hereunder, whether
or not collected, for three (3) consecutive installments of Base Rent, then
notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.
13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of this Lease
unless Lessor fails within a reasonable time to perform an obligation required
to be performed by Lessor. For purposes of this Paragraph 13,5, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor,
and by the holders of any ground lease, mortgage or deed of trust covering the
Premises whose name and address shall have been furnished Lessee in writing for
such purpose, of written notice specifying wherein such obligation of Lessor has
not been performed; provided, however, that if the nature of Lessor's obligation
is such that more than thirty (30) days after such notice are reasonably
required for its performance, then Lessor shall not be in breach of this Lease
if performance is commenced within such thirty (30) day period and thereafter
diligently pursued to completion.
14. CONDEMNATION. If the Premses or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than ten percent (10%) of the floor
area of the Premises, or more than twenty-five percent (25%) of the land area
not occupied by any building, is taken by condemnation, Lessee may, at Lessee's
option, to be exercised in writing within ten (10) days after Lessor shall have
given Lessee written notice of such taking (or in the absence of such notice,
within ten (10) days after the condemning authority shall have taken possession)
terminate this Lease as of the date the condemning authority takes such
possession. If Lessee does not terminate this Lease in accordance with the
foregoing, this Lease shall remain in full force and effect as to the portion of
the Premises remaining, except that the Base Rent shall be reduced in the same
proportion as the rentable floor area of the Premises taken bears to the total
rentable floor area of the building located on the Premises. No reduction of
Base Rent shall occur if the only portion of the Premises taken is land on which
there is no building. Any award for the taking of all or any part of the
Premises under the power of eminent domain or any payment made under threat of
the exercise of such power shall be the property of Lessor, whether such award
shall be made as compensation for diminution in value of the leasehold or for
the taking of the fee, or as severance damages; provided, however, that Lessee
shall be entitled to any compensation separately awarded to Lessee for Lessee's
relocation expenses and/or loss of Lessee's Trade Fixtures. In the event that
this Lease is not terminated by reason of such condemnation, Lessor shall to the
extent of its net severance damages received, over and above the legal end ether
expenses incurred by Lessor in the condemnation matter, repair any damage to the
Premises caused by such condemnation, except to the extent that Lessee has been
reimbursed thereafter by the condemning authority. Lessee shall be
25
<PAGE>
responsible for the payment of any amount in excess of such net severance
damages required to complete such repair.
15. BROKER'S FEE.
15.1 The Brokers named in Paragraph 1.10 are the procuring causes of this
Lease.
15.2 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 fee as set forth in a separate written agreement between Lessor and
said Brokers (or in the event there is no separate written agreement between
Lessor and said Brokers, the sum of $___________) for brokerage services
rendered by said Brokers to Lessor in this transaction.
15.3 Unless Lessor and Brokers have otherwise agreed in writing, Lessor
further agrees that: (a) if Lessee exercises any Option (as defined in Paragraph
39.1) or any Option subsequently granted which is substantially similar to an
Option granted to Lessee in this Lease, or (b) 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 (c) if Lessee remains in possession of the Premises,
with the consent of Lessor, after the expiration of the term of this Lease after
having failed to exercise an Option, or (d) if said Brokers are the procuring
cause of any other lease or sale entered into between the Parties pertaining to
the Premises and/or adjacent property in which Lessor has any interest, or (e)
if Base Rent is increased, whether by agreement or operation of an escalation
clause herein, then as to any of said transactions, Lessor shall pay said
Brokers a fee in accordance with the schedule of said Brokers in effect at the
time of the execution of this Lease.
15.4 Any buyer or transferee of Lessor's interest in this Lease, whether
such transfer is by agreement or by operation of law, shall be deemed to have
assumed Lessor's obligation under this Paragraph 15. Each Broker shall be a
third party beneficiary of the provisions of this Paragraph 15 to the extent of
its interest in any commission arising from this Lease and may enforce that
right directly against Lessor and its successors.
15.5 Lessee and Lessor each represent and warrant to the other that it has
had no dealings with any person, firm, broker or finder (other than the Brokers,
if any named in Paragraph 1.1O) in connection with the negotiation of this Lease
and/of the consummation of the transaction contemplated hereby, and that no
broker or other person, firm or entity other than said named Brokers is entitled
to any commission or finder's fee in connection with said transaction Lessee and
Lessor do each hereby agree to indemnify, protect, defend and hold the other
harmless from and against liability for compensation or charges which may be
claimed by any such unnamed broker, finder or other similar party by reason of
any dealings or actions of the indemnifying Party, including any costs,
expenses, attorneys' fees reasonably incurred with respect thereto.
15.6 Lessor and Lessee hereby consent to and approve all agency
relationships, including any dual agencies, indicated in Paragraph 1.10.
16. TENANCY STATEMENT.
26
<PAGE>
16.1 Each Party (as "Responding Party") shall within ten (10) days after
written notice from the other Party (the "Requesting Party") execute,
acknowledge and deliver to the Requesting Party a statement in writing in form
similar to the then most current "Tenancy Statement" form published by the
American Industrial Real Estate Association, plus such additional information,
confirmation and/or statements as may be reasonably requested by the Requesting
Party.
16.2 If Lessor desires to finance, refinance, or sell the Premises, any
part thereof, or the building of which the Premises are a part, Lessee and all
Guarantors of Leasee's performance hereunder shall deliver to any potential
lender or purchaser designated by Lessor such financial statements of Lessee and
such Guarantors as may be reasonably required by such lender or purchaser,
including but not limited to Leasee's financial statements for the past three
(3) years. All such financial statements shall be received by Lessor and such
lender or purchaser in confidence and shall be used only for the purposes herein
set forth.
17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean the owner or
owners at the time in question of the fee title to the Premises, or, if this is
a sublease, of the Leasee's interest in the prior lease. In the event of a
transfer of Lessor's title or interest in the Premises or in this Lease, Lessor
shall deliver to the transfer or assignee (in cash or by credit) any unused
Security Deposit held by Lessor at the time of such transfer or assignment.
Except as provided in Paragraph 15, upon such transfer or assortment and
delivery of the Security Deposit, as aforesaid, the prior Lessor shall be
relieved of all liability with respect to the obligations and/or covenants under
this Lease thereafter to be performed by the Lessor. Subject to the foregoing,
the obligations and/or covenants in this Lease to be performed by the Lessor
shall be binding only upon the Lessor as hereinabove defined.
18. SEVERABILITY. The invalidity of any provision of this Lease, as determined
by a court of competent Jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor hereunder,
other than late charges, not received by Lessor within thirty (30) days
following the date on which it was due, shall bear interest from the thirty-
first (31st) day after it was due at the rate of 12% per annum, but not
exceeding the maximum rate allowed by law, in addition to the late charge
provided for in Paragraph 13.4.
20. TIME OF ESSENCE. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
27
<PAGE>
responsibility with respect thereto or with respect to any default or breach
hereof by either Party.
23. NOTICES.
23.1 All notices required or permitted by this Lease shall be in writing
and may be delivered in person (by hand or by messenger or courier service) or
may be sent by regular, certified or registered mail or U.S. Postal Service
Express Mail, with postage prepaid, or by facsimile transmission, and shall be
deemed sufficiently given if served in a manner specified in this Paragraph 23.
The addresses noted adjacent to a Party's signature on this Lease shall be that
Party's address for delivery or mailing of notice purposes. Either Party may by
written notice to the other specify a different address for notice purposes,
except that upon Leasee's taking possession of the Premises, the Premises shall
constitute Leasee's address for the purpose of mailing or delivering notices to
Lessee. A copy of all notices required or permitted to be given to Lessor
hereunder shall be concurrently transmitted to such party or parties at such
addresses as Lessor may from time to time hereafter designate by written notice
to Lessee.
23.2 Any notice sent by registered or certified mail, return receipt
requested, shall be deemed given on the date of delivery shown on the receipt
card, or if no delivery date is shown, the postmark thereon. If sent by regular
mail the notice shall be deemed given forty-eight (48) hours after the same is
addressed as required herein and mailed with postage prepaid. Notices delivered
by United States Express Mail or overnight courier that guarantees next day
delivery shall be deemed given twenty-four (24) hours after delivery of the same
to the United States Postal Service or courier. If any notice is transmitted by
facsimile transmission or similar means, the same shall be deemed served or
delivered upon telephone confirmation of receipt of the transmission thereof,
provided a copy is also delivered via delivery or mail. If notice is received on
a Sunday or legal holiday, it shall be deemed received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereof by Lessee, shall be deemed a waiver of any other term,
covenant or condition hereof, or of any subsequent Default or Breach by Lessee
of the same or of any other term, covenant or condition hereof. Lessor's consent
to, or approval of, any act shall not be deemed to render unnecessary the
obtaining of Lessor's consent to, or approval of, any subsequent or similar act
by Lessee, or be construed as the basis of an estoppel to enforce the provision
or provisions of this Lease requiring such counsel. Regardless of Lessor's
knowledge of a Default or Breach at the time of accepting rent, the acceptance
of rent by Lessor shall not be a waiver of any preceding Default or Breach by
Lessee of any provision hereof, other than the failure of Lessee to pay the
particular rent so accepted. Any payment given Lessor by Lessee may be accepted
by Lessor on account of moneys or damages due Lessor, notwithstanding any
qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. RECORDING. Either Lessor or Leases shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
28
<PAGE>
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the parties,
their personal representatives, successors and assigns and be governed by the
laws of the State in which the Premises are located. Any litigation between the
Parties hereto concerning this Lease shall be initiated in the county in which
the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "Security Device"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default and
allow such Lender thirty (30) days following receipt of such notice for the cure
of said default before invoking any remedies Lessee may have by reason thereof.
If any Lender shall elect to have this Lease and/or any Option granted hereby
superior to the lien of its Security Device and shall give written notice
thereof to Lessee, this Lease and such Options shall he deemed prior to such
Security Device, notwithstanding the relative dates of the documentation or
recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one (1) month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "non-disturbance agreement") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorns to the record owner of the Premises.
29
<PAGE>
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall be
effective without the execution of any further documents; provided, however,
that, upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of the Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. ATTORNEY'S FEES. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) or Broker in any such proceeding, action, or appeal thereon,
shall be entitled to reasonable attorney's fees. Such fees may be awarded in the
same suit or recovered in a separate suit, whether or not such action or
proceeding is pursued to decision or Judgment. The term, "Prevailing Party"
shall include, without limitation, a Party or Broker who substantially obtains
or defeats the relief sought, as the case may be, whether by compromise,
settlement, judgment, or the abandonment by the other Party or Broker of its
claim or defense. The attorney's fee award shall not be computed in accordance
with any court fee schedule, but shall be such as to fully reimburse all
attorney's fees reasonably incurred. Lessor shall he entitled to attorney's
fees, costs and expenses incurred in the preparation and service of notices of
Default and consultations in connection therewith, whether or not a legal action
is subsequently commenced in connection with such Default or resulting Breach.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents shall
have the right to enter the Premises at any time, in the case of an emergency,
and otherwise at reasonable times for the purpose of showing the same to
prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the building of which
they are a part, as Lessor may reasonably deem necessary. Lessor may at any time
place on or about the Premises or building any ordinary "For Sale" signs and
Lessor may at any time during the last one hundred twenty (120) days of the term
hereof place on or about the Premises any ordinary "For Lease" signs. All such
activities of Lessor shall be without abatement of rent or liability to Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the Premises, except that Lessee
may, with Lessor's prior written consent, install (but not on the roof) such
signs as are reasonably required to advertise Lessee's own business. The
installation of any sign on the Premises by or for Lessee shall be subject to
the provisions of Paragraph 7 (Maintenance, Repairs, Utility Installations,
Trade Fixtures and Alterations). Unless otherwise expressly agreed herein,
Lessor reserves all rights to the use of the roof and the right to install, and
all revenues from the installation of, such advertising signs on the Premises,
including the roof, as do not unreasonably interfere with the conduct of
Lessee's business.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation
30
<PAGE>
hereof, or a termination hereof by Lessor for Breach by Lessee, shall
automatically terminate any sublease or lesser estate in the Premises; provided,
however, Lessor shall, in the event of any such surrender, termination or
cancellation, have the option to continue any one or all of any existing
subtenancies, Lessor's failure within ten (10) days following any such event to
make a written election to the contrary by written notice to the holder of any
such lesser interest, shall constitute Lessor's election to have such event
constitute the termination of such interest.
36. CONSENTS.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in this Lease the consent of a Party is required to an act by
or for the other Party, such consent shall not be unreasonably withheld or
delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' or other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment, a subletting or the presence or use of a
Hazardous Substance, practice or storage tank, shall be paid by Lessee to Lessor
upon receipt of an Invoice and supporting documentation therefor. Subject to
Paragraph 12.2(e) (applicable to assignment or subletting), Lessor may, as a
condition to considering any such request by Lessee, require that Lessee deposit
with Lessor an amount of money (in addition to the Security Deposit held under
Paragraph 5) reasonably calculated by Lessor to represent the cost Lessor will
incur in considering and responding to Lessee's request. Except as otherwise
provided, any unused portion of said deposit shall be refunded to Lessee without
interest. Lessor's consent to any act, assignment of this Lease or subletting of
the Premises by Lessee shall not constitute an acknowledgement that no Default
or Breach by Lessee of this Lease exists, nor shall such consent be deemed a
waiver of any then existing Default or Breach, except as may be otherwise
specifically stated in writing by Lessor at the time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the imposition by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent Is being
given.
37. GUARANTOR.
37.1 If there are to be any Guarantors of this Lease per Paragraph 1.11,
the form of the guaranty to be executed by each such Guarantor shall be in the
form most recently published by the American Industrial Real Estate Association,
and each said Guarantor shall have the same obligations as Lessee under this
Lease, including but not limited to the obligation to provide the Tenancy
Statement and information called for by Paragraph 16.
37.2 It shall constitute a Default of the Lessee under this Lease if any
such Guarantor fails or refuses, upon reasonable request by Lessor to give: (a)
evidence of the due execution of the guaranty called for by this Lease,
including the authority of the Guarantor (and of the party signing on
Guarantor's behalf) to obligate such Guarantor on said guaranty, and including
in the case of a corporate Guarantor, a certified copy of a resolution of its
board of directors
31
<PAGE>
authorizing the making of such guaranty, together with a certificate of
incumbency showing the signature of the persons authorized to sign on its
behalf, (b) current financial statements of
Guarantor as may from time to time be requested by Lessor, (c) a Tenancy
Statement, or (d) written confirmation that the guaranty is still in effect.
38. QUIET POSSESSION. Upon payment by Lessee of the rent for the Premises and
the observance and performance of all of the covenants, conditions and
provisions on Lessee's part to be observed and performed under this Lease,
Lessee shall have quiet possession of the Premises for the entire term hereof
subject to all of the provisions of this Lease.
39. OPTIONS.
39.1 DEFINITION. As used in this Paragraph 39 the word "Option" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property of
Lessor; (b) the right of first refusal to lease the Premises or the right of
first offer to lease the Premises or the right of first refusal to lease other
property of Lessor or the right of first offer to lease other property of
Lessor; (c) the right to purchase the Premises, or the right of first refusal to
purchase the Premises, or the right of first offer to purchase the Premises, or
the right to purchase other property of Lesser, or the right of first refusal to
purchase other property of Lessor, or the right of first offer to purchase other
property of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to Lessee in
this Lease is personal to the original Lessee named in Paragraph 17 hereof, and
cannot be voluntarily or involuntarily assigned or exercised by any person or
entity other than said original Lessee while the original Loss is in full and
actual possession of the Premises and without the intention of thereafter
assigning or subletting. The Options, if any, herein granted to Lessee are not
assignable, either as a part of an assignment of this Lease or separately or
apart therefrom, and no Option may be separated from this Lease in any manner,
by reservation or otherwise.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any Multiple Options to
extend or renew this Lease, a later Option cannot be exercised unless the prior
Options to extend or renew this Lease have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option, notwithstanding
any provision in the grant of Option to the contrary: (i) during the period
commencing with the giving of any notice of Default under Paragraph 13.1 and
continuing until the noticed Default is cured, or (ii) during the period of time
any monetary obligation due Lessor from Lessee is unpaid (without regard to
whether notice thereof is given Lessee), or (iii) during the time Lessee is in
Breach of this Lease, or (iv) In the event that Lessor has given to Lessee three
(3) or more notices of Default under Paragraph 13.1, whether or not the Defaults
are cured, during the twelve (12) month period immediately preceding the
exercise of the Option.
32
<PAGE>
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to
Lessee three (3) or more notices of Default under Paragraph 13.1 during any
twelve (12) month period, whether or not the Defaults are cured, or (iii) if
Lessee commits a Breach of this Lease.
40. MULTIPLE BUILDINGS. If the Premises are part of a group of buildings
controlled by Lessor, Lessee agrees that it will abide by, keep and observe all
reasonable rules and regulations which Lessor may make from time to time for the
management, safety, care, and cleanliness of the grounds, the parking and
unloading of vehicles and the preservation of good order, as well as for the
convenience of other occupants or tenants of such other buildings and their
invitees, and that Lessee will pay its fair share of common expenses incurred in
connection therewith.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. RESERVATIONS. Lessor reserves to itself the right, from time to time, to
grant, without the consent or Joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
44. AUTHORITY. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
33
<PAGE>
45. CONFLICT. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. OFFER. Preparation of this Lease by Lessor or Lessor's agent and submission
of same to Lessee shall not be deemed an offer to lease to Lessee. This Lease is
not intended to be binding until executed by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional, insurance company, or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such Multiple Parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO YOUR
ATTORNEY FOR HIS APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO EVALUATE THE
CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE OF ASBESTOS, STORAGE TANKS
OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKER(S) OR
THEIR AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX
CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES; THE PARTIES
SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX
CONSEQUENCES OF THIS LEASE. IF THE SUBJECT PROPERTY IS LOCATED IN A STATE OTHER
THAN CALIFORNIA, AN ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD
BE CONSULTED.
The parties hereto have executed this Lease at the place on the dates specified
above to their respective signatures.
Executed at Los Angeles, CA Executed at Los Angeles, CA
on September 9, 1996 on September 9, 1996
by LESSOR: S&S PARTNERSHIP by LESSOR: TAG IT, INC.
34
<PAGE>
By s/s Jaime Sirebrenik By s/s Colin Dyne
---------------------- ----------------------
Title: Partner Title: President
------------------ ------------------
Address: 4433 S. Alameda St., Address: 3820 S. Hill Street
Suite #1 Los Angeles, CA 90037
Los Angeles, CA 90058 Tel. No. (213) 234-9606
Tel. No. (213) 234-2700 Fax No. (213) 234-9610
Fax No. (213) 234-2736 Address:
NOTICE:These forms are often modified to meet changing requirements of law and
Industry needs. Always write or call to make sure you are utilizing the most
current form: American Industrial Real Estate Association, 700 South Flower
Street. Suite 600, Los Angeles, CA 90017. (213) 687-8777. Fax No. (213) 687-
8616.
-C- Copyright 1990-By American Industrial Real Estate Association. All
rights reserved.
No part of these works may be reproduced in any form without permission in
writing.
FORM 105G-R-12/91
35
<PAGE>
ADDENDUM TO
STANDARD INDUSTRIAL LEASE
Dated September 6, 1996
-----------------
By and Between S&S PARTNERSHIP
---------------
TAG IT, INC.
------------
49. Lessor shall at this expense and prior to September 13, 1996, patch and
paint the office area walls, raise the warehouse lighting and remove the
peeling paint from the warehouse ceiling.
50. Lessee shall have permission to install a loading door in the north
warehouse wall. Upon notification from any governmental authority or at
Lessor's option upon lease termination, Lessee shall restore the premises
to its present condition.
36
<PAGE>
OPTION(S) TO EXTEND
ADDENDUM TO STANDARD LEASE
STANDARD LEASE
Dated September 6, 1996
-----------------
By and Between (Lessor) S & S PARTNERSHIP
-----------------
(Lessee) TAG IT, INC,, a California Corporation
--------------------------------------
Property Address: 3838 S. Hill Street, Los Angeles
--------------------------------
Paragraph 51
--
A. OPTION(S) TO EXTEND:
Lessor hereby grants to Lessee the option to extend the term of this Lease
for 1 additional 24 month period(s) commencing when the prior term expires upon
each and all of the following terms and conditions:
(i) Lessee gives to Lessor, and Lessor actually receives on a date which
is prior to the date that the option period would commence (if exercised) by at
least 4 and not more than 6 months, a written notice of the exercise of the
option(s) to extend this Lease for said additional term(s), time being of
essence. If said notification of the exercise of said option(s) is (are) not so
given and received, the option(s) shall automatically expire; said option(s) may
(if more than one) only be exercised consecutively;
(ii) The provisions of paragraph 39, including the provision relating to
default of Lessee set forth in paragraph 39.4 of this Lease are conditions of
this Option;
(iii) All of the terms and conditions of this Lease except where
specifically modified by this option shall apply;
(iv) The monthly rent for each month of the option period shall be
calculated as follows, using the method(s) indicated below:
Initials: _____ Initials:_____
_____ _____
OPTION(S) TO EXTEND
Page 1 of 4
NOTICE: These forms are often modified to meet changing requirements of law
and Industry needs. Always write or call to make sure you are
utilizing the most current form: American Industrial Real Estate
Association, 345 South Figueroa Street, Suite M-I, Los Angeles. CA
90071. (213) 687-8777. Fax No. (213) 687-8616.
- -C- 1991 American Industrial Real Estate Association
<PAGE>
(Check Method(s) to be Used and Fill in Appropriately)
/ / I. Cost of Living Adjustment(s) (COL)
(a) On (Fill in COL Adjustment Date(s): _______________________________
_____________________________________________________________ the
monthly rent payable under paragraph 1.5 ("Base Rent") of the attached Lease
shall be adjusted by the change, if any, from the Base Month specified below, in
the Consumer Price Index of the Bureau of Labor Statistics of the U.S.
Department of Labor for (select one): / / CPI W (Urban Wage Earners and Clerical
Workers) or / / CPI U (All Urban Consumers), for (Fill in Urban Area):
_______________________________________________________, All Items
(1982-1984 = 100), herein referred to as "C.P.I."
(b) The monthly rent payable in accordance with paragraph A1(a) of this
Addendum shall be calculated as follows: the Base Rent set forth in paragraph
1.5 of the attached Lease, shall be multiplied by a fraction the numerator of
which shall be the C.P.I. of the calendar month 2 (two) months prior to the
month(s) specified in paragraph A1(a) above during which the adjustment is to
take effect, and the denominator of which shall be the C.P.I. of the calendar
month which is two (2) months prior to (select one): / / the first month of the
term of this Lease as set forth in paragraph 1.3 ("Base Month") or / / (Fill in
Other "Base Month"):
___________________. The sum so calculated shall constitute the new monthly
rent hereunder, but in no event, shall any such new monthly rent be less than
the rent payable for the month immediately preceding the date for rent
adjustment.
(c) In the event the compilation and/or publication of the C.P.I. shall be
transferred to any other governmental department or bureau or agency or shall be
discontinued, then the index most nearly the same as the C.P.I. shall be used to
make such calculation. In the event that Lessor and Lessee cannot agree on such
alternative index, then the matter shall be submitted for decision to the
American Arbitration Association in accordance with the then rules of said
association and the decision of the arbitrators shall be binding upon the
parties. The cost of said Arbitrators shall be paid equally by Lessor and
Lessee.
Initials: _____ Initials:_____
_____ _____
OPTION(S) TO EXTEND
Page 2 of 4
NOTICE: These forms are often modified to meet changing requirements of law
and Industry needs. Always write or call to make sure you are
utilizing the most current form: American Industrial Real Estate
Association, 345 South Figueroa Street, Suite M-I, Los Angeles. CA
90071. (213) 687-8777. Fax No. (213) 687-8616.
- -C- 1991 American Industrial Real Estate Association
<PAGE>
/ / II. Market Rental Value Adjustment(s) (MRV)
(a) On (Fill in MRV Adjustment Date(s):__________________________________
________________________________________________________________________________
the monthly rent payable under paragraph 1.5 ("Base Rent") of the attached Lease
shall be adjusted to the "Market Rental Value" of the property as follows:
1) Four months prior to the Market Rental Value (MRV) Adjustment
Date(s) described above, Lessor and Lessee shall meet to establish an agreed
upon new MRV for the specified term. If agreement cannot be reached, then:
i) Lessor and Lessee shall immediately appoint a mutually acceptable
appraiser or broker to establish the new MRV within the next 30 days. Any
associated costs will be split equally between the parties, or
ii) Both Lessor and Lessee shall each immediately select and pay the
appraiser or broker of their choice to establish a MRV within the next 30 days.
If, for any reason, either one of the appraisals is not completed within the
next 30 days, as stipulated, then the appraisal that is completed at that time
shall automatically become the new MRV. If both appraisals are completed and
the two appraisers/brokers cannot agree on a reasonable average MRV then they
shall immediately select a third mutually acceptable appraiser/broker to
establish a third MRV within the next 30 days. The average of the two
appraisals closest in value shall then become the new MRV. The costs of the
third appraisal will be split equally between the parties.
2) In any event, the new MRV shall not be less than the rent payable
for the month immediately preceding the date for rent adjustment.
(b) Upon the establishment of each New Market Rental Value as described in
paragraph A11:
1) the monthly rental sum so calculated for each term as specified
in paragraph A11(a) will become the new "Base Rent" for the purpose of
calculating any further Cost of Living Adjustments as specified in paragraph
A1(a) above and
2) the first month of each Market Rental Value term as specified in
paragraph A11(a) shall become the new "Base Month" for the purpose of
calculating any further Cost of Living Adjustments as specified in paragraph
A1(b).
Initials: _____ Initials:_____
_____ _____
OPTION(S) TO EXTEND
Page 3 of 4
NOTICE: These forms are often modified to meet changing requirements of law
and Industry needs. Always write or call to make sure you are
utilizing the most current form: American Industrial Real Estate
Association, 345 South Figueroa Street, Suite M-I, Los Angeles. CA
90071. (213) 687-8777. Fax No. (213) 687-8616.
- -C- 1991 American Industrial Real Estate Association
<PAGE>
/ / III. Fixed Rental Adjustment(s) (FRA)
The monthly rent payable under paragraph 1.5 ("Base Rent") of the attached Lease
shall be increased to the following amounts on the dates set forth below:
ON (Fill in FRA Adjustment Date(s)): The New Base Rental shall be:
October 1, 1998 $ 2,700.00
- ------------------------------------ ----------------------------------
October 1, 1999 $ 2,800.00
- ------------------------------------ ----------------------------------
B. NOTICE: Unless specified otherwise herein, notice of any escalations other
than Fixed Rental Adjustments shall be made as specified in paragraph 23 of the
attached Lease.
C. BROKER'S FEE:
The Real Estate Brokers specified in paragraph 1.10 of the attached Lease
shall be paid a Brokerage Fee for each adjustment specified above in
accordance with paragraph 15 of the attached Lease.
Initials: _____ Initials:_____
_____ _____
OPTION(S) TO EXTEND
Page 4 of 4
NOTICE: These forms are often modified to meet changing requirements of law
and Industry needs. Always write or call to make sure you are
utilizing the most current form: American Industrial Real Estate
Association, 345 South Figueroa Street, Suite M-I, Los Angeles. CA
90071. (213) 687-8777. Fax No. (213) 687-8616.
- -C- 1991 American Industrial Real Estate Association
<PAGE>
ADDENDUM TO
STANDARD INDUSTRIAL LEASE
Dated September 6, 1996
-----------------------------------------------------------
By and Between S & S PARTNERSHIP
-------------------------------------------------
TAG IT, INC.
----------------------------------------------------------------
49. Lessor shall at his expense and prior to September 13, 1996,
patch and paint the office area walls, raise the warehouse
lighting and remove the peeling paint from the warehouse
ceiling.
50. Lessee shall have permission to install a loading door in
the north warehouse wall. Upon notification from any
governmental authority or at Lessor's option upon lease
termination. Lessee shall restore the premises to its
present condition.
<PAGE>
Dated the 8th day of June 1996
LEA TAI PROPERTY DEVELOPMENT
LIMITED
and
TAG-IT PRINTING & PACKAGING LIMITED
***********************************************
TENANCY AGREEMENT
of
Units 03 & 05, 10th Floor, Shatin 11 Plaza, No. 11
Wo Sing Street, Fo Tan, Shatin, New Territories
Term : 2 years
Commencing : 23rd May 1996
Expiring : 22nd May 1998
Rent : HK$29,214.50
Deposit : HK$95,892.30
***********************************************
EDMUND CHEUNG & CO.,
SOLICITORS,
13TH FLOOR, REGENT CENTRE,
88 QUEEN'S ROAD CENTRAL,
HONG KONG.
REF. NO.: WS-7567/96/0017/hp
<PAGE>
<TABLE>
<S> <C>
THIS AGREEMENT made this 8th day of June, One thousand nine hundred and
ninety six BETWEEN the person(s) firm or company detailed as the Landlord in
Part I of the First Schedule hereto (hereinafter called "the Landlord") of
the one part and the person(s) firm or company detailed as the Tenant in Part
I of the First Schedule hereto (hereinafter called "the Tenant") of the other
part
1. PREMISES, TERM AND RENT
Premises 1.1 The Landlord hereby lets unto the Tenant and the
Tenant hereby agrees to take ALL THOSE the premises particularised in Part II
of the First Schedule hereto (hereinafter called "the said premises")
TOGETHER with a right for the Tenant its servants and licensees (in common
with the Landlord and all other tenants and occupiers of the said building
and their respective servants and licensees and all others having the like
right) to pass and repass upon down over and along the staircases landings
passages entrances and means of access in the said building at all times by
day and by night on foot for the purpose of access to and from the said
premises from and to the entrance to the said building;
Rights to 1.1.1 AND TOGETHER with the right in common with other tenants and
use lifts occupiers of the said building for the Tenant its servants and licensees to
use the passenger lifts (if any) and freight lift only to and from the said
premises (during such hours as the same shall be working) and provided always
that the Landlord will be under no obligation to supply attendants for such
lifts;
Rights to 1.1.2 AND TOGETHER with the right for the Tenant its servants and
use toilets licensees to use any water closets lavatories and conveniences located
within the said premises or allocated for use by the Tenant;
Term 1.2 This Agreement shall be for the term set forth in Part III
of the First Schedule hereto;
Rent and 1.3 Throughout the said term the rent and other charges as set
other charges out in the Second Schedule hereto shall be payable to the Landlord monthly in
advance clear of all deductions on the date as set out in Part I of the said
Second Schedule.
2. TENANT'S OBLIGATIONS AND RESTRICTIONS
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
The Tenant agrees with the Landlord as follows :-
2.1 RENT AND OTHER CHARGES
Rent 2.1.1 To pay the rent as set out in Part I of the Second Schedule at the
times and in manner aforesaid without deduction and in bank notes if
demanded;
Other Charges 2.1.2 To pay the other charges (if any) as set out in Part II of the
Second Schedule hereto;
Water 2.1.3 To pay all charges for water as may be shown by the separate meter
installed upon or in relation to the said premises or by accounts rendered to
the Tenant in respect of such amount of water consumed in the said premises;
Electricity 2.1.4 To pay all charges for electricity and gas as may be shown by the
and gas separate meter installed upon or in relation to the said premises or by
accounts rendered to the Tenant in respect of such mount of electricity
consumed in the said premises;
Rates, 2.1.5 To pay and discharge all rates taxes assessments duties impositions
taxes, etc. charges and outgoings whatsoever now or hereafter to be imposed or levied on
the Premises or upon the owner or occupier in respect thereof by the
Government of Hong Kong or other lawful authority (Crown Rent and Property
Tax alone excepted). (Without prejudice to the generality of this sub-clause
the Tenant shall pay all rates imposed on the Premises in the first place to
the Landlord who shall settle the same with the Hong Kong Government and in
the event of the Premises not yet having been assessed to rates the Tenant
shall pay to the Landlord a sum equal to the rates which would be charged by
the Hong Kong Government on the basis of a rateable value equal to twelve
months' rent payable by the Tenant on account of the Tenant's liability under
this Clause.)
Utility 2.1.6 To pay and discharge all deposits and charges in respect of gas water
deposits electricity air-conditioning and telephone as may be shown by or operated
from the tenants own metered supply or by accounts rendered to the Tenant in
respect of all such utilities consumed on or in the Premises.
Compliance with 2.2 To obey and comply with all ordinances, regulations, bye-
Ordinances and laws, rules and requirements of any Governmental or other
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
Regulations competent authority relating to the use and occupation of the
said premises the conduct and carrying on of the Tenant's
business on or in the said premises or to any other act, deed, matter
or thing done, permitted, suffered or omitted therein or thereon by
the Tenant or any employee, agent or licensee of the Tenant and
to notify the Landlord forthwith in writing of any notice received from any
utility statutory or public authority concerning or in respect of the said
premises or any services supplied thereto and in particular to observe at all
times all statutory regulations governing fire prevention within the said
premises and to observe perform and comply with all directions given by the
Fire Brigade Urban Council or other competent authority in connection with
the said premises or any part thereof and the storage of goods therein and to
indemnify the Owner and the Landlord against all actions costs claims and
demands in respect of any breach or non-observance of any of the foregoing
covenants;
2.3 USER
User 2.3.1 To use the said premises and every part thereof wholly and
exclusively only for the purpose as set forth in Part V of the First Schedule
hereto and for no other purpose whatsoever;
Breach of 2.3.2 Not to cause suffer or permit any of the provisions of the Crown
Contravention Lease under which the Landlord holds the said premises and to indemnify the
Crown Lease Landlord against any such breach;
Town Planning 2.3.3 Not to use the said premises or any part thereof in such manner or
Ordinance for such purpose whereby any provision or requirement under the Town Planning
Ordinance and any Regulations made thereunder may be infringed or
contravened;
Mutual 2.3.4 To obey observe and comply with and perform all the covenants terms
Covenant and provisions in the Deed of Mutual Covenant and Management Agreement (if
and any) the said building so far as they relate to the said relating to premises
Management and to indemnify the Landlord against the breach non-observance or non-
Agreement performance thereof;
Domestic use 2.3.5 Not to use the said premises or any part thereof as sleeping quarters
or as domestic premises within the meaning of any ordinance for the time
being in force or to allow any person to remain on the said premises
overnight unless with the Landlord's prior permission in writing. Such
permission shall only be given to enable the Tenant to post watchmen to look
after the said premises
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
provided that the names of the watchmen are first
registered with the Landlord prior to its giving such permission;
Illegal or 2.3.6 The Tenant shall not cause permit or suffer any part of the said
immoral use premises to be used for gambling or for any illegal immoral or improper
purposes or in any way so as to cause nuisance annoyance inconvenience or
damage or danger to the Landlord or the tenants or occupiers of adjacent or
neighbouring premises;
Offensive 2.3.7 The Tenant shall not cause permit or suffer any part of the said
trade premises to be used for any trade or business which is now or may hereafter
be declared to be an offensive trade under the public Health and Urban
Services Ordinance or any enactment amending the same or substituting
therefor;
Auctions and 2.3.8 Not to conduct or permit any auction fare bankruptcy close out or
sales similar sales of things or properties of any kind to take place on the said
premises;
Storage of 2.3.9 Not to use the said premises for the manufacture of goods or
hazardous merchandise or for the storage of goods or merchandise other than in small
goods quantities consistent with the nature of the Tenant's trade or business by
way of samples and exhibits nor to keep or store or cause to be kept or
stored upon the said premises any hazardous or extra hazardous or dangerous
goods within the meaning of the Dangerous Goods Ordinance and the Regulations
thereunder or any statutory modification or re-enactment thereof AND to
indemnify the Landlord against all actions costs demands and claims in
respect of any breach or non-observance of this sub-clause;
Obstruction of 2.3.10 Not to put or place any refuse bin, box, carton, container, furniture
common area chattels or refuse or store any goods or any other things on the loading and
unloading spaces on the ground floor or in any of the common entrance-halls,
staircases, landings, passages, corridors, fire escape ways, lifts and other
common parts of and in the said building and not to fix any fixed gates or
fences which may in any way block or obstruct any of the said fire escape
ways AND the Tenant shall indemnify the Landlord for any loss or damage
arising from the breach of this Clause;
Nuisance 2.3.11 Not to cause permit or suffer any part of the said premises to use in
any way so as to cause nuisance annoyance inconvenience on damage or danger
to the Landlord or the tenants
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
or occupiers of adjacent or neighbouring premises;
Noise 2.3.12 Not to cause or produce or suffer or permit to be produced on or in
the said premises any sound or noise (including sound produced by
broadcasting from Rediffusion, Television, Radio and any apparatus or
instrument capable of producing or reproducing music and sound) or other acts
or things in or on the said premises which is or are or may be a nuisance or
annoyance to the tenants or occupiers of adjacent or neighbouring premises;
Animal pets 2.3.13 Not to keep or permit or suffer to be kept any animals or pets in the
and said premises and to take all such steps and precautions to the satisfaction
infestation of the Landlord to prevent the said premises or any part thereof from
becoming infested by termites rats mice roaches or any other pests or vermin
and for the better observance hereof the Landlord may require the Tenant to
employ at the Landlord's cost such pest extermination contractors as the
Landlord may nominate and at such intervals as the Landlord may direct;
Cooking and 2.3.14 Not to prepare or permit or suffer to be prepared any food in the
prevention of said premises or to cause or permit any offensive or unusual odours to be
odours produced upon or emanate from the said premises;
Use of 2.3.15 Not to use or permit to be used the passenger lifts of tile Building
passenger for the purpose of carrying any furniture or goods or heavy articles (the
lift Landlord having provided freight lifts for such purpose), and to observe the
regulations affecting the use of all lifts as indicated therein or intimated
by the Landlord or its agents from time to time.
Use of 2.3.16 Not to place in any freight lift any heavy machinery goods raw
freight materials or articles which may cause the permitted carrying capacity of that
lift lift to be exceeded.
Floor loading 2.3.17 Not to store or place any goods machinery or other things on or in
any part of the said premises which exceeds the maximum floor loading of the
said premises;
Removal of 2.3.18 To be responsible for the removal of refuse and garbage from the said
refuse premises to such location as shall be specified by the Landlord or Manager of
the said building (hereinafter called "the said Manager") from time to time
and to use only that type of
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
refuse container as is specified by the Landlord or the said Manager
from time to time. In the event of the Landlord or the said Manager
providing a collection service for refuse and garbage the same shall be
used by the Tenant to the exclusion of any other similar service and
the use of such service provided by the Landlord shall be at the sole cost of
the Tenant;
Outside 2.3.19 To keep all windows of the said premises closed at all times and not
windows to open any of the windows of the said premises save when the air cooling and
heating system is not working;
Cleaning and 2.3.20 To keep the said premises including all external windows and lights
cleansing at all times in a clean and sanitary state and condition, and for the better
observance hereof the Tenant shall at its own expenses employ as cleaners of
the said premises such persons or firms as may be approved by the Landlord.
In the event of the Landlord or the said Manager providing such cleaning
service the same shall be used by the Tenant to the exclusion of any other
similar service and the use of such service provided by the Landlord or the
said Manager shall be at the sole cost of the Tenant;
Loading Bay 2.3.21 To use such portion of the loading bay on the Ground Floor of the
Building subject in all respects to the reasonable regulations and directions
made from time to time by the Manager for the time being of the Building
governing the use of the said loading bay and in particular but without
prejudice to the generality of the foregoing only for the purpose of loading
and unloading and not to permit or suffer its servants or licensees to park
in any part thereof or otherwise obstruct the use of such loading bay.
2.4 ADDITIONS AND ALTERATIONS TO PREMISES
Installation and 2.4.1 Not to erect install or alter any fixtures fittings partitioning or
alterations other installation in the said premises and not to make or permit or suffer
to be made any alterations in or additions to the said premises or to the
electrical wiring installation lighting fixtures therein and not to install
any air-conditioning plant ducting or units in the said premises without
first having submitted the full details and plans in respect of the same to
the Landlord and obtained the written consent of the Landlord therefor and to
be responsible for any expenses incurred by the Landlord in connection with
the giving of such consent;
Additional 2.4.2 In the event of the Tenant installing private
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
air conditioning air conditioning units in the said premises or any part thereof with the prior
units consent of the Landlord in writing the Tenant shall comply with the directions and
instructions of the Landlord regarding installation and shall at its own
expense be responsible for their periodic inspection maintenance and repair
and for the replacement of defective wiring and the Tenant shall be strictly
liable for any damage caused by the installation operation or removal of such
units;
Additional 2.4.3 In the event of the Tenant installing or altering any partitioning in
partitioning the said premises or any part thereof with the prior consent of the Landlord
in writing such partitioning or alteration thereof shall be constructed or
made at such position and with such material and in accordance with such
other requirement (if any) as shall be directed or approved by the Landlord.
All fees and expenses incurred by the Landlord in obtaining the approval of
the Landlord's architects or consultants on the location of such partitioning
shall be borne by the Tenant, including the costs and expenses of the removal
or alteration of the fixtures and fittings of the Landlord as may be required
by the Landlord and payment thereof to the Landlord may be imposed as a pre-
requisite of the Tenant receiving such permission;
Fitting out 2.4.4 To fit out the interior of the said premises in accordance with such
plans and specifications as shall have been first submitted by the Tenant to
and approved by the Landlord in writing in a good and proper workmanlike
fashion and in all respects in a style and manner appropriate to a first
class office building and so to maintain the same throughout the said term in
good condition and repair to the satisfaction of the Landlord;
Exterior 2.4.5 Not without the prior consent to install any supports or erect any
fittings iron brackets or install any wires, aerials, fittings, plant, equipment, or
blinds on or protruding from the windows or any part of the exterior walls or
windows of the said building for any purpose including the installation of
airconditioners;
Signs 2.4.6 Not without the prior written approval of the Landlord to exhibit or
display within or on the exterior of the said premises any writing sign
signboard or other device whether illuminated or not which may be visible
from outside the said premises nor without the Landlord's prior written
consent to affix any writing sign signboard or other device in at or above
any
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
common area lobby landing or corridor of the said building;
Obstruction to 2.4.7 Not to block up darken or obstruct or obscure any of the windows or
outside windows lights belonging to the said premises without having obtained the previous
written consent of the Landlord. The Landlord may in giving such consent
impose such condition as it shall consider fit, for the purpose of
maintaining the desired appearance of the building's facade;
Injury to 2.4.8 Not without the previous written consent of the Landlord cut maim or
to main walls injure or permit or suffer to be cut maimed or injured any doors windows
walls beams structural members or other part of the fabric of the said
premises;
Fixtures to 2.4.9 Not to affix anything to the columns floors, ceilings or interior
interior walls or windows of the said building that could maim or interfere with the
same or that might in any way affect the structural stability of the said
building without the prior written consent of the Landlord;
Shelters 2.4.10 Not to erect any shelters or coverings on any part of the flat-roofs
or roof of the said building;
Smoke-lobbies 2.4.11 Not to alter the position of any Smoke Lobby or fire-escape doors or
and fire escapes to make any additions to or in any way amend such doors without the prior
written consent of the Landlord;
Locks 2.4.12 Not without the written consent of the Landlord to install additional
locks bolts security fitments or systems or other fittings to the entrance
doors of the said premises or to the said premises or in any way to change or
alter those already installed and in the event that consent is given under
this Clause to immediately deposit with the Landlord keys to all such
additional locks bolts or other fittings as may be approved for installation;
Installation 2.4.13 The Tenant shall make his/its own arrangements with the Hong Kong
telephone the said premises, but the installation of telephone lines outside the said
cables premises must be in accordance with the Landlord's directions;
2.5 REPAIR OBLIGATIONS
Repair of 2.5.1 To keep all the interior of the said premises including
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
interior the flooring partitions and interior plaster or other finishing materials or
fixtures rendering to walls floors and ceilings and the Tenant's and Landlord's fixtures and
and fittings fittings therein including all doors, windows and fire fighting apparatus,
sprinkler system, locks, security fittings and any additions made by the
Tenant to the said premises in a good clean tenantable substantial and proper
repair and condition and as may be appropriate from time to time painted and
decorated and in particular to paint and decorate the entirety of the said
premises during the last three months of the term to the Landlord's
satisfaction and in a manner and to such standard as the said premises were
first let hereunder and so to maintain the same at the expense of the Tenant
and to pay or reimburse to the Landlord the cost of replacing all broken and
damaged windows whether the same be broken or damaged by the negligence of
the Tenant or owing to circumstances beyond the control of the Tenant;
Repair of 2.5.2 To repair or replace if so required by the appropriate Company or
electrical authority under the terms of the Electricity Supply Ordinance or any
installations statutory modification or re-enactment thereof or any Orders in Council or
Regulations made thereunder by duly authorised contractor statutory
undertaker or authority as the case may be all the electrical wiring
installations and fittings within the said premises and the wiring from the
Tenant's Meter or Meters to and within the same;
Repair of 2.5.3 At the expense of the Tenant to maintain all such toilets and water
toilets and apparatus (located within the said premises or elsewhere if used by the
water Tenant his employees invitees and Licensees) in good clean and tenantable
apparatus state and in proper repair and condition at all times during the said term to
and cleansing the satisfaction of the Landlord and in accordance with the Regulations of
of drains the Public Health or other Government Authority concerned and to pay on
demand to the Landlord the cost incurred by the Landlord in cleansing and
clearing any of the drains choked or stopped up owing to negligence or
careless use by the Tenant or his employees invitees or licensees Provided
always :-
(a) if the said toilet and water apparatus are shared the Tenant shall
only be responsible for a proportionate part of the expenses
concerned in proportion to the respective areas enjoying the common
user of such toilet and water apparatus;
(b) if the Landlord shall at any time employ a cleaning service
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
in respect of other toilet and water apparatus in the said building then
the Tenant shall use the same cleaning service to perform its
obligations hereunder;
Protection 2.5.4 To take all reasonable precautions to protect the interior of the
from typhoon said premises from storm or typhoon damage;
Landlord's 2.5.5 To permit the Landlord its agents and all person authorised by it
right to enter with or without workmen or others and with or without appliances at all
and view reasonable times to enter upon the said premises to view the condition
thereof and to take inventories of the fixtures and fitting therein and to
carry out any work or repair required to be done;
Obligation to 2.5.6 To make good all defects and wants of repair therein found for which
execute repairs the Tenant may be liable within the space of one calendar month from the
on receipt of receipt of written notice from the Landlord to amend and make good the same
notice and if the Tenant shall fail to execute such works or repairs as
aforementioned to permit the Landlord to enter upon the said premises and
execute the same and the cost thereof shall be a debt due from the Tenant to
the Landlord and recoverable forthwith by action;
To inform 2.5.7 To give notice to the Landlord or its agent of any damage that may be
Landlord of suffered to the said premises and of any accident to or defects in the water
damage and gas pipes electrical wiring or fittings, fittings fixtures or other
facilities provided by the Landlord;
2.6 INSURANCE LIABILITIES AND INDEMNITIES
Indemnify 2.6.1 To be wholly responsible for any damage or injury caused to any
against Loss/ person whomsoever directly or indirectly through the defective or damaged
Damage from condition of any part of the interior of the said premises or of any of the
Interior Defects fixtures and fittings therein or in any way owing to the spread of fire or
and Third Party smoke or the overflow of water from the said premises or any part thereof or
liability insurance through the act default or neglect of the tenant his servants agents
licensees or contractors and to make good the same by payment or otherwise
and to indemnify the Landlord against all costs claims demands actions and
legal proceedings whatsoever made upon the Landlord by any person in respect
of any such loss damage or injury and all costs and expenses incidental
thereto;
Breach of 2.6.2 Not to cause or suffer or permit to be done any act or
</TABLE>
11
<PAGE>
<TABLE>
<S> <C>
insurance thing whereby the policy or policies of insurance, if any, on the said premises
policy against damage by fire or liability to Third Parties for the time being subsisting
may become void or voidable or whereby the rate of premium or premiums
thereon may be increased, and to repay to the Landlord on demand all sums
paid by the Landlord by way of increased premium or premiums thereon and all
expenses incurred by the Landlord in and about any renewal of such policy or
policies arising from or rendered necessary by a breach of this Clause;
Indemnity 2.6.3 To be wholly responsible for any loss or damage caused to any person
against or property caused by or through or in any way owing to the escape overflow
overflow of of water from the said premises and to make good the same by payment or
water otherwise and to indemnify the Landlord against all costs claims demands
actions and legal proceedings whatsoever made upon the Landlord by any person
in respect of such loss damage or injury and costs and expenses incidental
thereto;
Liable for 2.6.4 To be liable for any act default or negligence of the Tenant's
employee's contractors, employees, invitees, visitors or licensees in respect of the use
negligence of the said premises and to indemnify the Landlord against all costs claims
demands expenses or liability to any third party in connection therewith;
2.7 SUBLETTING AND ASSIGNING
The Tenant shall not assign underlet or otherwise part with
the possession of the said premises or any part thereof in any way whether by
way of sub-letting lending sharing or other means whereby any person or
persons not a party to this Agreement obtains the use or possession of the
said premises or any part thereof irrespective of whether any rental or other
consideration is given for such use or possession and in the event of any
such transfer sub-letting sharing assignment or parting with the possession
of the premises (whether for monetary consideration or not) this Agreement
shall absolutely determine and the Tenant shall forthwith vacate the said
premises on notice to that effect from the Landlord. The Tenancy shall be
personal to the Tenant named in the First Schedule to this Agreement and
without in any way limiting tie generality of the foregoing the following
acts and events shall unless approved in writing by the Landlord be deemed to
be breaches of this Clause :-
</TABLE>
12
<PAGE>
<TABLE>
<S> <C> <C>
(a) In the case of a tenant which is a partnership the taking in of one
or more new partners whether on the death or retirement of an
existing partner or otherwise;
(b) In the case of a tenant who is an individual (including a sole
surviving partner of a partnership tenant) the death insanity or
disability of that individual to the intent that no right to use
possess occupy or enjoy the said premises or any part thereof shall
vest in the executors administrators personal representatives next of
kin;
(c) In the case of a tenant which is a corporation any take-over
reconstruction amalgamation merger voluntary liquidation or change in
the person or persons who owns or own a majority of its voting shares
or who otherwise has or have effective control thereof;
(d) The giving by the Tenant of a Power of Attorney or similar authority
whereby the donee of the Power obtains the right to use possess
occupy or enjoy the said premises or any part thereof or does in fact
use possess occupy or enjoy the same;
(e) The change of the Tenant's business name without the previous written
consent of the Landlord which consent the Landlord may give or
withhold at its discretion;
2.8 GENERAL
Yield up 2.8.1 To yield up the said premises with all fixtures fittings and
premises and additions therein and thereto at the expiration or sooner determination of
handover this Agreement in good clean and tenantable repair and condition in
accordance with the stipulations hereinbefore contained Provided That where
the Tenant has altered erected or installed any fixtures fittings,
partitioning or additions in or to the said premises with or without the
Landlord's written consent the Landlord may at its absolute discretion
require the Tenant to reinstate remove or do away with such alterations
fixtures fittings partitioning or additions or any part or portion thereof
and make good and repair in a proper and workmanlike manner any damage to the
said premises and the Landlord's fixtures and fittings therein as a result
thereof before delivering up the said premises to the Landlord;
To permit 2.8.2 To permit the Landlord and its agents with or without
</TABLE>
13
<PAGE>
<TABLE>
<S> <C> <C>
Landlord to enter workmen and others in case of fire to enter upon the said premises for the purpose of
in the event of extinguishing such fire and for salvage of property;
fire and emergency
3. LANDLORD'S OBLIGATIONS
The Landlord agrees with the Tenant as follows:-
Crown Rent 3.1 To pay the Crown Rent and Property Tax attributable to or in
and Property Tax respect of the said premises;
Quiet enjoyment 3.2 To permit the Tenant (duly paying the rent and the other
charges (if any) hereby agreed to be paid on the days and in manner herein
provided for payment of the same and rates and observing and performing the
agreements stipulations terms conditions and obligations herein contained) to
have quiet possession and enjoyment of the said premises during the said term
without any interruption by the Landlord or any person lawfully claiming
under or through or in trust for the Landlord;
4. EXCLUSIONS
IT IS HEREBY FURTHER EXPRESSLY AGREED that the Landlord shall not in
any circumstances be liable to the Tenant or any other person whatsoever :-
Lifts, air- 4.1 In respect of any loss or damage to person or property
conditioning, sustained by the Tenant or any such other person caused by or through or in
utilities way owing to any defect in or breakdown of the lifts, electric power and
water supplies, or any other building service provided in the said building;
Fire and 4.2 In respect of any loss or damage to person or property
overflow of sustained by the Tenant or any other person caused by or through or in any
water way owing to the escape of fumes smoke fire or any other substance or thing
or the overflow of water from anywhere within the said building;
Security 4.3 For the security or safekeeping of the said premises or any
contents therein.
5. SUSPENSION OF RENT
Suspension of If the said premises or the said building or any part
</TABLE>
14
<PAGE>
<TABLE>
<S> <C>
rent thereof shall at any time during the tenancy be destroyed or damaged or
become inaccessible owing to fire water storm wind typhoon defective
construction white ants earthquake subsidence of the ground or any calamity
beyond the control of the Landlord so as to render the said premises unfit
for use or inaccessible and the policy or policies of insurance affected by
the Landlord shall not have been vitiated or payment of the policy monies
refused in whole or in part in consequence of any act or default of the
Tenant or if at any time during the continuance of this tenancy the said
premises or the said building shall be condemned as a dangerous structure or
a demolition order or closing order shall become operative in respect of the
said premises or the said building and the said premises have not been
reinstated in the meantime then the Tenant may at any time after three months
from the occurrence of such damage or destruction or order give to the
Landlord notice in writing to determine this present tenancy and thereupon
the same and everything herein contained shall cease and be void but without
prejudice to the rights and remedies of either party against the other in
respect of any antecedent claim or breach of the agreement stipulations terms
and conditions herein contained or of the Landlord in respect of the rent
payable hereunder prior to the coming into effect of the suspension Provided
Always that the Landlord shall have no obligation or duty whatsoever to
reinstate the said premises;
6. DEFAULT IN PAYMENTS
It is hereby expressly agreed and declared as follows :-
Default 6.1 If the rent and/or the other charges or any part thereof shall be
unpaid for 15 days after the same shall have become payable (whether formally
demanded or not) or if there shall be any breach or non-performance of any of
the stipulations conditions or agreements herein contained and on the part of
the Tenant to be observed or performed or if the Tenant shall become bankrupt
or being a corporation go into liquidation or if the Tenant shall suffer
execution to be levied up the said premises or otherwise on the Tenant goods
then and in any such case it shall be lawful for the Landlord at any time
thereafter to re-enter on and upon the said premises or any part thereof in
the name of the whole and thereupon this Agreement shall absolutely determine
but without prejudice to any right of action by the Landlord in respect of
any outstanding breach non-observance or prejudice to any right of action by
the Landlord in respect of any outstanding breach non-observance or non-
performance by the Tenant of any of the terms of this
</TABLE>
15
<PAGE>
<TABLE>
<S> <C>
Agreement. All costs and expenses incurred by the Landlord in demanding payment of the
rent and other charges aforesaid (if the Landlord elects to demand) arising out of
this Clause shall be paid by the Tenant and shall be recoverable from the
Tenant as a debt or be deductible by the Landlord from any deposit held by
the Landlord hereunder;
Acceptance 6.2 The acceptance of any rent by the Landlord hereunder shall not be
of rent deemed to operate as a waiver by the Landlord of any rights to proceed
against the Tenant in respect of any breach non-observance or non-performance
by the Tenant of any of the agreements stipulations terms and conditions
herein contained and on the part of the Tenant to be observed and performed;
Acts of employees 6.3 For the purpose of these presents any act default neglect or omission
invitees and of any guest visitor servant contractor employee agent invitee or licensee of
licensees the Tenant shall deemed to be the act default neglect or omission of the
Tenant;
Distraint 6.4 For the purposes of Part III of the Landlord and Tenant
(Consolidation) Ordinance (Chapter 7) and of these presents, the rent payable
in respect of the said premises shall be and be deemed to be in arrear if not
paid in advance at the time and in the manner hereinbefore provided for
payment thereof;
7. DEPOSIT
Deposit 7.1 The Tenant shall on the signing hereof deposit with the Landlord the
sum specified in Part IV of the First Schedule hereto to secure the due
observance and performance by the Tenant of the agreements stipulations terms
and conditions herein contained and on the part of the Tenant to be observed
and performed which said deposit shall be held by the Landlord throughout the
currency of this Agreement free of any interest to the Tenant with the right
for the Landlord (without prejudice to any other right or remedy hereunder)
to deduct therefrom the amount of any rent rates and other charges payable
hereunder and any costs expenses loss or damage sustained by the Landlord as
the result of any non-observance or non-performance by the Tenant of any of
the said agreements, stipulations terms or conditions. In the event of any
deduction being made by the Landlord from the said deposit in accordance
herewith during the currency of this Agreement the Tenant shall forthwith on
demand by the Landlord make a further deposit equal to the amount so deducted
and failure by the Tenant so to do shall entitle the
</TABLE>
16
<PAGE>
<TABLE>
<S> <C>
Landlord forthwith to re-enter upon the said premises and to determine this Agreement
as hereinbefore provided;
Repayment of 7.2 Subject as aforesaid the said deposit shall be refunded to the Tenant
deposit by the Landlord without interest within thirty days after the expiration or
sooner determination of this Agreement and delivery of vacant possession to
the Landlord and after settlement of the last outstanding claim by the
Landlord against the Tenant for any arrears of rent rates and other charges
and for any breach non-observance or non-performance of any of the agreements
stipulations obligations or conditions herein contained and on the part of
the Tenant to be observed or performed whichever shall be the later;
8. LANDLORD'S REGULATIONS
Introduction 8.1 In the case where the Landlord is the landlord of the whole of the
of regulations said building, the Landlord reserves the right from time to time and by
notice in writing to the Tenant to make introduce and subsequently amend
adopt or abolish if necessary such Regulations as it may consider necessary
for the proper operation and maintenance of the said building and in
connection with traffic circulation loading unloading and car parking in and
around the said building;
Conflict 8.2 Such Regulations shall be supplementary to the terms and conditions
contained in this Agreement and shall not in any way derogate from such terms
and conditions. In the event of conflict between such Regulations and the
terms and conditions of this Agreement the latter shall prevail;
9. INTERPRETATION AND MISCELLANEOUS
Marginal notes, 9.1 The Marginal Notes, Headings and Index are intended for guidance only
headings and and do not form a part of this Agreement nor shall any of the provisions of
index this Agreement be construed or interpreted by reference thereto or in any way
affected or limited thereby;
Landlord and 9.2 The Tenant hereby expressly agrees to deprive himself of any and all
Tenant period of Two (2) year from the expiry date of the first term of two years under
legislation rights to protection against eviction provided by any existing legislation or
by any future enactment in substitution or amendment thereof or addition
thereto to the intent that the Tenant shall deliver up vacant possession of
the said premises to the Landlord at the expiration or sooner determination
of the tenancy hereby created;
</TABLE>
17
<PAGE>
<TABLE>
<S> <C>
Condonation 9.3 No condoning, excusing or overlooking by the Landlord of any default,
not a waiver breach or non-observance or non-performance by the Tenant at any time or
times of any of the agreements stipulations terms and conditions herein
contained shall operate as a waiver of the Landlord's rights hereunder in
respect of any continuing or subsequent default, breach or non-observance or
non-performance or so as to defeat or affect in any way the rights and
remedies of the Landlord hereunder in respect of any such continuing or
subsequent default or breach and no waiver by the Landlord shall be inferred
from or implied by anything done or omitted by the Landlord, unless expressed
in writing and signed by the Landlord. Any consent given by the Landlord
shall operate as a consent only for the particular matter to which it relates
and in no way shall be considered as a waiver or release of any of the
provisions hereof nor shall it be construed as dispensing with the necessity
of obtaining the specific written consent of the Landlord in the future,
unless expressly so provided;
Letting notices 9.4 During the three months immediately before the expiration or sooner
and entry determination of the said term of tenancy the Landlord shall be at liberty to
affix and maintain without interference upon any external part of the said
premises a notice stating that the said premises are to be let and such other
information in connection therewith as the Landlord shall reasonably require
during the aforementioned period of 3 months;
Service of 9.5 Any notice required to be served on the Tenant shall be sufficiently
notice served if delivered to or despatched by registered post or left at the said
premises or at the last known address of the Tenant. A notice sent by
registered post shall be deemed to be given at the time and date of posting;
Name of Building 9.6 In the case where the Landlord is the landlord of the whole of the
said building the Landlord reserves the right to name the said building with
any such name or style as it in its sole discretion may determine and at any
time and from time to time to change, alter, substitute or abandon any such
name provided that the Landlord shall give the Tenant and the Postal and
other relevant Government Authorities not less than three months' notice of
its intention so to do;
Gender 9.7 In this Agreement if the context permits or requires words importing
the singular number shall include the plural number and vice versa and words
importing the masculine feminine or neuter
</TABLE>
18
<PAGE>
<TABLE>
<S> <C>
gender shall include the other of them;
Stamp duty 9.8 The costs of the preparation of this Agreement and its counterpart
and costs and the Stamp Duty thereon and Land Office registration fees (if any) shall
be borne by the Landlord and the Tenant in equal shares provided always that
if the Tenant instructs its own solicitors in regard to approval of this
Agreement the Tenant shall in addition be responsible for the full costs of
its own solicitors in the matter;
Special 9.9 The parties hereto further agree that they shall respectively be
conditions bound by and be entitled to the benefit of the special conditions set forth
in the Third Schedule hereto.
</TABLE>
AS WITNESS the hands of the parties hereto the day and
year first above written.
<TABLE>
<CAPTION>
THE FIRST SCHEDULE ABOVE REFERRED TO
PART 1
<S> <C>
Landlord : LEA TAI PROPERTY DEVELOPMENT LIMITED whose registered office is situate at
20-24 Kwai Wing Road, Kwai Chung, New Territories, Hong Kong.
Tenant : TAG-IT PRINTING & PACKAGING LIMITED whose registered office is situate at
Block C, 7th Floor, Derrick Industrial Building, Nos.49-51 Wang Chuk Hang
Road, Hong Kong.
<CAPTION>
PART II
<S> <C>
Premises : ALL THOSE UNITS 03 and 05 on the TENTH FLOOR of SHATIN 11 PLAZA, NO.11 WO
SHING STREET, FO TAN, NEW TERRITORIES erected on ALL THAT piece or parcel of
ground registered in the Sha Tin New Territories Land Registry as THE
REMAINING PORTION OF SHA TIN TOWN LOT NO. 17.
<CAPTION>
PART III
<S> <C>
Term : TWO (2) YEARS commencing on 23rd day of May, 1996 and expiring on 22nd day of
May 1998.
<CAPTION>
PART IV
19
<PAGE>
<S> <C>
Deposit : HONG KONG DOLLARS NINETY FIVE THOUSAND EIGHT HUNDRED NINETY TWO AND CENTS
THIRTY (HK$95,892.30)
<CAPTION>
PART V
<S> <C>
User : Industrial or commercial business use ancillary and directly related to an
industrial operation under the name of the Tenant only.
</TABLE>
THE SECOND SCHEDULE ABOVE REFERRED TO
PART I
PARTICULARS OF RENT
The rent shall be HONG KONG DOLLARS TWENTY NINE THOUSAND TWO
HUNDRED FOURTEEN AND CENTS FIFTY ONLY (HK$29,214.50) per calendar month
(exclusive of rates) payable in advance on the 23rd day of each month without
any deduction whatsoever.
PART II
OTHER CHARGES
All management charges (if any) payable in respect of the said
premises at such rate or amount as may be imposed on the said premises from
time to time in accordance with the Deed of Mutual Covenant and/or Management
Agreement relating to the Building of which the said premises form a part.
THE THIRD SCHEDULE ABOVE REFERRED TO
SPECIAL CONDITIONS
<TABLE>
<S> <C>
1. The Tenant shall be entitled to a rent-free period of thirty one (31) days
from the commencement date for decoration purposes Provided that the Tenant
shall bear and pay all Government rates, charges for water, electricity,
town gas (if any) and all other outgoings of whatsoever nature now or
hereafter imposed or charges upon the owner or occupier of the said premises
(Crown rent and property tax excepted) during the said rent-free period.
2.(i) The Tenant shall be entitled to an option for renewal of the tenancy agreement for a
further period of Two (2) year from the expiry date of the first term of two years
under this tenancy agreement (hereinafter called "the renewal period").
(ii) The Tenant's right to the above option shall be subject to
(a) stipulations, obligations and conditions contained in this
tenancy agreement; and
20
<PAGE>
(b) the Tenant having exercised his right by notice in writing
served on the Landlord not less than six months prior to
the date on which the term under this tenancy agreement is
due to expire.
(iii) The renewal period shall be held under the same terms and
conditions as are contained in this tenancy agreement save and
except for (a) the provisions of this Clause and (b) the rent
payable for the renewal period which shall be determined in
accordance with the provisions hereinafter mentioned.
(iv) The monthly rent in respect of the premises for the renewal period
shall be the then current market rent of premises determined in
accordance with the following provisions.
(v) The current market rent of the premises shall first be agreed by
the parties hereto failing which the said rent shall be determined
by an independent professional valuer or firm of professional
valuers (hereinafter called "the valuer") to be appointed jointly
by the parties hereto in writing. Failing agreement on the
identity of the valuer to be so appointed two months prior to the
expiration of the term under this tenancy agreement, then the
current market rent shall be determined by a valuer to be appointed
by the Chairman or President for the time being of the Royal
Institute of Chartered Surveyors (Hong Kong Branch) on the
application of either the Landlord of the premises or the Tenant.
The valuer's decision shall be conclusive and binding on the
parties hereto.
(vi) In determining the current market rent the valuer shall act as an
expert and not as an arbitrator and shall take into account the
open market rent at which having regard to the terms of this
Agreement (other than as to the amount of the rent payable) the
premises might reasonably be expected to be let by a willing
landlord to a willing tenant in respect of comparable accommodation
for a similar purpose in the district of the premises obtainable at
the time of such determination for a period of one year in respect
of the renewal period.
(vii) The fees costs and expenses of the valuer hereinbefore mentioned
shall be home by the Landlord of the premises and the Tenant in
equal shares.
(viii) The exercise by the Tenant of the option in accordance with the
above provisions and the agreement upon or determination of the
current market rent for the renewal period shall constitute the
contract and it shall not be necessary for any formal document to
be executed by the parties.
3. The parties hereto hereby agreed that the Tenant may during the term of this tenancy at its
own costs and expenses demolish the partition walls between units 03 and 05 on the 10th
Floor and the Tenant is not obliged to reinstate the partition wall therein at the
expiration of the term of this tenancy.
4. The Tenant shall have an option during the term of the tenancy to rent a private car park
and a lorry car park at the rent shall be agreed by the parties hereto.
21
<PAGE>
5. The said premises are supplied with a split type air-conditioning unit by the Landlord
Provided that the Tenant shall keep and maintain the said split type-conditioning in good
repair and conditions and if any replacement thereof is required, the Tenant shall bear and
pay the cost therefor and shall obtain the Landlord's prior approval before any replacement
is made.
</TABLE>
<TABLE>
<S> <C>
SIGNED for and on behalf of the Landlord by Mr.
Fang Hung, Kenneth and Mr. Fang Chiu, Laurence, two FOR AND ON BEHALF OF
of its directors whose signatures are LEA TAI PROPERTY DEVELOPMENT LIMITED
verified by:-
/s/
-------------------------------------
Authorized Signature
Szeto Whi Sun
Solicitor, Hong Kong.
FOR AND ON BEHALF OF
Tag-It PRINTING & PACKAGING LTD
SIGNED for and on behalf of the Tenant by Mr. Sung
Kwok Hung in the presence of:-
/s/
-------------------------------------
Authorized Signature
</TABLE>
22
<PAGE>
HUI TSZ PING
Clerk to Messrs. Edmund Cheung & Co.
Soliciiitors etc., Hong Kong
<TABLE>
<S> <C>
RECEIVED the day and year first above written of
and from the Tenant the sum of HONG KONG DOLLARS FOR AND ON BEHALF OF
NINETY FIVE THOUSAND EIGHT HUNDRED NINETY TWO AND LEA TAI PROPERTY DEVELOPMENT LIMITED
CENTS THIRTY being the deposit money above
expressed to be paid by the Tenant to the Landlord.
/s/
-------------------------------------
Authorized Signature
WITNESS:-
Szeto Whi Sun I hereby verify the signature of
Solicitor, Hong Kong HUI TSZ PING
Szeto Wai Sun
Solicitor, Hong Kong.
</TABLE>
23
<PAGE>
STANDARD FORM OF LOFT LEASE
THE REAL ESTATE BOARD OF NEW YORK, INC.
AGREEMENT OF LEASE, made as of this 17th day of March 1997, between Palobueno
N.V. Ltd., 30 East 42nd Street Suite #1101, New York, NY 10017 party of the
first part, hereinafter referred to as OWNER, AND Pacific Trim & Belt, Inc., 262
W. 38th Street, Room #704, New York, NY 10018 party of the second part,
hereinafter referred to as TENANT,
WITNESSETH: Owner hereby leases to Tenant and Tenant hereby hires from Owner
Room #704 in the building known as 262 W. 38th Street in the Borough of
Manhattan, City of New York, for the term of 1 Year Plus One (1) Year Option (or
until such term shall sooner cease and expire as hereinafter provided) to
commence on the 1st day of May nineteen hundred and ninety-seven, and to end on
the 30th day of April nineteen hundred ninety-nine and both dates inclusive, at
an annual rental rate of
SEE RIDER ATTACHED!
which Tenant agrees to pay in lawful money of the United States which shall be
legal tender in payment of all debts and dues, public and private, at the time
of payment, in equal monthly installments in advance on the first day of each
month during said term, at the office of Owner or such other place as Owner may
designate, without any set off or deduction whatsoever, except that Tenant shall
pay the first _____________ monthly installment(s) on the execution hereof
(unless this lease be a renewal).
In the event that, at the commencement of the term of this lease, or
thereafter, Tenant shall be in default in the payment of rent to Owner pursuant
to the terms of another lease with Owner or with Owner's predecessor in
interest, Owner may at Owner's option and without notice to Tenant add the
amount of such arrears to any monthly installment of rent payable hereunder and
the same shall be payable to Owner as additional rent.
The parties hereto, for themselves, their heirs, distributees, executors,
administrators, legal representatives, successors and assigns, hereby covenant
as follows:
RENT: 1. Tenant shall pay the rent as above and as hereinafter
provided.
OCCUPANCY: 2. Tenant shall use and occupy demised premises for Office &
Showroom provided such use is in accordance with the certificate of occupancy
for the building, if any, and for no other purpose.
ALTERATIONS:
3. Tenant shall make no changes in or to the demised premises of any
nature without Owner's prior written consent.
<PAGE>
Subject to the prior written consent of Owner, and to the provisions of this
article, Tenant, at Tenant's expense, may make alterations, installations,
additions or improvements which are nonstructural and which do not affect
utility services or plumbing and electrical lines, in or to the interior of the
demised premises using contractors or mechanics first approved in each instance
by Owner. Tenant shall, at its expense, before making any alterations,
additions, installations or improvements obtain all permits, approval and
certificates required by any governmental or quasi-governmental bodies and (upon
completion) certificates of final approval thereof and shall deliver promptly
duplicates of all such permits, approvals and certificates to Owner. Tenant
agrees to carry and will cause Tenant's contractors and sub-contractors to carry
such workman's compensation, general liability, personal and property damage
insurance as Owner may require. If any mechanic's lien is filed against the
demised premises, or the building of which the same forms a part, for work
claimed to have been done for, or materials furnished to, Tenant, whether or not
done pursuant to this article, the same shall be discharged by Tenant within
thirty days thereafter, at Tenant's expense, by payment or filing the bond
required by law or otherwise. All fixtures and all paneling, partitions,
railings and like installations, installed in the premises at any time, either
by Tenant or by Owner on Tenant's behalf, shall, upon installation, become the
property of Owner and shall remain upon and be surrendered with the demised
premises unless Owner, by notice to Tenant no later than twenty days prior to
the date fixed as the termination of this lease, elects to relinquish Owner's
right thereto and to have them removed by Tenant, in which event the same shall
be removed from the demised premises by Tenant prior to the expiration of the
lease, at Tenant's expense. Nothing in this Article shall be construed to give
Owner title to or to prevent Tenant's removal of trade fixtures, moveable office
furniture and equipment, but upon removal of any such from the premises or upon
removal of other installations as may be required by Owner, Tenant shall
immediately and at its expense, repair and restore the premises to the condition
existing prior to installation and repair any damage to the demised premises or
the building due to such removal. all property permitted or required to be
removed by Tenant at the end of the term remaining in the premises after
Tenant's removal shall be deemed abandoned and may, at the election of Owner,
either be retained as Owner's property or removed from the premises by Owner, at
Tenant's expense.
REPAIRS:
4. Owner shall maintain and repair the exterior of and the public
portions of the building. Tenant shall, throughout the term of this lease, take
good care of the demised premises including the bathrooms and lavatory
facilities (if the demised premises encompass the entire floor of the building)
and the windows and window frames and the fixtures and appurtenances therein and
at
2
<PAGE>
Tenant's sole cost and expense promptly make all repairs thereto and to the
building, whether structural or non-structural in nature, caused by or resulting
from the carelessness, omission, neglect or improper conduct of Tenant, Tenant's
servants, employees, invitees, or licenses, and whether or not arising from such
Tenant conduct or omission, when required by other provisions of this lease,
including Article 6. Tenant shall also repair all damage to the building and
the demised premises caused by the moving of Tenant's fixtures, furniture or
equipment. All the aforesaid repairs shall be of quality or class equal to the
original work or construction. If Tenant fails, after ten days notice, to
proceed with due diligence to make repairs required to be made by Tenant, the
same may be made by the Owner at the expense of Tenant, and the expenses thereof
incurred by Owner shall be collectible, as additional rent, after rendition of a
bill or statement therefor. If the demised premises be or become infested with
vermin, Tenant shall, at its expense, cause the same to be exterminated. Tenant
shall give Owner prompt notice of any defective condition in any plumbing,
heating system or electrical lines located in the demised premises and following
such notice, Owner shall remedy the condition with due diligence, but at the
expense of Tenant, if repairs are necessitated by damage or injury attributable
to Tenant, Tenant's servants, agents, employees, invitees or licensees as
aforesaid. Except as specifically provided in Article 9 or elsewhere in this
lease, there shall be no allowance to the Tenant for a diminution of rental
value and no liability on the part of Owner by reason of inconvenience,
annoyance or injury to business arising from Owner, Tenant or others making or
failing to make any repairs, alterations, additions or improvements in or to any
portion of the building or the demised premises or in and to the fixtures,
appurtenances or equipment thereof. It is specifically agreed that Tenant shall
not be entitled to any set off or reduction of rent by reason of any failure of
Owner to comply with the covenants of this or any other article of this lease.
Tenant shall not be entitled to any set off or reduction of rent by reason of
any failure of Owner to comply with the covenants of this or any other article
of this lease. Tenant agrees that Tenant's sole remedy at law in such instance
will be by way of any action for damages for breach of contract. The provisions
of this Article 4 with respect to the making of repairs shall not apply in the
case of fire or other casualty with regard to which Article 9 hereof shall
apply.
WINDOW CLEANING:
5. Tenant will not clean nor require, permit, suffer or allow any window
in the demised premises to be cleaned from the outside in violation of Section
202 of the New York State Labor Law or any other applicable law or of the Rules
of the Board of Standards and Appeals, or of any other Board or body having or
asserting jurisdiction.
3
<PAGE>
REQUIREMENTS OF LAW, FIRE INSURANCE:
6. Prior to the commencement of the lease term, if Tenant is then in
possession, and at all times thereafter Tenant shall, at Tenant's sole cost and
expense, promptly comply with all present and future laws, orders and
regulations of all state, federal, municipal and local governments, departments,
commissions and boards and any direction of any public officer pursuant to law,
and all orders, rules and regulations of the New York Board of Fire
Underwriters, or the Insurance Services Office, or any similar body which shall
impose any violation, order or duty upon Owner or Tenant with respect to the
demised premises, whether or not arising out of Tenant's use or manner of use
thereof, or, with respect to the building, if arising out of Tenant's use or
manner of use of the demised premises of the building (including the use
permitted under the lease). Except as provided in Article 30 hereof, nothing
herein shall require Tenant to make structural repairs or alterations unless
Tenant has, by its manner of use of the demised premises or method of operation
therein, violated any such laws, ordinances, orders, rules, regulations or
requirements with respect thereto. Tenant shall not do or permit any act or
thing to be done in or to the demised premises which is contrary to law, or
which will invalidate or be in conflict with public liability, fire or other
policies of insurance at any time carried by or for the benefit of Owner.
Tenant shall not keep anything in the demised premises except as now or
hereafter permitted by the Fire Department, Board of Fire Underwriters. Fire
Insurance Rating Organization and other authority having jurisdiction, and then
only in such manner and such quantity so as not to increase the rate for fire
insurance applicable to the building, nor use the premises in a manner which
will increase the insurance rate for the building or any property located
therein over that in effect prior to the commencement of Tenant's occupancy. If
by reason of failure to comply with the foregoing the fire insurance rate shall,
at the beginning of this lease or at any time thereafter, be higher than it
otherwise would be, then Tenant shall reimburse Owner, as additional rent
hereunder, for that portion of all fire insurance premiums thereafter paid by
Owner which shall have been charged because of such failure by Tenant. In any
action or proceeding wherein Owner and Tenant are parties, a schedule or "make-
up" or rate for the building or demised premises issued by a body making fire
insurance rates applicable to said premises shall be conclusive evidence of the
facts therein stated and of the several items and charges in the fire insurance
rates then applicable to said premises. Tenant shall not place a load upon any
floor of the demised premises exceeding the floor load per square foot area
which it was designed to carry and which is allowed by law. Owner reserves the
right to prescribe the weight and position of all safes, business machines and
mechanical equipment. Such installations shall be placed and maintained by
Tenant, at Tenant's expense, in settings sufficient, in Owner's judgement, to
absorb and prevent vibration, noise and annoyance.
4
<PAGE>
SUBORDINATION:
7. This lease is subject and subordinate to all ground or underlying
leases and to all mortgages which may now or hereafter affect such leases or the
real property of which demised premises are a part and to all renewals,
modifications, consolidations, replacements and extensions of any such
underlying leases and mortgages. This clause shall be self-operative and no
further instrument or subordination shall be required by any ground or
underlying lessor or by any mortgage, affecting any lease or the real property
of which the demised premises are a part. In confirmation of such
subordination, Tenant shall from time to time execute promptly any certificate
that Owner may request.
TENANT'S LIABILITY INSURANCE PROPERTY LOSS, DAMAGE, INDEMNITY:
8. Owner or its agents shall not be liable for any damage to property of
Tenant or of others entrusted to employees of the building, nor for loss of or
damage to any property of Tenant by theft or otherwise, nor for any injury or
damage to persons or property resulting from any cause of whatsoever nature,
unless caused by or due to the negligence of Owner, its agents, servants or
employees; Owner or its agents shall not be liable for any damage caused by
other tenants or persons in, upon or about said building or caused by operations
in connection of any private, public or quasi public work. If at any time any
windows of the demised premises are temporarily closed, darkened or bricked up
(or permanently closed, darkened or bricked up, if required by law) for any
reason whatsoever including, but not limited to Owner's own acts, Owner shall
not be liable for any damage Tenant may sustain thereby and Tenant shall not be
entitled to any compensation therefor nor abatement or diminution of rent nor
shall the same release Tenant from its obligations hereunder nor constitute an
eviction. Tenant shall indemnify and save harmless Owner against and from all
liabilities, obligations, damages, penalties, claims, costs and expenses for
which Owner shall not be reimbursed by insurance, including reasonable
attorney's fees, paid, suffered or incurred as a result of any breach by Tenant,
Tenant's agents, contractors, employees, invitees, or licensees, of any covenant
or condition of this lease, or the carelessness, negligence or improper conduct
of the Tenant, Tenant's agents, contractors, employees, invitees or licensees.
Tenant's liability under this lease extends to the acts and omissions of any
sub-tenant, and any agent, contractor, employee, invitee or licensee of any sub-
tenant. In case any action or proceeding is brought against Owner by reason of
any such claim, Tenant, upon written notice from Owner, will, at Tenant's
expense, resist or defend such action or proceeding by counsel approved by Owner
in writing, such approval not to be unreasonably withheld.
DESTRUCTION, FIRE AND OTHER CASUALTY:
5
<PAGE>
9. (a) If the demised premises or any part thereof shall be damaged by
fire or other casualty, Tenant shall give immediate notice thereof to Owner and
this lease shall continue in full force and effect except as hereinafter set
forth. (b) If the demised premises are partially damaged or rendered partially
unusable by fire or other casualty, the damages thereto shall be repaired by and
at the expense of Owner and the rent and other items of additional rent, until
such repair shall be substantially completed, shall be apportioned from the day
following the casualty according to the part of the premises which is usable.
(c) If the demised premises are totally damaged or rendered wholly unusable by
fire or other casualty, then the rent and other items of additional rent as
hereinafter expressly provided shall be proportionately paid up to the time of
the casualty and thenceforth shall cease until the date when the premises shall
have been repaired and restored by Owner (or sooner reoccupied in part by Tenant
then rent shall be apportioned as provided in subsection (b) above), subject to
Owner's right to elect not to restore the same as hereinafter provided. (d) if
the Demised premises are rendered wholly unusable or (whether or not the demised
premises are damaged in whole or in part) if the building shall be so damaged
that Owner shall decide to demolish it or to rebuild it, then, in any of such
events, Owner may elect to terminate this lease by written notice to Tenant,
given within 90 days after such fire or casualty, or 30 days after adjustment of
the insurance claim for such fire or casualty, whichever is sooner, specifying a
date for the expiration of the lease, which date shall not be more than 60 days
after the giving of such notice, and upon the date specified in such notice the
term of this lease shall expire as fully and completely as if such date were the
date set forth above for the termination of this lease and Tenant shall
forthwith quit, surrendered and vacate the premises without prejudice however,
to Owner's rights and remedies against Tenant under the lease provisions in
effect prior to such termination, and any rent owing shall be paid up to such
date and any payments of rent made by Tenant which were on account of any period
subsequent to such date shall be returned to Tenant. Unless Owner shall serve a
termination notice as provided for herein, Owner shall make the repairs and
restorations under the conditions of (b) and (c) hereof, with all reasonable
expedition, subject to delays due to adjustment of insurance claims, labor
troubles and causes beyond Owner's control. After any such casualty, Tenant
shall cooperate with Owner's restoration by removing from the premises as
promptly as reasonably possible, all of Tenant's salvageable inventory and
movable equipment, furniture, and other property. Tenant's liability for rent
shall resume five (5) days after written notice from Owner that the premises are
substantially ready for Tenant's occupancy. (c) Nothing contained hereinabove
shall relieve Tenant from liability that may exist as a result of damage from
fire or other casualty. Notwithstanding the foregoing, including Owner's
obligations to restore under subparagraph (b) above, each party shall look first
to any insurance in its favor before making any claim against the other party
for recovery for
6
<PAGE>
loss or damage resulting from fire or other casualty, and to the extent that
such insurance is in force and collectible and to the extent permitted by law,
Owner and Tenant each hereby releases and waives all right of recovery with
respect to subparagraphs (b), (d) and (e) above, against the other or any one
claiming through or under each of them by way of subrogation or otherwise. The
release and waiver herein referred to shall be deemed to include any loss or
damage to the demised premises and/or to any personal property, equipment, trade
fixtures, goods and merchandise located therein. The foregoing release and
waiver shall be in force only if both releasors' insurance policies contain a
clause providing that such a release or waiver shall not invalidate the
insurance. If, and to the extent, that such waiver can be obtained only by the
payment of additional premiums, then the party benefitting from the waiver shall
pay such premium within ten days after written demand or shall be deemed to have
agreed that the party obtaining insurance coverage shall be free of any further
obligation under the provisions hereof with respect to waiver of subrogation.
Tenant acknowledges that Owner will not carry insurance on Tenant's furniture
and or furnishings or any fixtures or equipment, improvements, or appurtenances
removable by Tenant and agrees that Owner will not be obligated to repair any
damage thereto or replace the same. (f) Tenant hereby waives the provisions of
Section 227 of the Real Property Law and agrees that the provisions of this
article shall govern and control in lieu thereof.
EMINENT DOMAIN:
10. If the whole or any part of the demised premises shall be acquired or
condemned by Eminent Domain for any public or quasi public use or purpose, then
and in that event, the term of this lease shall cease and terminate from the
date of title vesting in such proceeding and Tenant shall have no claim for the
value of any unexpired term of said lease. Tenant shall have the right to make
an independent claim to the condemning authority for the value of Tenant's
moving expenses and personal property, trade fixtures and equipment, provided
Tenant is entitled pursuant to the terms of the lease to remove such property,
trade fixtures equipment at the end of the term and provided further such claim
does not reduce Owner's award.
ASSIGNMENT, MORTGAGE, ETC.:
11. Tenant, for itself, its heirs, distributees, executors,
administrators, legal representatives, successors and assigns, expressly
covenants that it shall not assign, mortgage or encumber this agreement, nor
underlet, or suffer or permit the demised premises
7
<PAGE>
or any part thereof to be used by others, without the prior written consent of
Owner in each instance. Transfer of the majority of the stock of a corporate
Tenant or the majority partnership interest of a partnership Tenant shall be
deemed an assignment. If this lease be assigned, or if the demised premises or
any part thereof be underlet or occupied by anybody other than Tenant, Owner
may, after default by Tenant, collect rent from the assignee, under-tenant or
occupant, and apply the net amount collected to the rent herein reserved, but no
such assignment, underletting, occupancy or collection shall be deemed a waiver
of this covenant, or the acceptance of the assignee, under-tenant or occupant as
tenant, or a release of Tenant from the further performance by Tenant of
covenants on the part of Tenant herein contained. The consent by Owner to an
assignment or underletting shall not in any wise be construed to relieve Tenant
from obtaining the express consent in writing of Owner to any further assignment
or underletting.
ELECTRIC CURRENT:
12. Rates and conditions in respect to submetering or rent inclusion, as
the case may be, to be added in RIDER attached hereto. Tenant covenants and
agrees that at all times its use of electric current shall not exceed the
capacity of existing feeders to the building or the risers or wiring
installation and Tenant may not use any electrical equipment which, in Owner's
opinion, reasonably exercised, will overload such installations or interfere
with the use thereof by other tenants of the building. The change at any time
of the character of electric service shall in no wise make Owner liable or
responsible to Tenant, for any loss, damages or expenses which Tenant may
sustain.
ACCESS TO PREMISES:
13. Owner or Owner's agents shall have the right (but shall not be
obligated) to enter the demised premises in any emergency at any time, and, at
other reasonable times, to examine the same and to make such repairs,
replacements and improvements as Owner may deem necessary and reasonably
desirable to any portion of the building or which Owner may elect to perform in
the premises after Tenant's failure to make repairs or perform under this lease,
or for the purpose of complying with laws, regulations and other directions of
governmental authorities. Tenant shall permit Owner to use and maintain and
replace pipes and conduits in and through the demised premises and to erect new
pipes and conduits therein provided, wherever possible, they are within walls or
otherwise concealed. Owner may, during the progress of any work in the demised
premises, take all necessary materials and equipment into said premises without
the same constituting an eviction nor shall the Tenant be entitled to any
abatement of rent while such work is in progress nor to any damages by reason of
loss or interruption of business or otherwise. Throughout the term hereof Owner
shall have the right to enter the demised premises at reasonable hours for the
purpose of showing the same to prospective purchasers or mortgagees of the
building, and during the last six months of the term for the purpose of showing
the same to prospective tenants and may, during said six months period, place
upon the demised premises the usual notices "To Let" and "For Sale" which
notices Tenant shall permit
8
<PAGE>
to remain thereon without molestation. If Tenant is not present to open and
permit an entry into the demised premises, Owner or Owner's agents may enter the
same whenever such entry may be necessary or permissible by master key or
forcibly and provided reasonable care is exercised to safeguard Tenant's
property, such entry shall not render Owner or its agents liable therefor, nor
in any event shall the obligations of Tenant hereunder be affected. If during
the last month of the term Tenant shall have removed all or substantially all of
Tenant's property therefrom. Owner may immediately enter, alter, renovate or
redecorate the demised premises without limitation or abatement of rent, or
incurring liability to Tenant for any compensation and such act shall have no
effect on this lease or Tenant's obligation hereunder.
VAULT, VAULT SPACE, AREA:
14. No Vaults, vault space or area, whether or not enclosed or covered,
not within the property line of the building is leased hereunder anything
contained in or indicated on any sketch, blue print or plan, or anything
contained elsewhere in this lease to the contrary notwithstanding. Owner makes
no representation as to the location of the property line of the building. All
vaults and vault space and all such areas not within the property line of the
building, which Tenant may be permitted to use and/ or occupy, is to be used
and/or occupied under a revocable license, and if any such license be revoked,
or if the amount of such space or area be diminished or required by any federal,
state or municipal authority or public utility, Owner shall not be subject to
any liability nor shall Tenant be entitled to any compensation or diminution or
abatement of rent, nor shall such revocation, diminution or requisition be
deemed constructive or actual eviction. Any tax, fee or charge of municipal
authorities for such vault or area shall be paid by Tenant, if used by Tenant,
whether or not specifically leased hereunder.
OCCUPANCY:
15. Tenant will not at any time use or occupy the demised premises in
violation of the certificate of occupancy issued for the building of which the
demised premises are a part. Tenant has inspected the premises and accepts them
as is, subject to the riders annexed hereto with respect to Owner's work, if
any. In any event, Owner makes no representation as to the condition of the
premises and Tenant agrees to accept the same subject to violations, whether or
not of record. If any governmental license or permit shall be required for the
proper and lawful conduct of Tenant's business, Tenant shall be responsible for
and shall procure and maintain such license or permit.
BANKRUPTCY:
9
<PAGE>
16. (a) Anything elsewhere in this lease to the contrary notwithstanding,
this lease may be cancelled by Owner by sending of a written notice to Tenant
within a reasonable time after the happening of any one or more of the following
events: (1) the commencement of a case in bankruptcy or under the laws of any
state naming Tenant as the debtor; or (2) the making by Tenant of an assignment
or any other arrangement for the benefit of creditors under any state statute.
Neither Tenant nor any person claiming through or under Tenant, or by reason of
any statute or order of court, shall thereafter be entitled to possession of the
premises demised but shall forthwith quit and surrender the premises. If this
lease shall be assigned in accordance with its terms, the provisions of this
Article 16 shall be applicable only to the party then owning Tenant's interest
in this lease.
(b) It is stipulated and agreed that in the event of the termination
of this lease pursuant to (a) hereof, Owner shall forthwith, notwithstanding any
other provisions of this lease to the contrary, be entitled to recover from
Tenant as and for liquidated damages an amount equal to the difference between
the rental reserved hereunder for the unexpired portion of the term demised and
the fair and reasonable rental value of the demised premises for the same
period. In the computation of such damages the difference between any
installment of rent becoming due hereunder after the date of termination and the
fair and reasonable rental value of the demised premises for the period for
which such installment was payable shall be discounted to the date of
termination at the rate of four percent (4%) per annum. If such premises or any
part thereof be relet by the Owner for the unexpired term of said lease, or any
part thereof, before presentation of proof of such liquidated damages to any
court, commission or tribunal, the amount of rent reserved upon such reletting
shall be deemed to be the fair and reasonable rental value for the part or the
whole of the premises so re-let during the term of the re-letting. Nothing
herein contained shall limit or prejudice the right of the Owner to prove for
and obtain as liquidated damages by reason of such termination, an amount equal
to the maximum allowed by any statute or rule of law in effect at the time when,
and governing the proceedings in which, such damages are to be proved, whether
or not such amount be greater, equal to, or less than the amount of the
difference referred to above.
DEFAULT:
17. (1) If Tenant defaults in fulfilling any of the covenants of this
lease other than the covenants for the payment of rent or additional rent; or if
the demised premises becomes vacant or deserted "or if this lease be rejected
under Section 235 of Title 11 of the U.S. Code (bankruptcy code);" or if any
execution or attachment shall be issued against Tenant or any of Tenant's
property whereupon the demised premises shall be taken or occupied by someone
other than Tenant; or if Tenant shall make default with
10
<PAGE>
respect to any other lease between Owner and Tenant; or if Tenant shall have
failed, after five (5) days written notice, to redeposit with Owner any portion
of the security deposited hereunder which Owner has applied to the payment of
any rent and additional rent due and payable hereunder or failed to move into to
take possession of the premises within thirty (30) days after the commencement
of the term of this lease, of which fact Owner shall be the sole judge; then in
any one or more of such events, upon Owner serving a written fifteen (15) days
notice upon Tenant specifying the nature of said default and upon the expiration
of said fifteen (15) days, if Tenant shall have failed to comply with or remedy
such default, or if the said default or omission complained of shall be of a
nature that the same cannot be completely cured or remedied within said fifteen
(15) day period, and if Tenant shall not have diligently commenced during such
default within such fifteen (15) day period, and shall not thereafter with
reasonable diligence and in good faith, proceed to remedy or cure such default,
then Owner may serve a written five (5) days' notice of cancellation of this
lease upon Tenant, and upon the expiration of said five (5) days this lease and
the term thereunder shall end and expire as fully and completely as if the
expiration of such five (5) day period were the day herein definitely fixed for
the end and expiration of this lease and the term thereof and Tenant shall then
quit and surrender the demised premises to Owner but Tenant shall remain liable
as hereinafter provided.
(2) If the notice provided for in (1) hereof shall have been given, and
the term shall expire as aforesaid; or if Tenant shall make default in the
payment of the rent reserved herein or any item of additional rent herein
mentioned or any part of either or in making any other payment herein required;
then and in any of such events Owner may without notice, re-enter the demised
premises either by force or otherwise, and dispossess Tenant by summary
proceedings or otherwise, and the legal representative of Tenant or other
occupant of demised premises and remove their effects and hold the premises as
if this lease had not been made, and Tenant hereby waives the service of notice
of intention to re-enter or to institute legal proceedings to that end. If
Tenant shall make default hereunder prior to the date fixed as the commencement
of any renewal or extension of this lease, Owner may cancel and terminate such
renewal or extension agreement by written notice.
REMEDIES OF OWNER AND WAIVER OF REDEMPTION:
18. In case of any such default, re-entry, expiration and/or dispossess by
summary proceedings or otherwise, (a) the rent, and additional rent, shall
become due thereupon and be paid up to the time of such reentry, dispossess
and/or expiration, (b) Owner may re-let the premises or any part or parts
thereof, either in the name of Owner or otherwise, for a term or terms, which
may at Owner's option be less than or exceed the period which would otherwise
have constituted the balance of the term of this lease
11
<PAGE>
and may grant concessions or free rent or charge a higher rental than that in
this lease, (c) Tenant or the legal representatives of Tenant shall also pay
Owner as liquidated damages for the failure of Tenant to observe and perform
said Tenant's covenants herein contained, any deficiency between the rent hereby
reserved and or covenanted to be paid and the net amount, if any, of the rents
collected on account of the subsequent lease or leases of the demised premises
for each month of the period which would otherwise have constituted the balance
of the term of this lease. The failure of Owner to re-let the premises or any
part or parts thereof shall not release or affect Tenant's liability for
damages. In computing such liquidated damages there shall be added to the said
deficiency such expenses as Owner may incur in connection with re-letting, such
as legal expenses, reasonable attorneys' fees, brokerage, advertising and for
keeping the demised premises in good order or for preparing the same for re-
letting. Any such liquidated damages shall be paid in monthly installments by
Tenant on the rent day specified in this lease and any suit brought to collect
the amount of the deficiency for any month shall not prejudice in any way the
rights of Owner to collect the deficiency for any subsequent month by a similar
proceeding. Owner, in putting the demised premises in good order or preparing
the same for re-rental may, at Owner's option, make such alterations, repairs,
replacements, and/or decorations in the demised premises as Owner, in Owner's
sole judgment, considers advisable and necessary for the purpose of re-letting
the demised premises, and the making of such alterations, repairs, replacements,
and/or decorations shall not operate or be construed to release Tenant from
liability hereunder as aforesaid. Owner shall in no event be liable in any way
whatsoever for failure to re-let the demised premises, or in the event that the
demised premises are re-let, for failure to collect the rent thereof under such
re-letting, and in no event shall Tenant be entitled to receive any excess, if
any, of such net rents collected over the sums payable by Tenant to Owner
hereunder. In the event of a breach or threatened breach by Tenant of any of
the covenants or provisions hereof, Owner shall have the right of injunction and
the right to invoke any remedy allowed at law or in equity as if re-entry,
summary proceedings and other remedies were not herein provided for. Mention in
this lease of any particular remedy, shall not preclude Owner from any other
remedy, in law or in equity. Tenant hereby expressly waives any and all rights
of redemption granted by or under any present or future laws.
FEES AND EXPENSES:
19. If Tenant shall default in the observance or performance of any term
or covenant on Tenant's part to be observed or performed under or by virtue of
any of the terms or provisions in any article of this lease, after notice if
required and upon expiration of any applicable grace period if any, (except in
an emergency), then, unless otherwise provided elsewhere in this
12
<PAGE>
lease, Owner may immediately or at any time thereafter and without notice
perform the obligation of Tenant thereunder. If Owner, in connection with the
foregoing or in connection with any default by Tenant in the covenant to pay
rent hereunder, makes any expenditures or incurs any obligations for the payment
of money, including but not limited to reasonable attorney's fees, in
instituting, prosecuting or defending any action or proceedings, and prevails in
any such action or proceeding, then Tenant will reimburse Owner for such sums so
paid or obligations incurred with interest and costs. The foregoing expenses
incurred by reason of Tenant's default shall be deemed to be additional rent
hereunder and shall be paid by Tenant to Owner within ten (10) days of rendition
of any bill or statement to Tenant therefor. If Tenant's lease term shall have
expired at the time of making of such expenditures or incurring of such
obligations, such sums shall be recoverable by Owner as damages.
BUILDING ALTERATIONS AND MANAGEMENT:
20. Owner shall have the right at any time without the same constituting
an eviction and without incurring liability to Tenant therefor to change the
arrangement and or location of public entrances, passageways, doors, doorways,
corridors, elevators, stairs, toilets or other public parts of the building and
to change the name, number or designation by which the building may be known.
There shall be no allowance to Tenant for diminution of rental value and no
liability on the part of Owner by reason of inconvenience, annoyance or injury
to business arising from Owner or other Tenant making any repairs in the
building or any such alterations, additions and improvements. Furthermore,
Tenant shall not have any claim against Owner by reason of Owner's imposition of
any controls of the manner of access to the building by Tenant's social or
business visitors as the Owner may deem necessary for the security of the
building and its occupants.
NO REPRESENTATIONS BY OWNER:
21. Neither Owner nor Owner's agents have made any representations or
promises with respect to the physical condition of the building, the land upon
which it is erected or the demised premises, the rents, leases, expenses of
operation or any other matter or thing affecting or related to the demised
premises or the building except as herein expressly set forth and no rights,
easements or licenses are acquired by Tenant by implication or otherwise except
as expressly set forth in the provisions of this lease. Tenant has inspected
the building and the demised premises and is thoroughly acquainted with their
condition and agrees to take the same "as is" on the date possession is tendered
and acknowledges that the taking of possession of the demised premises by Tenant
shall be conclusive evidence that the said premises and the building of which
the same form a part were in good and satisfactory condition at the time such
possession was so taken,
13
<PAGE>
except as to latent defects. All understandings and agreements heretofore made
between the parties hereto are merged in this contract, which alone fully and
completely expresses the agreement between Owner and Tenant and any executory
agreement hereafter made shall be ineffective to change, modify, discharge or
effect an abandonment of it in whole or in part, unless such executory agreement
is in writing and signed by the party against whom enforcement of the change,
modification, discharge or abandonment is sought.
END OF TERM:
22. Upon the expiration or other termination of the term of this lease,
Tenant shall quit and surrender to Owner the demised premises, broom clean, in
good order and condition, ordinary wear and damages which Tenant is not required
to repair as provided elsewhere in this lease excepted, and Tenant shall remove
all its property from the demised premises. Tenant's obligation to observe or
perform this covenant shall survive the expiration or other termination of this
lease. If the last day of the term of this Lease or any renewal thereof, falls
on Sunday, this lease shall expire at noon on the preceding Saturday unless it
be a legal holiday in which case it shall expire at noon on the preceding
business day.
QUIET ENJOYMENT:
23. Owner covenants and agrees with Tenant that upon Tenant paying the
rent and additional rent and observing and performing all the terms, covenants
and conditions, on Tenant's part to be observed and performed, Tenant may
peaceably and quietly enjoy the premises hereby demised, subject, nevertheless,
to the terms and conditions of this lease including, but not limited to, Article
34 hereof and to the ground leases, underlying leases and mortgages hereinbefore
mentioned.
FAILURE TO GIVE POSSESSION:
24. If Owner is unable to give possession of the demised premises on the
date of the commencement of the term hereof, because of the holding-over or
retention of possession of any Tenant, undertenant or occupants or if the
demised premises are located in a building being constructed, because such
building has not been sufficiently completed to make the premises ready for
occupancy or because of the fact that a certificate of occupancy has not been
procured or if Owner has not completed any work required to be performed by
Owner, or for any other reason, Owner shall not be subject to any liability for
failure to give possession on said date and validity of the lease shall not be
impaired under such circumstances, nor shall the same be construed in any wise
to extend the term of this lease, but the rent payable hereunder shall be abated
(provided Tenant is not responsible for
14
<PAGE>
Owner's inability to obtain possession or complete any work required) until
after Owner shall have given Tenant notice that Owner is able to deliver
possession in the condition required by this lease. If permission is given to
Tenant to enter into the possession of the demised premises or to occupy
premises other than the demised premises prior to the date specified as the
commencement of the term of this lease, Tenant covenants and agrees that such
possession and/or occupancy shall be deemed to be under all the terms,
covenants, conditions and provisions of this lease, except the obligation to pay
the fixed annual rent set forth in page one of this lease. The provisions of
this article are intended to constitute "an express provision to the contrary"
within the meaning of Section 223-a of the New York Real Property Law.
NO WAIVER:
25. The failure of Owner to seek redress for violation of, or to insist
upon the strict performance of any covenant or condition of this lease or of any
of the Rules or Regulations, set forth or hereafter adopted by Owner, shall not
prevent a subsequent act which would have originally constituted a violation
from having all the force and effect of an original violation. The receipt by
Owner of rent with knowledge of the breach of any covenant of this lease shall
not be deemed a waiver of such breach and no provision of this lease shall be
deemed to have been waived by Owner unless such waiver be in writing signed by
Owner. No payment by Tenant or receipt by Owner of a lesser amount than the
monthly rent herein stipulated shall be deemed to be other than on account of
the earliest stipulated rent, nor shall any endorsement or statement of any
check or any letter accompanying any check or payment as rent be deemed as
accord and satisfaction, and Owner may accept such check or payment without
prejudice to Owner's right to recover the balance of such rent or pursue any
other remedy in this lease provided. All checks tendered to Owner as and for
the rent of the demised premises shall be deemed payments for the account of
Tenant. Acceptance by Owner of rent from anyone other than Tenant shall not be
deemed to operate as an attornment to Owner by the payor of such rent or as a
consent by Owner to an assignment or subletting by Tenant of the demised
premises to such payor, or as a modification of the provisions of this lease.
No act or thing done by Owner or Owner's agents during the term hereby demised
shall be deemed an acceptance of a surrender of said premises and no agreement
to accept such surrender shall be valid unless in writing signed by Owner. No
employee of Owner or Owner's agent shall have any power to accept the keys of
said premises prior to the termination of the lease and the delivery of keys to
any such agent or employee shall not operate as a termination of the lease or a
surrender of the premises.
WAIVER OF TRIAL BY JURY:
15
<PAGE>
26. It is mutually agreed by and between Owner and Tenant that the
respective parties hereto shall and they hereby do waive trial by jury in any
action, proceeding or counterclaim brought by either of the parties hereto
against the other (except for personal injury or property damage) on any matters
whatsoever arising out of or in any way connected with this lease, the
relationship of Owner and Tenant, Tenant's use of or occupancy of said premises,
and any emergency statutory or any other statutory remedy. It is further
mutually agreed that in the event Owner commences any proceeding or action for
possession including a summary proceeding for possession of the premises, Tenant
will not interpose any counterclaim of whatever nature or description in any
such proceeding including a counterclaim under Article 4 except for statutory
mandatory counterclaims.
INABILITY TO PERFORM:
27. This Lease and the obligation of Tenant to pay rent hereunder and
perform all of the other covenants and agreements hereunder on part of Tenant to
be performed shall in no wise be affected, impaired or excused because Owner is
unable to fulfill any of its obligations under this lease or to supply or is
delayed in supplying any service expressly or impliedly to be supplied or is
unable to make, or is delayed in making any repair, additions, alterations or
decorations or is unable to supply or is delayed in supplying any equipment,
fixtures or other materials if Owner is prevented or delayed from doing so by
reason of strike or labor troubles or any cause whatsoever beyond Owner's sole
control including, but not limited to, government preemption or restrictions or
by reason of any rule, order or regulation of any department or subdivision
thereof of any government agency or by reason of the conditions which have been
or are affected, either directly or indirectly, by war or other emergency.
BILLS AND NOTICES:
28. Except as otherwise in this lease provided, a bill statement, notice
or communication which Owner may desire or be required to give to Tenant, shall
be deemed sufficiently given or rendered if, in writing, delivered to Tenant
personally or sent by registered or certified mail addressed to Tenant at the
building of which the demised premises form a part or at the last known
residence address or business address of Tenant or left at any of the aforesaid
premises addressed to Tenant, and the time of the rendition of such bill or
statement and of the giving of such notice or communication shall be deemed to
be the time when the same is delivered to Tenant, mailed, or left at the
premises as herein provided. Any notice by Tenant to Owner must be served by
registered or certified mail addressed to Owner at the address first hereinabove
given or at such other address as Owner shall designate by written notice.
16
<PAGE>
WATER CHARGES:
29. If Tenant requires, uses or consumes water for any purpose in addition
to ordinary lavatory purposes (of which fact Tenant constitutes Owner to be the
sole judge) Owner may install a water meter and thereby measure Tenant's water
consumption for all purposes. Tenant shall pay Owner for the cost of the meter
and the cost of the installation, thereof and throughout the duration of
Tenant's occupancy Tenant shall keep said meter and installation equipment in
good working order and repair at Tenant's own cost and expense in default of
which Owner may cause such meter and equipment to be replaced or repaired and
collect the cost thereof from Tenant, as additional rent. Tenant agrees to pay
for water consumed, as shown on said meter as and when bills are rendered, and
on default in making such payment Owner may pay such charges and collect the
same from Tenant, as additional rent. Tenant covenants and agrees to pay, as
additional rent, the sewer rent, charge or any other tax, rent, levy or charge
which now or hereafter is assessed, imposed or a lien upon the demised premises
or the realty of which they are part pursuant to law, order or regulation made
or issued in connection with the use, consumption, maintenance or supply of
water, water system or sewage or sewage connection or system. If the building
or the demised premises or any part thereof is supplied with water through a
meter through which water is also supplied to other premises Tenant shall pay to
Owner, as additional rent, on the first day of each month ___% ($________) of
the total meter charges as Tenant's portion. Independently of and in addition
to any of the remedies reserved to Owner hereinabove or elsewhere in this lease,
Owner may sue for and collect any monies to be paid by Tenant or paid by Owner
for any of the reasons or purposes hereinabove set forth.
SPRINKLERS:
30. Anything elsewhere in this lease to the contrary notwithstanding, if
the New York Board of Fire Underwriters or the New York Fire Insurance Exchange
or any bureau, department or official of the federal, state or city government
recommend or require the installation of a sprinkler system or that any changes,
modifications, alterations, or additional sprinkler heads or other equipment be
made or supplied in an existing sprinkler system by reason of Tenant's business,
or the location of partitions, trade fixtures, or other contents of the demised
premises, or for any other reason, or if any such sprinkler system
installations, modifications, alterations, additional sprinkler heads or other
such equipment, become necessary to prevent the imposition of a penalty or
charge against the full allowance for a sprinkler system in the fire insurance
rate set by any said Exchange or by any fire insurance company, Tenant shall, at
Tenant's expense, promptly make such sprinkler system installations, changes,
modifications, alterations, and supply additional sprinkler heads or other
equipment as required whether the work involved shall be structural
17
<PAGE>
or non-structural in nature. Tenant shall pay to Owner as additional rent the
sum of $__________, on the first day of each month during the term of this
lease, as Tenant's portion of the contract price for sprinkler supervisory
service.
ELEVATORS, HEAT, CLEANING:
31. As long as Tenant is not in default under any [of] the covenants of
this lease beyond the applicable grace period provided in this lease for the
curing of such defaults, Owner shall: (a) provide necessary passenger elevator
facilities on business days from 8 a.m. to 6 p.m. and on Saturdays from 8 a.m.
to 1 p.m.; (b) if freight elevator service is provided, same shall be provided
only on regular business days Monday through Friday inclusive, and on those days
only between the hours of 9 a.m. and 12 noon and between 1 p.m. and 5 p.m.; (c)
furnish heat, water and other services supplied by Owner to the demised
premises, when and as required by law, on business days from 8 a.m. to 6 p.m.
and on Saturdays from 8 a.m. to 1.p.m.; (d) clean the public halls and public
portions of the building which are used in common by all tenants. Tenant shall,
at Tenant's expense, keep the demised premises, including the windows, clean and
in order, to the reasonable satisfaction of Owner, and for that purpose shall
employ the person or persons, or corporation approved by Owner. Tenant shall
pay to Owner the cost of removal of any of Tenant's refuse and rubbish from the
building. Bills for the same shall be rendered by Owner to Tenant at such time
as Owner may elect and shall be due and payable hereunder, and the amount of
such bills shall be deemed to be, and be paid as, additional rent. Tenant
shall, however, have the option of independently contracting for the removal of
such rubbish and refuse in the event that Tenant does not wish to have same done
by employees of Owner. Under such circumstances, however, the removal of such
refuse and rubbish by others shall be subject to such rules and regulations as,
in the judgment of Owner, are necessary for the proper operation of the
building. Owner reserves the right to stop service of the heating, elevator,
plumbing and electric systems, when necessary, by reason of accident, or
emergency, or for repairs, alterations, replacements or improvements, in the
judgment of Owner desirable or necessary to be made, until said repairs,
alterations, replacements or improvements shall have been completed. If the
building of which the demised premises are a part supplies manually operated
elevator service, Owner may proceed diligently with alterations necessary to
substitute automatic control elevator service without in any way affecting the
obligations of Tenant hereunder.
SECURITY:
32. Tenant has deposited with Owner the sum of $1,500.00 as security for
the faithful performance and observance by Tenant of the terms, provisions and
conditions of this lease; it is agreed that in the event Tenant defaults in
respect of any of the terms,
18
<PAGE>
provisions and conditions of this lease, including, but not limited to, the
payment of rent and additional rent, Owner may use, apply or retain the whole or
any part of the security so deposited to the extent required for the payment of
any rent and additional rent or any other sum as to which Tenant is in default
or for any sum which Owner may expend or may be required to expend by reason of
Tenant's default in respect of any of the terms, covenants and conditions of
this lease, including but not limited to, any damages or deficiency in the
reletting of the premises, whether such damages or deficiency accrued before or
after summary proceedings or other re-entry by Owner. In the event that Tenant
shall fully and faithfully comply with all of the terms, provisions, covenants
and conditions of this lease, the security shall be returned to Tenant after the
date fixed as the end of the Lease and after delivery of entire possession of
the demised premises to Owner. In the event of a sale of the land and building
or leasing of the building, of which the demised premises form a part, Owner
shall have the right to transfer the security to the vendee or lessee and Owner
shall thereupon be released by Tenant from all liability for the return of such
security; and Tenant agrees to look to the new Owner solely for the return of
said security, and it is agreed that the provisions hereof shall apply to every
transfer or assignment made of the security to a new Owner. Tenant further
covenants that it will not assign or encumber or attempt to assign or encumber
the monies deposited herein as security and that neither Owner nor its successor
or assigns shall be bound by any such assignment, encumbrance, attempted
assignment or attempted encumbrance.
CAPTIONS:
33. The Captions are inserted only as a matter of convenience and for
reference and in no way define, limit or describe the scope of this lease nor
the intent of any provision thereof.
DEFINITIONS:
34. The term "Owner" as used in this lease means only the owner of the fee
or of the leasehold of the building, or the mortgagee in possession, for the
time being of the land and building (or the owner of a lease of the building or
of the land and building) of which the demised premises form a part, so that in
the event of any sale or sales of said land and building or of said lease, or in
the event of a lease of said building, or of the land and building, the said
Owner shall be and hereby is entirely freed and relieved of all covenants and
obligations of Owner hereunder, and it shall be deemed and construed without
further agreement between the parties or their successors in interest, or
between the parties and the purchaser, at any such sale, or the said lessee of
the building, or of the land and building, that the purchaser or the lessee of
the building has assumed and agreed to carry out any and all covenants and
obligations of Owner hereunder. The words "re-enter" and "re-entry" as used in
this lease are not restricted
19
<PAGE>
to their technical legal meaning. The term "rent" includes the annual rental
rate whether so expressed or expressed in monthly installments, and "additional
rent." "Additional rent" means all sums which shall be due to Owner from Tenant
under this lease, in addition to the annual rental rate. The term "business
days" as used in this lease, shall exclude Saturdays, Sundays and all days
observed by the State or Federal Government as legal holidays and those
designated as holidays by the applicable building service union employees
service contract or by the applicable Operating Engineers contract with respect
to HVAC service. Wherever it is expressly provided in this lease that consent
shall not be unreasonably withheld, such consent shall not be unreasonably
delayed.
ADJACENT EXCAVATION-SHORING:
35. If an excavation shall be made upon land adjacent to the demised
premises, or shall be authorized to be made, Tenant shall afford to the person
causing or authorized to cause such excavation, license to enter upon the
demised premises for the purpose of doing such work as said person shall deem
necessary to preserve the wall or the building of which demised premises form a
part from injury or damage and to support the same by proper foundations without
any claim for damages or indemnity against Owner, or diminution or abatement of
rent.
RULES AND REGULATIONS:
36. Tenant and Tenant's servants, employees, agents, visitors, and
licensees shall observe faith fully, and comply strictly with, the Rules and
Regulations annexed hereto and such other and further reasonable Rules and
Regulations as Owner or Owner's agents may from time to time adopt. Notice of
any additional rules or regulations shall be given in such manner as Owner may
elect. In case Tenant disputes the reasonableness of any additional Rule or
Regulation hereafter made or adopted by Owner or Owner's agents, the parties
hereto agree to submit the question of the reasonableness of such Rule or
Regulation for decision to the New York office of the American Arbitration
Association, whose determinations shall be final and conclusive upon the parties
hereto. The right to dispute the reasonableness of any additional Rule or
Regulation upon Tenant's part shall be deemed waived unless the same shall be
asserted by service of a notice, in writing upon Owner within fifteen (15) days
after the giving of notice thereof. Nothing in this lease contained shall be
construed to impose upon Owner any duty or obligation to enforce the Rules and
Regulations or terms, covenants or conditions in any other lease, as against any
other tenant and Owner shall not be liable to Tenant for violation of the same
by any other tenant, its servants, employees, agents, visitors or licensees.
20
<PAGE>
GLASS:
37. Owner shall replace, at the expense of the Tenant, any and all plate
and other glass damaged or broken from any cause whatsoever in and about the
demised premises. Owner may insure, and keep insured, at Tenant's expense, all
plate and other glass in the demised premises for and in the name of Owner.
Bills for the premiums therefor shall be rendered by Owner to Tenant at such
times as Owner may elect, and shall be due from, and payable by, Tenant when
rendered, and the amount thereof shall be deemed to be, and be paid, as
additional rent.
ESTOPPEL CERTIFICATE:
38. Tenant, at any time, and from time to time, upon at least 10 days'
prior notice by Owner, shall execute, acknowledge and deliver to Owner, and/or
to any other person, firm or corporation specified by Owner, a statement
certifying that this Lease is unmodified in full force and effect (or, if there
have been modifications, that the same is in full force and effect as modified
and stating the modifications), stating the dates to which the rent and
additional rent have been paid, and stating whether or not there exists any
default by Owner under this Lease, and, if so, specifying each such default.
DIRECTORY BOARD LISTING:
39. If, at the request of and as accommodation to Tenant, Owner shall
place upon the directory board in the lobby of the building, one or more names
of persons other than Tenant, such directory board listing shall not be
construed as the consent by Owner to an assignment or subletting by Tenant to
such person or persons.
SUCCESSORS AND ASSIGNS:
40. The covenants, conditions and agreements contained in this Lease shall
bind and inure to the benefit of Owner and Tenant and their respective heirs,
distributees, executors, administrators, successors, and except as otherwise
provided in this lease, their assigns. Tenants shall look only to Owner's
estate and interest in the land and building for the satisfaction of Tenant's
remedies for the collection of a judgement (or other judicial process) against
Owner in the event of any default by Owner hereunder, and no other property or
assets of such Owner (or any partner, member, officer or director thereof,
disclosed or undisclosed), shall be subject to levy, execution or other
enforcement procedure for the satisfaction of Tenant's remedies under or with
respect to this lease, the relationship of Owner and Tenant hereunder, or
Tenant's use and occupancy of the demised premises.
21
<PAGE>
IN WITNESS WHEREOF, Owner and Tenant have respectively signed and sealed
this lease as of the day and year first above written.
Witness for Owner: Palobueno N.V. Ltd.
BY: Falcon Properties, Inc.
As Managing Agent
/s/ Carlos A. Silberman
- ----------------------------- --------------------------
Carlos A. Silberman, CEO
Witness for Tenant: /s/ Harold Dyne
--------------------------
Pacific Trim & Belt, Inc.
Harold Dyne, President
- ----------------------------- --------------------------
22
<PAGE>
ACKNOWLEDGEMENTS
CORPORATE TENANT
STATE OF NEW YORK, SS:
COUNTY OF
On this _____ day of _________________, 19___, before me personally came
____________________________________ to me known, who being by me duly sworn,
did depose and say that he resides in
_________________________________________________________________ that he is the
________________________ of ______________________ the corporation described in
and which executed the foregoing instrument, as TENANT; that he knows the seal
of said corporation; that the seal affixed to said instrument is such corporate
seal; that it was so affixed by order of the Board of Directors of said
corporation, and that he signed his name thereto by like order.
INDIVIDUAL TENANT
STATE OF NEW YORK, SS:
COUNTY OF
On _____ day of ____________________, 19___, before me personally came
___________________________________ to be known and known to me to be the
individual described in and who, as TENANT, executed the foregoing instrument
and acknowledged to me that ______________________ he executed the same.
23
<PAGE>
RULES AND REGULATIONS ATTACHED TO AND
MADE A PART OF THIS LEASE IN
ACCORDANCE WITH ARTICLE 36.
1. The sidewalks, entrances, driveways, passages, courts, elevators,
vestibules, stairways, corridors or halls shall not be obstructed or encumbered
by any Tenant or used for any purpose other than for ingress or egress from the
demised premises and for delivery of merchandise and equipment in a prompt and
efficient manner using elevators and passageways designated for such delivery by
Owner. There shall not be used in any space, or in the public hall of the
building, either by any Tenant or by jobbers or others in the delivery or
receipt of merchandise, any hand trucks, except those equipped with rubber tires
and sideguards. If said premises are situated on the ground floor of the
building, Tenant thereof shall further, at Tenant's expense, keep the sidewalk
and curb in front of said premises clean and free from ice, snow, dirt and
rubbish.
2. The water and wash closets and plumbing fixtures shall not be used for
any purposes other than those for which they were designed or constructed and no
sweepings, rubbish, rags, acids or other substances shall be deposited therein,
and the expense of any breakage, stoppage, or damage resulting from the
violation of this rule shall be borne by the Tenant who, or whose clerks,
agents, employees or visitors, shall have caused it.
3. No carpet, rug or other article shall be hung or shaken out of any
window of the building; and no Tenant shall sweep or throw or permit to be swept
or thrown from the demised premises any dirt or other substances into any of the
corridors of halls, elevators, or out of the doors or windows or stairways of
the building and Tenant shall not use, keep or permit to be used or kept any
foul or noxious gas or substance in the demised premises, or permit or suffer
the demised premises to be occupied or used in a manner offensive or
objectionable to Owner or other occupants of the buildings by reason of noise,
odors, and or vibrations, or interfere in any way, with other Tenants or those
having business therein, nor shall any bicycles, vehicles, animals, fish, or
birds be kept in or about the building. Smoking or carrying lighted cigars or
cigarettes in the elevators of the building is prohibited.
4. No awnings or other projections shall be attached to the outside walls
of the building without the prior written consent of Owner.
5. No sign, advertisement, notice or other lettering shall be exhibited,
inscribed, painted or affixed by any Tenant on any part of the outside of the
demised premises or the building or on the inside of the demised premises if the
same is visible from the outside of the premises without the prior written
consent of Owner,
24
<PAGE>
except that the name of Tenant may appear on the entrance door of the premises.
In the event of the violation of the foregoing by any Tenant, Owner may remove
same without any liability and may charge the expense incurred by such removal
to Tenant or Tenants violating this rule. Interior signs on doors and directory
tablet shall be inscribed, painted or affixed for each Tenant by Owner at the
expense of such Tenant, and shall be of a size, color and style acceptable to
Owner.
6. No Tenant shall mark, paint, drill into, or in any way deface any part
of the demised premises or the building of which they form a part. No boring,
cutting or stringing of wires shall be permitted, except with the prior written
consent of Owner, and as Owner may direct. No Tenant shall lay linoleum, or
other similar floor covering, so that the same shall come in direct contact with
the floor of the demised premises, and, if linoleum or other similar floor
covering is desired to be used an interlining of builder's deadening felt shall
be first affixed to the floor, by a paste or other material, soluble in water,
the use of cement or other similar adhesive material being expressly prohibited.
7. No additional locks or bolts of any kind shall be placed upon any of
the doors or windows by any Tenant, nor shall any changes be made in existing
locks or mechanism thereof. Each Tenant must, upon the termination of his
Tenancy, restore to Owner all keys of stores, offices and toilet rooms, either
furnished to, or otherwise procured by, such Tenant, and in the event of the
loss of any keys, so furnished, such Tenant shall pay to Owner the cost thereof.
8. Freight, furniture, business equipment, merchandise and bulky matter
of any description shall be delivered to and removed from the premises only on
the freight elevators and through the service entrances and corridors, and only
during hours and in a manner approved by Owner. Owner reserves the right to
inspect all freight to be brought into the building and to exclude from the
building all freight which violates any of these Rules and Regulations of the
lease of which these Rules and Regulations are a part.
9. No Tenant shall obtain for use upon the demised premises ice, drinking
water, towel and other similar services, or accept barbering or bootblacking
services in the demised premises, except from persons authorized by Owner, and
at hours and under regulations fixed by Owner. Canvassing, soliciting and
peddling in the building is prohibited and each Tenant shall cooperate to
prevent the same.
10. Owner reserves the right to exclude from the building all persons who
do not present a pass to the building signed by Owner. Owner will furnish
passes to persons for whom any Tenant requests same in writing. Each Tenant
shall be responsible for all persons
25
<PAGE>
for whom he requests such pass and shall be liable to Owner for all acts of such
persons. Notwithstanding the foregoing, Owner shall not be required to allow
Tenant or any person to enter or remain in the building, except on business days
from 8:00 a.m. to 6:00 p.m. and on Saturdays from 8:00 a.m. to 1:00 p.m. Tenant
shall not have a claim against Owner by reason of Owner excluding from the
building any person who does not present such pass.
11. Owner shall have the right to prohibit any advertising by any Tenant
which in Owner's opinion, tends to impair the reputation of the building or its
desirability as a loft building, and upon written notice from Owner, Tenant
shall refrain from or discontinue such advertising.
12. Tenant shall not bring or permit to be brought or kept in or on the
demised premises, any inflammable, combustible, or explosive, or hazardous
fluid, material, chemical or substance, or cause or permit any odors of cooking
or other processes, or any unusual or other objectionable odors to permeate in
or emanate from the demised premises.
13. Tenant shall not use the demised premises in a manner which disturbs
or interferes with other Tenants in the beneficial use of their premises.
26
<PAGE>
Address
Premises
TO
STANDARD FORM OF
LOFT LEASE
The Real Estate Board of New York, Inc.
-C-Copyright 1994. All rights Reserved.
Reproduction in whole or in part prohibited.
Dated: 19___
Rent Per Year
Term
From
To
Drawn by:____________________________________
Checked by:__________________________________
Entered by:__________________________________
Approved by:_________________________________
27
<PAGE>
RIDER TO AGREEMENT OF: LEASE DATED AS OF MARCH 17, 1997 BETWEEN, PALOBUENO N.V.
LTD. AS OWNER AND PACIFIC TRIM & BELT. INC. (HAROLD DYNE, PRESIDENT) AS TENANT
COVERING PREMISES 262 W. 38TH STREET ROOM #704 NEW YORK, NEW YORK, 10018.
SHOULD ANY PARAGRAPH OF THIS RIDER BE INCONSISTENT OR CONFLICT WITH THE PRINTED
PORTION OF THE LEASE, THEN AND IN THAT EVENT, THE PROVISIONS OF THE RIDER SHALL
APPLY.
AMENDED AND ADDITIONAL CLAUSES
40. INSURANCE.
A. Tenant covenants to provide on or before the commencement of the
demised term, and to keep in force during the demised term, COMPREHENSIVE
GENERAL LIABILITY INSURANCE relating to the demised premises and its
appurtenances on an occurrence basis with combined single limits of not less
than $100,000.00 for personal injury and property damage covering the demised
premises. Such insurance policy shall be in form commonly known as
"Comprehensive General Liability" or Owner-Landlord and Tenant." Tenant shall
also carry insurance with limits of not less than $100,000.00 insuring the
Landlord, Tenant and any mortgagee.
During the course of any alterations, restorations, repair or reconstruction of
the demised premises, Tenant shall, at its own cost and expense, carry for the
protection of the Landlord (including, if requested, any mortgagee or those
others holding superior title or interest to the Landlord) Landlord's Protective
Liability and Property Damage Insurance in amounts no less than those provided
in Paragraph A above.
B. Tenant shall carry such other insurance including, but not limited to,
Boiler (if Tenant uses a boiler) and against other insurable hazards which at
the time are commonly insured against in case of premises similarly situated.
C. Tenant shall also carry workers' compensation insurance and disability
insurance as required by law.
D. Tenant shall be continuously obligated, at its own expense, to
maintain adequate FIRE INSURANCE (MULTI-PERIL PACKAGE) on the contents of the
demised premises and the trade fixtures installed by Tenant and furnish Owner
with evidence of the maintenance of such insurance. Such insurance shall be for
the full replacement cost thereof, and Landlord shall be named as an insured on
this policy as its interest may appear.
E. Tenant, at its own cost and expense, shall replace all damaged or
broken plate glass or other glass in or about the Demised Premises. Tenant
shall keep such glass insured for the benefit of the Landlord and tenant.
1
<PAGE>
F. In the event that the Tenant shall fail to take out, continuously
maintain in force, and deliver to the Landlord , certificates or an original
policy, whichever the case may be, evidencing the insurance coverage herein
required, as herein provided, Landlord may, at its option, effect such insurance
and charge the cost thereof to the Tenant, who shall pay, as additional rent,
such sums to the Landlord with interest at the maximum legal rate.
G. To the extent permitted by Law and provided such waiver does not
invalidate Tenant's insurance policy, Tenant hereby waives the right of
recovering from the Landlord for any damage or loss occasioned by any hazards
compensated by insurance regardless of whether said damage or loss resulted from
the negligence of Landlord, its employees, or otherwise and Tenant does hereby
waive the right to subrogate any insurance carrier or Tenant to its rights of
recovery against Landlord in any event.
H. If Tenant deals in merchandise which makes it impossible to obtain any
necessary fire insurance, then Landlord shall have the right to cancel this
Lease, provided Landlord gives Tenant ten (10) days notice to remove the same
from the demised premises and the Tenant does not comply.
I. If Tenant requires or installs any electrical equipment that overloads
the lines in the Demised Premises or the building in which the Demised Premises
are located, Tenant shall, at Tenant's own cost and expense, make whatever
changes are necessary to comply with the requirements of the Board of Fire
Insurance Underwriters or any similar body and any governmental authority having
jurisdiction thereof. For the purposes of this paragraph, any finding or
schedule of the Fire Insurance Rating Organization having jurisdiction thereof
shall be deemed to be conclusive.
41. RENT.
A. Tenant covenants and agrees to pay to Owner, in such coin or currency
of the United States of America as at the time of payment shall be legal tender
for the payment of public and private debts, at the address specified in, or
pursuant to, Section 28 hereof, during the aforesaid term, an annual rental
(sometimes hereinafter referred to as "Net Rent"), over and above the other and
additional payments to be made by Tenant as hereinafter provided:
For the period commencing on MAY 1, 1997 and ending on APRIL 30, 1998,the annual
rent shall be $16,800.00 per annum ($1,400.00 per month).
TENANT WILL HAVE ONE (1) YEAR OPTION
2
<PAGE>
For the period commencing on MAY 1, 1988 and ending on APRIL 30, 1999, the
annual rent shall be $18,000.00 per annum ($1,500.00 per month).
B. Notwithstanding anything to the contrary contained herein, no annual
rent shall be payable hereunder until, JUNE, 1997 provided, however, that Tenant
shall pay the first month's rent and security deposit upon the execution hereof
and shall pay and be responsible for all additional rent and other charges from
the Commencement Date. For the purposes of this paragraph, the first month's
rent paid hereunder shall be applicable to the month of MAY 1997.
C. In the event the term of this Lease shall commence or end on a day
other than the first or last day of the month, respectively, the annual rent and
additional rents hereunder shall be apportioned for a partial month.
D. Tenant will also pay without notice, except as may be required in this
Lease, and without abatement, deduction or set off, as additional rent, all
sums, costs, expenses and other payments which Tenant in any of the provisions
of this Lease assumes or agrees to pay, and, in the event of any nonpayment
thereof, Owner shall have (in addition to all other rights and remedies) all the
rights and remedies provided for herein or by law in the case of non-payment of
the net rent.
42. PAYMENTS OF TAXES, OPERATING EXPENSES, ETC.
1. ON JULY 15, 1997, Tenant shall pay an annual flat rate of $1,400.00
for Operating Expenses, Real Estate Taxes, sprinklers, heat and Security Guard
Costs.
2. ON JULY 15, 1998, Tenant shall pay an annual flat rate of $1,500.00
for Operating Expenses, Real Estate Taxes, sprinklers, heat and Security Guard
Costs.
The annual flat rate additional rent shall be paid on the 15TH OF JULY of each
and every year.
Any amount payable by Tenant to Owner under this Paragraph shall be paid by
Tenant to Owner within ten (10) days after receipt by Tenant from Owner of a
bill setting forth such amount.
TENANT SHALL PAY TO LANDLORD AS ADDITIONAL RENT ALL WATER AND SEWER RENTS, RATES
AND CHARGES APPLICABLE TO THE DEMISED PREMISES. SUCH PAYMENT SHALL BE DUE WITHIN
TEN (10) DAYS AFTER PRESENTMENT TO TENANT OF A BILL FOR SUCH COSTS AS PER LEASE
CLAUSE 29 AND RIDER CLAUSE 53.
43. SURRENDER.
3
<PAGE>
A. Tenant shall and will on the last day of the term hereof, or upon any
earlier termination of this Lease, well and truly surrender and deliver up the
Demised Premises and the Building into the possession and use of Owner without
fraud or delay and in good order, condition and repair (reasonable wear and tear
excepted), free and clear of all liens. All signs, inscriptions, canopies and
installations of like nature shall be removed at or prior to the expiration or
termination of this Lease.
B. Any personal property of Tenant or any subtenant which shall remain in
the Building after the termination of this Lease and the removal of Tenant or
such subtenant from the Building, may, at the option of Owner, be deemed to have
been abandoned by Tenant or such subtenant and may be retained by Owner as its
property or may be disposed of, at Tenant's cost, without accountability, in
such manner as Owner may see fit.
C. Owner shall not be responsible for any loss or damage occurring to any
property owned by Tenant or any subtenant unless caused by the gross negligence
of Owner.
D. The provisions of this Article 43 shall survive any termination of
this Lease.
44. REPAIRS.
A. The Tenant shall at its own cost and expense maintain and keep in good
condition and repair the Demised Premises and every part thereof, and the
plumbing and electric fixtures and facilities therein, and shall make all
repairs to the interior nonstructural, ordinary or extraordinary, and shall
indemnify and save harmless the Landlord of and from any and all damages, costs
and claims for same growing out of any loss, damage, or injury to third parties
occasioned in the maintenance, repair or operation of the Demised Premises and
the fixtures and facilities therein or growing out of the failure of the Tenant
to comply with the ordinances, rules, notices and orders of the governmental
authorities having jurisdiction thereof. When used in this Article, the term
"repairs" shall include all necessary replacements, renewals, alterations,
additions and betterments.
B. Tenant shall put, keep and maintain all portions of the Demised
Premises, and the sidewalks, curbs (in the case of a store lease) and
passageways adjoining the same, in a clean and orderly condition, free of
dirt,rubbish, snow, ice and unlawful obstructions.
C. Except as specifically provided herein, Landlord shall not be required
to furnish any services or facilities, or to make any repairs or alterations in
or to the Demised Premises, sidewalks, curbs and passageways adjoining the same.
Tenant hereby assumes the full and sole responsibility for the condition,
4
<PAGE>
operation, repair, replacement, maintenance and management of the Demised
Premises.
45. IMPROVEMENTS, CHANGES AND ALTERATIONS BY TENANT.
A. Tenant may not make any change, alteration, restoration or improvement
(herein collectively referred to as "alteration"), to the Demised Premises
without prior written consent of Owner.
B. No alteration shall be undertaken until Tenant shall have procured and
paid for all permits and authorizations of any federal, state or municipal
government or department, or subdivisions of any of them, having jurisdiction,
if required.
C. Such work shall be performed in accordance with the Plans and
Specifications, which were approved by the appropriate municipal authorities,
all applicable laws and regulations.
46. ESCROW ACCOUNT.
In the event that a dispute arises between Tenant and Owner such that Tenant
elects as part or all of its remedy to withhold rent or additional rent
(hereinafter "Rent"), then Tenant shall deposit the Rent with the attorney for
Owner (hereinafter "Escrow Agent") to be held in escrow as more fully set forth
hereinafter.
Tenant shall notify Owner in writing of Tenant's intention to withhold Rent by
the 7th day of the first month Tenant elects to withhold Rent. Owner shall
notify Tenant within ten (10) days of receipt of Tenant's notice of the name and
address of the Escrow Agent. Tenant shall then immediately deposit by certified
check, bank check or money order the then due Rent with Escrow Agent and
continue to deposit future Rent with Escrow Agent by certified check, bank check
and money order within seven (7) days of such Rent becoming due under the Lease
agreement. Time is of the essence as to the obligations of the Tenant, Escrow
Agent shall retain the Rent in an escrow account. At the discretion of the
Escrow Agent, the Rent may be held in either an interest bearing or non-interest
bearing escrow account. If the Rent is deposited in an interest bearing
account, the interest shall follow the principal. The Rent shall be retained in
escrow pending either (1) a written agreement between Tenant and Owner resolving
their outstanding dispute and which written agreement contains specific
instructions as to the delivery of the Rent or (2) until entry of a final
judgement or order of a court of competent jurisdiction determining the rights
of the parties to the Rent. The failure of Tenant to deposit Rent shall be
deemed a material breach of the Lease agreement, regardless of the reasons for
Tenant's withholding of Rent, including but not limited to actual eviction,
actual partial eviction, constructive eviction or constructive partial eviction.
In the event of such a material breach of the lease agreement, Owner shall be
entitled to either (i) terminate the
5
<PAGE>
Lease agreement pursuant to the provisions of this Lease agreement for defaults
thereunder or (ii) to apply to a court of competent jurisdiction, including the
court wherein a summary proceeding relating to the dispute is pending, for an
order requiring Tenant's deposit of Rent with the Escrow Agent and Tenant shall
be deemed to have consented to such application. Notwithstanding the foregoing,
nothing contained herein shall be deemed to authorize Tenant to wrongfully
withhold Rent or be deemed a waiver of Owner's other rights and remedies against
Tenant for Tenant's defaults under this Lease agreement by failing to pay Rent
to Owner. The purpose of this provision is strictly to secure payment to Owner
of Rent in the event that the Owner is determined to be entitled to such
payment.
47. LATE PAYMENTS.
If Tenant shall fail to pay any installment of rent or additional rent when
first due hereunder (irrespective of any grace period as may be applicable
thereto) and such failure to pay shall continue for more than ten (10) days
after such payment was first due, interest at the rate of twenty four (24%)
percent per annum or the maximum legal rate that then may be charges to parties
of the same legal capacity as Tenant, whichever is lower, shall accrue from and
after the date on which any such sum was first due and payable hereunder, and
such interest shall be deemed to accrue as additional rent hereunder and shall
be paid to Landlord upon demand from time to time, but in any event no later
than the time of payment of the delinquent sum. In addition, if Tenant shall
fail to pay any installment of rent or additional rent when first due hereunder
(irrespective of any grace period as may be applicable thereto) and such failure
to pay shall continue for more than ten (10) days after such payment was first
due, Tenant shall pay to Landlord an amount equal to ten (10%) percent of the
amount then due to cover Landlord's administrative overhead in connection
therewith. A receipted bill for rent or any other charge shall be the only
acceptable proof of when payment was made for the purposes of this Article 47.
The aforesaid late payment charge shall be in addition to any and all remedies
Landlord may have under this Lease or by Law.
48. INTENTIONALLY DELETED.
49. HOLDING OVER.
In the event the within Lease is not renewed or a new Lease is not entered into
between the parties, and if Tenant shall then holdover after the expiration of
the term of this Lease, and if Owner shall then not proceed to remove Tenant
from the premises in the manner permitted by law, the parties hereby agree that
Tenant's occupancy of the Demised Premises after the expiration of the term
shall be under a month-to-month tenancy commencing on the first day after the
expiration of the term, at triple the fixed basic monthly
6
<PAGE>
rental payable at the expiration of the term hereof, payable in advance. And it
is further stipulated and agreed that if Owner shall, at any time after the
expiration of the original term or after the expiration of any term created
thereafter, proceed to remove Tenant from the premises as a holdover, the fixed
basic rental for the use and occupancy of the premises during any holdover
period shall be at the aforesaid rate of triple the fixed basic monthly rental.
50. CONDITION OF AND TITLE TO DEMISED PREMISES.
Except as hereinafter specifically set forth, Tenant represents that the Demised
Premises, the physical condition thereof and the title thereto, any subsurface
conditions thereof, and the present uses and non-uses thereof, have been
examined by Tenant and that Tenant accepts the same in the condition or state in
which they or any of them now are, without representation or warranty, express
or implied in fact or by law, by Owner and without recourse to Owner, as to the
title thereto, the nature, condition or usability thereof or the use or uses to
which the Demised Premises or any part thereof may be put.
51. PRIVATE SANITATION.
The entire Demised Premises, including the main entrance (in case of a store
lease) is to be kept clean by Tenant, at its sole cost and expense, in a manner
reasonably satisfactory. Tenant shall sweep the sidewalk, curb and clean debris
out of the area in front of the building and remove snow and ice (in case of a
store front lease) at least one time per day, but more often if necessary or
reasonably required. TENANT AGREES THAT IT WILL INDEPENDENTLY CONTRACT FOR THE
REMOVAL OF ALL RUBBISH, REFUSE, GARBAGE AND WASTE FROM THE DEMISED PREMISES.
The removal of such rubbish, refuse, garbage and waste shall be subject to such
reasonable rules and regulations necessary for the proper operation of the
building. Tenant further agrees not to permit the accumulation of any rubbish
or garbage in, on or about any part of the Demised Premises and, further agrees
that garbage and refuse will be put out in legal hours to be collected and
disposed of.
Tenant shall maintain an extermination service contract and comply with all code
regulations, if any, to be kept enforced at Tenant's own cost and expense for
the Demised Premises and shall cause the Demised Premises to be exterminated.
52. REAL ESTATE BROKERAGE.
Tenant and Owner each represents to the other that in the negotiation of this
Lease they have dealt with no brokers, finders or persons acting as such.
Tenant and Owner each agrees to indemnify the other and hold it harmless of and
from any and all losses, costs, damages and expenses which may be sustained by
such
7
<PAGE>
other party as a result of any inaccuracy or alleged inaccuracy of the above
representations, including, without limitation, reasonable attorneys' fees and
Court Costs.
53. UTILITIES AND ELECTRICITY.
Tenant shall make its own arrangements with the public utility company or
companies servicing the Demised Premises for the furnishing of and payment of
all charges for all such utilities and services, including, without limitation,
electricity, garbage removal, water and sewer and cleaning. In no event shall
Landlord be responsible for charges for any such utility services.
Tenant's consumption of electricity and water shall be measured for all purposes
by separate meters, as presently installed. Tenant will transfer such meters to
his own name within seven (7) days of the date of this lease. Tenant shall keep
said meters and installation equipment in good working order and repair at
Tenant's own cost and expense. Tenant shall pay for the electricity consumed on
the Demised Premises and shall pay the cost to maintain such meters and
equipment. If Tenant shall fail to perform such maintenance or make such
payment Landlord may perform such maintenance or pay such charges and collect
the same from Tenant as additional rent payable with the next installment of
rent due hereunder.
IF THE DEMISED PREMISES DOES NOT HAVE AN ELECTRIC METER OR A WATER METER,
LANDLORD WILL BILL TENANT MONTHLY. THE AMOUNT OF BILL WILL BE CONSIDERED FOR
ALL PURPOSES OF THIS LEASE AS PART OF BASE RENT AND MUST BE PAID TOGETHER WITH
THE BASE RENT.
Landlord makes no representation as to the availability of gas for use in the
Demised Premises. At Tenant's option, but at Tenant's own cost and expense,
Tenant may make application for gas service. If such gas service is approved,
and gas is used in the Demised Premises, Tenant covenants to install the
appropriate gas cutoff devices (manual and automatic) and meters at Tenant's own
cost and expense.
54-56. INTENTIONALLY DELETED.
57. REMEDIES CUMULATIVE.
All of the remedies hereinbefore given to Owner, and all rights and remedies
given to it by law and equity shall be cumulative and concurrent. No
termination of this Lease or the taking or recovering of the premises shall
deprive Owner of any of its remedies or actions against the Tenant for rent due
at the time or which, under the terms hereof, would in the future become due as
if there had been no termination, and for any and all other sums due at the time
or which, under the terms hereof would in the future become due as if there had
been no termination, nor shall the bringing of any action for rent or for breach
or covenant or the
8
<PAGE>
resort to any other remedy herein provided for the recovery of rent be construed
as a waiver of the right to obtain possession of the premises.
58. PARTIAL INVALIDITY.
If any term, covenant or condition of this Lease or the application thereof to
any person or circumstance shall, to any extent, be invalid or unenforceable,
the remainder of this Lease, or the application of such term, covenant or
condition to persons or circumstances other than those as to which it is held
invalid or unenforceable, shall not be affected thereby and each term, covenant
or condition of this Lease shall be valid and be enforced to the fullest extent
permitted by law.
59. LEASE NOT EFFECTIVE UNTIL FULL EXECUTION AND DELIVERY.
THIS LEASE SHALL NOT BECOME EFFECTIVE UNLESS AND UNTIL SECURITY DEPOSIT AND
FIRST MONTH OF RENT HAS BEEN PAID, CHECKS HAVE BEEN CLEARED, MONIES HAVE BEEN
CREDITED IN LANDLORDS ACCOUNT AND THE LEASE HAS BEEN EXECUTED BY OWNER.
60. REFERENCE TO OWNER/LANDLORD.
Whenever in this Lease a reference is made to Landlord such reference shall be
deemed to mean "Owner" and vice versa.
61. Tenant will not assign the present lease, without prior written consent
from the landlord, such consent shall not be unreasonably withheld, as per
clause number eleven (11) of the present lease.
PARTIAL OR TOTAL SUBLEASING OF THE PREMISES BY THE TENANT IS PROHIBITED.
62. LANDLORD'S CONSENT.
In no event shall Tenant be entitled to make, nor shall Tenant make any claim,
and Tenant hereby waives any claim, for money damages [nor shall Tenant claim
any money damages by way of set-off, counterclaim or defense) based upon any
claim or assertion by Tenant that Landlord has unreasonably withheld or
unreasonably delayed its consent or approval to a proposed assignment or
subletting. Tenant's sole remedy shall be an action or proceeding to enforce any
such provision, or for specific performance, injunction or declaratory
judgement.
63. INTENTIONALLY DELETED.
64. SECURITY DEPOSIT.
(a) The Security Deposit set forth in Article 32 of this Lease shall be held by
Landlord, without liability for interest thereon,
9
<PAGE>
as security for the full and faithful performance by Tenant of each and every
term, covenant and condition of this Lease on the part of Tenant to be observed
and performed. In the event that Landlord applies or retains any portion or all
of such Security Deposit, Tenant shall forthwith restore the amount so applied
or retained so that, at all times, the amount so deposited shall be the then
Security Deposit. The Security Deposit shall not be mortgages, assigned,
transferred or encumbered by Tenant without prior consent of Landlord in each
instance and any such act on the part of Tenant shall be without force and
effect and shall not be binding upon Landlord. Landlord shall have the right to
commingle the Security Deposit with its other funds.
(b) At such time as the annual rental shall be increased pursuant to Paragraph
41 hereof, Tenant shall deposit with Landlord on the first day of the month in
which such increase rent shall be due an amount sufficient to bring the total
security deposit held by the Landlord up to an amount equal to ONE (1) MONTHS of
the then current annual rental.
(c) In the event that any payment of rent or additional rent is received more
than ten (10) days late (TIME BEING OF THE ESSENCE WITH REGARD TO SAID DATES)
three (3) or more times in any twelve (12) month period during the term of the
Lease, Tenant shall, upon demand, deposit a sum of money with Landlord equal to
an additional two (2) times the fixed monthly rental due under Article 41 during
the lease year in which the third late payment occurred. Said sum shall be held
by Landlord as security pursuant to and in accordance with the provisions of
Article 64 hereof. No interest shall be earned on the security.
10
<PAGE>
65. RECORDING.
This Lease agreement or a memorandum or short form thereof shall not be filed or
recorded for public record by any party hereto.
66. SIGNS.
Subject to the prior written approval of the Owner, which shall not be
unreasonably withheld and to the further provisions of this paragraph, Tenant
shall have the right to install and maintain, at its own cost and expense, signs
on the exterior of the Building. Tenant shall obtain, at its expense, all
required permits, which shall be obtained prior to installation and any renewals
thereof. Tenant shall, at its expense, comply with all of the laws, orders,
rules and regulations of the governmental authorities having jurisdiction
thereof, including zoning laws, building codes and as required, rules,
regulations and requirements of insurance underwriters and shall maintain and
repair such signs.
In the event Landlord or Landlord's representative shall deem it necessary to
remove any such sign or signs in order to paint or to make any other repairs,
alterations or improvements in or upon said premises, or the building wherein
same is situated, or any part thereof, the Landlord shall have the right to do
so, provided the same be removed and replaced at the Landlord's expense,
whenever the said repairs, alterations or improvements shall have been
completed.
67. UNUSUAL ODORS OR NOISE.
Tenant shall not permit any unusual odors or noise to emanate from the Demised
Premises. Tenant will, within ten (10) days after written notice from Landlord
install at its own cost and expense, reasonable control devices or procedures to
eliminate such odors or noise, if any. In the event such condition is not
remedied within said ten (10) days period, Landlord may at its discretion,
either (a) cure such condition and thereafter add the cost and expense incurred
by Landlord therefore to the next monthly rental to become due and Tenant shall
pay said amount as additional rent; or (b) treat such failure on the part of
Tenant to eliminate such unusual odors or noise as a material default hereunder
entitling Landlord to any and all of its remedies pursuant to the terms of this
Lease. Landlord shall have the right to enter the Demised Premises at any time
to inspect the same and ascertain whether they are clean and free of odors or
noise.
68. CONDUCT OF TENANT'S BUSINESS (IN CASE OF FOOD-STORE).
Tenant covenants to:
1) Keep and maintain all exhaust ducts and filters in clean condition.
11
<PAGE>
2) Place and store Tenant's garbage and refuse in containers which shall be
kept until collected in a self-contained area within the Demised Premises set
aside for the storage of garbage and refuse.
3) Install within or without the Demised Premises as may be required by
governmental codes, a grease trap of a pattern and make approved in writing by
Landlord (which approval shall not be unreasonably withheld or delayed) and to
keep and maintain the same in clean and sanitary condition and in good working
order and repair. Tenant agrees to install and maintain chemical extinguishing
devices.
69. KEYS.
Tenant shall provide Owner at all times with duplicate keys which allow access
to the Demised Premises. In the event that Tenant fails to provide such keys,
Owner shall be permitted to have the locks on the Demised Premises changed or
altered such as to allow immediate access to the Demised Premises. Such actions
shall be taken at the expense of Tenant and be billed to Tenant as additional
rent subsequent thereto.
Tenant acknowledges that Owner must have such immediate access since the Demised
Premises includes the boiler, meters and other items of equipment which service
the building.
70. PERMITS, LICENSES, ETC.
Tenant shall, at its own cost and expense, obtain any and all permits, licenses
and/or certificates of whatsoever kind or nature, from any and all authorities
having jurisdiction over the Demised Premises, necessary or required for the
occupation and use of the Demised Premises as provided for in this Lease.
71. FEES AND EXPENSES.
Whenever any default, request, action, or inaction by Tenant causes Landlord to
engage an attorney and/or incur any other expense, Tenant agrees that it shall
pay such reasonable attorney's fee or expense, as additional rent, within ten
(10) days after being billed therefore by Landlord, as per clause nineteen (19)
of this lease.
72. LEASE CANCELLATION BY OWNER.
The Owner reserves the right and retains the option to cancel and terminate this
Lease Agreement at any time after May 31, 1998 in the event that Owner intends
to demolish, construct upon, build on, alter or renovate the land or building in
which the Demised Premises form a part. The reservation of right and option
retained hereunder by the Owner shall be made or exercised by giving ninety
12
<PAGE>
(90) days notice in writing, to the Tenant of the Owner's intention to terminate
and cancel this Lease Agreement, and in such event this Lease shall thereupon
terminate and cease and be at an end as though that were the date herein
definitely fixed for the expiration of the term, and the Tenant shall then quit
and surrender the premises, and the Owner shall then be entitled to the recovery
of possession of the premises; or the Owner may re-enter and take possession of
the premises either by force or otherwise without being liable to prosecution or
damages, and have and enjoy the premises.
73. CONDITIONAL LIMITATION UPON FAILURE TO PAY RENT OR ADDITIONAL RENT.
IF TENANT DEFAULTS IN FULFILLING ANY OF THE COVENANTS FOR THE PAYMENT OF RENT OR
ADDITIONAL RENT, THEN, UPON OWNER SERVING A WRITTEN FIVE (5) DAY,S NOTICE UPON
TENANT SPECIFYING THE NATURE OF SAID DEFAULT AND UPON THE EXPIRATION OF SAID
FIVE (5) DAYS, IF TENANT SHALL HAVE FAILED TO COMPLY WITH OR REMEDY SUCH
DEFAULT, THEN OWNER MAY SERVE A WRITTEN THREE (3) DAYS NOTICE OF CANCELLATION OF
THIS LEASE UPON TENANT, AND UPON THE EXPIRATION OF SAID THREE (3) DAYS, THIS
LEASE AND THE TERM THEREUNDER SHALL END AND EXPIRE AS FULLY AND COMPLETELY AS IF
THE EXPIRATION OF SUCH THREE (3) DAY PERIOD WERE THE DAY HEREIN DEFINITELY FIXED
FOR THE END AND EXPIRATION OF THIS LEASE AND THE TERM THEREOF AND TENANT SHALL
THEN QUIT AND SURRENDER THE DEMISED PREMISES TO OWNER BUT TENANT SHALL REMAIN
LIABLE AS HEREINAFTER PROVIDED. THE PARTIES INTEND THAT THE FAILURE TO PAY RENT
OR ADDITIONAL RENT SHALL BE CONSTRUED AS A CONDITIONAL LIMITATION.
13
<PAGE>
In the City of New York on March 17, 1997.
PALOBUENO N.V. LTD., Landlord
FALCON PROPERTIES, INC.
AS MANAGING AGENT
- -----------------------------------
CARLOS A. SILBERMAN, CEO
- -----------------------------------
PACIFIC TRIM & BELT, INC.
HAROLD DYNE
TENANT
14
<PAGE>
RIDER TO AGREEMENT OF LEASE DATED AS OF MARCH 17, 1997 BETWEEN PALOBUENO N.Y.
LTD. as OWNER and PACIFIC TRIM & BELT. INC. (HAROLD DYNE, PRESIDENT) as TENANT
COVERING PREMISES 262 W. 38TH. STREET ROOM #704 NEW YORK. NEW YORK. 10018.
RELEASE UPON VACANT SURRENDER. The Principals, as defined below, who have
executed this Lease, covenant, promise and guarantee, jointly and severally,
that Principals shall be liable for and pay Base Annual and Additional Rent
under this Lease during the period of Tenant's actual occupancy hereunder. This
is an absolute and unconditional guaranty of payment and shall include the costs
of enforcement of this guaranty, including reasonable attorneys fees. The
obligation of Principals shall cease, be it at or prior to the expiration or
termination of this Lease, upon:
a) Tenant's actual vacancy and surrender of the demised premises broom clean;
b) The delivery to Owner of all keys, alarm access codes, etc. for said
premises;
c) The personal delivery to Owner of a letter executed by Principals and
Tenant stating that the demised premises are surrendered and vacant and free of
all tenancies or claims of right therein; and
d) The full payment of all Base Annual Rent and Additional Rent due to date of
compliance with a, b and c above.
Notwithstanding such vacancy and surrender, Tenant shall continue to be liable
under the terms of this Lease for breach hereof and no acceptance by Owner of
any surrender or vacancy under this paragraph shall be deemed to modify,
release, satisfy or otherwise relieve Tenant of any liability whatsoever
hereunder.
The principal guaranteeing hereunder is Harold Dyne.
(the "Principal"), residing and having birth date and social security numbers as
follows:
Residing at: 20523 Clark Street, Woodland Hills, CA 91367
Born: October 30, 1931
With SS#: ###-##-####
In the City of New York, on March 17, 1997.
- ---------------------------------
HAROLD DYNE
GUARANTOR
15
<PAGE>
PROMISSORY NOTE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$100,000.00 06-06-1997 06-08-1998 04 AGD
- -------------------------------------------------------------------------------------------------------------
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
- --------------------------------------------------------------------------------
Borrower: TAG-IT, INC. Lender: MERCANTILE NATIONAL BANK
3820 S. HILL STREET BUSINESS BANKING
LOS ANGELES, CA 90037 1840 CENTURY PARK EAST
LOS ANGELES, CA 90067
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Principal Amount: $100,000.00 Initial Rate: 12.000% Date of Note: June 6, 1997
PROMISE TO PAY. TAG-IT, INC. ("BORROWER") PROMISES TO PAY TO MERCANTILE NATIONAL
BANK ("LENDER"), OR ORDER, IN LAWFUL MONEY OF THE UNITED SLATES OF AMERICA, THE
PRINCIPAL AMOUNT OF ONE HUNDRED THOUSAND & 00/100 DOLLARS ($100,000.00),
TOGETHER WITH INTEREST ON THE UNPAID PRINCIPAL BALANCE FROM JUNE 6, 1997, UNTIL
PAID IN FULL.
PAYMENT. SUBJECT TO ANY PAYMENT CHANGES RESULTING FROM CHANGES IN THE INDEX,
BORROWER WILL PAY THIS LOAN ON DEMAND, OR IF NO DEMAND IS MADE, IN 11 REGULAR
PAYMENTS OF $8,899.41 EACH AND ONE IRREGULAR LAST PAYMENT ESTIMATED AT
$8,899.49. BORROWER'S FIRST PAYMENT IS DUE JULY 8, 1997, AND ALL SUBSEQUENT
PAYMENTS ARE DUE ON THE SAME DAY OF EACH MONTH AFTER THAT. BORROWER'S FINAL
PAYMENT DUE JUNE 8, 1998, WILL BE FOR ALL PRINCIPAL AND ALL ACCRUED INTEREST NOT
YET PAID. PAYMENTS INCLUDE PRINCIPAL AND INTEREST. Interest on this Note is
computed on a 365/360 simple interest basis; that is, by applying the ratio of
the annual interest rate over a year of 360 days, multiplied by the outstanding
principal balance, multiplied by the actual number of days the principal balance
is outstanding. Borrower will pay Lender at Lender's address shown above or at
such other place as Lender may designate in writing. Unless otherwise agreed or
required by applicable law, payments will be applied first to any unpaid
collection costs and any late charges, then to any unpaid interest, and any
remaining amount to principal.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from
time to time based on changes in an independent index which is the WALL STREET
JOURNAL PRIME RATE (the "Index"). The index is not necessarily the lowest rate
charged by Lender on its loans. If the Index becomes unavailable during the
term of this loan, Lender may designate a substitute index after notice to
Borrower. Lender will tell Borrower the current index rate upon Borrower's
request. Borrower understands that Lender may make loans based on other rates
as well. The interest rate change will not occur more often than each DAY. THE
INDEX CURRENTLY IS 8.500% PER ANNUM. THE INTEREST RATE TO BE APPLIED TO THE
UNPAID PRINCIPAL BALANCE OF THIS NOTE WILL BE AT A RATE OF 3.500 PERCENTAGE
POINTS OVER THE INDEX, RESULTING IN AN INITIAL RATE OF 12.000% PER ANNUM.
NOTICE: Under no circumstances will the Interest rate on this Note be more than
the maximum rate allowed by applicable law. Whenever increases occur in the
Interest rate, Lender, at its option, may do one or more of the following: (a)
Increase Borrower's payments to ensure Borrower's loan will pay off by its
original final maturity date, (b) Increase Borrower's payments to cover accruing
Interest, (c) increase the number of Borrower's payments, and (d) continue
Borrower's payments at the same amount and increase Borrower's final payment.
PREPAYMENT; MINIMUM INTEREST CHARGE. Borrower agrees that all loan fees and
other prepaid finance charges are earned fully as of the date of the loan and
will not be subject to refund upon early payment (whether voluntary or as a
result of default), except as otherwise required by law. In any event, even
upon full prepayment of Its Note, Borrower understands that Lender is entitled
to A MINIMUM INTEREST CHARGE OF $250.00. Other than Borrower's obligation to
pay any minimum interest charge, Borrower may pay without penalty all or a
portion of the amount owed earlier than it is due. Early payments will not,
unless agreed to by Lender in writing, relieve Borrower of Borrower's obligation
to continue to make payments under the payment schedule. Rather they will
reduce the principal balance due and may result in Borrower making fewer
payments.
LATE CHARGE. If a payment is 10 DAYS OR MORE LATE, Borrower will be charged
5.000% OF THE UNPAID PORTION OF THE REGULARLY SCHEDULED PAYMENT OR $25.00,
WHICHEVER IS GREATER.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower falls to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this Note or
any agreement related to this Note, or in any other agreement or loan Borrower
has with Lender. (c) Any representation or statement made or furnished to Lender
by Borrower or on Borrower's behalf is false or misleading in any material
respect either now or at the time made or furnished. (d) Borrower becomes
insolvent, a receiver is appointed for any part of Borrower's property, Borrower
makes an assignment for the benefit of creditors, or any proceeding is commenced
either by Borrower or against Borrower under any bankruptcy or insolvency laws.
(e) Any creditor tries to take any of Borrower's property on or in which Lender
has a lien or security interest. This includes a garnishment of any of
Borrower's accounts with Lender. (f) Any guarantor dies or any of the other
events described in this default section occurs with respect to any guarantor of
this Note. (g) A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired.
If any default, other than a default in payment, is curable and if Borrower has
not been given a notice of a breach of the same provision of this Note within
the preceding twelve (12) months, it may be cured (and no event of default will
have occurred). If Borrower, after receiving written notice from Lender
demanding cure of such default; (a) cures the default within ten (10) days; or
(b) if the cure requires more than ten (10) days, immediately initiates steps
which Lender deems in Lender's sole discretion to be sufficient to cure the
default and thereafter continues and completes all reasonable and necessary
steps sufficient to produce compliance as soon as reasonably practical.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon Borrower's failure to pay
all amounts declared due pursuant to this section, including failure to pay upon
final maturity, Lender, at its option, may also, if permitted under applicable
law, do one or both of the following: (a) increase the variable interest rate
on this Note to 8.500 percentage points over the Index, and (b) add any unpaid
accrued interest to principal and such sum will bear interest therefrom until
paid at the rate provided in this Note (including any increased rate). Lender
may hire or pay someone else to help collect this Note if Borrower does not pay.
Borrower also will pay Lender that amount. This includes, subject to any limits
under applicable law, Lender's attorneys' fees and Lender's legal expenses
whether or not there is a lawsuit, including attorneys' fees and legal expenses
for bankruptcy proceedings (including efforts to modify or vacate any automatic
stay or injunction), appeals, and any anticipated post-judgment collection
services. Borrower also will pay any court costs, in addition to all other sums
provided by law. THIS NOTE HAS BEEN DELIVERED TO LENDER AND ACCEPTED BY LENDER
IN THE STATE OF CALIFORNIA. IF THERE IS A LAWSUIT, BORROWER AGREES UPON
LENDER'S REQUEST TO SUBMIT TO THE JURISDICTION OF THE COURTS OF LOS ANGELES
COUNTY, THE STATE OF CALIFORNIA. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $10.00 if Borrower
makes a payment on Borrower's loan and the check or preauthorized charge with
which Borrower pays is later dishonored.
<PAGE>
GENERAL PROVISIONS. This Note is payable on demand. The Inclusion of specific
default provisions or rights of Lender shall not preclude Lender's right to
declare payment of this Note on its demand. Lender may delay or forgo enforcing
any of its rights or remedies under this Note without losing them. Borrower and
any other person who signs, guarantees or endorses this Note, to the extent
allowed by law, waive any applicable statute of limitations, presentment, demand
for payment, protest and notice of dishonor. Upon any change in the terms of
this Note, and unless otherwise expressly stated in writing, no party who signs
this Note, whether as maker, guarantor, accommodation maker or endorser, shall
be released from liability. All such parties agree that Lender may renew or
extend (repeatedly and for any length of time) this loan, or release any party
or guarantor or collateral; or impair, fail to realize upon or perfect Lender's
security interest in the collateral; and take any other action deemed necessary
by Lender without the consent of or notice to anyone. All such parties also
agree that Lender may modify this loan without the consent of or notice to
anyone other than the party with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISION OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:
TAG-IT, INC.
By: /s/ Colin Dyne By: /s/ Harold Dyne
------------------------------- -------------------------------
COLIN S. DYNE, PRESIDENT HAROLD DYNE, SECRETARY
<PAGE>
COMMERCIAL GUARANTY
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
- --------------------------------------------------------------------------------
Borrower: TAG-IT, INC. Lender: MERCANTILE NATIONAL BANK
3820 S. HILL STREET BUSINESS BANKING
LOS ANGELES, CA 90037 1840 CENTURY PARK EAST
LOS ANGELES, CA 90067
Guarantor: COLIN S. DYNE
24800 EARLS COURT
CALABASAS, CA 91302
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AMOUNT OF GUARANTY. This is a guaranty of payment of the Note, including
without limitation the principal Note amount of One Hundred Thousand & 00/100
Dollars (($100,000.00).
GUARANTY. FOR GOOD AND VALUABLE CONSIDERATION, COLIN S. DYNE ("GUARANTOR")
ABSOLUTELY AND UNCONDITIONALLY GUARANTEES AND PROMISES TO PAY TO MERCANTILE
NATIONAL BANK ("LENDER") OR ITS ORDER, ON DEMAND, IN LEGAL LENDER OF THE UNITED
STATES OF AMERICA, THE INDEBTEDNESS (AS THAT TERM IS DEFINED BELOW) OF TAG-IT,
INC. ("BORROWER") TO LENDER ON THE TERMS AND CONDITIONS SET FORTH IN THIS
GUARANTY.
DEFINITIONS. The following words shall have the following meanings when used in
this Guaranty:
BORROWER. The word "Borrower" means TAG-IT, INC.
GUARANTOR. The word "Guarantor" means COLIN S. DYNE.
GUARANTY. The word "Guaranty" means this Guaranty made by Guarantor for
the benefit of Lender dated June 6, 1997.
INDEBTEDNESS. The word "Indebtedness" means the Note, including (a) all
principal, (b) all interest, (c) all late charges, (d) all loan fees and
loan charges, and (e) all collection costs and expenses relating to the
Note or to any collateral for the Note. Collection costs and expenses
include without limitation all of Lender's attorneys' fees and Lender's
legal expenses, whether or not suit is instituted, and attorneys' fees and
legal expenses for bankruptcy proceedings (including efforts to modify or
vacate any automatic stay or injunction), appeals, and any anticipated
post-judgment collection services.
LENDER. The word "lender" means MERCANTILE NATIONAL BANK, its successors
and assigns.
NOTE. The word "Note" means the promissory note or credit agreement dated
June 6, 1997, IN THE ORIGINAL PRINCIPAL AMOUNT OF $100,000.00 from Borrower
to Lender, together with all renewals of, extensions of, modifications of,
refinancings of, consolidations of, and substitutions for the promissory
note or agreement.
RELATED DOCUMENTS. The words "Related Documents" mean and Include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Indebtedness.
MAXIMUM LIABILITY. THE MAXIMUM LIABILITY OF GUARANTOR UNDER THIS GUARANTY SHALL
NOT EXCEED AT ANY ONE TIME THE AMOUNT OF THE INDEBTEDNESS DESCRIBED ABOVE, PLUS
ALL COSTS AND EXPENSES OF (A) ENFORCEMENT OF THIS GUARANTY AND (B) COLLECTION
AND SALE OF ANY COLLATERAL SECURING THIS GUARANTY.
The above limitation on liability is not a restriction on the amount of the
indebtedness of Borrower to Lender either in the aggregate or at any one time.
If Lender presently holds one or more guaranties, or hereafter receives
additional guaranties, the rights of Lender under all guaranties shall be
cumulative. This Guaranty shall not (unless specifically provided below to the
contrary) affect or invalidate any such other guaranties. The liability of
Guarantor will be the aggregate liability of Guarantor under the terms of this
Guaranty and any such other unterminated guaranties.
NATURE OF GUARANTY. Guarantor intends to guarantee at all times the performance
and prompt payment when due, whether at maturity or earlier by reason of
acceleration or otherwise, of all indebtedness within the limits set forth in
the preceding section of this Guaranty. Any married person who signs this
Guaranty hereby expressly agrees that recourse may be had against both his or
her separate property and community property.
DURATION OF GUARANTY. This Guaranty will take effect when received by Lender
without the necessity of any acceptance by Lender, or any notice to Guarantor or
to Borrower, and will continue in full force until all indebtedness shall have
been fully and finally paid and satisfied and all other obligations of Guarantor
under this Guaranty shall have been performed in full. Release of any other
guarantor or termination of any other guaranty of the Indebtedness shall not
affect the liability of Guarantor under this Guaranty. A revocation received by
Lender from any one or more Guarantors shall not affect the liability of any
remaining Guarantors under this Guaranty.
GUARANTOR'S AUTHORIZATION TO LENDER. Guarantor authorizes Lender, WITHOUT
NOTICE OR DEMAND AND WITHOUT LESSENING GUARANTOR'S LIABILITY UNDER THIS
GUARANTY, FROM TIME TO TIME: (A) TO MAKE ONE OR MORE ADDITIONAL SECURED OR
UNSECURED LOANS TO BORROWER, TO LEASE EQUIPMENT OR OTHER GOODS TO BORROWER, OR
OTHERWISE TO EXTEND ADDITIONAL CREDIT TO BORROWER; (B) TO ALTER, COMPROMISE,
RENEW, EXTEND, ACCELERATE, OR OTHERWISE CHANGE ONE OR MORE TIMES THE TIME FOR
PAYMENT OR OTHER TERMS OF THE INDEBTEDNESS OR ANY PART OF THE INDEBTEDNESS,
INCLUDING INCREASES AND DECREASES OF THE RATE OF INTEREST ON THE INDEBTEDNESS;
EXTENSIONS MAY BE REPEATED AND MAY BE FOR LONGER THAN THE ORIGINAL LOAN TERM;
(C) TO TAKE AND HOLD SECURITY FOR THE PAYMENT OF THIS GUARANTY OR THE
INDEBTEDNESS, AND EXCHANGE, ENFORCE, WAIVE, SUBORDINATE, FAIL OR DECIDE NOT TO
PERFECT, AND RELEASE ANY SUCH SECURITY, WITH OR WITHOUT THE SUBSTITUTION OF NEW
COLLATERAL; (D) TO RELEASE, SUBSTITUTE, AGREE NOT TO SUE, OR DEAL WITH ANY ONE
OR MORE OF BORROWER'S SURETIES, ENDORSERS, OR OTHER GUARANTORS ON ANY TERMS OR
IN ANY MANNER LENDER MAY CHOOSE; (E) TO DETERMINE HOW, WHEN AND WHAT APPLICATION
OF PAYMENTS AND CREDITS SHALL BE MADE ON THE INDEBTEDNESS; (F) TO APPLY SUCH
SECURITY
<PAGE>
AND DIRECT THE ORDER OR MANNER OF SALE THEREOF, INCLUDING WITHOUT LIMITATION,
ANY NONJUDICIAL SALE PERMITTED BY THE TERMS OF THE CONTROLLING SECURITY
AGREEMENT OR DEED OF TRUST, AS LENDER IN ITS DISCRETION MAY DETERMINE; (G) TO
SELL, TRANSFER, ASSIGN, OR GRANT PARTICIPATIONS IN ALL OR ANY PART OF THE
INDEBTEDNESS; AND (H) TO ASSIGN OR TRANSFER THIS GUARANTY IN WHOLE OR IN PART.
GUARANTOR'S REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants
to Lender that (a) no representations or agreements of any kind have been made
to Guarantor which would limit or qualify in any way the terms of this Guaranty;
(b) this Guaranty is executed at Borrower's request and not at the request of
Lender; (c) Guarantor has full power, right and authority to enter into this
Guaranty; (d) the provisions of this Guaranty do not conflict with or result in
a default under any agreement or other instrument binding upon Guarantor and do
not result in a violation of any law, regulation, court decree or order
applicable to Guarantor; (e) Guarantor has not and will not, without the prior
written consent of Lender, sell, lease, assign, encumber, hypothecate, transfer,
or otherwise dispose of all or substantially all of Guarantor's assets, or any
interest therein; (f) upon Lender's request, Guarantor will provide to Lender
financial and credit information in form acceptable to Lender, and all such
financial information which currently has been, and all future financial
information which will be provided to Lender is and will be true and correct in
all material respects and fairly present the financial condition of Guarantor as
of the dates the financial information is provided; (g) no material adverse
change has occurred in Guarantor's financial condition since the date of the
most recent financial statements provided to Lender and no event has occurred
which may materially adversely affect Guarantor's financial condition; (h) no
litigation, claim, investigation, administrative proceeding or similar action
(including those for unpaid taxes) against Guarantor is pending or threatened;
(i) Lender has made no representation to Guarantor as to the creditworthiness of
Borrower; and (J) Guarantor has established adequate means of obtaining from
Borrower on a continuing basis information regarding Borrower's financial
condition. Guarantor agrees to keep adequately informed from such means of any
facts, events, or circumstances which might in any way affect Guarantor's risks
under this Guaranty, and Guarantor further agrees that, absent a request for
information, Lender shall have no obligation to disclose to Guarantor any
information or documents acquired by Lender in the course of its relationship
with Borrower.
COLLATERAL. Guarantor acknowledges that this Guaranty is secured by a Deed of
Trust on real properly located in LOS ANGELES County, State of California. That
agreement contains the following due on sale provision: Lender may, at its
option, declare immediately due and payable all sums secured by this Deed of
Trust upon the sale or transfer, without !he Lender's prior written consent, of
all or any part of the Real Property, or any interest in the Real Properly. A
"sale or transfer" means the conveyance of real properly or any right, title or
interest therein; whether legal or equitable; whether voluntary or involuntary;
whether by outright sale, deed, installment sale contract, land contract,
contract lot deed, leasehold interest with a term greater than three years, or
lease-option contract, or by sale, assignment, or transfer of any beneficial
interest in or to any land trust holding title to the Real Property, or by any
other method of conveyance of real property interest. If any Trustor is a
corporation, transfer also includes any change in ownership of more than 25% of
the voting stock of Trustor. However, this option shall not be exercised by
Lender if exercise is prohibited by federal law or by California law.
GUARANTOR'S WAIVERS. Except as prohibited by applicable law, Guarantor waives
any right to require Lender to (a) make any presentment, protest, demand, or
notice of any kind, including notice of change of any terms of repayment of the
Indebtedness, default by Borrower or any other guarantor or surety, any action
or nonaction taken by Borrower, Lender, or any other guarantor or surety of
Borrower, or the creation of new or additional indebtedness; (b) proceed against
any person, including Borrower, before proceeding against Guarantor; (c) proceed
against any collateral for the indebtedness, including Borrower's collateral,
before proceeding against Guarantor; (d) apply any payments or proceeds received
against the indebtedness in any order; (e) give notice of the terms, time, and
place of any sale of the collateral pursuant to the Uniform Commercial Code or
any other law governing such sale; (f) disclose any information about the
indebtedness, the Borrower, the collateral, or any other guarantor or surety, or
about any action or nonaction of Lender; or (g) pursue any remedy or course of
action in Lender's power whatsoever.
Guarantor also waives any and all rights or defenses arising by reason of (h)
any disability or other defense of Borrower, any other guarantor or surety or
any other person; (I) the cessation from any cause whatsoever, other than
payment in full, of the indebtedness; (j) the application of proceeds of the
indebtedness by Borrower for purposes other than the purposes understood and
intended by Guarantor and Lender; (k) any act of omission or commission by
Lender which directly or indirectly results in or contributes to the discharge
of Borrower or any other guarantor or surety, or the indebtedness, or the loss
or release of any collateral by operation of law or otherwise; (l) any statute
of limitations in any action under this Guaranty or on the indebtedness; or (m)
any modification or change in terms of the indebtedness, whatsoever, including
without limitation, the renewal, extension, acceleration, or other change in the
time payment of the indebtedness is due and any change in the interest rate.
Guarantor waives all rights and any defenses arising out of an election of
remedies by Lender even though that election of remedies, such as a nonjudicial
foreclosure with respect to security for a guaranteed obligation, has destroyed
Guarantor's rights of subrogation and reimbursement against Borrower by
operation of Section 580d of the California Code of Civil Procedure or
otherwise.
Guarantor waives all rights and defenses that Guarantor may have because
Borrower's obligation is secured by real property. This means among other
things: (1) Lender may collect from Guarantor without first foreclosing on any
real or personal property collateral pledged by Borrower. (2) If Lender
forecloses on any real property collateral pledged by Borrower: (A) The amount
of Borrower's obligation may be reduced only by the price for which the
collateral is sold at the foreclosure sale, even if the collateral is worth more
than the sale price. (B) Lender may collect from Guarantor even if Lender, by
foreclosing on the real property collateral, has destroyed any right Guarantor
may have to collect from Borrower. This is an unconditional waiver of any rights
and defenses Guarantor may have because Borrower's obligation is secured by real
property. These rights and defenses include, but are not limited to, any rights
and defenses based upon Section 580a, 580b, 580d, or 726 of the Code of Civil
Procedure.
Guarantor understands and agrees that the foregoing waivers are waivers of
substantive rights and defenses to which Guarantor might otherwise be entitled
under slate and federal law. The rights and defenses waived include, without
limitation, those provided by California laws of suretyship and guaranty,
anti-deficiency laws, and the Uniform Commercial Code. Guarantor acknowledges
that Guarantor has provided these waivers of rights and defenses with the
intention that they be fully relied upon by Lender. Until all indebtedness is
paid in full, Guarantor waives any right to enforce any remedy Lender may have
against Borrower or any other guarantor, surety, or other person, and further,
Guarantor waives any right to participate in any collateral for the indebtedness
now or hereafter held by Lender.
If now or hereafter (a) Borrower shall be or become insolvent, and (b) the
indebtedness shall not at all times until paid be fully secured by collateral
pledged by Borrower, Guarantor hereby forever waives and relinquishes in favor
of Lender and Borrower, and their respective successors, any claim or right to
payment Guarantor may now have or hereafter have or acquire against
<PAGE>
Borrower, by subrogation or otherwise, so that at no time shall Guarantor be or
become a "creditor" of Borrower within the meaning of 11 U.S.C. section 547(b),
or any successor provision of the Federal bankruptcy laws.
GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS. Guarantor warrants and
agrees that each of the waivers set forth above is made with Guarantor's full
knowledge of its significance and consequences and that, under the
circumstances, the waivers are reasonable and not contrary to public policy or
law. If any such waiver is determined to be contrary to any applicable law or
public policy, such waiver shall be effective only to the extent permitted by
law or public policy.
SUBORDINATION OF BORROWER'S DEBTS TO GUARANTOR. Guarantor agrees that the
Indebtedness of Borrower to Lender, whether now existing or hereafter created,
shall be prior to any claim that Guarantor may now have or hereafter acquire
against Borrower, whether or not Borrower becomes insolvent. Guarantor hereby
expressly subordinates any claim Guarantor may have against Borrower, upon any
account whatsoever, to any claim that Lender may now or hereafter have against
Borrower. In the event of insolvency and consequent liquidation of the assets of
Borrower, through bankruptcy, by an assignment for the benefit of creditors, by
voluntary liquidation, or otherwise, the assets of Borrower applicable to the
payment of the claims of both Lender and Guarantor shall be paid to Lender and
shall be first applied by Lender to the Indebtedness of Borrower to Lender.
Guarantor does hereby assign to Lender all claims which it may have or acquire
against Borrower or against any assignee or trustee in bankruptcy of Borrower;
provided however, that such assignment shall be effective only for the purpose
of assuring to Lender full payment in legal tender of the Indebtedness. If
Lender so requests, any notes or credit agreements now or hereafter evidencing
any debts or obligations of Borrower to Guarantor shall be marked with a legend
that the same are subject to this Guaranty and shall be delivered to Lender.
Guarantor agrees, and Lender hereby is authorized, in the name of Guarantor,
from time to time to execute and file financing statements and continuation
statements and to execute such other documents and to take such other actions as
Lender deems necessary or appropriate to perfect, preserve and enforce its
rights under this Guaranty.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Guaranty:
INTEGRATION, AMENDMENT. Guarantor warrants, represents and agrees that
this Guaranty, together with any exhibits or schedules incorporated herein,
fully incorporates the agreement and understandings of Guarantor with
Lender with respect to the subject matter hereof and all prior
negotiations, drafts, and other extrinsic communications between Guarantor
and Lender shall have no evidentiary effect whatsoever. Guarantor further
agrees that Guarantor has read and fully understands the terms of this
Guaranty; Guarantor has had the opportunity to be advised by Guarantor's
attorney with respect to this Guaranty; the Guaranty fully reflects
Guarantor's intentions and parol evidence is not required to interpret the
terms of this Guaranty, Guarantor hereby indemnifies and holds Lender
harmless from all losses, claims, damages, and costs (including Lender's
attorneys' fees) suffered or incurred by Lender as a result of any breach
by Guarantor of the warranties, representations and agreements of this
paragraph. No alteration or amendment to this Guaranty shall be effective
unless given in writing and signed by the parties sought to be charged or
bound by the alteration or amendment.
APPLICABLE LAW. This Guaranty has been delivered to Lender and accepted by
Lender in the State of California. If there is a lawsuit, Guarantor agrees
upon Lender's request to submit to the jurisdiction of the courts of LOS
ANGELES County, State of California. This Guaranty shall be governed by and
construed in accordance with the laws of the State of California.
ATTORNEYS' FEES; EXPENSES. Guarantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lender's legal
expenses, incurred in connection with the enforcement of this Guaranty.
Lender may pay someone else to help enforce this Guaranty, and Guarantor
shall pay the costs and expenses of such enforcement. Costs and expenses
include Lender's attorneys' fees and legal expenses whether or not there is
a lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection
services. Guarantor also shall pay all court costs and such additional fees
as may be directed by the court.
NOTICES. All notices required to be given by either party to the other
under this Guaranty shall be in writing, may be sent by telefacsimile, and
shall be effective when actually delivered or when deposited with a
nationally recognized overnight courier, or when deposited in the United
States mail, first class postage prepaid, addressed to the party to whom
the notice is to be given at the address shown above or to such other
addresses as either party may designate to the other in writing. If there
is more than one Guarantor, notice to any Guarantor will constitute notice
to all Guarantors. For notice purposes, Guarantor agrees to keep Lender
informed at all times at Guarantor's current address.
INTERPRETATION. In all cases where there is more than one Borrower or
Guarantor, then all words used in this Guaranty in the singular shall be
deemed to have been used in the plural where the context and construction
so require; and where there is more than one Borrower named in this
Guaranty or when this Guaranty is executed by more than one Guarantor, the
words "Borrower" and "Guarantor'' respectively shall mean all and any one
or more of them. The words "Guarantor," "Borrower," and "Lender" include
the heirs, successors, assigns, and transferees of each of them. Caption
headings in this Guaranty are for convenience purposes only and are not to
be used to interpret or define the provisions of this Guaranty. If a court
of competent jurisdiction finds any provision of this Guaranty to be
invalid or unenforceable as to any person or circumstance, such finding
shall not render that provision invalid or unenforceable as to any other
persons or circumstances, and all provisions of this Guaranty in all other
respects shall remain valid and enforceable. If any one or more of
Borrower or Guarantor are corporations or partnerships, it is not necessary
for Lender to inquire into the powers of Borrower or Guarantor or of the
officers, directors, partners, or agents acting or purporting to act on
their behalf, and any Indebtedness made or created in reliance upon the
professed exercise of such powers shall be guaranteed under this Guaranty.
WAIVER. Lender shall not be deemed to have waived any rights under this
Guaranty unless such waiver is given in writing and signed by Lender. No
delay. or omission on the part of Lender in exercising any right shall
operate as a Waiver of such right or any other right. A waiver by Lender of
a provision of this Guaranty shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Guaranty. No prior waiver by Lender, nor any
course of dealing between Lender and Guarantor, shall constitute a waiver
of any of Lender's rights or at any of Guarantor's obligations as to any
future transactions. Whenever the consent of Lender is required under this
Guaranty, the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in the
sole discretion of Lender.
<PAGE>
EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS
GUARANTY AND AGREES TO ITS TERMS. IN ADDITION, EACH GUARANTOR UNDERSTANDS THAT
THIS GUARANTY IS EFFECTIVE UPON GUARANTOR'S EXECUTION AND DELIVERY OF THIS
GUARANTY TO LENDER AND THAT THE GUARANTY WILL CONTINUE UNTIL TERMINATED IN THE
MANNER SET FORTH IN THE SECTION TITLED "DURATION OF GUARANTY." NO FORMAL
ACCEPTANCE BY LENDER IS NECESSARY TO MAKE THIS GUARANTY EFFECTIVE. THIS
GUARANTY IS DATED JUNE 6, 1997.
GUARANTOR:
/s/ Colin Dyne
- --------------------------------------
Colin S. Dyne
<PAGE>
COMMERCIAL GUARANTY
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
04 AGD
- --------------------------------------------------------------------------------------------------------
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
- --------------------------------------------------------------------------------
Borrower: TAG-IT, INC. Lender: MERCANTILE NATIONAL BANK
3820 S. HILL STREET BUSINESS BANKING
LOS ANGELES, CA 90037 1840 CENTURY PARK EAST
LOS ANGELES, CA 90067
Guarantor: HAROLD DYNE
20253 CLARK AVENUE
WOODLAND HILLS, CA 91367
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AMOUNT OF GUARANTY. THIS IS A GUARANTY OF PAYMENT OF THE NOTE, INCLUDING
WITHOUT LIMITATION THE PRINCIPAL NOTE AMOUNT OF ONE HUNDRED THOUSAND & 00/100
DOLLARS ($100,000.00).
GUARANTY. FOR GOOD AND VALUABLE CONSIDERATION, HAROLD DYNE ("GUARANTOR")
ABSOLUTELY AND UNCONDITIONALLY GUARANTEES AND PROMISES TO PAY TO MERCANTILE
NATIONAL BANK ("LENDER") OR ITS ORDER, ON DEMAND, IN LEGAL TENDER OF THE UNITED
STATES OF AMERICA, THE INDEBTEDNESS (AS THAT TERM IS DEFINED BELOW) OF TAG-IT,
INC. ("BORROWER") TO LENDER ON THE TERMS AND CONDITIONS SET FORTH IN THIS
GUARANTY.
DEFINITIONS. The following words shall have the following meanings when used in
this Guaranty:
BORROWER. The word "Borrower" means TAG-IT, INC.
GUARANTOR. The word "Guarantor" means HAROLD DYNE.
GUARANTY. The word "Guaranty" means this Guaranty made by Guarantor for
the benefit of Lender dated June 6, 1997.
INDEBTEDNESS. The word "Indebtedness" means the Note, including (a) all
principal, (b) all interest, -C- all late charges, (d) all loan fees and
loan charges, and (e) all collection costs and expenses relating to the
Note or to any collateral for the Note. Collection costs and expenses
include without limitation all of Lender's attorneys' fees and Lender's
legal expenses, whether or not suit is instituted, and attorneys' fees and
legal expenses for bankruptcy proceedings (including efforts to modify or
vacate any automatic stay or injunction), appeals, appeals, and any
anticipated post-judgment collection services.
LENDER. The word "Lender" means MERCANTILE NATIONAL BANK, its successors
and assigns.
NOTE. The word "Note" means the promissory note or credit agreement dated
June 6, 1997, IN THE ORIGINAL PRINCIPAL AMOUNT OF $100,000.00 from Borrower
to Lender, together with all renewals of, extensions of, modifications of,
refinancings of, consolidations of, and substitutions for the promissory
note or agreement.
RELATED DOCUMENTS. The words "Related Documents" mean and Include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Indebtedness.
MAXIMUM LIABILITY. THE MAXIMUM LIABILITY OF GUARANTOR UNDER THIS GUARANTY SHALL
NOT EXCEED AT ANY ONE TIME THE AMOUNT OF THE INDEBTEDNESS DESCRIBED ABOVE, PLUS
ALL COSTS AND EXPENSES OF (A) ENFORCEMENT OF THIS GUARANTY AND (B) COLLECTION
AND SALE OF ANY COLLATERAL SECURING THIS GUARANTY.
The above limitation on liability is not a restriction on the amount of the
indebtedness of Borrower to Lender either in the aggregate or at any one time.
If Lender presently holds one or more guaranties, or hereafter receives
additional guaranties from Guarantor, the rights of Lender under all guaranties
shall be cumulative. This Guaranty shall not (unless specifically provided
below to the contrary) affect or invalidate any such other guaranties. The
liability of Guarantor will be the aggregate liability of Guarantor under the
terms of this Guaranty and any such other unterminated guaranties.
NATURE OF GUARANTY. Guarantor intends to guarantee at all times the performance
and prompt payment when due, whether at maturity or earlier by reason of
acceleration or otherwise, of all indebtedness within the limits set forth in
the preceding section of this Guaranty. Any married person who signs this
Guaranty hereby expressly agrees that recourse may be had against both his or
her separate property and community property.
DURATION OF GUARANTY. This Guaranty will take effect when received by Lender
without the necessity of any acceptance by Lender, or any notice to Guarantor or
to Borrower, and will continue in full force until all indebtedness shall have
been fully and finally paid and satisfied and all other obligations of Guarantor
under this Guaranty shall have been performed in full. Release of any other
guarantor or termination of any other guaranty of the Indebtedness shall not
affect the liability of Guarantor under this Guaranty. A revocation received by
Lender from any one or more Guarantors shall not affect the liability of any
remaining Guarantors under this Guaranty.
GUARANTOR'S AUTHORIZATION TO LENDER. Guarantor authorizes Lender, WITHOUT
NOTICE OR DEMAND AND WITHOUT LESSENING GUARANTOR'S LIABILITY UNDER THIS
GUARANTY, FROM TIME TO TIME: (A) TO MAKE ONE OR MORE ADDITIONAL SECURED OR
UNSECURED LOANS TO BORROWER, TO LEASE EQUIPMENT OR OTHER GOODS TO BORROWER, OR
OTHERWISE TO EXTEND ADDITIONAL CREDIT TO BORROWER; (B) TO ALTER, COMPROMISE,
RENEW, EXTEND, ACCELERATE, OR OTHERWISE CHANGE ONE OR MORE TIMES THE TIME FOR
PAYMENT OR OTHER TERMS OF THE INDEBTEDNESS OR ANY PART OF THE INDEBTEDNESS,
INCLUDING INCREASES AND DECREASES OF THE RATE OF INTEREST ON THE INDEBTEDNESS;
EXTENSIONS MAY BE REPEATED AND MAY BE FOR LONGER THAN THE ORIGINAL LOAN TERM;
- -C- TO TAKE AND HOLD SECURITY FOR THE PAYMENT OF THIS GUARANTY OR THE
INDEBTEDNESS, AND EXCHANGE, ENFORCE, WAIVE, SUBORDINATE, FAIL OR DECIDE NOT TO
PERFECT, AND RELEASE ANY SUCH SECURITY, WITH OR WITHOUT THE SUBSTITUTION OF NEW
COLLATERAL; (D) TO RELEASE, SUBSTITUTE, AGREE
<PAGE>
NOT TO SUE, OR DEAL WITH ANY ONE OR MORE OF BORROWER'S SURETIES, ENDORSERS, OR
OTHER GUARANTORS ON ANY TERMS OR IN ANY MANNER LENDER MAY CHOOSE; (E) TO
DETERMINE HOW, WHEN AND WHAT APPLICATION OF PAYMENTS AND CREDITS SHALL BE MADE
ON THE INDEBTEDNESS; (F) TO APPLY SUCH SECURITY AND DIRECT THE ORDER OR MANNER
OF SALE THEREOF, INCLUDING WITHOUT LIMITATION, ANY NONJUDICIAL SALE PERMITTED BY
THE TERMS OF THE CONTROLLING SECURITY AGREEMENT OR DEED OF TRUST, AS LENDER IN
ITS DISCRETION MAY DETERMINE; (G) TO SELL, TRANSFER, ASSIGN, OR GRANT
PARTICIPATIONS IN ALL OR ANY PART OF THE INDEBTEDNESS; AND (H) TO ASSIGN OR
TRANSFER THIS GUARANTY IN WHOLE OR IN PART.
GUARANTOR'S REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants
to Lender that (a) no representations or agreements of any kind have been made
to Guarantor which would limit or qualify in any way the terms of this Guaranty;
(b) this Guaranty is executed at Borrower's request and not at the request of
Lender; -C- Guarantor has full power, right and authority to enter into this
Guaranty; (d) the provisions of this Guaranty do not conflict with or result in
a default under any agreement or other instrument binding upon Guarantor and do
not result in a violation of any law, regulation, court decree or order
applicable to Guarantor; (e) Guarantor has not and will not, without the prior
written consent of Lender, sell, lease, assign, encumber, hypothecate, transfer,
or otherwise dispose of all or substantially all of Guarantor's assets, or any
interest therein; (f) upon Lender's request, Guarantor will provide to Lender
financial and credit information in form acceptable to Lender, and all such
financial information which currently has been, and all future financial
information which will be provided to Lender is and will be true and correct in
all material respects and fairly present the financial condition of Guarantor as
of the dates the financial information is provided; (g) no material adverse
change has occurred in Guarantor's financial condition since the date of the
most recent financial statements provided to Lender and no event has occurred
which may materially adversely affect Guarantor's financial condition; (h) no
litigation, claim, investigation, administrative proceeding or similar action
(including those for unpaid taxes) against Guarantor is pending or threatened;
(I) Lender has made no representation to Guarantor as to the creditworthiness of
Borrower; and (J) Guarantor has established adequate means of obtaining from
Borrower on a continuing basis information regarding Borrower's financial
condition. Guarantor agrees to keep adequately informed from such means of any
facts, events, or circumstances which might in any way affect Guarantor's risks
under this Guaranty, and Guarantor further agrees that, absent a request for
information, Lender shall have no obligation to disclose to Guarantor any
information or documents acquired by Lender in the course of its relationship
with Borrower.
GUARANTOR'S WAIVERS. Except as prohibited by applicable law, Guarantor waives
any right to require Lender to (a) make any presentment, protest, demand, or
notice of any kind, including notice of change of any terms of repayment of the
Indebtedness, default by Borrower or any other guarantor or surety, any action
or nonaction taken by Borrower, Lender, or any other guarantor or surety of
Borrower, or the creation of new or additional indebtedness; (b) proceed against
any person, including Borrower, before proceeding against Guarantor; -C- proceed
against any collateral for the indebtedness, including Borrower's collateral,
before proceeding against Guarantor; (d) apply any payments or proceeds received
against the indebtedness in any order; (e) give notice of the terms, time, and
place of any sale of the collateral pursuant to the Uniform Commercial Code or
any other law governing such sale; (f) disclose any information about the
indebtedness, the Borrower, the collateral, or any other guarantor or surety, or
other law governing such sale; (f) disclose any information about the
indebtedness, the Borrower, the collateral, or any other guarantor or surety, or
about any action or nonaction of Lender; or (g) pursue any remedy or course of
action in Lender's power whatsoever.
Guarantor also waives any and all rights or defenses arising by reason of (h)
any disability or other defense of Borrower, any other guarantor or surety or
any other person; (I) the cessation from any cause whatsoever, other than
payment in full, of the indebtedness; (j) the application of proceeds of the
indebtedness by Borrower for purposes other than the purposes understood and
intended by Guarantor and Lender; (k) any act of omission or commission by
Lender which directly or indirectly results in or contributes to the discharge
of Borrower or any other guarantor or surety, or the indebtedness, or the loss
or release of any collateral by operation of law or otherwise; (l) any statute
of limitations in any action under this Guaranty or on the indebtedness; or (m)
any modification or change in terms of the indebtedness, whatsoever, including
without limitation, the renewal, extension, acceleration, or other change in the
time payment of the indebtedness is due and any change in the interest rate.
Guarantor waives all rights and any defenses arising out of an election of
remedies by Lender even though that election of remedies, such as a nonjudicial
foreclosure with respect to security for a guaranteed obligation, has destroyed
Guarantor's rights of subrogation and reimbursement against Borrower by
operation of Section 580d of the California Code of Civil Procedure or
otherwise.
Guarantor waives all rights and defenses that Guarantor may have because
Borrower's obligation is secured by real property. This means among other
things: (1) Lender may collect from Guarantor without first foreclosing on any
real or personal property collateral pledged by Borrower. (2) If Lender
forecloses on any real property collateral pledged by Borrower: (A) The amount
of Borrower's obligation may be reduced only by the price for which the
collateral is sold at the foreclosure sale, even if the collateral is worth more
than the sale price. (B) Lender may collect from Guarantor even if Lender, by
foreclosing on the real property collateral, has destroyed any right Guarantor
may have to collect from Borrower. This is an unconditional waiver of any rights
and defenses Guarantor may have because Borrower's obligation is secured by real
property. These rights and defenses include, but are not limited to, any rights
and defenses based upon Section 580a, 580b, 580d, or 726 of the Code of Civil
Procedure.
Guarantor understands and agrees that the foregoing waivers are waivers of
substantive rights and defenses to which Guarantor might otherwise be entitled
under slate and federal law. The rights and defenses waived include, without
limitation, those provided by California laws of suretyship and guaranty,
anti-deficiency laws, and the Uniform Commercial Code. Guarantor acknowledges
that Guarantor has provided these waivers of rights and defenses with the
intention that they be fully relied upon by Lender. Until all indebtedness is
paid in full, Guarantor waives any right to enforce any remedy Lender may have
against Borrower or any other guarantor, surety, or other person, and further,
Guarantor waives any right to participate in any collateral for the indebtedness
now or hereafter held by Lender.
If now or hereafter (a) Borrower shall be or become insolvent, and (b) the
indebtedness shall not at all times until paid be fully secured by collateral
pledged by Borrower, Guarantor hereby forever waives and relinquishes in favor
of Lender and Borrower, and their respective successors, any claim or right to
payment Guarantor may now have or hereafter have or acquire against Borrower, by
subrogation or otherwise, so that at no time shall Guarantor be or become a
"creditor" of Borrower within the meaning of 11 U.S.C. section 547(b), or any
successor provision of the Federal bankruptcy laws.
GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS. Guarantor warrants and
agrees that each of the waivers set forth above is made with Guarantor's full
knowledge of its significance and consequences and that, under the
circumstances, the
<PAGE>
waivers are reasonable and not contrary to public policy or law. If any such
waiver is determined to be contrary to any applicable law or public policy, such
waiver shall be effective only to the extent permitted by law or public policy.
SUBORDINATION OF BORROWER'S DEBTS TO GUARANTOR. Guarantor agrees that the
Indebtedness of Borrower to Lender, whether now existing or hereafter created,
shall be prior to any claim that Guarantor may now have or hereafter acquire
against Borrower, whether or not Borrower becomes insolvent. Guarantor hereby
expressly subordinates any claim Guarantor may have against Borrower, upon any
account whatsoever, to any claim that Lender may now or hereafter have against
Borrower. In the event of insolvency and consequent liquidation of the assets of
Borrower, through bankruptcy, by an assignment for the benefit of creditors, by
voluntary liquidation, or otherwise, the assets of Borrower applicable to the
payment of the claims of both Lender and Guarantor shall be paid to Lender and
shall be first applied by Lender to the Indebtedness of Borrower to Lender.
Guarantor does hereby assign to Lender all claims which it may have or acquire
against Borrower or against any assignee or trustee in bankruptcy of Borrower;
provided however, that such assignment shall be effective only for the purpose
of assuring to Lender full payment in legal tender of the Indebtedness. If
Lender so requests, any notes or credit agreements now or hereafter evidencing
any debts or obligations of Borrower to Guarantor shall be marked with a legend
that the same are subject to this Guaranty and shall be delivered to Lender.
Guarantor agrees, and Lender hereby is authorized, in the name of Guarantor,
from time to time to execute and file financing statements and continuation
statements and to execute such other documents and to take such other actions as
Lender deems necessary or appropriate to perfect, preserve and enforce its
rights under this Guaranty.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Guaranty:
INTEGRATION, AMENDMENT. Guarantor warrants, represents and agrees that
this Guaranty, together with any exhibits or schedules incorporated herein,
fully incorporates the agreement and understandings of Guarantor with
Lender with respect to the subject matter hereof and all prior
negotiations, drafts, and other extrinsic communications between Guarantor
and Lender shall have no evidentiary effect whatsoever. Guarantor further
agrees that Guarantor has read and fully understands the terms of this
Guaranty; Guarantor has had the opportunity to be advised by Guarantor's
attorney with respect to this Guaranty; the Guaranty fully reflects
Guarantor's intentions and parol evidence is not required to interpret the
terms of this Guaranty, Guarantor hereby indemnifies and holds Lender
harmless from all losses, claims, damages, and costs (including Lender's
attorneys' fees) suffered or incurred by Lender as a result of any breach
by Guarantor of the warranties, representations and agreements of this
paragraph. No alteration or amendment to this Guaranty shall be effective
unless given in writing and signed by the parties sought to be charged or
bound by the alteration or amendment.
APPLICABLE LAW. This Guaranty has been delivered to Lender and accepted by
Lender in the State of California. If there is a lawsuit, Guarantor agrees
upon Lender's request to submit to the jurisdiction of the courts of LOS
ANGELES County, State of California. This Guaranty shall be governed by and
construed in accordance with the laws of the State of California.
ATTORNEYS' FEES; EXPENSES. Guarantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lender's legal
expenses, incurred in connection with the enforcement of this Guaranty.
Lender may pay someone else to help enforce this Guaranty, and Guarantor
shall pay the costs and expenses of such enforcement. Costs and expenses
include Lender's attorneys' fees and legal expenses whether or not there is
a lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection
services. Guarantor also shall pay all court costs and such additional fees
as may be directed by the court.
NOTICES. All notices required to be given by either party to the other
under this Guaranty shall be in writing, may be sent by telefacsimile, and
shall be effective when actually delivered or when deposited with a
nationally recognized overnight courier, or when deposited in the United
States mail, first class postage prepaid, addressed to the party to whom
the notice is to be given at the address shown above or to such other
addresses as either party may designate to the other in writing. If there
is more than one Guarantor, notice to any Guarantor will constitute notice
to all Guarantors. For notice purposes, Guarantor agrees to keep Lender
informed at all times at Guarantor's current address.
INTERPRETATION. In all cases where there is more than one Borrower or
Guarantor, then all words used in this Guaranty in the singular shall be
deemed to have been used in the plural where the context and construction
so require; and where there is more than one Borrower named in this
Guaranty or when this Guaranty is executed by more than one Guarantor, the
words "Borrower" and "Guarantor'' respectively shall mean all and any one
or more of them. The words "Guarantor," "Borrower," and "Lender" include
the heirs, successors, assigns, and transferees of each of them. Caption
headings in this Guaranty are for convenience purposes only and are not to
be used to interpret or define the provisions of this Guaranty. If a court
of competent jurisdiction finds any provision of this Guaranty to be
invalid or unenforceable as to any person or circumstance, such finding
shall not render that provision invalid or unenforceable as to any other
persons or circumstances, and all provisions of this Guaranty in all other
respects shall remain valid and enforceable. If any one or more of
Borrower or Guarantor are corporations or partnerships, it is not necessary
for Lender to inquire into the powers of Borrower or Guarantor or of the
officers, directors, partners, or agents acting or purporting to act on
their behalf, and any Indebtedness made or created in reliance upon the
professed exercise of such powers shall be guaranteed under this Guaranty.
WAIVER. Lender shall not be deemed to have waived any rights under this
Guaranty unless such waiver is given in writing and signed by Lender. No
delay. or omission on the part of Lender in exercising any right shall
operate as a Waiver of such right or any other right. A waiver by Lender of
a provision of this Guaranty shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Guaranty. No prior waiver by Lender, nor any
course of dealing between Lender and Guarantor, shall constitute a waiver
of any of Lender's rights or at any of Guarantor's obligations as to any
future transactions. Whenever the consent of Lender is required under this
Guaranty, the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in the
sole discretion of Lender.
<PAGE>
EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS
GUARANTY AND AGREES TO ITS TERMS. IN ADDITION, EACH GUARANTOR UNDERSTANDS THAT
THIS GUARANTY IS EFFECTIVE UPON GUARANTOR'S EXECUTION AND DELIVERY OF THIS
GUARANTY TO LENDER AND THAT THE GUARANTY WILL CONTINUE UNTIL TERMINATED IN THE
MANNER SET FORTH IN THE SECTION TITLED "DURATION OF GUARANTY." NO FORMAL
ACCEPTANCE BY LENDER IS NECESSARY TO MAKE THIS GUARANTY EFFECTIVE. THIS
GUARANTY IS DATED JUNE 6, 1997.
GUARANTOR:
/s/ Harold Dyne
- -------------------------
HAROLD DYNE
<PAGE>
<TABLE>
<CAPTION>
PROMISSORY NOTE
- ------------------------------------------------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$100,000.00 09-13-1996 09-16-1997 LT
- ------------------------------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan
or item.
- ------------------------------------------------------------------------------------------------------------------------------------
Borrower: HAROLD DYNE Lender: MERCANTILE NATIONAL BANK
20523 CLARK STREET PRIVATE BANKING
WOODLAND HILLS, CA 91367 1840 CENTURY PARK EAST
LOS ANGELES, CA 90067
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
PRINCIPAL AMOUNT: $100,000.00 INITIAL RATE:11.250% DATE OF NOTE: SEPTEMBER 13,
1996
PROMISE TO PAY. HAROLD DYNE ("BORROWER") PROMISES TO PAY TO MERCANTILE NATIONAL
BANK ("LENDER"), OR ORDER, IN LAWFUL MONEY OF THE UNITED STATES OF AMERICA, THE
PRINCIPAL AMOUNT OF ONE HUNDRED THOUSAND DOLLARS & 00/100 DOLLARS ($100,000.00)
OR SO MUCH AS MAY BE OUTSTANDING, TOGETHER WITH INTEREST ON THE UNPAID
OUTSTANDING PRINCIPAL BALANCE OF EACH ADVANCE. INTEREST SHALL BE CALCULATED
FROM THE DATE OF EACH ADVANCE UNTIL REPAYMENT OF EACH ADVANCE.
PAYMENT. Borrower will pay this loan on demand, or if no demand is made, in one
payment of all outstanding principal plus all accrued unpaid interest on
September 16, 1997. In addition, Borrower will pay regular monthly payments of
accrued unpaid interest beginning October 16, 1996, and all subsequent interest
payments are due on the same day of each month after that. Interest on this Note
is computed on a 365/360 simple interest basis; that is, by applying the ratio
of the annual interest rate over a year of 360 days, multiplied by the
outstanding principal balance, multiplied by the actual number of days the
principal balance is outstanding. Borrower will pay Lender at Lender's address
shown above or at such other place as Lender may designate in writing. Unless
otherwise agreed or required by applicable law, payments will be applied first
to any unpaid collection costs and any late charges, then to any unpaid
interest, and any remaining amount to principal.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change
from time to time based on changes in an independent index which is the WALL
STREET JOURNAL PRIME RATE (the "Index"). The index is not necessarily the lowest
rate charged by Lender on its loans. If the Index becomes unavailable during the
term of this loan, Lender may designate a substitute index after notice to
Borrower. Lender will tell Borrower the current index rate upon Borrower's
request. Borrower understands that Lender may make loans based on other rates as
well. The interest rate change will not occur more often than each DAY. THE
INDEX CURRENTLY IS 8.250% PER ANNUM. THE INTEREST RATE TO BE APPLIED TO THE
UNPAID PRINCIPAL BALANCE OF THIS NOTE WILL BE AT A RATE OF 3.000 PERCENTAGE
POINTS OVER THE INDEX, RESULTING IN AN INITIAL RATE OF 11.250% PER ANNUM.
NOTICE: Under no circumstances will the interest rate on this Note be more than
the maximum rate allowed by applicable law.
PREPAYMENT; MINIMUM INTEREST CHARGE. Borrower agrees that all loan fees and
other prepaid finance charges are earned fully as of the date of the loan and
will not be subject to refund upon early payment (whether voluntary or as a
result of default), except as otherwise required by law. In any event, even upon
full prepayment of this Note, Borrower understands that Lender is entitled to a
minimum interest charge of $250.00. Other than Borrower's obligation to pay any
minimum interest charge, Borrower may pay without penalty all or a portion of
the amount owed earlier than it is due. Early payments will not, unless agreed
to by Lender in writing, relieve Borrower of Borrower's obligation to continue
to make payments of accrued unpaid interest. Rather, they will reduce the
principal balance due.
LATE CHARGE. If a payment is 10 DAYS OR MORE LATE, Borrower will be charged
5.000% OF THE UNPAID PORTION OF THE REGULARLY SCHEDULED PAYMENT OR $25.00,
WHICHEVER IS GREATER.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this Note or
any agreement related to this Note, or in any other agreement or loan Borrower
has with Lender. (c) Any representation or statement made or furnished to Lender
by Borrower or on Borrower's behalf is false or misleading in any material
respect either now or at the time made or furnished. (d) Borrower dies or
becomes insolvent, a receiver is appointed for any part of Borrower's property,
Borrower makes an assignment for the benefit of creditors, or any proceeding is
commenced either by Borrower or against Borrower under any bankruptcy or
insolvency laws. (e) Any creditor tries to take any of Borrower's property on or
in which Lender has a lien or security interest. This includes a garnishment of
any of Borrower's accounts with Lender. (f) Any of the events described in this
default section occurs with respect to any guarantor of this Note. (g) A
material adverse change occurs In Borrower's financial condition, or Lender
believes the prospect of payment or performance of the Indebtedness is impaired.
(h) Lender in good faith deems itself insecure.
If any default, other than a default in payment, is curable and if Borrower has
not been given a notice of a breach of the same provision of this Note within
the preceding twelve (12) months, it may be cured (and no event of default will
have occurred) if Borrower, after receiving written notice from Lender demanding
cure of such default: (a) cures the default within ten (10) days; or (b) if the
cure requires more than ten (10) days, immediately initiates steps which Lender
deems in Lender's sole discretion to be sufficient to cure the default and
thereafter continues and completes all reasonable and necessary steps sufficient
to produce compliance as soon as reasonably practical.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon Borrower's failure to pay
all amounts declared due pursuant to this section, including failure to pay upon
final maturity, Lender, at its option, may also, if permitted under applicable
law, do one or both of the following: (a) increase the variable interest rate on
this Note to 8.000 percentage points over the Index, and (b) add any unpaid
accrued interest to principal and such sum will bear interest therefrom until
paid at the rate provided in this Note (including any increased rate). Lender
may hire or pay someone else to help collect this Note if Borrower does not pay.
Borrower also will pay Lender that amount. This Includes, subject to any limits
under applicable law, Lender's attorneys' fees and Lender's legal expenses
whether or not there is a lawsuit, including attorneys' fees and legal expenses
for bankruptcy proceedings (including efforts to modify or vacate any automatic
stay or injunction), appeals, and any anticipated post-judgment collection
services. Borrower also will pay any court costs, in addition to all other sums
provided by law. THIS NOTE HAS BEEN DELIVERED TO LENDER AND ACCEPTED BY LENDER
IN THE STALE OF CALIFORNIA. IF THERE IS A LAWSUIT, BORROWER AGREES UPON LENDER'S
REQUEST TO SUBMIT TO THE JURISDICTION OF THE COURTS OF LOS ANGELES COUNTY, THE
STATE OF CALIFORNIA. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF CALIFORNIA.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $10.00 if Borrower
makes a payment on Borrower's loan and the check or preauthorized charge with
which Borrower pays is later dishonored.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all accounts
Borrower may open in the future, excluding however all IRA and Keogh accounts,
and all trust accounts for which the grant of a security interest would be
prohibited by law. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on this Note against any and
all such accounts.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under
this Note may be requested either orally or in writing by Borrower or by an
authorized person. Lender may, but need not, require that all oral requests be
confirmed in writing. All communications, instructions, or directions by
telephone or otherwise to Lender are to be directed to Lender's office shown
above. The following party or parties are authorized to request advances under
the line of credit until Lender receives from Borrower at Lender's address shown
above written notice of revocation of their authority: HAROLD DYNE. Borrower
agrees to be liable for all sums either: (a) advanced in accordance with the
instructions of an authorized person or (b) credited to any of Borrower's
accounts with Lender. The unpaid principal balance owing on this Note at any
time may be evidenced by endorsements on this Note or by Lender's internal
records, including daily computer print-outs. Lender will have no obligation to
advance funds under this Note if: (a) Borrower or any guarantor is in default
under the terms of this Note or any agreement that Borrower or any guarantor has
with Lender, including any agreement made in connection with the signing of this
Note; (b) Borrower or any guarantor ceases doing business or is insolvent; (c)
any guarantor seeks, claims or otherwise attempts to limit, modify or revoke
such guarantor's guarantee of this Note or any other loan with Lender; (d)
Borrower has applied funds provided pursuant to this Note for purposes
<PAGE>
other than those authorized by Lender; or (e) Lender in good faith deems itself
insecure under this Note or any other agreement between Lender and Borrower
THIRTY DAY OUT OF DEBT REQUIREMENT. Borrower covenants and agrees to be out of
debt on this credit facility for at least thirty (30) consecutive days during
the loan term.
GENERAL PROVISIONS. This Note is payable on demand. The inclusion of specific
default provisions of rights of Lender shall not preclude Lender's right to
declare payment of this Note on its demand. Lender may delay or forgo enforcing
any of its rights or remedies under this Note without losing them. Borrower and
any other person who signs, guarantees or endorses this Note, to the extent
allowed by law, waive any applicable statute of limitations, presentment, demand
for payment, protest and notice of dishonor. Upon any change in the terms of
this Note, and unless otherwise expressly stated in writing, no party who signs
this Note, whether as maker, guarantor, accommodation maker or endorser, shall
be released from liability. All such parties agree that Lender may renew or
extend (repeatedly and for any length of time) this loan, or release any party
or guarantor or collateral; or impair, fail to realize upon or perfect Lender's
security interest in the collateral; and take any other action deemed necessary
by Lender without the consent of or notice to anyone. All such parties also
agree that Lender may modify this loan without the consent of or notice to
anyone other than the party with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:
/s/ Harold Dyne
- -------------------------
HAROLD DYNE
<PAGE>
<TABLE>
<CAPTION>
CHANGE IN TERMS AGREEMENT
- ------------------------------------------------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$97,446.87 05-17-1999 04 AGD
- ------------------------------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan
or item.
- ------------------------------------------------------------------------------------------------------------------------------------
Borrower: HAROLD DYNE Lender: MERCANTILE NATIONAL BANK
20253 CLARK AVENUE BUSINESS BANK
WOODLAND HILLS, CA 91367 1840 CENTURY PARK EAST
LOS ANGELES, CA 90067
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
PRINCIPAL AMOUNT: $97,446.87 DATE OF AGREEMENT: MAY 16, 1997
DESCRIPTION OF EXISTING INDEBTEDNESS. PROMISSORY NOTE DATED SEPTEMBER 13, 1996
IN THE AMOUNT OF $100,000.00.
PROMISE TO PAY. HAROLD DYNE ("BORROWER") PROMISES TO PAY TO MERCANTILE NATIONAL
BANK ("LENDER"), OR ORDER, IN LAWFUL MONEY OF THE UNITED STATES OF AMERICA, THE
PRINCIPAL AMOUNT OF NINETY SEVEN THOUSAND FOUR HUNDRED FORTY SIX & 87/100
DOLLARS ($97,446.87), TOGETHER WITH INTEREST ON THE UNPAID PRINCIPAL BALANCE
FROM MAY 16, 1997, UNTIL PAID IN FULL.
PAYMENT. SUBJECT TO ANY PAYMENT CHANGES RESULTING FROM CHANGES IN THE INDEX,
BORROWER WILL PAY THIS LOAN ON DEMAND, OR IF NO DEMAND IS MADE, IN 23 REGULAR
PAYMENTS OF $4,597.59 EACH AND ONE IRREGULAR LAST PAYMENT ESTIMATED AT
$4,597.71. BORROWER'S FIRST PAYMENT IS DUE JUNE 17, 1997, AND ALL SUBSEQUENT
PAYMENTS ARE DUE ON THE SAME DAY OF EACH MONTH AFTER THAT. BORROWER'S FINAL
PAYMENT DUE MAY 17, 1999, WILL BE FOR ALL PRINCIPAL AND ALL ACCRUED INTEREST NOT
YET PAID. PAYMENTS INCLUDE PRINCIPAL AND INTEREST. Interest on this Agreement is
computed on a 365/360 simple interest basis; that is, by applying the ratio of
the annual interest rate over a year of 360 days, multiplied by the outstanding
principal balance, multiplied by the actual number of days the principal balance
is outstanding. Borrower will pay Lender at Lender's address shown above or at
such other place as Lender may designate in writing. Unless otherwise agreed or
required by applicable law, payments will be applied first to any unpaid
collection costs and any late charges, then to any unpaid interest, and any
remaining amount to principal.
VARIABLE INTEREST RATE. The interest rate on this Agreement is subject to change
from time to time based on changes in an independent index which is the WALL
STREET JOURNAL PRIME RATE (the "Index"). The Index is not necessarily the lowest
tale charged by Lender on its loans. If the Index becomes unavailable during the
term of this loan, Lender may designate a substitute index after notice to
Borrower. Lender will tell Borrower the current index rate upon Borrower's
request. Borrower understands that Lender may make loans based on other rates as
well. The interest rate change will not occur more often then each DAY. THE
INDEX CURRENTLY IS 8.500% PER ANNUM. THE INTEREST RATE TO BE APPLIED TO THE
UNPAID PRINCIPAL BALANCE OF THIS AGREEMENT WILL BE AT A RATE OF 3.500 PERCENTAGE
POINTS OVER THE INDEX, RESULTING IN AN INITIAL RATE OF 12.000% PER ANNUM.
NOTICE: Under no circumstances will the interest rate on this Agreement be more
than the maximum rate allowed by applicable law. Whenever increases occur in the
interest rate, Lender, at its option, may do one or more of the following: (a)
increase Borrower's payments to ensure Borrower's loan will pay off by its
original final maturity date, (b) increase Borrower's payments to cover accruing
interest, (c) increase the number of Borrower's payments, and (d) continue
Borrower's payments at the same amount and increase Borrower's final payment.
PREPAYMENT; MINIMUM INTEREST CHARGE. Borrower agrees that all loan fees and
other prepaid finance charges are earned fully as of the date of the loan and
will not be subject to refund upon early payment (whether voluntary or as a
result of default), except as otherwise required by law. In any event, even upon
full prepayment of this Agreement, Borrower understands that Lender is entitled
to a minimum interest charge of $250.00. Other than Borrower's obligation to pay
any minimum interest charge, Borrower may pay without penalty all or a portion
of the amount owed earlier than it is due. Early payments will not, unless
agreed to by Lender in writing, relieve Borrower of Borrower's obligation to
continue to make payments under the payment schedule. Rather, they will reduce
the principal balance due and may result in Borrower making fewer payments.
LATE CHARGE. If a payment is 10 DAYS OR MORE LATE, Borrower will be charged
5.000% OF THE UNPAID PORTION OF THE REGULARLY SCHEDULED PAYMENT OR $25.00,
WHICHEVER IS GREATER.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this
Agreement or any agreement related to this Agreement, or in any other agreement
or loan Borrower has with Lender. (c) Any representation or statement made or
furnished to Lender by Borrower or on Borrower's behalf is false or misleading
in any material respect either now or at the time made or furnished. (d)
Borrower dies or becomes insolvent, a receiver is appointed for any part of
Borrower's property, Borrower makes an assignment for the benefit of creditors,
or any proceeding is commenced either by Borrower or against Borrower under any
bankruptcy or insolvency laws. (e) Any creditor tries to take any of Borrower's
property on or in which Lender has a lien or security interest. This includes a
garnishment of any of Borrower's accounts with Lender. (f) Any of the events
described in this default section occurs with respect to any guarantor of this
Agreement. (g) A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of the
indebtedness is impaired.
If any default, other than a default in payment, is curable and if Borrower has
not been given a notice of a breach of the same provision of this Agreement
within the preceding twelve (12) months, it may be cured (and no event of
default will have occurred) if Borrower, after receiving written notice from
Lender demanding cure of such default: (a) cures the default within ten (10)
days; or (b) if the cure requires more than ten (10) days, immediately initiates
steps which Lender deems in Lender's sole discretion to be sufficient to cure
the default and thereafter continues and completes all reasonable and necessary
steps sufficient to produce compliance as soon as reasonably practical.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Agreement and all accrued unpaid interest immediately due,
without notice, and then Borrower will pay that amount. Upon Borrower's failure
to pay all amounts declared due pursuant to this section, including failure to
pay upon final maturity, Lender, at its option, may also, if permitted under
applicable law, do one or both of the following: (a) increase the variable
interest rate on this Agreement to 8.500 percentage points over the Index, and
(b) add any unpaid accrued interest to principal and such sum will bear interest
therefrom until paid at the rate provided in this Agreement (including any
increased rate). Lender may hire or pay someone else to help collect this
Agreement if Borrower does not pay. Borrower also will pay Lender that amount.
This includes, subject to any limits under applicable law, Lender's attorneys'
fees and Lender's legal expenses whether or not there is a lawsuit, including
attorneys' fees and legal expenses for bankruptcy proceedings (including efforts
to modify or vacate any automatic stay or injunction), appeals, and any
anticipated post-judgment collection services. Borrower also will pay any court
costs, in addition to all other sums provided by law. THIS AGREEMENT HAS BEEN
DELIVERED TO LENDER AND ACCEPTED BY LENDER IN THE STATE OF CALIFORNIA. IF THERE
IS A LAWSUIT, BORROWER AGREES UPON LENDER'S REQUEST TO SUBMIT TO THE
JURISDICTION OF THE COURTS OF LOS ANGELES COUNTY, THE STATE OF CALIFORNIA. THIS
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF CALIFORNIA.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $10.00 if Borrower
makes a payment on Borrower's loan and the check or preauthorized charge with
which Borrower pays is later dishonored.
CONTINUING VALIDITY. Except as expressly changed by this Agreement, the terms of
the original obligation or obligations, including all agreements evidenced or
securing the obligation(s), remain unchanged and in full force and effect.
Consent by Lender to this Agreement does not waive Lender's right to strict
performance of the obligation(s) as changed, nor obligate Lender to make any
future change in terms. Nothing in this Agreement will constitute a satisfaction
of the obligation(s). It is the intention of Lender to retain as liable parties
all makers and endorses of the original obligation(s), including accommodation
parties, unless a party is expressly released by Lender in writing. Any maker or
endorser, including accommodation makers, will not be released by virtue of this
Agreement. If any person who signed the original obligation does not sign this
Agreement below, then all persons signing below acknowledge that this Agreement
is given conditionally, based on the representation to Lender that the
non-signing party consents to the changes and provisions of this Agreement or
otherwise will not be released by it. This waiver applies not only to any
initial extension, modification or release, but also to all such subsequent
actions.
<PAGE>
MISCELLANEOUS PROVISIONS. This Agreement is payable on demand. The inclusion of
specific default provisions or rights of Lender shall not preclude Lender's
right to declare payment of this Agreement on its demand. Lender may delay or
forgo enforcing any of its rights or remedies under this Agreement without
losing them. Borrower and any other person who signs, guarantees or endorses
this Agreement, to the extent allowed by law, waive any applicable statute of
limitations, presentment, demand for payment, protest and notice of dishonor.
Upon any change in the terms of this Agreement, and unless otherwise expressly
stated in writing, no party who signs this Agreement, whether as maker,
guarantor, accommodation maker or endorser, shall be released from liability.
All such parties agree that Lender may renew or extend (repeatedly and for any
length of time) this loan, or release any party or guarantor or collateral; or
impair, fail to realize upon or perfect Lender's security interest in the
collateral; and take any other action deemed necessary by Lender without the
consent of or notice to anyone. All such parties also agree that Lender may
modify this loan without the consent of or notice to anyone other than the party
with whom the modification is made.
PRIOR TO SIGNING THIS AGREEMENT, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS
OF THIS AGREEMENT, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER
AGREES TO THE TERMS OF THE AGREEMENT AND ACKNOWLEDGES RECEIPT OF A COMPLETED
COPY OF THE AGREEMENT.
BORROWER:
/s/ Harold Dyne
- -------------------------
HAROLD DYNE
<PAGE>
<TABLE>
<CAPTION>
COMMERCIAL GUARANTY
- ------------------------------------------------------------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials
<S> <C> <C> <C> <C> <C> <C> <C> <C>
04 AGD
- ------------------------------------------------------------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan
or item.
- ------------------------------------------------------------------------------------------------------------------------------------
Borrower: HAROLD DYNE Lender: MERCANTILE NATIONAL BANK
20253 CLARK AVENUE BUSINESS BANKING
WOODLAND HILLS, CA 91367 1840 CENTURY PARK EAST
LOS ANGELES, CA 90067
Guarantor: TAG-IT, INC.
3820 S. HILL STREET
LOS ANGELES, CA 900067
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
AMOUNT OF GUARANTY. The principal amount of this Guaranty is One Hundred
Thousand & 00/100 Dollars ($100,000.00).
GUARANTY. For good and valuable consideration, TAG-IT, INC. ("Guarantor")
absolutely and unconditionally guarantees and promises to pay to MERCANTILE
NATIONAL BANK ("Lender") or its order, on demand, in legal tender of the United
States of America, the indebtedness (as that term is defined below) of HAROLD
DYNE ("Borrower") to Lender on the terms and conditions set forth in this
Guaranty.
DEFINITIONS. The following words shall have the following meanings when used in
this Guaranty:
BORROWER. The word "Borrower" means HAROLD DYNE.
GUARANTOR. The word "Guarantor" means TAG-IT, INC.
GUARANTY. The word "Guaranty" means this Guaranty made by Guarantor
for the benefit of Lender dated May 16, 1997.
INDEBTEDNESS. The word "Indebtedness" means the Note, including (a)
all principal, (b) all interest, (c) all late charges, (d) all loan
fees and loan charges, and (e) all collection costs and expenses
relating to the Note or to any collateral for the Note. Collection
costs and expenses include without limitation all of Lender's
attorneys' fees and Lender's legal expenses, whether or not suit is
instituted, and attorneys' fees and legal expenses for bankruptcy
proceedings (including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection
services.
LENDER. The word "Lender" means MERCANTILE NATIONAL BANK, its successors
and assigns.
NOTE. The word "Note" means the promissory note or credit agreement
dated May 16, 1997, in the original principal amount of $97,446.87
from Borrower to Lender, together with all renewals of, extensions of,
modifications of, refinancing of, consolidations of, and substitutions
for the promissory note or agreement.
RELATED DOCUMENTS. The words "Related Documents" mean and include
without limitation all promissory notes, credit agreements, loan
agreements, environmental agreements, guaranties, security agreements,
mortgages, deeds of trust, and all other instruments, agreements and
documents, whether now or hereafter existing, executed in connection
with the indebtedness.
MAXIMUM LIABILITY. THE MAXIMUM LIABILITY OF GUARANTOR UNDER THIS GUARANTY SHALL
NOT EXCEED AT ANY ONE TIME THE SUM OF THE PRINCIPAL AMOUNT OF $100,000.00, PLUS
ALL INTEREST THEREON, PLUS ALL OF LENDER'S COSTS, EXPENSES, AND ATTORNEYS' FEES
INCURRED IN CONNECTION WITH OR RELATING TO (A) THE COLLECTION OF THE
INDEBTEDNESS, (B) THE COLLECTION AND SALE OF ANY COLLATERAL FOR THE INDEBTEDNESS
OR THIS GUARANTY, OR (C) THE ENFORCEMENT OF THIS GUARANTY. ATTORNEYS' FEES
INCLUDE, WITHOUT LIMITATION, ATTORNEYS' FEES WHETHER OR NOT THERE IS A LAWSUIT,
AND IF THERE IS A LAWSUIT, ANY FEES AND COSTS FOR TRIAL AND APPEALS.
The above limitation on liability is not a restriction on the amount of the
indebtedness of Borrower to Lender either in the aggregate or at any one time.
If Lender presently holds one or more guaranties, or hereafter receives
additional guaranties from Guarantor, the rights of Lender under all guaranties
shall be cumulative. This Guaranty shall not (unless specifically provided below
to the contrary) affect or invalidate any such other guaranties. The liability
of Guarantor will be the aggregate liability of Guarantor under the terms of
this Guaranty and any such other unterminated guaranties.
NATURE OF GUARANTY. Guarantor intends to guarantee at all times the performance
and prompt payment when due, whether at maturity or earlier by reason of
acceleration or otherwise, of all indebtedness within the limits set forth in
the preceding section of this Guaranty. Any married person who signs this
Guaranty hereby expressly agrees that recourse may be had against both his or
her separate property and community property.
DURATION OF GUARANTY. This Guaranty will take effect when received by Lender
without the necessity of any acceptance by Lender, or any notice to Guarantor or
to Borrower, and will continue in full force until all indebtedness shall have
been fully and finally paid and satisfied and all other obligations of Guarantor
under this Guaranty shall have been performed in full. Release of any other
guarantor or termination of any other guaranty of the indebtedness shall not
affect the liability of Guarantor under this Guaranty. A revocation received by
Lender from any one or more Guarantors shall not affect the liability of any
remaining Guarantors under this Guaranty.
GUARANTOR'S AUTHORIZATION TO LENDER. Guarantor authorizes Lender, without notice
or demand and without lessening Guarantor's liability under this Guaranty, from
time to time: (a) to make one or more additional secured or unsecured loans to
Borrower, to lease equipment or other goods to Borrower, or otherwise to extend
additional credit to Borrower; (b) to alter, compromise, renew, extend,
accelerate, or otherwise change one or more times the time for payment or other
terms of the indebtedness or any part of the indebtedness, including increases
and decreases of the rate of interest on the indebtedness;
<PAGE>
extensions may be repeated and may be for longer than the original loan term;
(c) to take and hold security for the payment of this Guaranty or the
indebtedness, and exchange, enforce, waive, subordinate, fall or decide not to
perfect, and release any such security, with or without the substitution of new
collateral; (d) to release, substitute, agree not to sue, or deal with any one
or more of Borrower's sureties, endorses, or other guarantors on any terms or in
any manner Lender may choose; (e) to determine how, when and what application of
payments and credits shall be made on the indebtedness; (f) to apply such
security and direct the order or manner of sale thereof, including without
limitation, any nonjudicial sale permitted by the terms of the controlling
security agreement or deed of trust, as Lender in its discretion may determine;
(g) to sell, transfer, assign, or grant participation in all or any part of the
indebtedness; and (h) to assign or transfer this Guaranty in whole or in part.
GUARANTOR'S REPRESENTATIONS AND WARRANTIES. Guarantor represents and warrants
to Lender that (a) no representations or agreements of any kind have been made
to Guarantor which would limit or qualify in any way the terms of this Guaranty;
(b) this Guaranty is executed at Borrower's request and not at the request of
Lender; (c) Guarantor has full power, right and authority to enter into this
Guaranty; (d) the provisions of this Guaranty do not conflict with or result in
a default under any agreement or other instrument binding upon Guarantor and do
not result in a violation of any law, regulation, court decree or order
applicable to Guarantor; (e) Guarantor has not and will not, without the prior
written consent of Lender, sell, lease, assign, encumber, hypothecate, transfer,
or otherwise dispose of all or substantially all of Guarantor's assets, or any
interest therein; (f) upon Lender's request, Guarantor will provide to Lender
financial and credit information in form acceptable to Lender, and all such
financial information which currently has been, and all future financial
information which will be provided to Lender is and will be true and correct in
all material respects and fairly present the financial condition of Guarantor as
of the dates the financial information is provided; (g) no material adverse
change has occurred in Guarantor's financial condition since the date of the
most recent financial statements provided to Lender and no event has occurred
which may materially adversely affect Guarantor's financial condition; (h) no
litigation, claim, investigation, administrative proceeding or similar action
(including those for unpaid taxes) against Guarantor is pending or threatened;
(i) Lender has made no representation to Guarantor as to the credit worthiness
of Borrower; and (j) Guarantor has established adequate means of obtaining from
Borrower on a continuing basis information regarding Borrower's financial
condition. Guarantor agrees to keep adequately informed from such means of any
facts, events, or circumstances which might in any way affect Guarantor's risks
under this Guaranty, and Guarantor further agrees that, absent a request for
information, Lender shall have no obligation to disclose to Guarantor any
information or documents acquired by Lender in the course of its relationship
with Borrower.
GUARANTOR'S WAIVERS. Except as prohibited by applicable law, Guarantor waives
any right to require Lender to (a) make any presentment, protest, demand, or
notice of any kind, including notice of change of any terms of repayment of the
indebtedness, default by Borrower or any other guarantor or surety, any action
or nonaction taken by Borrower, Lender, or any other guarantor or surety of
Borrower, or the creation of new or additional indebtedness; (b) proceed against
any person, including Borrower, before proceeding against Guarantor; (c) proceed
against any collateral for the indebtedness, including Borrower's collateral,
before proceeding against Guarantor; (d) apply any payments or proceeds received
against the indebtedness in any order; (e) give notice of the terms, time, and
place of any sale of the collateral pursuant to the Uniform Commercial Code or
any other law governing such sale; (f) disclose any information about the
indebtedness, the Borrower, the collateral, or any other guarantor or surety, or
about any action or nonaction of Lender; or (g) pursue any remedy or course of
action in Lender's power whatsoever.
Guarantor also waives any and all rights or defenses arising by reason of (h)
any disability or other defense of Borrower, any other guarantor or surety or
any other person; (i) the cessation from any cause whatsoever, other than
payment in full, of the indebtedness; (j) the application of proceeds of the
indebtedness by Borrower for purposes other than the purposes understood and
intended by Guarantor and Lender; (k) any act of omission or commission by
Lender which directly or indirectly results in or contributes to the discharge
of Borrower or any other guarantor or surety, or the indebtedness, or the loss
or release of any collateral by operation of law or otherwise; (l) any statue of
limitations in any action under this Guaranty or on the indebtedness; or (m) any
modification or change in terms of the indebtedness, whatsoever, including
without limitation, the renewal, extension, acceleration, or other change in the
time payment of the indebtedness is due and any change in the interest rate.
Guarantor waives all rights and any defenses arising out of an election of
remedies by Lender even though that election of remedies, such as a nonjudicial
foreclosure with respect to security for a guaranteed obligation, has destroyed
Guarantor's rights of subrogation and reimbursement against Borrower by
operation of Section 580d of the California Code of Civil Procedure or
otherwise.
Guarantor waives all rights and defenses that Guarantor may have because
Borrower's obligation is secured by real property. This means among other
things: (1) Lender may collect from Guarantor without first foreclosing on any
real or personal property collateral pledged by Borrower. (2) If Lender
forecloses on any real property collateral pledged by Borrower: (A) The amount
of Borrower's obligation may be reduced only by the price for which the
collateral is sold at the foreclosure sale, even if the collateral is worth more
than the sale price. (B) Lender may collect from Guarantor even if Lender, by
foreclosing on the real property collateral, has destroyed any right Guarantor
may have to collect from Borrower. This is an unconditional waiver of any rights
and defenses Guarantor may have because Borrower's obligation is secured by real
property. These rights and defenses include, but are not limited to, any rights
and defenses based upon Section 580a, 580b, 580d, or 726 of the Code of Civil
Procedure.
Guarantor understands and agrees that the foregoing waivers are waivers of
substantive rights and defenses to which Guarantor might otherwise be entitled
under slate and federal law. The rights and defenses waived include, without
limitation, those provided by California laws of suretyship and guaranty,
anti-deficiency laws, and the Uniform Commercial Code. Guarantor acknowledges
that Guarantor has provided these waivers of rights and defenses with the
intention that they be fully relied upon by Lender. Until all indebtedness is
paid in full, Guarantor waives any right to enforce any remedy Lender may have
against Borrower or any other guarantor, surety, or other person, and further,
Guarantor waives any right to participate in any collateral for the indebtedness
now or hereafter held by Lender.
If now or hereafter (a) Borrower shall be or become insolvent, and (b) the
indebtedness shall not at all times until paid be fully secured by collateral
pledged by Borrower, Guarantor hereby forever waives and relinquishes in favor
of Lender and Borrower, and their respective successors, any claim or right to
payment Guarantor may now have or hereafter have or acquire against Borrower, by
subrogation or otherwise, so that at no time shall Guarantor be or become a
"creditor" of Borrower within the meaning of 11 U.S.C. section 547(b), or any
successor provision of the Federal bankruptcy laws.
<PAGE>
GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS. Guarantor warrants and
agrees that each of the waivers set forth above is made with Guarantor's full
knowledge of its significance and consequences and that, under the
circumstances, the waivers are reasonable and not contrary to public policy or
law. If any such waiver is determined to be contrary to any applicable law or
public policy, such waiver shall be effective only to the extent permitted by
law or public policy.
SUBORDINATION OF BORROWER'S DEBTS TO GUARANTOR. Guarantor agrees that the
Indebtedness of Borrower to Lender, whether now existing or hereafter created,
shall be prior to any claim that Guarantor may now have or hereafter acquire
against Borrower, whether or not Borrower becomes insolvent. Guarantor hereby
expressly subordinates any claim Guarantor may have against Borrower, upon any
account whatsoever, to any claim that Lender may now or hereafter have against
Borrower. In the event of insolvency and consequent liquidation of the assets of
Borrower, through bankruptcy, by an assignment for the benefit of creditors, by
voluntary liquidation, or otherwise, the assets of Borrower applicable to the
payment of the claims of both Lender and Guarantor shall be paid to Lender and
shall be first applied by Lender to the Indebtedness of Borrower to Lender.
Guarantor does hereby assign to Lender all claims which it may have or acquire
against Borrower or against any assignee or trustee in bankruptcy of Borrower;
provided however, that such assignment shall be effective only for the purpose
of assuring to Lender full payment in legal tender of the Indebtedness. If
Lender so requests, any notes or credit agreements now or hereafter evidencing
any debts or obligations of Borrower to Guarantor shall be marked with a legend
that the same are subject to this Guaranty and shall be delivered to Lender.
Guarantor agrees, and Lender hereby is authorized, in the name of Guarantor,
from time to time to execute and file financing statements and continuation
statements and to execute such other documents and to take such other actions as
Lender deems necessary or appropriate to perfect, preserve and enforce its
rights under this Guaranty.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of
this Guaranty:
INTEGRATION, AMENDMENT. Guarantor warrants, represents and agrees that
this Guaranty, together with any exhibits or schedules incorporated herein,
fully incorporates the agreement and understandings of Guarantor with
Lender with respect to the subject matter hereof and all prior
negotiations, drafts, and other extrinsic communications between Guarantor
and Lender shall have no evidentiary effect whatsoever. Guarantor further
agrees that Guarantor has read and fully understands the terms of this
Guaranty; Guarantor has had the opportunity to be advised by Guarantor's
attorney with respect to this Guaranty; the Guaranty fully reflects
Guarantor's intentions and parol evidence is not required to interpret the
terms of this Guaranty, Guarantor hereby indemnifies and holds Lender
harmless from all losses, claims, damages, and costs (including Lender's
attorneys' fees) suffered or incurred by Lender as a result of any breach
by Guarantor of the warranties, representations and agreements of this
paragraph. No alteration or amendment to this Guaranty shall be effective
unless given in writing and signed by the parties sought to be charged or
bound by the alteration or amendment.
APPLICABLE LAW. This Guaranty has been delivered to Lender and accepted by
Lender in the State of California. If there is a lawsuit, Guarantor agrees
upon Lender's request to submit to the jurisdiction of the courts of LOS
ANGELES County, State of California. This Guaranty shall be governed by and
construed in accordance with the laws of the State of California.
ATTORNEYS' FEES; EXPENSES. Guarantor agrees to pay upon demand all of
Lender's costs and expenses, including attorneys' fees and Lender's legal
expenses, incurred in connection with the enforcement of this Guaranty.
Lender may pay someone else to help enforce this Guaranty, and Guarantor
shall pay the costs and expenses of such enforcement. Costs and expenses
include Lender's attorneys' fees and legal expenses whether or not there is
a lawsuit, including attorneys' fees and legal expenses for bankruptcy
proceedings (and including efforts to modify or vacate any automatic stay
or injunction), appeals, and any anticipated post-judgment collection
services. Guarantor also shall pay all court costs and such additional fees
as may be directed by the court.
NOTICES. All notices required to be given by either party to the other
under this Guaranty shall be in writing, may be sent by telefacsimile, and
shall be effective when actually delivered or when deposited with a
nationally recognized overnight courier, or when deposited in the United
States mail, first class postage prepaid, addressed to the party to whom
the notice is to be given at the address shown above or to such other
addresses as either party may designate to the other in writing. If there
is more than one Guarantor, notice to any Guarantor will constitute notice
to all Guarantors. For notice purposes, Guarantor agrees to keep Lender
informed at all times at Guarantor's current address.
INTERPRETATION. In all cases where there is more than one Borrower or
Guarantor, then all words used in this Guaranty in the singular shall be
deemed to have been used in the plural where the context and construction
so require; and where there is more than one Borrower named in this
Guaranty or when this Guaranty is executed by more than one Guarantor, the
words "Borrower" and "Guarantor'' respectively shall mean all and any one
or more of them. The words "Guarantor," "Borrower," and "Lender" include
the heirs, successors, assigns, and transferees of each of them. Caption
headings in this Guaranty are for convenience purposes only and are not to
be used to interpret or define the provisions of this Guaranty. If a court
of competent jurisdiction finds any provision of this Guaranty to be
invalid or unenforceable as to any person or circumstance, such finding
shall not render that provision invalid or unenforceable as to any other
persons or circumstances, and all provisions of this Guaranty in all other
respects shall remain valid and enforceable. If any one or more of
Borrower or Guarantor are corporations or partnerships, it is not necessary
for Lender to inquire into the powers of Borrower or Guarantor or of the
officers, directors, partners, or agents acting or purporting to act on
their behalf, and any Indebtedness made or created in reliance upon the
professed exercise of such powers shall be guaranteed under this Guaranty.
WAIVER. Lender shall not be deemed to have waived any rights under this
Guaranty unless such waiver is given in writing and signed by Lender. No
delay. or omission on the part of Lender in exercising any right shall
operate as a Waiver of such right or any other right. A waiver by Lender of
a provision of this Guaranty shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Guaranty. No prior waiver by Lender, nor any
course of dealing between Lender and Guarantor, shall constitute a waiver
of any of Lender's rights or at any of Guarantor's obligations as to any
future transactions. Whenever the consent of Lender is required under this
Guaranty, the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in the
sole discretion of Lender.
<PAGE>
EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS
GUARANTY AND AGREES TO ITS TERMS. IN ADDITION, EACH GUARANTOR UNDERSTANDS THAT
THIS GUARANTY IS EFFECTIVE UPON GUARANTOR'S EXECUTION AND DELIVERY OF THIS
GUARANTY TO LENDER AND THAT THE GUARANTY WILL CONTINUE UNTIL TERMINATED IN THE
MANNER SET FORTH IN THE SECTION TITLED "DURATION OF GUARANTY." NO FORMAL
ACCEPTANCE BY LENDER IS NECESSARY TO MAKE THIS GUARANTY EFFECTIVE. THIS
GUARANTY IS DATED MAY 16, 1997.
GUARANTOR:
TAG-IT, INC.
By: /s/ Colin Dyne /s/ Harold Dyne
--------------------------------- ----------------------------
COLIN S. DYNE, PRESIDENT HAROLD DYNE, SECRETARY
<PAGE>
DOMESTIC COLLECTION DATE FACTORING AGREEMENT
This Domestic Collection Date Factoring Agreement (this "Agreement"), dated and
effective as of the Effective Date, is entered into between HELLER FINANCIAL,
INC. ("Heller"), with offices at 505 N. Brand Blvd., Glendale, CA 91203,
Telecopy No: (818) 246-6380, and A.G.S. STATIONERY, INC. ("Client"), whose
address is 3820 South Hill Street, Los Angeles, CA 90037, Telecopy No. (213)
234-9598, and will constitute the terms upon which Heller will act as the sole
factor of Client. Capitalized terms used herein will have the meanings assigned
to such terms in Section 12 of this Agreement.
SECTION 1. SALE, PURCHASE AND APPROVAL OF ACCOUNTS
1.1. Client hereby agrees to sell, assign and transfer to Heller, and Heller
hereby agrees to purchase all of Client's Accounts, with full power to
Heller to collect and otherwise deal with such Accounts as the sole and
exclusive owner thereof. Heller will purchase an Account on the
shortest selling terms for the Purchase Price thereof upon receipt by
Heller of (a) the invoice copy evidencing such Account or (b)
information acceptable to Heller concerning such Account if such Account
has been transmitted by Client to Heller through Transmission.
1.2. (a) Client will submit for Heller's credit approval the credit
requirements of Client's customers, a description of Client's normal
selling terms and such other information as Heller requests concerning
Client's customers. Heller may, in Heller's sole credit judgment,
establish credit lines for sales to Client's customers on Client's
normal selling terms or on other selling terms approved by Heller by
Written Notice. Client may also submit for Heller's credit approval
specific orders from Client's customers and Heller may, in Heller's sole
credit judgment, approve such orders on a single order credit approval
basis. All of Heller's credit approvals will be by written Notice
and/or Transmission to Client. All sales to a customer within the
credit line established for such customer on Client's normal selling
terms or within the single order credit approvals given by Heller for
orders from such customer will be Approved Accounts provided that
Delivery is completed while the credit line or single order credit
approval remains in effect.
(b) Heller may amend or withdraw a credit line or single order credit
approval at any time prior to Delivery by notifying Client verbally
and/or by Written Notice or Transmission. A single order credit
approval will be automatically withdrawn: (i) in the event Delivery is
not made on or prior to the expiration date indicated on the single
order credit confirmation form Heller sends to Client by Written Notice
or Transmission; or (ii) in the event any change is made in any of the
terms of the Account without Heller's prior approval by Written Notice
or Transmission.
(c) Heller will have no liability to Client or to any customer for
Heller's refusal to credit approve an Account or Heller's withdrawal or
amendment of a credit approval.
1.3. Heller will assume the Credit Risk on all Approved Accounts. Heller
will have full recourse to Client for all Non-Approved Accounts.
<PAGE>
1.4. If at any time a customer becomes the subject of an insolvency
proceeding or otherwise becomes financially unable to pay Accounts, then
in the event that monies were at any time owing by such customer for
both Approved Accounts and Non-Approved Accounts, any amount when paid
by or credited to the customer may be deemed applied as follows:
(a) If Heller issued single order approvals, all amounts paid by or
credited to the customer may be deemed applied first to Approved
Accounts.
(b) If Heller established a credit line for such customer and if the
credit line was in force at the time amounts were paid by or credited to
the customer, such amounts may be deemed applied first to Non-Approved
Accounts in their order of maturity. When the credit line is canceled,
thereafter any amount paid or credited may be deemed applied first to
Approved Accounts.
1.5. If a bankruptcy or insolvency proceeding is instituted by or against a
customer and if Heller agrees by Written Notice to Client to make a
claim in such proceeding for Non-Approved Accounts, all amounts
distributed to Heller in such proceeding may be shared pro rata between
Approved Accounts and Non-Approved Accounts.
SECTION 2. ADVANCES, PAYMENT FOR ACCOUNTS, COMMISSIONS, FEES AND LEDGER DEBT
2.1. Subject to the terms and conditions of this Agreement, Heller may, upon
Client's request, and in Heller's sole discretion, make advances to
Client or for Client's account against the Purchase Price of Accounts in
amounts, in Heller's sole discretion, of up to seventy percent (70%) of
the Purchase Price of such Accounts. Notwithstanding the foregoing, if
at any time the aggregate Net Amount of Accounts arising from sales to a
single customer exceeds an amount equal to thirty percent (30%) of the
total Net Amount of all Accounts from all customers outstanding at such
time, Heller will not make any advances on any such Accounts in excess
of said amount.
2.2. As payment for an Account, (a) the Purchase Price of such Account, not
to exceed the Collected Amount of such Account, less advances, interest
and any other amounts due Heller will be credited to Client's account on
the Collection Date for such Account and (b) if the Account is an
Approved Account which remains partially or fully unpaid solely as a
result of the financial inability of the customer thereon to pay such
Approved Account and if such Account is not subject to a Dispute, the
Purchase Price of such Approved Account less any Collected Amounts
previously credited to Client's account with respect to such Approved
Account and less advances, interest and any other amounts due Heller
will be credited to Client's account on the Approved Payment Date for
such Approved Account.
2.3. At the time Heller purchases an Account, Heller will charge Client's
account with a factoring commission of one and one-half percent (1.50%)
of the Net Amount of the Account. On Accounts bearing payment terms in
excess of sixty (60) days, the factoring commission will be increased by
one quarter of one percent (0.25%) for each thirty (30) days or part
thereof that the stated terms exceed sixty (60) days.
2
<PAGE>
2.4. Heller will charge Client's account Heller's standard wire transfer fee
on all wire transfers, and Client will reimburse Heller for exchanges on
checks, charges for returned items and all other bank charges. Client
will also pay Heller, and Heller may charge Client's account with, all
data transmission telephone charges relating to Transmissions. Client
agrees to bear the cost of all filing fees, filing taxes, search
reports, legal fees and other charges incurred by Heller in the
perfection, protection, preservation and enforcement of Heller's rights
in any collateral in which Client has granted Heller a security
interest. Client also agrees to promptly pay all fees, costs and
expenses (including, without limitation, attorneys fees and allocated
costs of internal counsel) incurred by Heller in connection with the
creation, or administration of this Agreement or any related
instruments, documents or agreements, including the negotiation and
documentation of any waivers, forbearances, amendments or other
modifications relating to this Agreement or any such related agreements,
and all fees, costs and expenses will be part of the Obligations, will
be payable on demand and will be secured by any collateral in which
Client has granted Heller a security interest. Heller may also, at
Heller's option, charge Client's account for all amounts owing by Client
to Heller under this Agreement and for all other Obligations.
SECTION 3. INTEREST AND COLLECTION CLEARANCE CHARGE
3.1. Client will pay Heller interest on the Daily Balance. Interest will be
calculated daily at a rate per annum equal to two and one-half percent
(2.50%) plus the Base Rate (the "Interest Rate") and will be charged to
Client's account monthly at the end of each month. The Interest Rate
will also be chargee to Client on all other Obligations, except those
specifying a different rate, from the date incurred through the date
paid. Any publicly announced decrease or increase in the Base Rate will
result in an adjustment to the Interest Rate on the next Business Day.
After the occurrence of an Event of Default and for so long as such
Events of Default continues, all the Obligations will, at Heller's
option, bear interest at a rate per annum equal to three percent (3.0%)
plus the Interest Rate. Interest will be calculated on the basis of a
360-day year for the actual number of days elapsed. In no event will
the total amount of interest received by Heller pursuant to the terms of
this Agreement exceed the maximum rate permitted by applicable law and
in the event excess interest is determined by a court of competent
jurisdiction to have been paid by Client to Heller, such excess interest
will be applied as a credit against the outstanding Obligations and
Client will not have any action against Heller for any damages arising
out of the payment or collection of such excess interest.
3.2. If funds remain with Heller past the Collection Date or Approved Payment
Date, as applicable, and there are no outstanding Obligations ("matured
funds"), Heller will credit Client's account with interest on such
matured funds at the rate per annum equal to the Base Rate minus three
percent (3.0%). Any change in the Base Rate will result in an
adjustment in the matured funds rate on the next Business Day.
3.3. If an Account or any payment is charged back to Client after the
Collection Date or Approved Payment Date, as applicable, Client will pay
Heller interest at the Interest Rate on the Net Amount of such Account
or on such payment from such date to the charge back date.
3
<PAGE>
3.4. To allow for collection clearance on all checks and other payments
remitted by Client's customers, Client will, in addition to interest,
pay Heller each month a collection clearance charge based on four (4)
calendar days. Heller will charge Client's account at the end of each
month for the collection clearance charge.
SECTION 4. REPRESENTATIONS, WARRANTIES AND COVENANTS
4.1. Client represents, warrants and covenants as to each Account that, at
the time of its creation, the Account is a valid, bona fide account,
representing an undisputed indebtedness incurred by the named customer
for goods actually sold and delivered; there are no setoffs, offsets or
counterclaims, genuine or otherwise, against the Account; the Account
does not represent a sale to any of Client's subsidiaries, affiliates,
directors, officers, agents, stockholders, or employees, or a
consignment, guarantied sale, or bill and hold transaction, or a cash on
delivery sale; no agreement exists permitting any deduction or discount
(other than the discount stated on the invoice); Client is the lawful
owner of the Account and has the right to sell and assign the same to
Heller; the Account is free of all security interests, liens and
encumbrances (including tax liens) other than those in favor of Heller,
and the Account is due and payable in accordance with its terms.
4.2. Client will not grant or suffer to exist in favor of any party other
than Heller any lien upon or security interest in Client's inventory.
4.3. Client is a solvent corporation, duly incorporated and in good standing
under the laws of the State of California and qualified in all States
where such qualification is required; the execution, delivery and
performance of this Agreement have been duly authorized and are not in
contravention of any applicable law, Client's corporate charter or
by-laws or any agreement or order by which Client is bound; Client is
not, to the best of Client's knowledge, in violation of any law,
ordinance, rule regulation, order or other requirement of any government
or any instrumentality or agency thereof.
4.4. Client will not change Client's corporate name or the location of
Client's office or open any new offices without giving Heller at least
thirty (30) days prior Written Notice. At the present time, Client
carries on business only at the above address and the addresses set
forth below.
NONE.
4.5. All books and records pertaining to the Accounts or to any inventory
owned by Client will be maintained solely and exclusively at the above
address or the addresses listed in Section 4.4 hereof and no such books
and records will be moved or transferred without giving Heller thirty
(30) days prior Written Notice.
4.6. After Heller's request, Client will hold all returned, replevied or
reclaimed goods relating to accounts coming into Client's possession in
trust for Heller and all such goods will be segregated and identified as
held in trust for Heller's benefit and Client
4
<PAGE>
will, at Heller's request, and at Client's expense, deliver such goods
to such place or places as Heller may designate.
4.7. The trade names or styles set forth below are the only trade names or
styles under which Client transacts business or has transacted business
during the last five (5) years; Accounts sold to Heller hereunder and
represented by invoices bearing such trade names or styles are wholly
owned by Client; the undertakings, representations and warranties made
in connection therewith will be identical to and of the same force and
effect as those made with respect to invoices bearing Client's corporate
name; Client's use of any trade names or styles is in compliance with
all laws regarding the use of such trade names or styles. Client will
give Heller thirty (30) days prior Written Notice of the change of any
trade name or style or Client's use of any new trade name or style.
GUESS ? STATIONERY
Client hereby assigns, transfers, and conveys to Heller, effective upon
the occurrence of any Event of Default hereunder, the non-exclusive
right and license to use all trade names and trade styles owned or used
by Client together with any goodwill associated therewith, all to the
extent necessary to enable Heller to realize on any assets of Client in
which Client has granted Heller a security interest. Such right and
license is granted free of charge without requirement that any monetary
payment whatsoever be made to Client or any third party by Heller.
4.8. Discounts, credits and allowances on Accounts may be issued, granted or
allowed by Client to customers and returns may be accepted by Client
until Heller notifies Client to the contrary by Written Notice or
Transmission. Such discounts, credits or allowances once issued may be
claimed only by the customer. Client will issue and assign to Heller
all full credit memos relating to credits on Accounts and any other
credit memos Heller requests relating to credits on Accounts immediately
upon Heller's request but in no event more than two (2) weeks from the
date on which such credits are granted to the customers.
4.9. To the best of Client's knowledge, there are no judgments outstanding
against or affecting Client, its officers, directors or affiliates or
any of Client's property and there are no actions, charges, claims,
demands, suits, proceedings, or governmental investigations now pending
or threatened against Client or any of Client's property.
4.10. Client agrees that no provision in this Agreement and no course of
dealing between the parties shall be deemed to create any fiduciary duty
by Heller to Client. Client agrees that neither Heller nor any of
Heller's affiliates, officers, directors, shareholders, employees,
attorneys, or agents shall have any liability with respect to, and
Client hereby waives, releases, and agrees not to sue any of them upon,
any claim for any special, indirect, incidental; or consequential
damages suffered or incurred by Client in connection with, arising out
of, or in any way related to this Agreement or any of the transactions
contemplated by this Agreement. Client hereby waives, releases, and
agrees not to sue Heller or any of Heller's affiliates, officers,
directors, shareholders employees, attorneys, or agents for punitive
damages in respect of any claim in
5
<PAGE>
connection with, arising out of, or in any way related to this Agreement
or any of the transactions contemplated by this Agreement.
4.11. Client agrees to give Heller prompt notice of the termination of, or the
occurrence of any default under, that certain Manufacturing License
Agreement between Guess ?, Inc. and Client dated March 1, 1996, as
amended from time to time.
SECTION 5. DISPUTES, CHARGEBACKS AND RESERVES
5.1. With respect to any Account, upon the occurrence of a breach of any of
the representations or warranties contained in Section 4.1, or upon the
assertion by a customer of a Dispute, such Account may, at Heller's
option, be charged back to Client. In the event Client does not, within
fifteen (15) days of Heller's request, deliver to Heller a copy of the
invoice and such other information as Heller requests relating to an
Account with respect to which information was transmitted to Heller
through Transmission, Heller will have the right to charge back such
Account to Client.
5.2. Client will notify Heller immediately by Written Notice in the event
that a customer alleges any Dispute, or returns or desires to return any
goods purchased from Client relating to an Account. Heller may but is
not obligated to settle, compromise, adjust or litigate all such
Disputes or returns upon such terms as Heller deems advisable. If an
unadjusted Dispute delays the payment of any Approved Account when due,
Heller will have the right to charge back to Client that Account.
5.3. If Heller notifies Client verbally and/or by Written Notice or
Transmission that a customer which only accepts invoices for
payment-from Client through Transmission is requesting that Client
review its invoice data for correctness and re-transmit invoices by
Transmission and if after thirty (30) days from the date of such Notice
such invoices remain unposted to such customer's records, Heller will
place the Accounts evidenced by such invoices on Dispute.
5.4. Heller may, at Heller's option, charge back to Client all amounts owing
on Non-Approved Accounts which are not paid when due.
5.5. Client will pay Heller, or Heller may charge Client's account with, the
amount of any payment which Heller receives with respect to a
Non-Approved Account if such payment is subsequently disgorged by
Heller, whether as a result of any proceeding in bankruptcy or
otherwise.
5.6. Client shall purchase promptly all Accounts charged back by Heller,
provided, however, that until payment by Client to Heller of all monies
due with respect to such charged back Account, title thereto shall
remain with Heller. At such time as Client shall pay to Heller all
monies due with respect to such charged back account, title shall pass
to Client subject, however, to Heller's security interest therein.
Client agrees to indemnify and save Heller harmless from and against any
and all loss, costs and expenses caused by or arising out of disputed
Accounts, including, but not limited to, collection expenses and
attorney's fees incurred with respect thereto.
6
<PAGE>
5.7. Heller may maintain such reserves as Heller, in Heller's sole
discretion, deems advisable as security for the payment and performance
of the Obligations, including, without limitation, reserves for the
amount of any Account which is subject to a Dispute.
SECTION 6. ADMINISTRATION
6.1. Client will, from time to time, (i) execute and deliver to Heller
confirmatory schedules of Accounts assigned to Heller (each an
"Assignment Schedule"), together with one copy of each invoice,
acceptable evidence of shipment and such other documentation and proofs
of delivery as Heller may require or (ii) transmit to Heller by
Transmission information concerning Accounts and, upon Heller's request,
deliver to Heller copies of invoices, acceptable evidence of shipment
and such other documentation and proofs of delivery as Heller may
require relating to Accounts so transmitted. Client will not deliver
Assignment Schedule in connection with Transmissions, but Client
acknowledges and agrees that every invoice transmitted to Heller by
Transmission will be deemed to have been sent pursuant to the terms and
conditions of Assignment Schedules. Each invoice relating to an Account
and all copies thereof will bear a notice, in form satisfactory to
Heller, that the Account has been sold and assigned to and is payable
only to Heller. Client agrees that Client will not change such notice
on invoices and will not direct its customers to pay Client or any third
party amounts due under invoices. Client agrees to prepare and mail all
invoices relating to Accounts, but Heller may do so at Heller's option.
Client agrees to execute and deliver to Heller such further instruments
of assignment, financing statements and instruments of further assurance
as Heller may reasonably require. Client authorizes Heller to execute
on Client's behalf and file such UCC financing statements as Heller may
deem necessary in order to perfect and maintain the security interests
granted by Client in accordance with this Agreement. Client further
agrees that Heller may file this Agreement or a copy thereof as such UCC
financing statement.
6.2. On any day when Client desires to have advances made in accordance with
subsection 2.1 Client shall give Heller telephone notice of the
requested advance by 12:00 p.m. Los Angeles time. Heller shall not
incur any liability to Client for acting upon any telephonic notice that
Heller believes in good faith to have been given by a duly authorized
officer or other person authorized to request advances on Client's
behalf or for otherwise acting in good faith under this subsection.
6.3. If any remittances are made directly to Client or Client's employees or
agents, Client will act as trustee of an express trust for Hellers
benefit, hold the same as Heller's property and deliver the same to
Heller forthwith in kind. Heller and/or such designee as Heller may
from time to time appoint are hereby appointed Client's attorney-in-fact
to endorse Client's name on any and all checks or other forms of
remittances received by Heller where such endorsement is required to
effect collection and to transmit notices to customers, in Client's or
Heller's name, that amounts owing by them have been assigned and are
payable directly to Heller; this power, being coupled with an interest,
is irrevocable.
7
<PAGE>
6.4. Client shall permit Heller and any authorized representatives designated
by Heller to visit and inspect any of the properties of Client,
including its financial and accounting records, and to make copies and
take extracts therefrom, and to discuss its affairs, finances, and
business with its officers at such times during normal business hours
and as often as Heller requests. Heller may, at any time after the
occurrence of an Event of Default, remove from Client's premises all
such records, files and books relating to Accounts.
6.5. If Heller determines that the credit standing of a customer has
deteriorated after Heller has assumed the Credit Risk on an Account,
Client will, at Heller's request, exercise such rights as Client may
have to reclaim or stop the goods in transit, and Client hereby grants
to Heller the right to take such steps in Client's or Heller's name.
6.6. Heller will render a monthly statement of account to Client within
twenty (20) days after the end of each month. Such statement of account
will constitute an account stated unless Client makes objection thereto
by Written Notice within thirty (30) days from the date such statement
is rendered to Client.
6.7. Client will maintain a system of accounting established and administered
in accordance with sound business practices to permit preparation of
financial statements in conformity with GAAP. Client will promptly
furnish Heller with such statements prepared by or for Client showing
Client's financial condition and the results of Client's operations as
Heller requests verbally or by Written Notice, including without
limitation: (i) as soon as available but not later than sixty (60) days
after the end of each of Client's fiscal years and sixty (60) days after
the end of the second quarter of each of Client's fiscal years, Client's
balance sheet, income statement and the related statement of cash flows
for and as at the end of, the portion of Client's fiscal year then
elapsed and a statement of stockholder's equity for such period,
reviewed by Client's independent certified public accountants and
certified by Client to be prepared in accordance with generally accepted
accounting principles and to fairly present Client's financial position
and results of operations for such period; and (ii) as soon as available
but not later than sixty (60) days after the end of the first and third
quarters of each of Client's fiscal years, Client's balance sheet,
income statement and the related statement of cash flows for and as at
the end of, the portion of Client's fiscal year then elapsed and a
statement of stockholder's equity for such period, compiled by Client's
independent certified public accountants and certified by Client to
fairly present Client's financial position and results of operations for
such period. Client authorizes Heller to communicate directly with
Client's independent certified public accountants and authorizes such
accountants to discuss Client's financial condition and financial
statements directly with Heller.
6.8. Client authorizes Heller to disclose such information as Heller deems
appropriate to persons making credit inquiries about Client.
SECTION 7. COLLATERAL SECURITY
As collateral security for all Obligations, Client hereby assigns and
grants to Heller a continuing security interest in all of the following
property, whether now owned by Client
8
<PAGE>
or hereafter acquired by Client or arising in Client's favor: (i)
Accounts; (ii) general intangibles; (iii) monies,securities and other
property now or hereafter held or received by, or in transit to Heller
from or for Client, whether for safekeeping, pledge, custody,
transmission, collection or otherwise, and all of Client's deposits and
credit balances in Heller's possession; (iv) books, records and other
property at any time evidencing or relating to any of the foregoing
property; and (v) proceeds of any of the foregoing property including,
without limitation, the proceeds of any insurance policies covering any
of the foregoing property. Recourse to the collateral security herein
provided will not be required, and Client will at all times remain
liable for the payment and performance of the Obligations upon demand by
Heller.
SECTION 8. EVENTS OF DEFAULT
The occurrence of any of the following acts or events will constitute an
Event of Default: (a) if Client fails to make payment of any of the
Obligations when due; (b) if Client fails to make any remittance
required by this Agreement; (c) if Client commits any breach of any of
the terms, representations, warranties, covenants, conditions or
provisions of this Agreement, or of any present or future supplement or
amendment hereto or of any other agreement between Heller and Client;
(d) if Client becomes insolvent or unable to meet Client's debts as they
mature; (e) if Client fails to pay when due any material obligations or
liabilities owing by Client to any person or entity (including without
limitation, any United States and state taxes); (f) if Client delivers
to Heller a false financial statement or if any representation,
warranty, certification, or other statement made by Client to Heller is
false in any material respect when made; (g) if Client calls, or has
called by a third party, a meeting of creditors; (h) if any bankruptcy
proceeding, insolvency arrangement or similar proceeding is commenced by
or against Client; (i) if Client suspends or discontinues doing business
for any reason; (j) if a receiver or trustee of any kind is appointed
for Client or any of Client's property; (k) if any guarantor of Client's
Obligations dies or becomes insolvent or has commenced by or against
such guarantor any bankruptcy proceeding, insolvency arrangement or
similar proceeding; (l) if any guaranty of Client's Obligations is
terminated; (m) if any change of ownership occurs with respect to more
than forty (40%) percent of Client's capital stock; (n) if a notice of
lien, money judgment, levy, assessment, seizure or writ, or warrant of
attachment is entered or filed against Client or with respect to the
Accounts or any other collateral in which Client has granted Heller a
security interest; (o) if Client sells, leases, transfers or otherwise
disposes of all or substantially all of Client's property or assets, or
consolidates with or merges into or with any corporation or entity; (p)
if there is a termination of, or the occurrence of an event of default
under, that certain factoring agreement between Heller and Pacific Trim
& Belt, Inc., dated January 7, 1988, or that certain factoring agreement
between Heller and Tag-It, Inc., dated June 24, 1991, or if an event of
default occurs under that certain factoring agreement between Heller and
Western Findings, Inc. dated May 7, 1996; or (q) if any default or
termination occurs under that certain Manufacturing License Agreement
between Guess ?, Inc. and Client dated March 1, 1996.
Upon the occurrence and during the continuance of an Event of Default,
Heller will have the right to terminate this Agreement and all other
arrangements existing between Heller forthwith and without notice, and
the Obligations will mature and become immediately due
9
<PAGE>
and payable and Heller will have the right to withhold any further
payments to Client until all Obligations have been paid in full. In
addition Heller will have all of the rights of a secured party under the
UCC, including, without limitation, the right to take possession of any
collateral in which Heller has a security interest and to dispose of
same at public or private sale and Client will be liable for any
deficiency. Heller will not be required to proceed against any
collateral but may proceed against Client directly.
If either party to this Agreement shall bring any action for any relief
against the other, declaratory or otherwise, arising out of this
Agreement, the losing party shall pay to the prevailing party a
reasonable sum for attorney fees incurred in bringing such suit and/or
enforcing any judgment granted therein, all of which shall be deemed to
have accrued upon the commencement of such action and shall be paid
whether or not such action is prosecuted to judgment. Any judgment or
order entered in such action shall contain a specific provision
providing for the recovery of attorney fees and costs incurred in
enforcing such judgment. For the purposes of this section, attorney
fees shall include, without limitation, fees incurred in the following:
(1) postjudgment motions; (2) contempt proceedings; (3) garnishment,
levy, and debtor and third party examinations; (4) discovery; and (5)
bankruptcy litigation.
SECTION 9. TERM AND TERMINATION
This Agreement will continue in force and effect until terminated by
either party hereto giving the other party not less than sixty (60) days
prior Written Notice thereof; PROVIDED HOWEVER, that Client will not
terminate this Agreement so long as Client is indebted or obligated to
Heller in connection with any other agreements between Heller and
Client.
Notwithstanding any such Written Notice of termination, Client's and
Heller's respective rights and obligations arising out of transactions
having their inception prior to the date of termination of this
Agreement will not be affected by the termination of this Agreement and
all terms, provisions and conditions hereof, including but not limited
to, the security interests thereinabove granted to Heller (including
Accounts arising, acquired or created after the date of termination of
this Agreement), will continue in full force and effect until all
Obligations have been paid in full. All of the representations,
warranties, indemnities and covenants made by Client herein will survive
the termination of this Agreement.
SECTION 10. MODIFICATIONS, WAIVERS, NOTICES AND MISCELLANEOUS PROVISIONS
This Agreement may not be changed or terminated orally; it constitutes
the entire agreement between Client and Heller and will be binding upon
Client's and Heller's respective successors and assigns, but may not be
assigned by Client without Heller's prior written consent. No delay or
failure on Heller's part in exercising any right, privilege, or option
hereunder will operate as a waiver thereof or of any other right,
privilege or option. No waiver whatsoever will be valid unless in a
Written Notice, signed by Heller, and then only to the extent therein
set forth. If any term or provision of this Agreement is held invalid
under any statute, rule or regulation of any jurisdiction competent to
make such a decision, the remaining terms and provisions will not be
affected, but will remain in full force and effect.
10
<PAGE>
Any Written Notice to be given under this Agreement will be in writing
addressed to the respective party as set forth in the heading to this
Agreement and will be personally served, telecopied or sent by overnight
courier service or United States mail and will be deemed to have been
given: (a) if delivered in person, when delivered; (b) if delivered by
telecopy, on the date of transmission if transmitted on a Business Day
before 4:00 p.m. (Los Angeles time) or, if not, on the next succeeding
Business Day; (c) if delivered by overnight courier, two (2) days after
delivery to such courier properly addressed; or (d) if by U.S. Mail,
four (4) Business Days after depositing in the United States mail, with
postage prepaid and properly addressed.
Heller conducts business under California personal property broker
license number 983 6725 and under California commercial finance lender
license number 943 2108.
SECTION 11. GOVERNING LAW, VENUE AND WAIVER OF JURY
THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO ANY CONFLICT OF
LAWS PRINCIPLES. CLIENT HEREBY CONSENTS CALIFORNIA. IF CLIENT
PRESENTLY IS, OR IN THE FUTURE BECOMES, A NON-RESIDENT OF THE STATE OF
CALIFORNIA, CLIENT HEREBY WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS
AND AGREES THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY CERTIFIED OR
REGISTERED MAIL, RETURN RECEIPT REQUESTED, DIRECTED TO CLIENT, AT
CLIENT'S ADDRESS APPEARING IN HELLER'S RECORDS AS SERVICE SO MADE SHALL
BE COMPLETE TEN (10) DAYS AFTER THE SAME HAS BEEN POSTED AS AFORESAID.
WAIVER OF JURY TRIAL. CLIENT AND HELLER HEREBY WAIVE THEIR RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT, OR ANY OTHER DOCUMENTS EXECUTED IN
CONNECTION WITH THIS AGREEMENT, OR ANY DEALINGS BETWEEN CLIENT AND
HELLER RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION AND THE
BUSINESS RELATIONSHIP THAT IS BEING ESTABLISHED. CLIENT AND HELLER
ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A
BUSINESS RELATIONSHIP, THAT EACH OF CLIENT AND HELLER HAS ALREADY RELIED
ON THE WAIVER IN ENTERING INTO THIS AGREEMENT AND THAT EACH OF CLIENT
AND HELLER WILL CONTINUE TO RELY ON THE WAIVER IN THE RELATED FUTURE
DEALINGS BETWEEN CLIENT AND HELLER. CLIENT AND HELLER FURTHER WARRANT
AND REPRESENT THAT THEY KNOWINGLY AND VOLUNTARILY WAIVE THEIR RESPECTIVE
JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
SECTION 12. DEFINITIONS
11
<PAGE>
"Accounts" -- All presently existing or outstanding and all hereafter
created or acquired accounts (as that term is defined in the UCC),
contract rights, documents, notes, drafts, instruments and other forms
of obligations owed to or owned by Client arising or resulting from the
sale of goods or the rendering of services by Client, all general
intangibles relating hereto, all proceeds thereof, all guaranties and
security herefor, and all goods and rights represented hereby or arising
herefrom, including, but no limited to, returned, reclaimed and
repossessed goods and the rights of stoppage in transit, replevin and
reclamation.
"Approved Account" -- An Account with respect to which Heller has issued
a credit approval which has not subsequently been withdrawn.
"Approval Payment Date" -- the date which is one hundred twenty (120)
days after the due date for payment of an Approved Account.
"Base Rate" -- The rate of interest publicly announced from time to time
by Bank of America National Trust and Saving Association.
"Business Day" means any day excluding Saturday, Sunday and any day
which is a legal holiday under the laws of the States of Illinois,
Pennsylvania, or California or is a day on which banking institutions
located in any such state are closed.
"Collection Amount" -- The amount received by Heller from a customer in
payment of an Account up to the Net Amount of such Account.
"Collection Date" -- The date on which Heller receives payment of an
Account.
"Credit Risk" -- The risk that a customer will be financially unable to
pay an Account at maturity, provided that the merchandise has been
received or services rendered and accepted by the customer without
Dispute.
"Daily Balance" -- The outstanding balance of all advances made by
Heller to Client or for Client's account in accordance with subsection
2.1 hereof less all amount credited to Client's account in accordance
with subsection 2.2. hereof.
"Delivery" -- The delivery of goods or performance of services in
accordance with the terms agreed to in writing between Client and a
customer, provided that if no such terms are specified in writing,
delivery shall mean delivery of goods or performance of services at the
customer's place of business.
"Dispute" -- A dispute or claim, bona fide or otherwise, as to price,
terms, quantity, quality, Delivery, or any cause or defense to payment
of an Account whatsoever other than financial inability of a customer to
pay the Account.
"Effective Date" -- The date set forth below Heller's signature hereto.
"GAAP" - Generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified
12
<PAGE>
Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board that are applicable to the circumstances as
of the date of determination.
"Heller Clients" -- Any persons, corporations, partnerships, companies,
associations or entities (other than Client) which have entered into
factoring, inter-credit or financing agreements with any of Heller's
offices.
"Ledger Debt" -- Indebtedness owing by Client to Heller as a result of
Heller's purchases of invoices evidencing sales to Client by Heller
Clients.
"Net Amount" -- The gross amount of an Account less the discount offered
by Client and taken by Heller at the time Heller purchases such Account.
"Non-Approved Account" -- An Account with respect to which Heller has
not issued a credit approval or has subsequently withdrawn a credit
approval.
"Obligations" -- All loans, advances, debts, liabilities, obligations,
covenants and duties owing by Client to Heller, direct or indirect,
absolute or contingent, due or to become due, now existing or hereafter
arising, whether under this Agreement, that certain International
Factoring Agreement between Heller and Client dated as of the Effective
Date, or any other agreement between Heller and Client, including,
without limitation, Ledger Debt and indebtedness arising under any
guaranty made by Client for Heller's benefit or issued by Heller on
Client's behalf, including, without limitation, those certain Guaranties
dated as of the Effective Dated executed by Client with respect to
obligations owing to Heller by (i) Pacific Trim & Belt, Inc.; (ii)
Tag-It, Inc.; and (iii) Western Findings, Inc.
"Purchase Price" -- An amount equal to the Net Amount of an Account,
less factoring commissions, credits (including, without limitation,
merchandise returns and credit memos), charge backs, allowances, and all
other charges provided hereunder.
"Transmission" -- Transmission through Heller's proprietary system or
through Electronic Data Interchange.
"UCC" -- The Uniform Commercial Code as in effect on the date hereof in
the State of California, as amended from time to time, and any successor
statute.
"Written Notice" - Notice given in writing in accordance with Section 10
of this Agreement.
13
<PAGE>
Witness the due execution hereof by the respective duly authorized officers of
the undersigned as of the Effective Date.
HELLER FINANCIAL INC. A.G.S. STATIONERY, INC.
By: By:
---------------------------- ------------------------------------
Title: Title:
------------------------ ---------------------------------
Effective Date: July __, 1996
14
<PAGE>
INTERNATIONAL FACTORING AGREEMENT
(Collection Date)
This International Factoring Agreement (this "Agreement"), dated and effective
as of the Effective Date, is entered into between HELLER FINANCIAL, INC.
("Heller"), with offices at 505 N. Brand Blvd., Glendale, CA 91203, Telecopy No:
(818) 246-6380, and A.G.S. STATIONERY, INC. ("Client"), whose address is 3820
South Hill Street, Los Angeles, CA 90037, Telecopy No. (213) 234-9598 and will
constitute the terms upon which Heller will act as the sole factor of Client's
Export Accounts. Capitalized terms used herein will have the meanings assigned
to such terms in Section 12 of this Agreement.
SECTION 1. SALE AND APPROVAL OF ACCOUNTS
1.1. Client hereby agrees to sell, assign and transfer to Heller and Heller
hereby purchases from Client all of Client's now outstanding and
hereafter created or acquired Export Accounts (other than Export
Accounts for which Client has received collateral to secure the payment
of same) with full power to collect and otherwise deal therewith as the
sole and exclusive owner thereof.
1.2. (a) Client will submit for Heller's credit approval the Buyers' credit
requirements, a description of Client's normal selling terms and such
other information as Heller may request concerning any Buyer. Heller
may, in its sole credit judgment, establish credit lines for sales to
Buyers on Client's normal selling terms. Client may also submit for
credit approval specific orders from Buyers and Heller may, in its sole
credit judgment, approve such orders on a single order approval basis.
All of Heller's credit approvals will be in writing. All sales to
Buyers within established credit lines and all sales to Buyers pursuant
to orders approved on a single order approval basis will be Approved
Accounts provided that Delivery is completed while the credit line or
single order approval remains in effect. Notwithstanding any provisions
herein to the contrary, sales to Korean Customers shall be on sixty (60)
day selling terms only and no invoice evidencing sales by Client to a
Korean Customer shall exceed U.S. $50,000. All sales to Korean
Customers on terms in excess of sixty (60) days and all invoices in
excess of U.S. $50,000 evidencing sales to Korean Customers shall be
Non-Approved Accounts.
(b) Heller reserves the right to amend or withdraw a credit line at any
time by advice to Client, which advice will be promptly confirmed in
writing by Heller at its option.
(c) Heller may withdraw a single order credit approval by notifying
Client verbally and/or in writing at any time prior to Delivery. A
single order credit approval will be automatically withdrawn: (i) in the
event Delivery is not made on or prior to the expiration date indicated
on the written single order credit confirmation form Heller sends to
Client; or (ii) in the event any change is made in the payment terms or
delivery date of the Export Account. Credit approvals will be withdrawn
automatically with respect to any Export Account for which Client fails
to assign such
15
<PAGE>
Export Account to Heller within fifteen (15) days of shipment of the
goods (but in no event later than 15 days prior to the due date of such
Export Account).
(d) Heller shall have no liability to Client or to any Export Customer
for Heller's refusal to credit approve an Export Account or Heller's
withdrawal or amendment of a credit approval.
1.3. Heller will assume the Credit Risk on all Approved Accounts; PROVIDED,
HOWEVER, that Client shall assume the risk of loss prior to acceptance
of the goods by the Buyer or where nonpayment of the Export Accounts
results from any Dispute, acts of God, war, civil strife, currency
restrictions, or foreign political impediments.
1.4. If at any time a Buyer becomes the subject of an insolvency proceeding
or otherwise becomes financially unable to pay Export Accounts, then in
the event that monies were, at any time, owing by a Buyer for both
Approved Accounts and Non-Approved Accounts, any amount when paid by or
credited to the Buyer may be deemed applied as follows:
(a) if Heller issued single order approvals, all payments paid by or
credited to the Buyer may be deemed applied first to Approved Accounts;
(b) if Heller established a credit line for such Buyer and if the credit
line was in force at the time amounts were paid by or credited to the
Buyer, Export Accounts (or parts thereof) in excess of such line may be
deemed to succeed amounts within the line which are paid by or credited
to the Buyer. The succession of Export Accounts (or parts thereof) will
take place in the order of maturity and will be limited to amounts then
so paid or credited. The right of succession ceases when the line is
canceled and thereafter any amount paid or credited may be deemed
applied by Heller in satisfaction of Approved Accounts in priority to
Non-Approved Accounts;
(c) if a bankruptcy or insolvency proceeding has been instituted by or
against the Buyer and if Heller agrees to make a claim in such
proceeding for Non-Approved Accounts, all amounts distributed to Heller
may be shared pro-rata between Approved and Non-Approved Accounts.
SECTION 2. PAYMENT, FEES, COSTS AND EXPENSES
2.1. Heller will purchase each Export Account on the shortest selling terms,
at its option, and will pay Client as the purchase price the net amount
thereof calculated by deducting from the gross amount of each Export
Account the discount, if any, Heller's factoring commission and all
credits, including, without limitation, merchandise returns, allowances,
and chargebacks and all other charges provided for hereunder.
2.2. As payment for an Export Account, (a) the Collected Amount of such
Export Account less advances, interest and any other amounts due Heller
will be credited to Client's account on the Collection Date for such
Account and (b) if the Export Account is an Approved Account which
remains partially or fully unpaid solely as a result of the
16
<PAGE>
financial inability of the customer thereon to pay such Approved Account
and if such Export Account is not subject to a Dispute, the purchase
price of such approved Account less any Collected Amounts previously
credited to Client's account with respect to such Approved Account and
less advances, interest and any other amounts due Heller will be
credited to Client's account on the Approved Payment Date for such
Approved Account.
2.3. At the time Heller purchases each approved Account, or thereafter,
Heller may, at Client's request, and in Heller's sole discretion,
advance to Client up to seventy percent (70%) of the purchase price of
such Approved Account; PROVIDED, HOWEVER that if at any time the
aggregate Net Amount of Approved Accounts arising from sales to a single
Buyer exceeds an amount equal to thirty percent (30%) of the sum of (a)
the total Net Amount of all Export Accounts from all Buyers outstanding
at such time plus (b) the total net amount of all "Accounts" from all
sales to customers outstanding at such time under that certain Domestic
Collection Date Factoring Agreement dated as of the Effective Date, by
and between Client and Heller, as amended from time to time, then Heller
shall not make any advances on any such Approved Accounts in excess of
said amount.
2.4. At the time Heller purchases each Export Account, Heller will charge
Client's account a factoring commission equal to two and one-half
percent (2.50%) of the Net Amount of each Export Account. Heller will
charge Client for all of Heller's out-of-pocket expenses related to
credit reports, import handling fees and credit analysis/inquiry fees
charged by any Import Factor whether or not credit approval is granted.
2.5. Heller will charge Client's account Heller's standard wire transfer fee
on all wire transfers, and Client will reimburse Heller for exchanges on
checks (including bank wire transfer charges), charges for returned
items and all other bank charges, including, without limitation,
currency exchange costs, and for all taxes and governmental charges
imposed, paid or payable in respect to sales or merchandise. Heller may
also, at its option, charge Client's account for all amounts owing by
Client to Heller under this Agreement and for all other Obligations.
2.6. All payments required to be made by either party under this Agreement
shall be made in United States Dollars. All sales to Buyers shall be
payable only in United States Dollars. In the event that any Buyer pays
an Export Account purchased by Heller in currency other than United
States Dollars, the difference, if any, between the United States Dollar
amount due on such Export Account at the time of invoicing and the
amount in United States Dollar received by Heller from the exchange of
such foreign currency into the United States Dollars shall be Client's
responsibility and shall be paid by Client to Heller. Client agrees to
pay any costs or expenses incurred by Heller in connection with such
exchange, or, at Client's option, Heller may charge Client's account for
same.
2.7. Client agrees to indemnify and save and hold Heller, its agents and
assignees harmless for any losses, costs, expenses or liability,
including duties, forwarder's fees, storage, sales or excise taxes or
other expenses, wire fees imposed by the Import Factor or its
17
<PAGE>
transferring bank, transportation, freight, brokerage charges, cartage,
cables, warehousing, collection expenses and attorneys' fees, caused by
or arising out of or incurred in connection with (a) the export of
merchandise sold by Client to its Buyers; (b) Disputed Export Accounts;
or (c) the collection of Non-Approved Accounts by an Import Factor
(provided, however, that Heller shall seek Client's consent before an
Import Factor incurs any external costs and/or expenses relating to the
collection of Non-Approved Accounts). Client further agrees to
immediately repay Heller for any such sums incurred in connection with
the foregoing and Heller may charge Client's account for all such sums.
These indemnities shall survive the termination of this Agreement.
2.8. Client agrees to bear the cost of all filing fees, filing taxes, search
reports, legal fees and other charges incurred by Heller in the
perfection, protection and preservation of the rights and collateral
security herein granted to Heller. Client also agrees to promptly pay
all fees, costs and expenses (including, without limitation, attorneys
fees and allocated costs of internal counsel) incurred in connection
with the creation and administration of this Agreement or any related
instruments, documents and agreements, including the negotiation and
documentation of any waivers, forbearances, amendments or other
modifications relating to this Agreement or any such related agreements
and all such fees, costs and expenses shall be part of the Obligations,
shall be payable on demand and shall be secured by any collateral in
which Client has granted Heller a security interest under this Agreement
or any related agreements.
SECTION 3. INTEREST
3.1. Client will pay Heller interest on the Daily Balance. Interest will be
calculated daily at a rate per annum equal to two and one-half percent
(2.50%) plus the Base Rate (the "Interest Rate") and will be charged to
Client's account monthly at the end of each month. The Interest Rate
will also be charged to Client on all other Obligations, except those
specifying a different rate, from the date incurred through the date
paid. Any publicly announced decrease or increase in the Base Rate will
result in an adjustment to the Interest Rate on the next Business Day.
After the occurrence of an Event of Default and for so long as such
Event of Default continues, all the Obligations will, at Heller's
option, bear interest at a rate per annum equal to three percent (3.0%)
plus the Interest Rate. Interest will be calculated on the basis of a
360-day year for the actual number of days elapsed. In no event will
the total amount of interest received by Heller pursuant to the terms of
his Agreement exceed the maximum rate permitted by applicable law and in
the event excess interest is determined by a court of competent
jurisdiction to have been paid by Client to Heller, such excess interest
will be applied as a credit against the outstanding Obligations and
Client will not have any action against Heller for any damages arising
out of the payment or collection of such excess interest.
3.2. If funds remain with Heller past the Collection Date or Approved Payment
Date, as applicable and there are no outstanding Obligations ("matured-
funds"), Heller will pay Client interest on such matured funds at the
rate per annum equal to the Base Rate
18
<PAGE>
minus three percent (3.0%). Any change in the Base Rate shall result in
an adjustment in the matured funds rate on the next Business Day.
3.3. To allow for collection clearance on all checks and other payments
remitted by Buyers, Client will pay a collection clearance charge
computed as follows: (a) total cash collections for the month,
multiplied by (b) four (4) days, multiplied by (c) the Interest Rate,
divided by (d) 360 days. Heller will charge Client's account at the end
of each month for the collection clearance charge.
3.4. If an Approved Account is charged back after the Collection Date Client
shall pay interest at the Interest Rate on the Net Amount from such date
to the chargeback date.
SECTION 4. REPRESENTATIONS, WARRANTIES AND COVENANTS
4.1. Client represents, warrants and covenants as to each Export Account sold
and assigned hereunder that, at the time of its creation the Export
Account is a valid, bona fide account, representing an undisputed
indebtedness incurred by the named Buyer for goods actually sold and
delivered; there are no setoffs, offsets or counterclaims, genuine or
otherwise, against the Export Account; the Export Account does not
represent a sale to a parent, subsidiary or affiliate; the Export
Account does not represent a consignment, a guarantied sale or a bill
and hold transaction or a cash on delivery sale; no agreement exists
permitting any deduction or discount against the Export Account (other
than the discount stated on the invoice); Client owns the Export Account
and has the right to sell and assign the same to Heller and the Import
Factor; the Export Account is free of all security interests, liens and
encumbrances (including tax liens) other than those in Heller's favor;
the currency of payment of each Export Account shall be U.S. Dollars;
and the Export Account is due and payable in accordance with its terms.
4.2. Client will not grant or suffer to exist in favor of any party other
than Heller, any lien upon or security interest in the Client's
inventory.
4.3. Client is a solvent corporation; duly incorporated and in good standing
under the laws of the State of California and qualified in all States
where such qualification is required; the execution, delivery and
performance of this Agreement have been duly authorized and are not in
contravention of any applicable law, Client's corporate charter or
bylaws or any agreement or order by which Client is bound; Client is
not, to the best of Client's knowledge, in violation of any law,
ordinance, rule, regulation, order or other requirement of any
government or any instrumentality or agency thereof.
4.4. Client will not change its corporate name or the location of its office
or open any new offices without at least thirty (30) days prior written
notice to Heller. At the present time, Client carries on business only
at the above address and the addresses set forth below.
NONE
19
<PAGE>
4.5. All books and records pertaining to Export Accounts or to any inventory
owned by Client will be maintained solely and exclusively at the above
address or the addresses listed in subpart 4.4 above and no such books
and records shall be moved or transferred without at least thirty (30)
days prior written notice to Heller. Upon Heller's request, Client will
hold all returned, replevied or reclaimed goods relating to Export
Accounts coming into Client's possession in trust for Heller and all
such goods shall be segregated and identified as held in trust for
Heller's benefit and Client agrees to deliver such goods to such place
or places as Heller may designate at Heller's request and at Client's
expense.
4.6. Upon Heller's request, Client will hold all returned, replevied or
reclaimed goods relating to Export Accounts coming into Client's
possession in trust for Heller and all such goods shall be segregated
and identified as held in trust for Heller's benefit and Client agrees
to deliver such goods to such place or places as Heller may designate at
Heller's request and at Client's expense.
4.7. The trade names or styles set forth below are the only trade names or
styles under which Client transacts business or has transacted business
under the last five (5) years; Export Accounts sold hereunder and
represented by invoices bearing such trade names or styles are wholly
owned by Client; the undertakings, representations and warranties made
in connection therewith shall be identical to and of the same force and
effect as those made with respect to invoices bearing Client's corporate
name; Client's use of any trade names or styles is in compliance with
all laws regarding the use of such trade names or styles. Client agrees
to give thirty (30) days prior written notice of the change of any trade
name or style or its use of any new trade name or style.
GUESS ? STATIONERY
4.8. No discounts, credits or allowances will be issued, granted or allowed
by Client to Buyers and no returns will be accepted without Heller's
prior written consent; provided, however, that with respect to Export
Accounts that have not been assigned to an Import Factor, until notified
to the contrary, Client may presume Heller's consent. Discounts,
credits or allowances once issued may be claimed only by the Buyer.
4.9. Client will maintain, as the insured party, all insurance necessary to
cover the risk of loss of or damage to goods shipped by Client until
Heller's or any Import Factor's interests therein are terminated
(including, without limitation, marine, war or other hazards of transit,
loss, damage, fire, theft and all other risks, in such amounts and with
such companies as are acceptable to Heller and the Import Factor). Such
policies shall provide that loss thereunder shall be payable to Heller
and the Import Factor as their interests may appear, and Heller and the
Import Factor may apply the proceeds of such insurance to the
Obligations, whether or not due, in such order of application as Heller
and the Import Factor may determine. Such policies or certificates
shall immediately be deposited with Heller and the Import Factor.
20
<PAGE>
4.10. So long as any credit approval to any particular Buyer remains
outstanding, all sales to such Buyer will be assigned to Heller.
4.11. To the best of Client's knowledge, there are no judgments outstanding
against or affecting Client, its officers, directors or affiliates or
any of Client's property and there are no actions, charges, claims,
demands, suits, proceedings, or governmental investigations now pending
or threatened against Client or any of Client's property.
4.12. Client agrees that no provision in this Agreement and no course of
dealing between the parties shall be deemed to create any fiduciary duty
by Heller to Client. Client agrees that neither Heller nor any of
Heller's affiliates, officers, directors, shareholders employees,
attorneys, or agents shall have any liability with respect to, and
Client hereby waives, releases, and agrees not to sue any of them upon,
any claim for any special, indirect, incidental, or consequential
damages suffered or incurred by Client in connection with, arising out
of, or in any way related to this Agreement or any of the transactions
contemplated by this Agreement. Client hereby waives, releases, and
agrees not to sue Heller or any of Heller's affiliates, officers,
directors, shareholders, employees, attorneys, or agents for punitive
damages in respect of any claim in connection with, arising out of, or
in any way related to this Agreement or any of the transactions
contemplated by this Agreement.
4.13. Client acknowledges and agrees that Heller is relying on all of the
foregoing representations, warranties and covenants in Section 4 in
entering into its agreements with all Import Factors for the factoring
of Export Accounts.
4.14. Client agrees to give Heller prompt notice of the termination of, or the
occurrence of any default under, that certain Manufacturing License
Agreement between Guess ?, Inc. and Client dated March 1, 1996, as
amended from time to time.
SECTION 5. DISPUTES, CHARGEBACKS AND RESERVES
5.1. With respect to any Export Account, upon the occurrence of a breach of
any of the representations or warranties contained in Section 4, or upon
the assertion by a Buyer of a Dispute (a) such Export Account, if it is
an Approved Account will automatically become a Non-Approved Export
Account and (b) such Export Account may at Heller's option, be charged
back to Client. In the event that Heller has remitted the purchase
price of an Export Account that is subsequently the subject of a Dispute
by a Buyer, then Client shall promptly repay Heller the amount of such
remittance less all amounts not disputed by the Buyer. This provision
will survive any termination of this Agreement.
5.2. Client will notify Heller immediately in the event that a Buyer alleges
any Dispute, or returns or desires to return any goods purchased.
Heller may, but is not obligated to settle, compromise, adjust or
litigate all such Disputes or returns upon such terms as it deems
advisable. If an unadjusted Dispute delays the payment of any Approved
Account when due, Heller shall have the right to charge back that
Approved Account.
21
<PAGE>
5.3. Heller may, at its option, charge back all amounts owing on Non-Approved
Accounts which are not paid when due.
5.4. Heller will have the right to charge back to Client any payment received
with respect to a Non-Approved Account if such payment is subsequently
disgorged by Heller, whether as a result of any proceeding in bankruptcy
or otherwise.
5.5. Heller may maintain such reserves as it, in its sole discretion, deems
advisable as security for the payment and performance of the
Obligations.
SECTION 6. ADMINISTRATION
6.1. Client agrees to execute and deliver to Heller and/or the Import Factor
assignment schedules of Export Accounts sold to Heller, in the form
prescribed by Heller or the Import Factor, together with one copy of
each invoice and/or bill (or in the case of Mexico; an original invoice)
and, within seven (7) days of any request by Heller or any Import
Factor, acceptable evidence of shipment and such other documentation and
proofs of delivery as Heller may require. Each invoice and/or bill to a
Buyer and all copies thereof shall bear the appropriate assignment
notices in the forms provided to Client from time to time. Client
agrees to prepare and mail all invoices, but Heller or the Import Factor
may do so if required. Client agrees to execute and deliver such
further instruments of assignment, financing statements and instruments
of further assurance as reasonably required. Client authorizes Heller
to execute on Client's behalf and file such UCC financing statements as
Heller deems necessary in order to perfect and maintain the security
interests granted by Client in accordance with this Agreement and any
other agreement between Heller and Client, and Client further agrees
that Heller may file this agreement or a copy thereof as such UCC
financing statement.
6.2. On any day when Client desires to have advances made in accordance with
subsection 2.3, Client shall give Heller telephone notice of the
requested advance by 12:00 p.m. Los Angeles time. Heller shall not
incur any liability to Client for acting upon any telephonic notice that
Heller believes in good faith to have been given by a duly authorized
officer or other person authorized to request advances on Client's
behalf or for otherwise acting in good faith under this subsection.
6.3. If any remittances are made directly to Client, its employees or agents
on Export Accounts, Client agrees to act as trustee of an express trust
for the benefit of Heller and the Import Factor, hold the same as
Heller's and the Import Factor's property and deliver the same to Heller
forthwith in kind. Heller, any Import Factor and/or their assignees
and/or such designees as either of them may from time to time appoint
are hereby appointed jointly and severally, as Client's attorney-in-fact
to endorse Client's name on any and all checks, acceptances, drafts,
bills, money orders or other forms of remittances received by Heller
and/or an Import Factor on Export Accounts, where such endorsement is
required to effect collection and to transmit notices to Buyers, in the
name of Client or Heller or any Import Factor, that amounts owing by
Buyers
22
<PAGE>
have been assigned and are payable directly to Heller and/or such Import
Factor; this power, being coupled with an interest, is irrevocable.
6.4. Client shall permit Heller and any authorized representatives designated
by Heller to visit and inspect any of the properties of Client,
including financial and accounting records, and to make copies and take
extracts therefrom and to discuss its affairs, finances, and business
with its officers at such reasonable times during normal business hours
and as often as may be reasonably requested. Heller may, at any time
after default by Client hereunder, remove from Client's premises all
such records, files and books relating to Export Accounts.
6.5. If Heller determines that the credit standing of a Buyer has
deteriorated after Heller or an Import Factor have assumed the Credit
Risk on an Export Account, Client agrees, at Heller's request, to
exercise such rights as it may have to reclaim or stop the goods in
transit, and Client hereby grants to Heller the right to take such steps
in the name of Client or Heller.
6.6. Heller shall render a monthly statement of account to Client within
twenty (20) days after the end of each month. Such statement of account
shall constitute an account stated unless written objection thereto is
made within thirty (30) days from the date such statement is mailed.
6.7. Client will maintain a system of accounting established and administered
in accordance with sound business practices to permit preparation of
financial statements in conformity with GAAP. Client will promptly
furnish Heller with such statements prepared by or for Client showing
Client's financial condition and the results of Client's operations as
Heller requests verbally or by Written Notice, including without
limitation: (i) as soon as available but not later than sixty (60) days
after the end of each of Client's fiscal years and sixty (60) days after
the end of the second quarter of each of Client's fiscal years, Client's
balance sheet, income statement and the related statement of cash flows
for and as at the end of, the portion of Client's fiscal year then
elapsed and a statement of stockholder's equity for such period,
reviewed by Client's independent certified public accountants and
certified by Client to be prepared in accordance with generally accepted
accounting principles and to fairly present Client's financial position
and results of operations for such period; and (ii)as soon as available
but not later than sixty (60) days after the end of the first and third
quarters of each of Client's fiscal years, Client's balance sheet,
income statement and the related statement of cash flows for and as at
the end of, the portion of Client's fiscal year then elapsed and a
statement of stockholder's equity for such period, compiled by Client's
independent certified public accountants and certified by Client to
fairly present Client's financial position and results of operations for
such period. Client authorizes Heller to communicate directly with
Client's independent certified public accountants and authorizes such
accountants to discuss Client's financial condition and financial
statements directly with Heller.
23
<PAGE>
6.8. Client authorizes Heller to disclose such information as Heller deems
appropriate to persons making credit inquiries about Client. Heller
shall have the right to assign any Export Account purchased by it under
this Agreement to any other Person.
SECTION 7. COLLATERAL SECURITY
As collateral security for all Obligations, Client hereby assigns and
grants to Heller a continuing security interest in: (i) all presently
existing and hereafter created Export Accounts; (ii) general intangibles
with respect to Export Accounts; (iii) all monies, securities and other
property now or hereafter held or received by, or in transit to Heller
from or for Client, whether for safekeeping, pledge, custody,
transmission, collection or otherwise, and all deposits and credit
balances in Heller's possession; (iv) all returned, reclaimed or
repossessed goods relating to Export Accounts and the documents
evidencing or relating to such goods; (v) all books, records and other
property at any time evidencing or relating to Export Accounts; and (vi)
all proceeds of the foregoing including the proceeds of any insurance
policies covering the foregoing. Recourse to the collateral security
herein provided shall not be required, and Client shall at all times
remain liable for the payment and performance of the Obligations, upon
demand by Heller.
SECTION 8. EVENTS OF DEFAULT
The occurrence of any of the following acts or events shall constitute
an Event of Default: (a) nonpayment of any of the Obligations when due;
(b) failure to make any remittance required by this Agreement; (c)
breach of any of the terms, representations, warranties, covenants,
conditions or provisions of this Agreement, or of any present or future
supplement or amendment hereto or of any other agreement between Heller
and Client; (d) if Client becomes insolvent or unable to meet its debts
as they mature; (e) the failure to pay when due any material obligations
or liabilities owing by Client or any person or entity (including
without limitation, any United States and state taxes); (f) the delivery
to Heller of a false financial statement or if any representation,
warranty, certification or other statements made by Client to Heller is
false in any material respect; (g) if Client or a third party calls a
meeting of Client's creditors; (h) commencement by or against Client of
any bankruptcy proceeding, insolvency arrangement or similar proceeding;
(i) suspension or discontinuance of business for any reason; (j) if a
receiver or trustee of any kind is appointed for Client or any of its
property; (k) if any guarantor of the Obligations shall become insolvent
or have commenced by or against such guarantor any bankruptcy
proceeding, insolvency arrangement or similar proceeding; (1) if any
guaranty of Client's Obligations is terminated; (m) if any change of
ownership occurs with respect to more than forty (40%) percent of
Client's capital stock; (n) if a notice of lien, levy or assessment is
filed of record or a levy, seizure or attachment occurs with respect to
any Export Accounts or any other collateral in which Heller has been
granted a security interest; (o) if the sale, lease, transfer or other
disposition of all or substantially all of Client's property or assets,
or the consolidation or merger with or into or with any corporation or
entity without the prior written consent of Heller; (p) if there is a
termination of, or the occurrence of an event of default under, that
certain factoring agreement between Heller and Pacific Trim & Belt,
Inc., dated January 7, 1988, or that certain factoring agreement between
Heller and Tag-It, Inc., dated June 24, 1991, or if an event of default
occurs under that certain factoring
24
<PAGE>
agreement between Heller and Western Findings, Inc. dated May 7, 1996;
(q) if any default or termination occurs under that certain
Manufacturing License Agreement between Guess ?, Inc. and Client dated
March 1, 1996, or (r) if there is an Event of Default under that certain
Domestic Collection Date Factoring Agreement dated as of the Effective
Date between Client and Heller.
Upon the occurrence of an Event of Default, Heller shall have the right
to terminate this Agreement and all other arrangements existing between
the parties forthwith and without notice, and the Obligations shall
mature and become immediately due and payable and Heller shall have the
right to withhold any further payments to Client until all Obligations
have been paid in full. In addition Heller shall have all of the rights
of a secured party under the Uniform Commercial Code, including, without
limitation, the right to take possession of any collateral in which
Heller has a security interest and to dispose of same at public or
private sale and Client will be liable for any deficiency. Heller shall
not be required to proceed against any collateral but may proceed
against Client directly.
If either party to this Agreement shall bring any action for any relief
against the other, declaratory or otherwise, arising out of this
Agreement, the losing party shall pay to the prevailing party a
reasonable sum for attorney fees incurred in bringing such suit and/or
enforcing any judgment granted therein, all of which shall be deemed to
have accrued upon the commencement of such action and shall be paid
whether or not such action is prosecuted to judgment. Any judgment or
order entered in such action shall contain a specific provision
providing for the recovery of attorney fees and costs incurred in
enforcing such judgment. For the purposes of this section, attorney fees
shall include, without limitation, fees incurred in the following: (1)
postjudgment motions; (2) contempt proceedings; (3) garnishment, levy,
and debtor and third party examinations; (4) discovery; and (5)
bankruptcy litigation.
SECTION 9. TERM AND TERMINATION
This Agreement shall continue in force and effect until terminated by
either party hereto giving the other party not less than sixty (60) days
prior written notice thereof; PROVIDED, HOWEVER, that this Agreement
shall terminate automatically upon termination of the Collection Date
Factoring Agreement dated as of the effective Date, by and between
Client and Heller. Notice of termination shall be given as provided in
Section 10; provided, however, that this Agreement shall not terminate
so long as Client is indebted or obligated to Heller in connection with
any other financing arrangements. Notwithstanding such notice of
termination, the respective rights and obligations of the parties hereto
arising out of transactions having their inception prior to the
specified date of termination shall not be affected by such termination
and all terms, provisions and conditions hereof, including but not
limited to, the security interests hereinabove granted to Heller, shall
continue in full force and effect until all Obligations have been paid
in full. All of the indemnities, representations, warranties and
covenants made by Client herein shall survive the termination of this
Agreement.
SECTION 10. MODIFICATIONS, WAIVERS, NOTICE AND MISCELLANEOUS PROVISIONS
25
<PAGE>
This Agreement may not be changed or terminated orally; it constitutes
the entire agreement between the parties and shall be binding upon their
respective successors and assigns, but may not be assigned by Client
without Heller's prior written consent. No delay or failure on Heller's
part in exercising any right, privilege, or option hereunder shall
operate as a waiver thereof or of any other right, privilege or option.
No waiver whatsoever shall be valid unless in writing, signed by Heller,
and then only to the extent therein set forth. If any term or provision
of this Agreement is held invalid under any statute, rule or regulation
of any jurisdiction competent to make such a decision, the remaining
terms and provisions shall not be affected, but shall remain in full
force and effect. If any term or provision of this Agreement is held
invalid under any statute, rule or regulation of any jurisdiction
committed to make such a decision, the remaining terms and provisions
will not be affected but will remain in full force and effect. Heller
conducts business under California personal property broker license
number 983 6725 and under California commercial finance lender license
number 943 2108.
Unless otherwise specifically provided herein, all notices shall be in
writing addressed to the respective party as set forth below and may be
personally served, telecopied or sent by overnight courier service or
United States mail and shall be deemed to have been given: (a) if
delivered in person, when delivered; (b) if delivered by telecopy, on
the date of transmission if transmitted on a Business Day before 4:00
p.m. (Los Angeles time) or, if not, on the next succeeding Business Day;
(c) if delivered by overnight courier, two days after delivery to such
courier properly addressed; or (d) if by U.S. Mail, four Business Days
after depositing in the United States mail, with postage prepaid and
properly addressed.
If to Client: A.G.S. Stationery, Inc.
3820 South Hill Street
Los Angeles, CA 90037
Telecopy No.: (213) 234-9598
If to Heller: HELLER FINANCIAL, INC.
Attn: Portfolio Manager
505 North Brand Boulevard
Glendale, CA 91203
Telecopy No.: 818/409-1659
With a copy to: HELLER FINANCIAL, INC.
Attn: Legal Department
505 North Brand Boulevard
Glendale, CA 91203
Telecopy No.: 818/548-4963
or to such other address as the party addressed shall have previously designated
by written notice to the serving party.
SECTION 11. GOVERNING LAW, VENUE AND WAIVER OF JURY
26
<PAGE>
THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF CALIFORNIA. CLIENT HEREBY CONSENTS TO THE JURISDICTION OF ANY
LOCAL, STATE OR FEDERAL COURT LOCATED WITHIN THE STATE OF CALIFORNIA. IF CLIENT
PRESENTLY IS, OR IN THE FUTURE BECOMES, A NON-RESIDENT OF THE STATE OF
CALIFORNIA, CLIENT HEREBY WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS AND
AGREES THAT IF SUCH SERVICE OF PROCESS MAY BE MADE BY CERTIFIED OR REGISTERED
MAIL, RETURN RECEIPT REQUESTED, DIRECTED TO CLIENT, AT CLIENT'S ADDRESS
APPEARING IN HELLER'S RECORDS AND SERVICE SO MADE SHALL BE COMPLETE TEN (10)
DAYS AFTER THE SAME HAS BEEN POSTED AS AFORESAID
WAIVER OF JURY TRIAL. THE PARTIES HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A
JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS
AGREEMENT, OR ANY OTHER DOCUMENTS EXECUTED IN CONNECTION WITH THIS AGREEMENT, OR
ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION AND
THE BUSINESS RELATIONSHIP THAT IS BEING ESTABLISHED. THE PARTIES ACKNOWLEDGE
THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP,
THAT EACH OF THEM HAS ALREADY RELIED ON THE WAIVER IN ENTERING INTO THIS
AGREEMENT AND THAT EACH OF THEM WILL CONTINUE TO RELY ON THE WAIVER IN ITS
RELATED FUTURE DEALINGS. THE PARTIES FURTHER WARRANT AND REPRESENT THAT THEY
KNOWINGLY AND VOLUNTARILY WAIVE THEIR RESPECTIVE JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL.
SECTION 12. DEFINITIONS
"Approved Account" -- An Export Account with respect to which Heller has issued
a credit approval which has not subsequently been withdrawn.
"Approved Payment Date" -- The date which is (a) one hundred twenty (120) days
after the due date for payment of an Approved Account if the Approved Account is
an Export Account other than a Portuguese or Italian Account, or (b) 180 days
after the due date of such Approved Account if it is a Portuguese or Italian
Account.
"Base Rate" -- The rate of interest publicly announced from time to time by Bank
of America National Trust and Savings Association as its prime or base rate (or
equivalent).
"Business Day" -- Any day excluding Saturday, Sunday and any day which is a
legal holiday Under the laws of the States of Illinois, Pennsylvania or
California or is a day on which banking institutions located in any such states
are closed.
"Buyer" -- Any of Client's customers located outside of the United States of
America that are obligated on the Export Accounts.
"Collected Amount" -- The amount received by Heller in payment of an Export
Account.
27
<PAGE>
"Collection Date" -- (a) if received prior to 12:00 p.m. (Los Angeles time)the
date on which Heller receives payment of an Export Account in Glendale,
California, or (b) if received after 12:00 p.m. (Los Angeles time) the next
Business Day after which Heller receives payment of an Export Account in
Glendale, California.
"Credit Risk" -- The risk that a Buyer will be financially unable to pay an
Export Account at maturity, provided that the merchandise has been received and
accepted by the Buyer without Dispute.
"Daily Balance" -- The outstanding balance of all advances made by Heller to
Client or for Client's account in accordance with subsection 2.3 hereof less all
amounts credited to Client's account in accordance with subsection 2.2 hereof.
"Delivery" -- The delivery of goods in accordance with the terms of same agreed
to in writing between Client and Buyer, provided that if no such terms are
specified in writing, delivery shall mean delivery at the Buyer's place of
business.
"Dispute" -- A dispute or claim, bona fide or otherwise, as to price, terms,
quantity, quality, delivery of goods or any cause or defense to payment
whatsoever other than financial inability to pay.
"Effective Date" -- The date set forth below Heller's signature hereto.
"Export Accounts" -- All presently existing and hereafter created accounts,
contract rights and general intangibles relating thereto, notes, drafts and
other forms of obligations owed to or owned by Client arising or resulting from
the sale of goods or the rendering of services by Client to Buyers, all proceeds
thereof, all guaranties and security therefor, and all goods and rights
represented thereby or arising therefrom including, but not limited to, the
right of stoppage in transit, replevin and reclamation.
"GAAP" - Generally accepted accounting principles set forth in the opinions and
pronouncements of the Accounting Principles Board of the American Institute of
Certified Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board that are applicable to the circumstances as of the
date of determination.
"Import Factor" -- The factor, with respect to a particular Export Account, with
whom Heller has an interfactor agreement pursuant to which such factor has
agreed to collect the Export Account and/or to assume the Credit Risk.
"Korean Customer" -- Any of Client's customers located in Korea.
"Net Amount" -- The gross amount of an Export Account less the discount offered
by Client and taken by Heller.
"Non-Approved Account" -- An Export Account with respect to which Heller or an
Import Factor has not issued a credit approval or has subsequently withdrawn a
credit approval.
28
<PAGE>
"Obligations" -- All loans, advances, debts, liabilities, obligations, covenants
and duties owing by Client to Heller, direct or indirect, absolute or
contingent, due or to become due, now existing or hereafter arising, whether
under this Agreement, that certain International Factoring Agreement between
Heller and Client dated as of the Effective Date, or any other agreement between
Heller and Client, including, without limitation, Ledger Debt and indebtedness
arising under any guaranty made by Client for Heller's benefit or issued by
Heller on Client's behalf, including without limitation, those certain
Guaranties dated as of the Effective Date and executed by Client with respect to
obligations owing to Heller by (i) Pacific Trim & Bell, Inc.; (ii) Tag-it, Inc.;
and (iii) Western Findings, Inc.
"Person" -- Any natural person, corporation, limited partnership, general
partnership, joint stock company, joint venture, association, company, trust,
bank, trust company, land trust, business trust or other organization, whether
or not a legal entity, and any government and agency and political subdivision
thereof.
"Portuguese or Italian Account" -- An export Account arising from the sale of
goods or the rendering of services by Client to a Buyer located in Portugal or
Italy.
Witness the due execution hereof by the respective duly authorized officers of
the undersigned as of the Effective Date.
HELLER FINANCIAL INC. A.G.S. STATIONERY, INC.
By: /s/ By: /s/ Colin Dyne
----------------------------- ---------------------------------
Title: /s/ SRVP 8/6/96 Title: President
-------------------------- ------------------------------
Effective Date: July __, 1996
29
<PAGE>
TAX INDEMNIFICATION AGREEMENT
THIS TAX INDEMNIFICATION AGREEMENT (this "AGREEMENT") is made this 16th
day of October, 1997, between Pacific Trim & Belt, Inc., a California
corporation (the "COMPANY"), and Harold Dyne, Jonathan Burstein, Raymond Spiro
and Stan Magnus (collectively, the "SHAREHOLDERS") (the Company and the
Shareholders are hereinafter referred to individually as a "PARTY" and
collectively as the "PARTIES").
WHEREAS, the Shareholders contemplate the contribution of their stock in
the Company to a limited liability company as a means to combine the business of
the Company with other commonly owned businesses (the "Exchange").
WHEREAS, the execution of this Agreement by the Company and the
Shareholders is a condition to the closing (the "CLOSING") of the contemplated
Consolidation;
WHEREAS, the Company is and will continue to be an S corporation under the
Internal Revenue Code of 1986, as amended (the "CODE") through the consummation
of the Exchange, after which it will become a C corporation under the Code (and
under the corresponding provisions of state income tax law);
WHEREAS, following the Exchange, the Company will elect under Section
1362(e)(3) of the Code to have the rules of Section 1362(e)(2) not apply for its
S Termination year (as hereinafter defined); and
WHEREAS, the Company and the Shareholders wish to provide for a tax
indemnification agreement in connection with the Company's termination as an S
corporation.
NOW, THEREFORE, the parties agree as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. The following terms, as used herein, have the following
meanings:
"C CORPORATION TAXABLE YEAR" means any taxable year or portion thereof
during which the Company is taxable as a C Corporation.
"C SHORT YEAR" means that portion of the S Termination Year of the
Company defined in Section 1362(e)(1)(B) of the Code.
"S CORPORATION TAXABLE INCOME" means the taxable income of the Company
from all sources through and including the close of business on the last day of
the S Short Year of the Company.
<PAGE>
"S CORPORATION TAXABLE YEAR" means any taxable year or portion thereof
during which the Company is taxable as an S corporation.
"S SHORT YEAR" means that portion of the S Termination Year of the
Company defined in Section 1362(e)(1)(A) of the Code.
"S TERMINATION YEAR" shall have the meaning set forth in Section
1362(e)(4) of the Code.
ARTICLE II
TAXES
2.1 SHAREHOLDERS' FILING OF TAX RETURNS AND PAYMENT OF TAXES. Each
Shareholder, severally and not jointly, represents, covenants and agrees that:
(i) such Shareholder has duly included, or shall duly include, in his or her own
federal and state income tax returns his or her share of all items of income,
gain, loss, deduction or credit attributable to the S Short Year of the Company
or any prior period (or that portion of any period) during which the Company was
an S corporation as required by applicable law; (ii) such returns have included,
or shall include, his or her allocable share of S Corporation Taxable Income;
and (iii) such Shareholder has paid, or shall pay, any and all taxes he or she
is required to pay with respect to such allocable share of S Corporation Taxable
Income for all taxable periods (or that portion of any period) during which the
Company was an S corporation.
2.2 COMPANY'S FILING OF TAX RETURNS AND PAYMENT OF TAXES. The Company
represents, covenants and agrees that: (i) the Company is and shall be
responsible for and has effected, or shall effect, the filing of all federal,
state, foreign and local returns for the Company with respect to any and all
taxable periods; (ii) such Company returns have included, or shall include, the
Company's income from all sources for all periods covered by the returns; and
(iii) the Company has paid, or shall pay, any and all taxes required to be paid
by the Company for all periods covered by the returns as required by applicable
law.
2.3 COMPANY'S INDEMNIFICATION FOR TAX LIABILITIES. The Company hereby
indemnifies and agrees to hold each Shareholder harmless from, against and in
respect of any federal and state income tax liability (including interest and
penalties and any taxes resulting from payments under this Section 2.3, but
reduced by the benefit received from the deduction for state income taxes
paid against taxable income for federal income tax purposes), if any,
incurred by such Shareholder resulting from a final determination of an
adjustment (by reason of an amended return, claim for refund, audit or
otherwise) to the Company's taxable income resulting in a decrease in the
Company's taxable income and a corresponding increase in the federal or
state, as the case may be, taxable income of such Shareholder with respect to
such Shareholder's allocable share of S Corporation Taxable Income; PROVIDED,
HOWEVER, that in no event shall the Company's liability to any one of the
Shareholders under this Section 2.3 exceed the amount of the income tax
liability (including interest and penalties and any taxes resulting from
payments under this Section 2.3) of such Shareholder arising from the
increase in S Corporation Taxable Income
2
<PAGE>
allocated to such Shareholder shifted from a C Corporation Taxable Year to an
S Corporation Taxable Year.
2.4 SHAREHOLDER INDEMNIFICATION FOR TAX LIABILITIES.
(a) The Shareholders, severally (according to the percentage of
the outstanding shares of the Company's Common Stock owned by each
Shareholder during the applicable S Corporation Taxable Year from which there
is a shift of S Corporation Taxable Income, as referred to hereinbelow, pro
rated by number of days of ownership in the case of partial periods of
ownership) and not jointly, hereby indemnify and agree to hold the Company
harmless from, against and in respect of any federal and state income tax
liability (including interest and penalties and any taxes resulting from
payments under this Section 2.4(a)), if any, resulting from a final
determination of any adjustment (by reason of an amended return, claim for
refund, audit or otherwise) to the Shareholders' taxable income resulting in
a decrease in the Shareholders' S Corporation Taxable Income and a
corresponding increase in the federal or state, as the case may be, taxable
income of the Company; PROVIDED, HOWEVER, the amount of any such indemnified
tax liability shall be reduced by an amount equal to the refund of state
income tax, including interest, received by the Company for state income
taxes paid by the Company in respect of any taxable income shifted from an S
Corporation Taxable Year to a C Corporation Taxable Year of the Company which
is subject to indemnification hereunder; and PROVIDED, FURTHER, that in no
event shall any Shareholder's liability under this Section 2.4(a) exceed the
amount of any credit or refund of taxes and interest actually received by
such Shareholder as a result of such final determination, related final
determination or claim for refund.
(b) The Shareholders, severally (according to the percentage of
the outstanding shares of the Company's Common Stock owned by each
Shareholder during the applicable taxable period ending prior to September
16, 1997, with respect to which it is determined that the Company was not an
S Corporation) and not jointly, hereby indemnify and agree to hold the
Company harmless from, against and in respect of any federal and state income
tax liability (including penalties, interest and any taxes resulting from the
payments under this Section 2.4(b)) incurred by the Company as a result of a
final determination that the Company was not an S corporation for federal or
state income tax purposes for any taxable period ending prior to September
16, 1997 (including a short taxable period ending the day before September
16, 1997); PROVIDED, HOWEVER, that in no event shall any Shareholder's
liability under this paragraph 2.4(b) exceed the amount any credit or refund
of taxes and interest actually received by such Shareholder as a result of
such final determination, related final determination or claim for refund.
2.5 PAYMENTS. The party (or parties) providing the indemnity under either
Section 2.3 or Section 2.4 (the "INDEMNIFYING PARTY") shall make any payment
required to be paid under this Agreement to the party being indemnified under
Section 2.3 or Section 2.4, respectively (the "INDEMNIFIED PARTY"), within
thirty (30) days after the later to occur of (i) the receipt of notice from the
Indemnified Party that a payment is due by the Indemnified Party to the
appropriate taxing authority pursuant to the applicable final determination and
(ii) the receipt
3
<PAGE>
by the Indemnifying Party of the credit or refund of taxes, if any, resulting
from the corresponding applicable final determination, related final
determination or claim for refund.
2.6 SUBROGATION. The Indemnifying Party shall be subrogated to all rights
of recovery that the Indemnified Party may have against any person or
organization in respect of the tax liabilities for which the Indemnifying Party
is providing indemnity. Such right of subrogation shall not exceed the amount
paid by the Indemnifying Party to the Indemnified Party. The Indemnified Party
shall execute and deliver instruments and papers and such other items, and take
such actions, as are reasonably necessary to secure such rights of subrogation
for the Indemnifying Party and to permit the Indemnifying Party to pursue such
rights of recovery.
ARTICLE III
MISCELLANEOUS
3.1 NOTICES. All notices and other communications made in connection with
this Agreement shall be in writing and shall be deemed given when delivered
personally or sent by facsimile transmission to the numbers indicated below (if
physical confirmation of transmission is retained) or on the third succeeding
business day after being mailed by registered or certified mail, deposited in
the United States mail, postage prepaid, return receipt requested, to the
appropriate party at its, his or her address below or at such other address for
such party (as shall be specified by written notice when in fact delivered
pursuant hereto):
If to the Company, at:
Pacific Trim & Belt, Inc.
3820 South Hill Street
Los Angeles, California 90037
Attention: President
If to the Shareholders, at:
Mr. Harold Dyne
c/o Pacific Trim & Belt, Inc.
3820 South Hill Street
Los Angeles, California 90037
3.2 COUNTERPARTS. This Agreement may be executed in several counterparts,
each of which shall be deemed an original, but all of which counterparts
collectively shall constitute an instrument representing the agreement between
the parties hereto.
3.3 CONSTRUCTION OF TERMS. Nothing herein expressed or implied is
intended, or shall be construed, to confer upon or give any person, firm or
corporation, other than the parties
4
<PAGE>
hereto or their respective successors and assigns, any rights or remedies under
or by reason of this Agreement.
3.4 GOVERNING LAW. This Agreement and the legal relations between the
parties hereto shall be governed by and construed in accordance with the
substantive laws of the State of California without regard to California choice
of law rules.
3.5 AMENDMENT AND MODIFICATION. This Agreement may be amended by the
agreement of the Company and Shareholders holding a majority of the shares of
Common Stock outstanding on the date of this Agreement; PROVIDED, HOWEVER, that
no amendment may adversely affect any particular Shareholder in a manner not
equally applicable to the other Shareholders unless such amendment is approved
by such Shareholder.
3.6 ASSIGNMENT. This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns, but neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto without the prior written consent of the other parties, nor is
this Agreement intended to confer upon any other person except the parties, any
rights or remedies hereunder; PROVIDED, HOWEVER, nothing in this Section shall
be construed as prohibiting an assignment of this Agreement by the Company to a
successor by operation of law.
3.7 INTERPRETATION. The title, articles and section headings contained in
this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not in any way affect the meaning or
interpretation of this Agreement.
3.8 SEVERABILITY. In the event that any one or more of the provisions of
this Agreement shall be held to be illegal, invalid or unenforceable in any
respect, the same shall not in any respect affect the validity, legality or
enforceability of the remainder of this Agreement, and the parties shall use
their best efforts to replace such illegal, invalid or unenforceable provisions
with an enforceable provision approximating, to the extent possible, the
original intent of the parties.
3.9 ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding of the parties hereto in respect of the subject matter contained
herein. There are no representations, promises, warranties, covenants, or
undertakings, other than those expressly set forth or referred to herein. This
Agreement supersedes all prior agreements and the understandings between the
parties with respect to such subject matter.
3.10 ARBITRATION. Any action to enforce or interpret this Agreement or to
resolve disputes arising in connection with this Agreement shall be settled by
arbitration in accordance with the rules of the American Arbitration
Association. Any party may commence arbitration by sending a written demand for
arbitration to the other parties. Such demand shall set forth the nature of the
matter to be resolved by arbitration. The substantive law of the State of
California shall be applied by the arbitrator to the resolution of the dispute.
The Company, on the one hand, and the Shareholders, on the other hand, shall
share equally all initial costs of
5
<PAGE>
arbitration. The prevailing party or parties 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 all parties. Judgment may be entered upon any such decision in
accordance with applicable law in any court having jurisdiction thereof.
IN WITNESS WHEREOF, each of the parties hereto has executed or caused this
Agreement to be executed on its behalf all as of the day and year first above
written.
PACIFIC TRIM & BELT, INC., a
California corporation
By: /s/ Harold Dyne
-----------------------------------
Harold Dyne
Its: President
SHAREHOLDERS:
/s/ Harold Dyne
----------------------------------------
Harold Dyne
/s/ Jonathan Burstein
----------------------------------------
Jonathan Burstein
/s/ Raymond Spiro
----------------------------------------
Raymond Spiro
/s/ Stan Magnus
----------------------------------------
Stan Magnus
6
<PAGE>
EQUIPMENT LEASE GUARANTY
LESSOR: QUAIL AMERICAN CORP.
LEASE NO. CPL7B17
DATE OF LEASE: 2/24/97
This Guaranty Agreement made and entered into this 24TH day of FEBRUARY,
1997 by COLIN DYNE (hereinafter referred to collectively as "Guarantor"), in
favor of QUAIL AMERICAN CORP. (hereinafter referred to as "Lessor").
WHEREAS, it is contemplated that Lessor may enter into a lease and/or other
related agreements (hereinafter collectively "Lease") with TAG-IT, INC.
(hereinafter collectively "Lessee"); and,
WHEREAS, Guarantor has an interest, financial or otherwise, in Lessee, and
it is to the benefit of Guarantor that Lessor enter into the Lease with Lessee,
and Guarantor has read the proposed Lease in full and finds the terms of said
Lease acceptable, and in recognition that Lessor would be unwilling to enter
into the Lease without the Guaranty hereinafter set forth, and in recognition of
Lessor's reliance upon the Guaranty in entering into the Lease;
NOW, THEREFORE, in order to induce Lessor to enter into the Lease,
Guarantor, jointly and severally, unconditionally guaranties the faithful and
full performance by Lessee of all terms and conditions of the Lease. In the
event of default by Lessee, or failure to faithfully perform any of the terms
or conditions required of Lessee under the Lease, or in the event of failure of
Lessee to make any or all payments of money required of it under the Lease,
Guarantor unconditionally promises to pay to Lessor, in lawful money of the
United States, all sums at any time due and unpaid under the Lease, plus costs
of collection, including reasonably attorney fees with or without trial, and
upon appeal and review.
The obligations of Guarantor hereunder are joint and several and are
independent of the obligations of Lessee under the Lease, and a separate action
or actions may be brought against Guarantor, whether action is brought against
Lessee or whether Lessee be joined in any action or actions, the liability of
Guarantor hereunder being primary. Guarantor hereby waives the benefit of any
suretyship defenses affecting its liability hereunder or the enforcement hereof.
Guarantor authorized Lessor, without notice or demand, and without
affecting Guarantor's liability hereunder, from time to time to renew, extend,
accelerate, or otherwise change the payment terms or other terms of the Lease or
any part thereof. Lessor may, without notice, assign this Guaranty in whole or
in part.
Guarantor hereby waives any right to require Lessor to: (a) proceed against
Lessee; (b) proceed against or exhaust any security held by Lessor; or (c)
pursue any other remedy in Lessor's power. Guarantor waives any defense arising
by reason of any defense of Lessee, or by reason of the cessation, from any
cause whatsoever, of the liability of Lessee under the Lease. Guarantor waives
any and all demands for performance, notices of nonperformance or default, and
notices of cancellation or forfeiture. Lessor may apply all proceeds received
from Lessee or others to such part of Lessee's indebtedness as Lessor may deem
appropriate without consulting Guarantor and without prejudice to or in any way
limiting or lessening the liability of Guarantor under this Guaranty.
If Lessee is a corporation, the undersigned warrant and represent that they
are stockholders, directors or officers and/or are financially or otherwise
interested in Lessee, and, if married, their marital communities are so
interested.
This Guaranty shall not be affected or discharged by the death or the
undersigned, but shall bind Guarantor's heirs and personal representatives, and
shall inure to the benefit of any successors or assigns of Lessor.
This instrument constitutes the entire agreement between Lessor and
Guarantor. No oral or written representation not contained herein shall in any
way affect this Guaranty, which shall not be modified except by the parties in
writing. Waiver by Lessor of any provision hereof in one instance shall not
constitute a waiver as to any other instance.
IMPORTANT: THIS AGREEMENT CREATES SPECIFIC LEGAL OBLIGATIONS. DO NOT SIGN IT
UNTIL YOU HAVE FULLY READ IT. BY SIGNING YOU COMPLETELY AGREE TO ITS TERMS.
IN WITNESS WHEREOF, the undersigned Guarantor(s) has/have executed this Guaranty
this 24TH day of FEBRUARY 1997.
GUARANTOR: GUARANTOR:
/s/ Colin Dyne
- ----------------------------------- ---------------------------------------
NAME: COLIN DYNE NAME:
24800 EARLS CT
- ----------------------------------- ---------------------------------------
Home Address Home Address
CALABASAS, CA 91302
- ----------------------------------- ---------------------------------------
City State Zip City State Zip
/s/
- ----------------------------------- ---------------------------------------
WITNESS WITNESS
<PAGE>
EQUIPMENT LEASE GUARANTY
LESSOR: SADDLEBACK FINANCIAL CORPORATION
LEASE NO. 09532-0196
DATE OF LEASE: 1-23-96 6
This Guaranty Agreement made and entered into this 23RD day of JANUARY,
1996 by HAROLD DYNE (hereinafter referred to collectively as "Guarantor"), in
favor of SADDLEBACK FINIANCIAL CORPORATION (hereinafter referred to as
"Lessor").
WHEREAS, it is contemplated that Lessor may enter into a lease and/or other
related agreements (hereinafter collectively "Lease") with TAG-IT INC., 3820 S.
HILL STREET, LOS ANGELES, CA 90037 (hereinafter collectively "Lessee"); and,
WHEREAS, Guarantor has an interest, financial or otherwise, in Lessee, and
it is to the benefit of Guarantor that Lessor enter into the Lease with Lessee,
and Guarantor has read the proposed Lease in full and finds the terms of said
Lease acceptable, and in recognition that Lessor would be unwilling to enter
into the Lease without the Guaranty hereinafter set forth, and in recognition of
Lessor's reliance upon the Guaranty in entering into the Lease;
NOW, THEREFORE, in order to induce Lessor to enter into the Lease,
Guarantor, jointly and severally, unconditionally guaranties the faithful and
full performance by Lessee of all terms and conditions of the Lease. In the
event of default by Lessee, or failure to faithfully perform any of the terms
or conditions required of Lessee under the Lease, or in the event of failure of
Lessee to make any or all payments of money required of it under the Lease,
Guarantor unconditionally promises to pay to Lessor, in lawful money of the
United States, all sums at any time due and unpaid under the Lease, plus costs
of collection, including reasonably attorney fees with or without trial, and
upon appeal and review.
The obligations of Guarantor hereunder are joint and several and are
independent of the obligations of Lessee under the Lease, and a separate action
or actions may be brought against Guarantor, whether action is brought against
Lessee or whether Lessee be joined in any action or actions, the liability of
Guarantor hereunder being primary. Guarantor hereby waives the benefit of any
suretyship defenses affecting its liability hereunder or the enforcement hereof.
Guarantor authorized Lessor, without notice or demand, and without
affecting Guarantor's liability hereunder, from time to time to renew, extend,
accelerate, or otherwise change the payment terms or other terms of the Lease or
any part thereof. Lessor may, without notice, assign this Guaranty in whole or
in part.
Guarantor hereby waives any right to require Lessor to: (a) proceed against
Lessee; (b) proceed against or exhaust any security held by Lessor; or (c)
pursue any other remedy in Lessor's power. Guarantor waives any defense arising
by reason of any defense of Lessee, or by reason of the cessation, from any
cause whatsoever, of the liability of Lessee under the Lease. Guarantor waives
any and all demands for performance, notices of nonperformance or default, and
notices of cancellation or forfeiture. Lessor may apply all proceeds received
from Lessee or others to such part of Lessee's indebtedness as Lessor may deem
appropriate without consulting Guarantor and without prejudice to or in any way
limiting or lessening the liability of Guarantor under this Guaranty.
If Lessee is a corporation, the undersigned warrant and represent that they
are stockholders, directors or officers and/or are financially or otherwise
interested in Lessee, and, if married, their marital communities are so
interested.
This Guaranty shall not be affected or discharged by the death or the
undersigned, but shall bind Guarantor's heirs and personal representatives, and
shall inure to the benefit of any successors or assigns of Lessor.
This instrument constitutes the entire agreement between Lessor and
Guarantor. No oral or written representation not contained herein shall in any
way affect this Guaranty, which shall not be modified except by the parties in
writing. Waiver by Lessor of any provision hereof in one instance shall not
constitute a waiver as to any other instance.
IMPORTANT: THIS AGREEMENT CREATES SPECIFIC LEGAL OBLIGATIONS. DO NOT SIGN IT
UNTIL YOU HAVE FULLY READ IT. BY SIGNING YOU COMPLETELY AGREE TO ITS TERMS.
IN WITNESS WHEREOF, the undersigned Guarantor(s) has/have executed this Guaranty
this 23RD day of JANUARY, 1996.
GUARANTOR: GUARANTOR:
/s/ Harold Dyne
- ----------------------------------- ---------------------------------------
NAME: NAME: HAROLD DYNE
20523 CLARK STREET
- ----------------------------------- ---------------------------------------
Home Address Home Address
WOODLAND HILLS, CA 91367
- ----------------------------------- ---------------------------------------
City State Zip City State Zip
/s/ James McFeeters
- ----------------------------------- ---------------------------------------
WITNESS WITNESS
<PAGE>
EQUIPMENT LEASE GUARANTY
LESSOR: QUAIL AMERICAN CORP.
LEASE NO. ADV5I02
DATE OF LEASE: 10/25/95
This Guaranty Agreement made and entered into this 25TH day of OCTOBER, by
HAROLD DYNE, (hereinafter referred to collectively as "Guarantor"), in favor of
QUAIL AMERICAN CORP. (hereinafter referred to as "Lessor").
WHEREAS, it is contemplated that Lessor may enter into a lease and/or other
related agreements (hereinafter collectively "Lease") with PACIFIC TRIM & BELT,
INC. AND TAG-IT, INC. AS CO-LESSEES (hereinafter collectively "Lessee"); and,
WHEREAS, Guarantor has an interest, financial or otherwise, in Lessee, and
it is to the benefit of Guarantor that Lessor enter into the Lease with Lessee,
and Guarantor has read the proposed Lease in full and finds the terms of said
Lease acceptable, and in recognition that Lessor would be unwilling to enter
into the Lease without the Guaranty hereinafter set forth, and in recognition of
Lessor's reliance upon the Guaranty in entering into the Lease;
NOW, THEREFORE, in order to induce Lessor to enter into the Lease,
Guarantor, jointly and severally, unconditionally guaranties the faithful and
full performance by Lessee of all terms and conditions of the Lease. In the
event of default by Lessee, or failure to faithfully perform any of the terms
or conditions required of Lessee under the Lease, or in the event of failure of
Lessee to make any or all payments of money required of it under the Lease,
Guarantor unconditionally promises to pay to Lessor, in lawful money of the
United States, all sums at any time due and unpaid under the Lease, plus costs
of collection, including reasonably attorney fees with or without trial, and
upon appeal and review.
The obligations of Guarantor hereunder are joint and several and are
independent of the obligations of Lessee under the Lease, and a separate action
or actions may be brought against Guarantor, whether action is brought against
Lessee or whether Lessee be joined in any action or actions, the liability of
Guarantor hereunder being primary. Guarantor hereby waives the benefit of any
suretyship defenses affecting its liability hereunder or the enforcement hereof.
Guarantor authorized Lessor, without notice or demand, and without
affecting Guarantor's liability hereunder, from time to time to renew, extend,
accelerate, or otherwise change the payment terms or other terms of the Lease or
any part thereof. Lessor may, without notice, assign this Guaranty in whole or
in part.
Guarantor hereby waives any right to require Lessor to: (a) proceed against
Lessee; (b) proceed against or exhaust any security held by Lessor; or (c)
pursue any other remedy in Lessor's power. Guarantor waives any defense arising
by reason of any defense of Lessee, or by reason of the cessation, from any
cause whatsoever, of the liability of Lessee under the Lease. Guarantor waives
any and all demands for performance, notices of nonperformance or default, and
notices of cancellation or forfeiture. Lessor may apply all proceeds received
from Lessee or others to such part of Lessee's indebtedness as Lessor may deem
appropriate without consulting Guarantor and without prejudice to or in any way
limiting or lessening the liability of Guarantor under this Guaranty.
If Lessee is a corporation, the undersigned warrant and represent that they
are stockholders, directors or officers and/or are financially or otherwise
interested in Lessee, and, if married, their marital communities are so
interested.
This Guaranty shall not be affected or discharged by the death or the
undersigned, but shall bind Guarantor's heirs and personal representatives, and
shall inure to the benefit of any successors or assigns of Lessor.
This instrument constitutes the entire agreement between Lessor and
Guarantor. No oral or written representation not contained herein shall in any
way affect this Guaranty, which shall not be modified except by the parties in
writing. Waiver by Lessor of any provision hereof in one instance shall not
constitute a waiver as to any other instance.
IMPORTANT: THIS AGREEMENT CREATES SPECIFIC LEGAL OBLIGATIONS. DO NOT SIGN IT
UNTIL YOU HAVE FULLY READ IT. BY SIGNING YOU COMPLETELY AGREE TO ITS TERMS.
IN WITNESS WHEREOF, the undersigned Guarantor(s) has/have executed this Guaranty
this 25TH day of OCTOBER, 1995.
GUARANTOR: GUARANTOR:
/s/ Harold Dyne
- ----------------------------------- ---------------------------------------
NAME: HAROLD DYNE NAME:
20523 CLARK ST.
- ----------------------------------- ---------------------------------------
Home Address Home Address
WOODLAND HILLS, CA 91367
- ----------------------------------- ---------------------------------------
City State Zip City State Zip
/s/ James McFeeters
- ----------------------------------- ---------------------------------------
WITNESS WITNESS
<PAGE>
EQUIPMENT LEASE GUARANTY
LESSOR: QUAIL AMERICAN CORP.
LEASE NO. N6FO8B
DATE OF LEASE: 6/20/96
This Guaranty Agreement made and entered into this 20TH day of JUNE, 1996
by HAROLD DYNE, COLIN DYNE hereinafter referred to collectively as "Guarantor"),
in favor of QUAIL AMERICAN CORP. (hereinafter referred to as "Lessor").
WHEREAS, it is contemplated that Lessor may enter into a lease and/or other
related agreements (hereinafter collectively "Lease") with TAG-IT, INC.
(hereinafter collectively "Lessee"); and,
WHEREAS, Guarantor has an interest, financial or otherwise, in Lessee, and
it is to the benefit of Guarantor that Lessor enter into the Lease with Lessee,
and Guarantor has read the proposed Lease in full and finds the terms of said
Lease acceptable, and in recognition that Lessor would be unwilling to enter
into the Lease without the Guaranty hereinafter set forth, and in recognition of
Lessor's reliance upon the Guaranty in entering into the Lease;
NOW, THEREFORE, in order to induce Lessor to enter into the Lease,
Guarantor, jointly and severally, unconditionally guaranties the faithful and
full performance by Lessee of all terms and conditions of the Lease. In the
event of default by Lessee, or failure to faithfully perform any of the terms
or conditions required of Lessee under the Lease, or in the event of failure of
Lessee to make any or all payments of money required of it under the Lease,
Guarantor unconditionally promises to pay to Lessor, in lawful money of the
United States, all sums at any time due and unpaid under the Lease, plus costs
of collection, including reasonably attorney fees with or without trial, and
upon appeal and review.
The obligations of Guarantor hereunder are joint and several and are
independent of the obligations of Lessee under the Lease, and a separate action
or actions may be brought against Guarantor, whether action is brought against
Lessee or whether Lessee be joined in any action or actions, the liability of
Guarantor hereunder being primary. Guarantor hereby waives the benefit of any
suretyship defenses affecting its liability hereunder or the enforcement hereof.
Guarantor authorized Lessor, without notice or demand, and without
affecting Guarantor's liability hereunder, from time to time to renew, extend,
accelerate, or otherwise change the payment terms or other terms of the Lease or
any part thereof. Lessor may, without notice, assign this Guaranty in whole or
in part.
Guarantor hereby waives any right to require Lessor to: (a) proceed against
Lessee; (b) proceed against or exhaust any security held by Lessor; or (c)
pursue any other remedy in Lessor's power. Guarantor waives any defense arising
by reason of any defense of Lessee, or by reason of the cessation, from any
cause whatsoever, of the liability of Lessee under the Lease. Guarantor waives
any and all demands for performance, notices of nonperformance or default, and
notices of cancellation or forfeiture. Lessor may apply all proceeds received
from Lessee or others to such part of Lessee's indebtedness as Lessor may deem
appropriate without consulting Guarantor and without prejudice to or in any way
limiting or lessening the liability of Guarantor under this Guaranty.
If Lessee is a corporation, the undersigned warrant and represent that they
are stockholders, directors or officers and/or are financially or otherwise
interested in Lessee, and, if married, their marital communities are so
interested.
This Guaranty shall not be affected or discharged by the death or the
undersigned, but shall bind Guarantor's heirs and personal representatives, and
shall inure to the benefit of any successors or assigns of Lessor.
This instrument constitutes the entire agreement between Lessor and
Guarantor. No oral or written representation not contained herein shall in any
way affect this Guaranty, which shall not be modified except by the parties in
writing. Waiver by Lessor of any provision hereof in one instance shall not
constitute a waiver as to any other instance.
IMPORTANT: THIS AGREEMENT CREATES SPECIFIC LEGAL OBLIGATIONS. DO NOT SIGN IT
UNTIL YOU HAVE FULLY READ IT. BY SIGNING YOU COMPLETELY AGREE TO ITS TERMS.
IN WITNESS WHEREOF, the undersigned Guarantor(s) has/have executed this Guaranty
this 20TH day of JUNE, 1996.
GUARANTOR: GUARANTOR:
/s/ Harold Dyne /s/ Colin Dyne
- ----------------------------------- ---------------------------------------
NAME: HAROLD DYNE NAME: COLIN DYNE
20523 CLARK ST. 24800 EARL'S COURT
- ----------------------------------- ---------------------------------------
Home Address Home Address
WOODLAND HILLS, CA 91367 CALABASAS, CA 91302
- ----------------------------------- ---------------------------------------
City State Zip City State Zip
/s/ /s/
- ----------------------------------- ---------------------------------------
WITNESS WITNESS
<PAGE>
EQUIPMENT LEASE GUARANTY
LESSOR: QUAIL AMERICAN CORP.
LEASE NO. CPL5IO1
DATE OF LEASE: 10/25/95
This Guaranty Agreement made and entered into this 25TH day of OCTOBER,
1995 by HAROLD DYNE (hereinafter referred to collectively as "Guarantor"), in
favor of QUAIL AMERICAN CORP. (hereinafter referred to as "Lessor").
WHEREAS, it is contemplated that Lessor may enter into a lease and/or other
related agreements (hereinafter collectively "Lease") with PACIFIC TRIM & BELL,
INC. AND TAG-IT, INC. AS CO-LESSEES (hereinafter collectively "Lessee"); and,
WHEREAS, Guarantor has an interest, financial or otherwise, in Lessee, and
it is to the benefit of Guarantor that Lessor enter into the Lease with Lessee,
and Guarantor has read the proposed Lease in full and finds the terms of said
Lease acceptable, and in recognition that Lessor would be unwilling to enter
into the Lease without the Guaranty hereinafter set forth, and in recognition of
Lessor's reliance upon the Guaranty in entering into the Lease;
NOW, THEREFORE, in order to induce Lessor to enter into the Lease,
Guarantor, jointly and severally, unconditionally guaranties the faithful and
full performance by Lessee of all terms and conditions of the Lease. In the
event of default by Lessee, or failure to faithfully perform any of the terms
or conditions required of Lessee under the Lease, or in the event of failure of
Lessee to make any or all payments of money required of it under the Lease,
Guarantor unconditionally promises to pay to Lessor, in lawful money of the
United States, all sums at any time due and unpaid under the Lease, plus costs
of collection, including reasonably attorney fees with or without trial, and
upon appeal and review.
The obligations of Guarantor hereunder are joint and several and are
independent of the obligations of Lessee under the Lease, and a separate action
or actions may be brought against Guarantor, whether action is brought against
Lessee or whether Lessee be joined in any action or actions, the liability of
Guarantor hereunder being primary. Guarantor hereby waives the benefit of any
suretyship defenses affecting its liability hereunder or the enforcement hereof.
Guarantor authorized Lessor, without notice or demand, and without
affecting Guarantor's liability hereunder, from time to time to renew, extend,
accelerate, or otherwise change the payment terms or other terms of the Lease or
any part thereof. Lessor may, without notice, assign this Guaranty in whole or
in part.
Guarantor hereby waives any right to require Lessor to: (a) proceed against
Lessee; (b) proceed against or exhaust any security held by Lessor; or (c)
pursue any other remedy in Lessor's power. Guarantor waives any defense arising
by reason of any defense of Lessee, or by reason of the cessation, from any
cause whatsoever, of the liability of Lessee under the Lease. Guarantor waives
any and all demands for performance, notices of nonperformance or default, and
notices of cancellation or forfeiture. Lessor may apply all proceeds received
from Lessee or others to such part of Lessee's indebtedness as Lessor may deem
appropriate without consulting Guarantor and without prejudice to or in any way
limiting or lessening the liability of Guarantor under this Guaranty.
If Lessee is a corporation, the undersigned warrant and represent that they
are stockholders, directors or officers and/or are financially or otherwise
interested in Lessee, and, if married, their marital communities are so
interested.
This Guaranty shall not be affected or discharged by the death or the
undersigned, but shall bind Guarantor's heirs and personal representatives, and
shall inure to the benefit of any successors or assigns of Lessor.
This instrument constitutes the entire agreement between Lessor and
Guarantor. No oral or written representation not contained herein shall in any
way affect this Guaranty, which shall not be modified except by the parties in
writing. Waiver by Lessor of any provision hereof in one instance shall not
constitute a waiver as to any other instance.
IMPORTANT: THIS AGREEMENT CREATES SPECIFIC LEGAL OBLIGATIONS. DO NOT SIGN IT
UNTIL YOU HAVE FULLY READ IT. BY SIGNING YOU COMPLETELY AGREE TO ITS TERMS.
IN WITNESS WHEREOF, the undersigned Guarantor(s) has/have executed this Guaranty
this 25TH day of OCTOBER 1995.
GUARANTOR: GUARANTOR:
/s/ Harold Dyne
- ----------------------------------- ---------------------------------------
NAME: HAROLD DYNE NAME:
20523 CLARK ST
- ----------------------------------- ---------------------------------------
Home Address Home Address
WOODLAND HILLS, CA 91367
- ----------------------------------- ---------------------------------------
City State Zip City State Zip
/s/ James McFeeters
- ----------------------------------- ---------------------------------------
WITNESS WITNESS
<PAGE>
EQUIPMENT LEASE GUARANTY
LESSOR: QUAIL AMERICAN CORP.
LEASE NO. Q6D01
DATE OF LEASE: 4/2/96
This Guaranty Agreement made and entered into this 2ND day of APRIL, 1996,
by HAROLD DYNE (hereinafter referred to collectively as "Guarantor"), in favor
of QUAIL AMERICAN CORP. (hereinafter referred to as "Lessor").
WHEREAS, it is contemplated that Lessor may enter into a lease and/or other
related agreements (hereinafter collectively "Lease") with TAG-IT, INC.
(hereinafter collectively "Lessee"); and,
WHEREAS, Guarantor has an interest, financial or otherwise, in Lessee, and
it is to the benefit of Guarantor that Lessor enter into the Lease with Lessee,
and Guarantor has read the proposed Lease in full and finds the terms of said
Lease acceptable, and in recognition that Lessor would be unwilling to enter
into the Lease without the Guaranty hereinafter set forth, and in recognition of
Lessor's reliance upon the Guaranty in entering into the Lease;
NOW, THEREFORE, in order to induce Lessor to enter into the Lease,
Guarantor, jointly and severally, unconditionally guaranties the faithful and
full performance by Lessee of all terms and conditions of the Lease. In the
event of default by Lessee, or failure to faithfully perform any of the terms
or conditions required of Lessee under the Lease, or in the event of failure of
Lessee to make any or all payments of money required of it under the Lease,
Guarantor unconditionally promises to pay to Lessor, in lawful money of the
United States, all sums at any time due and unpaid under the Lease, plus costs
of collection, including reasonably attorney fees with or without trial, and
upon appeal and review.
The obligations of Guarantor hereunder are joint and several and are
independent of the obligations of Lessee under the Lease, and a separate action
or actions may be brought against Guarantor, whether action is brought against
Lessee or whether Lessee be joined in any action or actions, the liability of
Guarantor hereunder being primary. Guarantor hereby waives the benefit of any
suretyship defenses affecting its liability hereunder or the enforcement hereof.
Guarantor authorized Lessor, without notice or demand, and without
affecting Guarantor's liability hereunder, from time to time to renew, extend,
accelerate, or otherwise change the payment terms or other terms of the Lease or
any part thereof. Lessor may, without notice, assign this Guaranty in whole or
in part.
Guarantor hereby waives any right to require Lessor to: (a) proceed against
Lessee; (b) proceed against or exhaust any security held by Lessor; or (c)
pursue any other remedy in Lessor's power. Guarantor waives any defense arising
by reason of any defense of Lessee, or by reason of the cessation, from any
cause whatsoever, of the liability of Lessee under the Lease. Guarantor waives
any and all demands for performance, notices of nonperformance or default, and
notices of cancellation or forfeiture. Lessor may apply all proceeds received
from Lessee or others to such part of Lessee's indebtedness as Lessor may deem
appropriate without consulting Guarantor and without prejudice to or in any way
limiting or lessening the liability of Guarantor under this Guaranty.
If Lessee is a corporation, the undersigned warrant and represent that they
are stockholders, directors or officers and/or are financially or otherwise
interested in Lessee, and, if married, their marital communities are so
interested.
This Guaranty shall not be affected or discharged by the death or the
undersigned, but shall bind Guarantor's heirs and personal representatives, and
shall inure to the benefit of any successors or assigns of Lessor.
This instrument constitutes the entire agreement between Lessor and
Guarantor. No oral or written representation not contained herein shall in any
way affect this Guaranty, which shall not be modified except by the parties in
writing. Waiver by Lessor of any provision hereof in one instance shall not
constitute a waiver as to any other instance.
IMPORTANT: THIS AGREEMENT CREATES SPECIFIC LEGAL OBLIGATIONS. DO NOT SIGN IT
UNTIL YOU HAVE FULLY READ IT. BY SIGNING YOU COMPLETELY AGREE TO ITS TERMS.
IN WITNESS WHEREOF, the undersigned Guarantor(s) has/have executed this Guaranty
this 2ND day of APRIL 1996.
GUARANTOR: GUARANTOR:
/s/ Harold Dyne
- ----------------------------------- ---------------------------------------
NAME: HAROLD DYNE NAME:
20523 CLARK ST.
- ----------------------------------- ---------------------------------------
Home Address Home Address
WOODLAND HILLS, CA 91367
- ----------------------------------- ---------------------------------------
City State Zip City State Zip
/s/
- ----------------------------------- ---------------------------------------
WITNESS WITNESS
<PAGE>
EQUIPMENT LEASE GUARANTY
LESSOR: QUAIL AMERICAN CORP.
LEASE NO. JLA7H07
DATE OF LEASE: 8/13/97
This Guaranty Agreement made and entered into this 13TH day of AUGUST, 1997
by COLIN DYNE (hereinafter referred to collectively as "Guarantor"), in favor of
QUAIL AMERICAN CORP. hereinafter referred to as "Lessor").
WHEREAS, it is contemplated that Lessor may enter into a lease and/or other
related agreements (hereinafter collectively "Lease") with TAG-IT, INC.
(hereinafter collectively "Lessee"); and,
WHEREAS, Guarantor has an interest, financial or otherwise, in Lessee, and
it is to the benefit of Guarantor that Lessor enter into the Lease with Lessee,
and Guarantor has read the proposed Lease in full and finds the terms of said
Lease acceptable, and in recognition that Lessor would be unwilling to enter
into the Lease without the Guaranty hereinafter set forth, and in recognition of
Lessor's reliance upon the Guaranty in entering into the Lease;
NOW, THEREFORE, in order to induce Lessor to enter into the Lease,
Guarantor, jointly and severally, unconditionally guaranties the faithful and
full performance by Lessee of all terms and conditions of the Lease. In the
event of default by Lessee, or failure to faithfully perform any of the terms
or conditions required of Lessee under the Lease, or in the event of failure of
Lessee to make any or all payments of money required of it under the Lease,
Guarantor unconditionally promises to pay to Lessor, in lawful money of the
United States, all sums at any time due and unpaid under the Lease, plus costs
of collection, including reasonably attorney fees with or without trial, and
upon appeal and review.
The obligations of Guarantor hereunder are joint and several and are
independent of the obligations of Lessee under the Lease, and a separate action
or actions may be brought against Guarantor, whether action is brought against
Lessee or whether Lessee be joined in any action or actions, the liability of
Guarantor hereunder being primary. Guarantor hereby waives the benefit of any
suretyship defenses affecting its liability hereunder or the enforcement hereof.
Guarantor authorized Lessor, without notice or demand, and without
affecting Guarantor's liability hereunder, from time to time to renew, extend,
accelerate, or otherwise change the payment terms or other terms of the Lease or
any part thereof. Lessor may, without notice, assign this Guaranty in whole or
in part.
Guarantor hereby waives any right to require Lessor to: (a) proceed against
Lessee; (b) proceed against or exhaust any security held by Lessor; or (c)
pursue any other remedy in Lessor's power. Guarantor waives any defense arising
by reason of any defense of Lessee, or by reason of the cessation, from any
cause whatsoever, of the liability of Lessee under the Lease. Guarantor waives
any and all demands for performance, notices of nonperformance or default, and
notices of cancellation or forfeiture. Lessor may apply all proceeds received
from Lessee or others to such part of Lessee's indebtedness as Lessor may deem
appropriate without consulting Guarantor and without prejudice to or in any way
limiting or lessening the liability of Guarantor under this Guaranty.
If Lessee is a corporation, the undersigned warrant and represent that they
are stockholders, directors or officers and/or are financially or otherwise
interested in Lessee, and, if married, their marital communities are so
interested.
This Guaranty shall not be affected or discharged by the death or the
undersigned, but shall bind Guarantor's heirs and personal representatives, and
shall inure to the benefit of any successors or assigns of Lessor.
This instrument constitutes the entire agreement between Lessor and
Guarantor. No oral or written representation not contained herein shall in any
way affect this Guaranty, which shall not be modified except by the parties in
writing. Waiver by Lessor of any provision hereof in one instance shall not
constitute a waiver as to any other instance.
IMPORTANT: THIS AGREEMENT CREATES SPECIFIC LEGAL OBLIGATIONS. DO NOT SIGN IT
UNTIL YOU HAVE FULLY READ IT. BY SIGNING YOU COMPLETELY AGREE TO ITS TERMS.
IN WITNESS WHEREOF, the undersigned Guarantor(s) has/have executed this Guaranty
this 13TH day of AUGUST, 1997.
GUARANTOR: GUARANTOR:
/s/ Colin Dyne
- ----------------------------------- ---------------------------------------
NAME: COLIN DYNE NAME:
24800 EARLS CT.
- ----------------------------------- ---------------------------------------
Home Address Home Address
CALABASAS, CA 91302
- ----------------------------------- ---------------------------------------
City State Zip City State Zip
/s/
- ----------------------------------- ---------------------------------------
WITNESS WITNESS
<PAGE>
EQUIPMENT LEASE GUARANTY
LESSOR: QUAIL AMERICAN CORP.
LEASE NO. JLA7H07
DATE OF LEASE: 8/13/97
This Guaranty Agreement made and entered into this 13TH day of AUGUST, 1997
by HAROLD DYNE (hereinafter referred to collectively as "Guarantor"), in favor
of QUAIL AMERICAN CORP. (hereinafter referred to as "Lessor").
WHEREAS, it is contemplated that Lessor may enter into a lease and/or other
related agreements (hereinafter collectively "Lease") with TAG-IT, INC.
(hereinafter collectively "Lessee"); and,
WHEREAS, Guarantor has an interest, financial or otherwise, in Lessee, and
it is to the benefit of Guarantor that Lessor enter into the Lease with Lessee,
and Guarantor has read the proposed Lease in full and finds the terms of said
Lease acceptable, and in recognition that Lessor would be unwilling to enter
into the Lease without the Guaranty hereinafter set forth, and in recognition of
Lessor's reliance upon the Guaranty in entering into the Lease;
NOW, THEREFORE, in order to induce Lessor to enter into the Lease,
Guarantor, jointly and severally, unconditionally guaranties the faithful and
full performance by Lessee of all terms and conditions of the Lease. In the
event of default by Lessee, or failure to faithfully perform any of the terms
or conditions required of Lessee under the Lease, or in the event of failure of
Lessee to make any or all payments of money required of it under the Lease,
Guarantor unconditionally promises to pay to Lessor, in lawful money of the
United States, all sums at any time due and unpaid under the Lease, plus costs
of collection, including reasonably attorney fees with or without trial, and
upon appeal and review.
The obligations of Guarantor hereunder are joint and several and are
independent of the obligations of Lessee under the Lease, and a separate action
or actions may be brought against Guarantor, whether action is brought against
Lessee or whether Lessee be joined in any action or actions, the liability of
Guarantor hereunder being primary. Guarantor hereby waives the benefit of any
suretyship defenses affecting its liability hereunder or the enforcement hereof.
Guarantor authorized Lessor, without notice or demand, and without
affecting Guarantor's liability hereunder, from time to time to renew, extend,
accelerate, or otherwise change the payment terms or other terms of the Lease or
any part thereof. Lessor may, without notice, assign this Guaranty in whole or
in part.
Guarantor hereby waives any right to require Lessor to: (a) proceed against
Lessee; (b) proceed against or exhaust any security held by Lessor; or (c)
pursue any other remedy in Lessor's power. Guarantor waives any defense arising
by reason of any defense of Lessee, or by reason of the cessation, from any
cause whatsoever, of the liability of Lessee under the Lease. Guarantor waives
any and all demands for performance, notices of nonperformance or default, and
notices of cancellation or forfeiture. Lessor may apply all proceeds received
from Lessee or others to such part of Lessee's indebtedness as Lessor may deem
appropriate without consulting Guarantor and without prejudice to or in any way
limiting or lessening the liability of Guarantor under this Guaranty.
If Lessee is a corporation, the undersigned warrant and represent that they
are stockholders, directors or officers and/or are financially or otherwise
interested in Lessee, and, if married, their marital communities are so
interested.
This Guaranty shall not be affected or discharged by the death or the
undersigned, but shall bind Guarantor's heirs and personal representatives, and
shall inure to the benefit of any successors or assigns of Lessor.
This instrument constitutes the entire agreement between Lessor and
Guarantor. No oral or written representation not contained herein shall in any
way affect this Guaranty, which shall not be modified except by the parties in
writing. Waiver by Lessor of any provision hereof in one instance shall not
constitute a waiver as to any other instance.
IMPORTANT: THIS AGREEMENT CREATES SPECIFIC LEGAL OBLIGATIONS. DO NOT SIGN IT
UNTIL YOU HAVE FULLY READ IT. BY SIGNING YOU COMPLETELY AGREE TO ITS TERMS.
IN WITNESS WHEREOF, the undersigned Guarantor(s) has/have executed this Guaranty
this 13TH day of AUGUST, 1997.
GUARANTOR: GUARANTOR:
/s/ Harold Dyne
- ----------------------------------- ---------------------------------------
NAME: HAROLD DYNE NAME:
20523 CLARK STREET
- ----------------------------------- ---------------------------------------
Home Address Home Address
WOODLAND HILLS, CA 91367
- ----------------------------------- ---------------------------------------
City State Zip City State Zip
/s/
- ----------------------------------- ---------------------------------------
WITNESS WITNESS
<PAGE>
Quail American Corp. ("LESSOR") CREDIT APPLICATION
- --------------------------------------------------------------------------------
EQUAL CREDIT OPPORTUNITY ACT: NOTICE if your application for business credit is
denied, you have the right to a written statement of the specific reasons for
the denial. To obtain the statement, please contact Credit Disclosure
Administrator, _____________________________________________ within 60 days from
the date you are notified of our decision. We will send you a written statement
of reasons for the denial within 30 days of receiving your request for the
statement. The federal Equal Credit Opportunity Act prohibits creditors from
discriminating against credit applicants on the basis of race, color, religion,
national origin, sex, marital status, age (provided the applicant has the
capacity to enter into a binding contract); because all or part of the
applicant's income derives from any public assistance program, or because the
applicant has in good faith exercised any right under the Consumer Credit
Protection Act. The Federal agency that administers compliance with this laws
concerning this creditor is the Federal Trade Commission, Equal Credit
Opportunity, Washington, D.C. 205808
- --------------------------------------------------------------------------------
Lessee's
Name TAG-IT, INC. / / Proprietorship
/ / Partnership
- --------------------------------------------------------- / / Corporation
Lessee's State of
Address 3820 S. HILL STREET, LOS ANGELES, CA 90037 Incorporation
- --------------------------------------------------------- --------------------
Phone No.
213-234-9606
- ---------------
Nature of Years in # of Date ____/____/____
Business Business Employees
-------------------
- --------------------------------------------------------------------------------
Principal Social Security No. *EQUIPMENT COST
COLIN DYNE
- --------------------------------------------------------------------------------
Home Address *OTHER
- --------------------------------------------------------------------------------
Principal Social Security No. TOTAL LEASE BASE
- --------------------------------------------------------------------------------
Home Address *If sales tax payment is required
(e.g., CA, ME, NV, NJ) rather than
use tax (tax on monthly payment)
add sales tax to above total lease
base.
- --------------------------------------------------------------------------------
Vendor Name Contact Phone ( )
No.
- --------------------------------------------------------------------------------
Equipment Lease
Term
- --------------------------------------------------------------------------------
Bank References: Account Phone
Name Officer No.
- --------------------------------------------------------------------------------
Address Checking Acct. No.
City, State
- --------------------------------------------------------------------------------
Bank References: Account Phone
Name Officer No.
- --------------------------------------------------------------------------------
Address Checking
City, State Acct. No.
- --------------------------------------------------------------------------------
Trade References (Name, City, Telephone Number)
1.
-------------------------------------
2. 3.
------------------------------------- --------------------------------
- --------------------------------------------------------------------------------
RELEASE: To Whom This May Concern: By signing below you request the Lessor to
approve the contemplated lease and authorize the lessor to share credit
information concerning you with others. SIGNATURE X /s/ Colin Dyne
------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GUARANTY
In consideration of the above named LESSOR entering into any lease,
schedule, or other financial transaction of any kind whatsoever, now or
hereafter made with TAG-IT, INC. ("Lessee"), the undersigned unconditionally
guarantees to the above named Lessor, its successors and assigns, the prompt
payment, observance, and performance when due of all obligations of Lessee under
all leases, schedules, financial transactions, and all other Fundamental
Agreements related thereto (collectively, Guaranteed Obligations"), regardless
of any invalidity or unenforceability thereof or any other circumstance which
might otherwise constitute a defense available to, or a discharge of, the Lessee
or Guarantor. Capitalized terms not otherwise defined have the meanings
specified in the above-referenced Lease between Lessee and Lessor. Lessor shall
not be required to proceed against Lessee or the Equipment or enforce any other
remedy before proceeding against the undersigned under this guaranty. The
undersigned agrees to pay to Lessor all attorneys' fees and expenses incurred by
Lessor by reason of any default by the Lessee under any agreement related to
Guaranteed Obligations and or to enforce its rights against the undersigned
under the terms of this guaranty.
The undersigned waives any claim or other right which the undersigned might
now have or hereafter acquire against the Lessee or any person that is primarily
or contingently liable on the obligations guaranteed hereby or that arises from
the existence or performance of the undersigned's obligations under this
guaranty, including, without limitation, any right of subrogation,
reimbursement, exoneration, contribution, indemnification, or participation in
any claim or remedy of Lessor against the Lessee or any collateral security
therefor which Lessor now has or hereafter acquires; whether or not such claim,
remedy, or right arises in equity, or under contract statute or common law. The
undersigned waives notice of acceptance hereof and all other notices or demands
of any kind to which it may be entitled and consents that Lessor may, without
affecting the undersigned's liability under this guaranty, compromise or
release. In terms satisfactory to it or by operation of law or otherwise, any
rights against Lessee and other obligers and guarantors, grant extensions of
time of payment to Lessee, and to the transfer, sale or any other disposition of
the Equipment and the leases. Upon any default by the Lessee in the payment and
performance of its obligations under the leases with Lessor, the liabilities and
obligations of the undersigned hereunder shall, at the option of Lessor, become
forthwith due and payable to Lessor without demand or notice of any nature, all
of which are expressly waived by the undersigned. This is a continuing guaranty
and shall not be discharged or affected by death of the undersigned, shall bind
the heirs, administrators, representatives, successors and assigns of the
undersigned and may be enforced by or for the benefit of any assigns or
successor of Lessor to the same extent Lessor may, itself, enforce it. THIS
GUARANTY SHALL BE GOVERNED BY THE INTERNAL LAWS (AS OPPOSED TO CONFLICTS OF LAW
PROVISIONS) AND DECISIONS OF THE STATE OF CALIFORNIA. THE UNDERSIGNED CONSENTS
TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURT LOCATED WITHIN
CALIFORNIA, AND WAIVES ANY OBJECTION RELATING TO IMPROPER VENUE OR FORUM NON
CONVENIENS TO THE CONDUCT OF ANY PROCEEDING IN ANY SUCH COURT. AT LESSOR'S SOLE
ELECTION AND DETERMINATION ANY LEGAL EQUITABLE OR ARBITRATION ACTION MAY ALSO BE
BROUGHT IN ANY OTHER COURT OF COMPETENT JURISDICTION IN ANY STATE IN WHICH
LESSOR HAS AN OFFICE AND THE UNDERSIGNED WAIVES ANY OBJECTION RELATING TO
IMPROPER VENUE OR FORUM NON CONVENIENS TO THE CONDUCT OF ANY SUCH PROCEEDING IN
ANY SUCH COURT. THE UNDERSIGNED EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY
SO THAT TRIAL SHALL BE BY AND ONLY TO THE COURT. The liability of the
undersigned hereunder is direct and unconditional. If there is more than one
undersigned, then the liability of the undersigned shall be joint and several.
This guaranty may be terminated by the undersigned, upon 60-day prior written
notice to Lessor, and shall be effective only as to leases having their
inception after the effective date of termination and shall not affect Lessor's
rights under this guaranty arising out of leases having their inception prior to
such date. This guaranty is executed as an instrument under seal, and all acts
and transactions hereunder, and the rights and obligations of the parties hereto
shall be governed, construed and interpreted according to the laws of the State
of California.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
/s/ 4/29/97 /s/ 4/29/96 Witnessed
- -------------------------------- ----------------------------------
By Date Witnessed By Date
/s/ Colin Dyne (No Title) /s/ Harold Dyne (No Title)
- ------------------------ ------------------------------
Signature
COLIN DYNE HAROLD DYNE
- -------------------------------- --------------------------------------------
Print Name Phone Number Print Name Phone Number
DELIVERY AND ACCEPTANCE RECEIPT
The undersigned hereby certifies that all the equipment described in the
Equipment Lease Agreement ("Lease"), between the above named Lessor and,
TAG-IT, INC. Lessee, is in accordance with the terms of the Lease, has been
delivered, inspected, installed, is in good working condition, and accepted by
the undersigned as satisfactory. The decals, labels, etc., if required and
supplied, have been affixed to the equipment as listed in the Lease. The
undersigned hereby approves payment by you to the Supplier.
LESSEE: TAG-IT, INC. BY: /s/ Colin Dyne 4/29/97
---------------------- ----------------------------------------
Authorized Signature and Title Date
<PAGE>
PROMISSORY NOTE
$100,000 Los Angeles, California
September 30, 1996
For good and valuable consideration, the receipt and sufficiency of which
is acknowledged, the undersigned, Tag-It, Inc., a California corporation
("Payor"), hereby promises to pay to Harold Dyne ("Payee"), or order, the
principal sum of One Hundred Thousand Dollars ($100,000) with interest thereon
from the date hereof at the rate set forth in that certain promissory note dated
September 13, 1996 provided by Payee to Mercantile National Bank, as amended
from time to time. All payments on this Note shall be made at such address as
the holder of this Note may advise Payor in writing, in lawful money of the
United States of America.
All interest and the entire principal amount of this Note shall be
payable to Payee on the fifteenth day following the date of delivery by Payee
to Payor of written demand therefor at any time following December 31, 1998
(the "Maturity Date"). This Note may be prepaid in whole or in part at any
time without penalty.
Payor hereby waives presentment for payment, protest, notice of protest and
notice of non-payment of this Note. In the event that any suit or proceeding is
instituted by the holder of this Note for collection hereof, the holder of this
Note shall be entitled to repayment by the Payor of all costs and expenses
incurred in connection therewith, including court costs and attorneys' fees,
regardless of whether a lawsuit is instituted. This Note may be extended or
renewed by the holder hereof, at the holder's option, but no such extension or
renewal shall be effective unless made in writing, and Payor acknowledges that
it is not entitled to any such extension or renewal and has been given no
assurance of any nature with respect thereto. No failure on the part of the
holder of this Note to exercise, or delay in exercising, any right, remedy or
privilege under this Note shall operate as a wavier thereof, nor shall a single
or partial exercise thereof preclude any further exercise of such right, remedy,
power or privilege. The waiver by the holder of this Note of any default
hereunder shall not be deemed, nor shall the same constitute, waiver of any
subsequent default on the part of Payor of a same or different nature. This
Note shall be governed by the laws of the State of California.
Tag-It, Inc.,
a California corporation
By: /s/ Colin Dyne
--------------------------
Colin Dyne
Its: President
<PAGE>
PROMISSORY NOTE
$10,000 Los Angeles, California
June 30, 1991
For good and valuable consideration, the receipt and sufficiency of which
is acknowledged, the undersigned, Tag-It, Inc., a California corporation
("Payor"), hereby promises to pay to Harold Dyne ("Payee"), or order, the
principal sum of Ten Thousand Dollars ($10,000) with simple interest thereon at
a rate of Ten percent (10.0%) per annum from the date hereof. All payments on
this Note shall be made at such address as the holder of this Note may advise
Payor in writing, in lawful money of the United States of America.
All interest and the entire principal amount of this Note shall be
payable to Payee on the fifteenth day following the date of delivery by Payee
to Payor of written demand therefor at any time following December 31, 1998
(the "Maturity Date"). This Note may be prepaid in whole or in part at any
time without penalty.
Payor hereby waives presentment for payment, protest, notice of protest and
notice of non-payment of this Note. In the event that any suit or proceeding is
instituted by the holder of this Note for collection hereof, the holder of this
Note shall be entitled to repayment by the Payor of all costs and expenses
incurred in connection therewith, including court costs and attorneys' fees,
regardless of whether a lawsuit is instituted. This Note may be extended or
renewed by the holder hereof, at the holder's option, but no such extension or
renewal shall be effective unless made in writing, and Payor acknowledges that
it is not entitled to any such extension or renewal and has been given no
assurance of any nature with respect thereto. No failure on the part of the
holder of this Note to exercise, or delay in exercising, any right, remedy or
privilege under this Note shall operate as a wavier thereof, nor shall a single
or partial exercise thereof preclude any further exercise of such right, remedy,
power or privilege. The waiver by the holder of this Note of any default
hereunder shall not be deemed, nor shall the same constitute, waiver of any
subsequent default on the part of Payor of a same or different nature. This
Note shall be governed by the laws of the State of California.
Tag-It, Inc.,
a California corporation
By: /s/ Colin Dyne
---------------------------
Colin Dyne
Its: President
<PAGE>
PROMISSORY NOTE
$15,000 Los Angeles, California
January 31, 1997
For good and valuable consideration, the receipt and sufficiency of which
is acknowledged, the undersigned, Tag-It, Inc., a California corporation
("Payor"), hereby promises to pay to Mark Dyne ("Payee"), or order, the
principal sum of Fifteen Thousand Dollars ($15,000) with simple interest thereon
at a rate of Seven and One-Half percent (7.5%) per annum from the date hereof.
All payments on this Note shall be made at such address as the holder of this
Note may advise Payor in writing, in lawful money of the United States of
America.
All interest and the entire principal amount of this Note shall be
payable to Payee on the fifteenth day following the date of delivery by Payee
to Payor of written demand therefor at any time following December 31, 1998
(the "Maturity Date"). This Note may be prepaid in whole or in part at any
time without penalty.
Payor hereby waives presentment for payment, protest, notice of protest and
notice of non-payment of this Note. In the event that any suit or proceeding is
instituted by the holder of this Note for collection hereof, the holder of this
Note shall be entitled to repayment by the Payor of all costs and expenses
incurred in connection therewith, including court costs and attorneys' fees,
regardless of whether a lawsuit is instituted. This Note may be extended or
renewed by the holder hereof, at the holder's option, but no such extension or
renewal shall be effective unless made in writing, and Payor acknowledges that
it is not entitled to any such extension or renewal and has been given no
assurance of any nature with respect thereto. No failure on the part of the
holder of this Note to exercise, or delay in exercising, any right, remedy or
privilege under this Note shall operate as a wavier thereof, nor shall a single
or partial exercise thereof preclude any further exercise of such right, remedy,
power or privilege. The waiver by the holder of this Note of any default
hereunder shall not be deemed, nor shall the same constitute, waiver of any
subsequent default on the part of Payor of a same or different nature. This
Note shall be governed by the laws of the State of California.
Tag-It, Inc.,
a California corporation
By: /s/ Colin Dyne
-----------------------------
Colin Dyne
Its: President
<PAGE>
PROMISSORY NOTE
$300,000 Los Angeles, California
February 29, 1996
For good and valuable consideration, the receipt and sufficiency of which
is acknowledged, the undersigned, A.G.S. Stationery, Inc., a California
corporation ("Payor"), hereby promises to pay to Monto Holdings Pty. Ltd.
("Payee"), or order, the principal sum of Three Hundred Thousand Dollars
($300,000) with simple interest thereon at a rate of Seven and One-Half percent
(7.5%) per annum from the date hereof, which amount has been or will be funded
by Payee to Payor as follows: (a) Fifty Thousand Dollars ($50,000) on the date
hereof; (b) One Thousand Dollars ($1,000) on March 14, 1996; (c) Nineteen
Thousand Dollars ($19,000) on March 18, 1996; (d) One Hundred Thousand Dollars
($100,000) on April 2, 1996; (e) Fifty Thousand Dollars ($50,000) on April 12,
1996; and (f) Ten Thousand Dollars ($10,000) on May 10, 1996; and (g) Seventy
Thousand Dollars ($70,000) on May 20, 1996. All payments on this Note shall be
made at such address as the holder of this Note may advise Payor in writing, in
lawful money of the United States of America.
All interest and the entire principal amount of this Note shall be
payable to Payee on the fifteenth day following the date of delivery by Payee
to Payor of written demand therefor at any time following December 31, 1998
(the "Maturity Date"). This Note may be prepaid in whole or in part at any
time without penalty.
Payor hereby waives presentment for payment, protest, notice of protest and
notice of non-payment of this Note. In the event that any suit or proceeding is
instituted by the holder of this Note for collection hereof, the holder of this
Note shall be entitled to repayment by the Payor of all costs and expenses
incurred in connection therewith, including court costs and attorneys' fees,
regardless of whether a lawsuit is instituted. This Note may be extended or
renewed by the holder hereof, at the holder's option, but no such extension or
renewal shall be effective unless made in writing, and Payor acknowledges that
it is not entitled to any such extension or renewal and has been given no
assurance of any nature with respect thereto. No failure on the part of the
holder of this Note to exercise, or delay in exercising, any right, remedy or
privilege under this Note shall operate as a wavier thereof, nor shall a single
or partial exercise thereof preclude any further exercise of such right, remedy,
power or privilege. The waiver by the holder of this Note of any default
hereunder shall not be deemed, nor shall the same constitute, waiver of any
subsequent default on the part of Payor of a same or different nature. This
Note shall be governed by the laws of the State of California.
A.G.S. Stationery, Inc.,
a California corporation
By: /s/ Colin Dyne
---------------------------
Colin Dyne
Its: President
<PAGE>
PROMISSORY NOTE
$124,626.43 Los Angeles, California
January 19, 1995
For good and valuable consideration, the receipt and sufficiency of which
is acknowledged, the undersigned, Pacific Trim & Belt, Inc., a California
corporation ("Payor"), hereby promises to pay to Monto Holdings Pty. Ltd.
("Payee"), or order, the principal sum of One Hundred Twenty Four Thousand Six
Hundred Twenty Six and 43/100 Dollars ($124,626.43) with simple interest thereon
at a rate of Ten percent (10.0%) per annum from the date hereof, which amount
has been or will be funded by Payee to Payor as follows: (a) Twenty Six
Thousand Six Hundred Twenty Six and 43/100 Dollars ($26,626.43) on the date
hereof; (b) Fifty Thousand Dollars ($50,000) on February 15, 1995; and (c) Forty
Eight Thousand Dollars ($48,000) on June 30, 1995. All payments on this Note
shall be made at such address as the holder of this Note may advise Payor in
writing, in lawful money of the United States of America.
All interest and the entire principal amount of this Note shall be
payable to Payee on the fifteenth day following the date of delivery by Payee
to Payor of written demand therefor at any time following December 31, 1998
(the "Maturity Date"). This Note may be prepaid in whole or in part at any
time without penalty.
Payor hereby waives presentment for payment, protest, notice of protest and
notice of non-payment of this Note. In the event that any suit or proceeding is
instituted by the holder of this Note for collection hereof, the holder of this
Note shall be entitled to repayment by the Payor of all costs and expenses
incurred in connection therewith, including court costs and attorneys' fees,
regardless of whether a lawsuit is instituted. This Note may be extended or
renewed by the holder hereof, at the holder's option, but no such extension or
renewal shall be effective unless made in writing, and Payor acknowledges that
it is not entitled to any such extension or renewal and has been given no
assurance of any nature with respect thereto. No failure on the part of the
holder of this Note to exercise, or delay in exercising, any right, remedy or
privilege under this Note shall operate as a wavier thereof, nor shall a single
or partial exercise thereof preclude any further exercise of such right, remedy,
power or privilege. The waiver by the holder of this Note of any default
hereunder shall not be deemed, nor shall the same constitute, waiver of any
subsequent default on the part of Payor of a same or different nature. This
Note shall be governed by the laws of the State of California.
Pacific Trim & Belt, Inc.,
a California corporation
By: /s/ Harold Dyne
-------------------------
Harold Dyne
Its: Chief Executive Officer
<PAGE>
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
THE NOTE MAY ONLY BE OFFERED OR SOLD IF REGISTERED UNDER THE APPLICABLE
SECURITIES LAWS OR IF AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.
TAG-IT, INC.
CONVERTIBLE SECURED PROMISSORY NOTE
DATED AS OF AUGUST 23, 1996
For good and valuable consideration, the receipt and sufficiency of which
is acknowledged, the undersigned, Tag-It, Inc., a California corporation (the
"Company"), hereby promises to pay to NPM Investments, Inc. ("Holder"), or
order, the principal sum of Eight Hundred Seventy Five Thousand Dollars
($875,000), without interest, as provided herein.
1. Definitions. As used in this Note, the following terms have the
following meanings:
a. The "Company" includes any corporation or entity which succeeds
to the obligations of the Company under the Note.
b. "Holder" means Holder or any person who subsequently becomes the
holder of this Note.
c. "Security Agreement" means that certain Security Agreement dated
as of February 5, 1997 entered into between Holder and the Company, as it may
be amended from time to time.
2. TERM, PAYMENTS, INTEREST. No interest shall accrue on the principal
amount of this Note. The principal amount of this Note shall be payable to
Holder on the fifteenth day following the date of delivery by Holder to the
Company of written demand therefor (the "Maturity Date"). This Note may be
prepaid in whole or in part at any time without penalty.
<PAGE>
3. CONVERSION RIGHTS.
a. Each $1,000 of the principal amount of this Note is convertible,
in whole or in part, at the option of the Holder exercised by delivery to the
Company of notice of conversion ("Notice of Conversion"), into .131205714,
.000250857 and .259651428 fully paid and nonassessable shares of Common Stock of
the Company, and its two affiliates, Tag-It Printing & Packaging Ltd., a BVI
corporation ("Tag-It Hong Kong") and A.G.S. Stationery, Inc., a California
corporation ("AGS Stationery"), respectively (subject to equitable adjustment
for stock splits, stock dividends and combinations), which price is agreed by
the Company to represent the fair market value of the Common Stock of the
Company, Tag-It Hong Kong and AGS Stationery as of the date hereof.
b. If the Note is converted in part only, the Holder shall continue,
until the Conversion Expiration Date, to have the right to convert the
unconverted portion of the Note into equity securities issued in subsequent
Private Placements or as set forth in Section 4 below.
c. The right of the Holder to convert this Note shall expire, if not
previously exercised, on September 30, 1997.
d. Within 7 days after receipt of a Conversion Notice, the Company
shall issue and deliver to the Holder a stock certificate for the appropriate
number of shares of Common Stock determined in accordance with the terms hereof.
4. ISSUANCE OF SECURITIES ON CONVERSION.
a. Upon conversion of the Note the Company shall issue to the Holder
a certificate or certificates for the number of shares of securities, including
fractional shares, if any, to which the Holder is entitled on such conversion;
if the Note is converted only in part, the Company shall issue a new note, in
the same form as this Note, dated as of a date within 7 days of the date of
receipt of the Conversion Notice and in a principal amount equal to the amount
(as of the effective date of the conversion) of any unconverted principal
amount.
It shall be a condition to the obligation to deliver securities upon
conversion that the Holder has delivered to the Company, in a form reasonably
satisfactory to the Company, an agreement to the effect that no disposition
shall be made by the Holder of such securities unless and until they have been
registered under the Securities Act of 1933 or an exemption from such
registration is available. The Company may place on any certificates issued an
appropriate legend, in a form reasonably satisfactory to the Company, to the
effect that no such disposition may be made until the conditions aforesaid are
met.
5. EVENTS OF DEFAULT. If any of the following events occur (referred to
individually herein as an "Event of Default"), the Holder may accelerate the
maturity of the Note and declare
2
<PAGE>
the entire unpaid principal on this Note immediately due and payable, by notice
in writing to the Company:
a. Default in the payment of any principal of the Note when due; or
b. The institution by the Company of proceedings to dissolve or be
dissolved or to be adjudicated a bankrupt or insolvent, or the consent by the
Company to institution of bankruptcy or insolvency proceedings against it or the
filing by the Company of a petition or answer or consent seeking reorganization
or release under the Federal Bankruptcy Act, or any other applicable federal or
state law, or the consent by the Company to the filing of any such petition or
the appointment of a receiver, liquidator, assignee, trustee, or other similar
official of the Company or of any substantial part of its property, or the
making by the Company of an assignment for the benefit of creditors, or the
admission in writing by the Company of its inability to pay its debts generally
as they become due or the taking of corporate action by the Company in
furtherance of any such action; or
c. If, within 60 days after the commencement of an action against
the Company seeking any bankruptcy, insolvency, reorganization, liquidation,
dissolution or similar relief under any present or future law or regulation,
such action shall not have been dismissed or all orders or proceedings
thereunder affecting the operations or the business of the Company stayed, or if
the stay of any such order or proceeding shall thereafter be set aside; or if,
within 60 days after the appointment without the consent or acquiescence of the
Company of any trustee, receiver or liquidator or similar official of the
Company, or of all or any substantial part of the property of the Company, such
appointment shall not have been vacated; or
d. The Company fails to make when due and payable any payment
required to be made by it pursuant to the terms of any contract for borrowed
money, or fails duly and punctually to perform or observe any other covenant,
condition or agreement contained in any such contract, and the effect of such
failure is to cause, or where such failure upon notice or lapse of time would,
under the terms of such contract, cause the indebtedness due and owing under
such contract to become due prior to its stated or scheduled maturity unless any
such failure is cured within the cure period contained in any such contract.
6. PREPAYMENT. The Company may prepay, in whole or in part, the
principal of the Note at any time by giving notice thereof in writing no less
than 30 days prior to the date set for such repayment during which period the
Holder, at its option, shall be entitled, if permissible pursuant to Section 3
of this Note, to exercise its conversion rights hereunder.
7. TRANSFERABILITY. The Holder may transfer, sell, assign, or
hypothecate this Note at any time to a corporation or other entity of which the
Holder is a 50% or more direct or indirect owner.
3
<PAGE>
8. SECURITY AGREEMENT. The Company's obligations under this Note are
secured by the Security Agreement. The provisions of this Note, and the
obligations of the Company set forth in this Note, are subject to other terms
and provisions set forth in the Security Agreement, all of which terms and
provisions are incorporated herein by this reference.
9. BINDING PROVISIONS. The obligations of the Company hereunder shall be
binding upon its successors and assigns.
10. CHOICE OF LAW. This Note shall be construed under the laws of the
State of California without reference to the choice of law principles thereof.
11. AMENDMENT. This Note may be amended or modified by a written
agreement of the Company and the Holder which specifically refers to this Note.
IN WITNESS WHEREOF, the Company has caused this Note to be issued as
of the date first above written.
TAG-IT, INC., a California
Corporation
By: /s/Colin Dyne
--------------------------------
Colin Dyne, President
4
<PAGE>
EXHIBIT "A"
CONVERSION NOTICE
(TO BE SIGNED ONLY UPON CONVERSION OF ALL OR PART OF THE NOTE)
TO: Tag-It, Inc.
The undersigned hereby irrevocably elects (to the extent indicated herein) to
exercise the purchase right represented by the Convertible Note granted to
the undersigned on August 23, 1996 and to apply the sum of $875,000, due and
owing to the undersigned pursuant to the Convertible Note to purchase
thereunder 114.805 shares of Common Stock of Tag-It, Inc., a California
corporation, .2195 shares of Tag-It Printing & Packaging Ltd., a BVI
corporation ("Tag-It BVI"), and 227.195 shares of A.G.S. Stationery, Inc., a
California corporation ("AGS"). You are instructed to deliver the shares
issuable hereunder as follows:
To The Saloner Family Tag-It 47.835
Limited Partnership: Tag-It BVI 0.0915
AGS 94.665
To Mark Dyne: Tag-It 33.485
Tag-It BVI 0.064
AGS 66.265
To Kevin Bermeister: Tag-It 33.485
Tag-It BVI 0.064
AGS 66.265
HOLDER
NPM Investments, Inc.
By: /s/Anthony Neumann
----------------------------------
Its:
----------------------------------
Date:
----------------------------------
5
<PAGE>
PROMISSORY NOTE
$715,500 Los Angeles, California
August 23, 1996
For good and valuable consideration, the receipt and sufficiency of which
is acknowledged, the undersigned, Tag-It, Inc., a California corporation
("Payor"), hereby promises to pay to NPM Investments, Inc. ("Payee"), or order,
the principal sum of Seven Hundred Fifteen Thousand Five Hundred Dollars
($715,500) with simple interest thereon at a rate of Seven and One-Half percent
(7.5%) per annum from the date hereof. All payments on this Note shall be made
at such address as the holder of this Note may advise Payor in writing, in
lawful money of the United States of America.
All interest and the entire principal amount of this Note shall be
payable to Payee on the fifteenth day following the date of delivery by Payee
to Payor of written demand therefor at any time following December 31, 1998
(the "Maturity Date"). This Note may be prepaid in whole or in part at any
time without penalty.
Payor hereby waives presentment for payment, protest, notice of protest and
notice of non-payment of this Note. In the event that any suit or proceeding is
instituted by the holder of this Note for collection hereof, the holder of this
Note shall be entitled to repayment by the Payor of all costs and expenses
incurred in connection therewith, including court costs and attorneys' fees,
regardless of whether a lawsuit is instituted. This Note may be extended or
renewed by the holder hereof, at the holder's option, but no such extension or
renewal shall be effective unless made in writing, and Payor acknowledges that
it is not entitled to any such extension or renewal and has been given no
assurance of any nature with respect thereto. No failure on the part of the
holder of this Note to exercise, or delay in exercising, any right, remedy or
privilege under this Note shall operate as a wavier thereof, nor shall a single
or partial exercise thereof preclude any further exercise of such right, remedy,
power or privilege. The waiver by the holder of this Note of any default
hereunder shall not be deemed, nor shall the same constitute, waiver of any
subsequent default on the part of Payor of a same or different nature. This
Note shall be governed by the laws of the State of California.
Tag-It, Inc.,
a California corporation
By: /s/ Colin Dyne
-------------------------
Colin Dyne
Its: President
<PAGE>
Exhibit 10-29
TAG-IT PACIFIC, INC.
1997 STOCK PLAN
1. PURPOSE OF THE PLAN.
The purpose of this 1997 Stock Plan (the "Plan") is to provide incentives
and rewards to selected eligible directors, officers, employees and consultants
of Tag-It Pacific, Inc. (the "Company") or its subsidiaries in order to assist
the Company and its subsidiaries in attracting, retaining and motivating those
persons by providing for or increasing the proprietary interests of those
persons in the Company, and by associating their interests in the Company with
those of the Company's stockholders.
2. ADMINISTRATION OF THE PLAN.
The Plan shall be administered by the Board of Directors of the Company
(the "Board"), or a committee of the Board (the "Committee") whose members shall
serve at the pleasure of the Board. If administration is delegated to the
Committee, the Committee shall have, in connection with the administration of
the Plan, the powers theretofore possessed by the Board (and references in this
Plan to the Board shall thereafter be to the Committee), subject, however, to
such resolutions, not inconsistent with the provisions of the Plan as may be
adopted from time to time by the Board.
The Board shall have all the powers vested in it by the terms of the Plan,
including exclusive authority (i) to select from among eligible directors,
officers, employees and consultants, those persons to be granted "Awards" (as
defined below) under the Plan; (ii) to determine the type, size and terms of
individual Awards (which need not be identical) to be made to each person
selected; (iii) to determine the time when Awards will be granted and to
establish objectives and conditions (including, without limitation, vesting and
performance conditions), if any, for earning Awards; (iv) to amend the terms or
conditions of any outstanding Award, subject to applicable legal restrictions
and to the consent of the other party to such Award; (v) to determine the
duration and purpose of leaves of absences which may be granted to holders of
Awards without constituting termination of their employment for purposes of
their Awards; (vi) to authorize any person to execute, on behalf of the Company,
any instrument required to carry out the purposes of the Plan; and (vii) to make
any and all other determinations which it determines to be necessary or
advisable in the administration of the Plan. The Board shall have full power
and authority to administer and interpret the Plan and to adopt, amend and
revoke such rules, regulations, agreements, guidelines and instruments for the
administration of the Plan and for the conduct of its business as the Board
deems necessary or advisable. The Board's interpretation of the Plan, and all
actions taken and determinations made by the Board pursuant to the powers vested
in it hereunder, shall be conclusive and binding on all parties concerned,
including the Company, its stockholders, any participants in the Plan and any
other employee of the Company or any of its subsidiaries.
<PAGE>
3. PERSONS ELIGIBLE UNDER THE PLAN.
Any person who is a director, officer, employee or consultant of the
Company, or any of its subsidiaries (a "Participant"), shall be eligible to be
considered for the grant of Awards under the Plan.
4. AWARDS.
(a) COMMON STOCK AND DERIVATIVE SECURITY AWARDS. Awards authorized under
the Plan shall consist of any type of arrangement with a Participant that is not
inconsistent with the provisions of the Plan and that, by its terms, involves or
might involve or be made with reference to the issuance of (i) shares of the
Common Stock, $.001 par value per share, of the Company (the "Common Stock") or
(ii) a "derivative security" (as that term is defined in Rule 16a-1(c) of the
Rules and Regulations of the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as amended, as the same may be amended from
time to time) with an exercise or conversion price related to the Common Stock
or with a value derived from the value of the Common Stock.
(b) TYPES OF AWARDS. Awards are not restricted to any specified form or
structure and may include, but need not be limited to, sales, bonuses and other
transfers of stock, restricted stock, stock options, reload stock options, stock
purchase warrants, other rights to acquire stock or securities convertible into
or redeemable for stock, stock appreciation rights, phantom stock, dividend
equivalents, performance units or performance shares, or any other type of Award
which the Board shall determine is consistent with the objectives and
limitations of the Plan. An Award may consist of one such security or benefit,
or two or more of them in tandem or in the alternative.
(c) CONSIDERATION. Common Stock may be issued pursuant to an Award for
any lawful consideration as determined by the Board, including, without
limitation, a cash payment, services rendered, or the cancellation of
indebtedness.
(d) GUIDELINES. The Board may adopt, amend or revoke from time to time
written policies implementing the Plan. Such policies may include, but need not
be limited to, the type, size and term of Awards to be made to participants and
the conditions for payment of such Awards.
(e) TERMS AND CONDITIONS. Subject to the provisions of the Plan, the
Board, in its sole and absolute discretion, shall determine all of the terms and
conditions of each Award granted pursuant to the Plan, which terms and
conditions may include, among other things:
(i) any provision necessary for such Award to qualify as an incentive
stock option under Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code") (an "Incentive Stock Option");
(ii) a provision permitting the recipient of such Award to pay the
purchase price of the Common Stock or other property issuable pursuant to
such Award, or to pay such recipient's tax withholding obligation with
respect to such issuance, in whole or in part,
2
<PAGE>
by delivering previously owned shares of capital stock of the Company
(including "pyramiding") or other property, or by reducing the number of
shares of Common Stock or the amount of other property otherwise issuable
pursuant to such Award; or
(iii) a provision conditioning or accelerating the receipt of benefits
pursuant to the Award, or terminating the Award, either automatically or in
the discretion of the Board, upon the occurrence of specified events,
including, without limitation, a change of control of the Company, an
acquisition of a specified percentage of the voting power of the Company,
the dissolution or liquidation of the Company, a sale of substantially all
of the property and assets of the Company or an event of the type described
in Section 7 of the Plan.
(f) SUSPENSION OR TERMINATION OF AWARDS. If the Company believes that a
Participant has committed an act of misconduct as described below, the Company
may suspend the Participant's rights under any then outstanding Award pending a
determination by the Board. If the Board determines that a Participant has
committed an act of embezzlement, fraud, nonpayment of any obligation owed to
the Company or any subsidiary, breach of fiduciary duty or deliberate disregard
of the Company's rules resulting in loss, damage or injury to the Company, or if
a Participant makes an unauthorized disclosure of trade secret or confidential
information of the Company, engages in any conduct constituting unfair
competition, or induces any customer of the Company to breach a contract with
the Company, neither the Participant nor his or her estate shall be entitled to
exercise any rights whatsoever with respect to such Award. In making such
determination, the Board shall act fairly and shall give the Participant a
reasonable opportunity to appear and present evidence on his or her behalf to
the Board.
(g) MAXIMUM GRANT OF AWARDS TO ANY PARTICIPANT. No Participant shall
receive Awards representing more than 25% of the aggregate number of shares of
Common Stock that may be issued pursuant to all Awards under the Plan as set
forth in Section 5 hereof.
5. SHARES OF COMMON STOCK SUBJECT TO THE PLAN.
The aggregate number of shares of Common Stock that may be issued or
issuable pursuant to all Awards under the Plan (including Awards in the form of
Incentive Stock Options and Non-Statutory Stock Options) shall not exceed an
aggregate of 562,500 shares of Common Stock, subject to adjustment as provided
in Section 7 of the Plan. Shares of Common Stock subject to the Plan may
consist, in whole or in part, of authorized and unissued shares or treasury
shares. Any shares of Common Stock subject to an Award which for any reason
expires or is terminated unexercised as to such shares shall again be available
for issuance under the Plan. For purposes of this Section 5, the aggregate
number of shares of Common Stock that may be issued at any time pursuant to
Awards granted under the Plan shall be reduced by: (i) the number of shares of
Common Stock previously issued pursuant to Awards granted under the Plan, other
than shares of Common Stock subsequently reacquired by the Company pursuant to
the terms and conditions of such Awards and with respect to which the holder
thereof received no benefits of ownership, such as dividends; and (ii) the
number of shares of Common Stock which were otherwise issuable pursuant to
Awards granted under this Plan but which were withheld by the Company as payment
of the purchase price of the Common Stock issued
3
<PAGE>
pursuant to such Awards or as payment of the recipient's tax withholding
obligation with respect to such issuance.
6. PAYMENT OF AWARDS.
The Board shall determine the extent to which Awards shall be payable in
cash, shares of Common Stock or any combination thereof. The Board may, upon
request of a Participant, determine that all or a portion of a payment to that
Participant under the Plan, whether it is to be made in cash, shares of Common
Stock or a combination thereof, shall be deferred. Deferrals shall be for such
periods and upon such terms as the Board may determine in its sole discretion.
7. DILUTION AND OTHER ADJUSTMENT.
In the event of any change in the outstanding shares of the Common Stock or
other securities then subject to the Plan by reason of any stock split, reverse
stock split, stock dividend, recapitalization, merger, consolidation,
combination or exchange of shares or other similar corporate change, or if the
outstanding securities of the class then subject to the Plan are exchanged for
or converted into cash, property or a different kind of securities, or if cash,
property or securities are distributed in respect of such outstanding securities
as a class (other than cash dividends), then the Board may, but it shall not be
required to, make such equitable adjustments to the Plan and the Awards
thereunder (including, without limitation, appropriate and proportionate
adjustments in (i) the number and type of shares or other securities or cash or
other property that may be acquired pursuant to Incentive Stock Options and
other Awards theretofore granted under the Plan, (ii) the maximum number and
type of shares or other securities that may be issued pursuant to Incentive
Stock Options and other Awards thereafter granted under the Plan; and (iii) the
maximum number of securities with respect to which Awards may thereafter be
granted to any Participant in any fiscal year) as the Board in its sole
discretion determines appropriate, including any adjustments in the maximum
number of shares referred to in Section 5 of the Plan. Such adjustments shall
be conclusive and binding for all purposes of the Plan.
8. MISCELLANEOUS PROVISIONS.
(a) DEFINITIONS. As used herein, "subsidiary" means any current or future
corporation which would be a "subsidiary corporation," as that term is defined
in Section 424(f) of the Code, of the Company; and the term "or" means "and/or."
(b) CONDITIONS ON ISSUANCE. Securities shall not be issued pursuant to
Awards unless the grant and issuance thereof shall comply with all relevant
provisions of law and the requirements of any securities exchange or quotation
system upon which any securities of the Company are listed, and shall be further
subject to approval of counsel for the Company with respect to such compliance.
Inability of the Company to obtain authority from any regulatory body having
jurisdiction, which authority is determined by Company counsel to be necessary
to the lawful issuance and sale of any security or Award, shall relieve the
Company of any liability in respect of the nonissuance or sale of such
securities as to which requisite authority shall not have been obtained.
4
<PAGE>
(c) RIGHTS AS STOCKHOLDER. A participant under the Plan shall have no
rights as a holder of Common Stock with respect to Awards hereunder, unless and
until certificates for shares of such stock are issued to the participant.
(d) ASSIGNMENT OR TRANSFER. Subject to the discretion of the Board, and
except with respect to Incentive Stock Options which are not transferable except
by will or the laws of descent and distribution, Awards under the Plan or any
rights or interests therein shall be assignable or transferable.
(e) AGREEMENTS. All Awards granted under the Plan shall be evidenced by
written agreements in such form and containing such terms and conditions (not
inconsistent with the Plan) as the Board shall from time to time adopt.
(f) WITHHOLDING TAXES. The Company shall have the right to deduct from
all Awards hereunder paid in cash any federal, state, local or foreign taxes
required by law to be withheld with respect to such awards and, with respect to
awards paid in stock, to require the payment (through withholding from the
participant's salary or otherwise) of any such taxes. The obligation of the
Company to make delivery of Awards in cash or Common Stock shall be subject to
the restrictions imposed by any and all governmental authorities.
(g) NO RIGHTS TO AWARD. No Participant or other person shall have any
right to be granted an Award under the Plan. Neither the Plan nor any action
taken hereunder shall be construed as giving any Participant any right to be
retained in the employ of the Company or any of its subsidiaries or shall
interfere with or restrict in any way the rights of the Company or any of its
subsidiaries, which are hereby reserved, to discharge a Participant at any time
for any reason whatsoever, with or without good cause.
(h) COSTS AND EXPENSES. The costs and expenses of administering the Plan
shall be borne by the Company and not charged to any Award nor to any
Participant receiving an Award.
(i) FUNDING OF PLAN. The Plan shall be unfunded. The Company shall not
be required to establish any special or separate fund or to make any other
segregation of assets to assure the payment of any Award under the Plan.
9. AMENDMENTS AND TERMINATION.
(a) AMENDMENTS. The Board may at any time terminate or from time to time
amend the Plan in whole or in part, but no such action shall adversely affect
any rights or obligations with respect to any Awards theretofore made under the
Plan. However, with the consent of the Participant affected, the Board may
amend outstanding agreements evidencing Awards under the Plan in a manner not
inconsistent with the terms of the Plan.
(b) STOCKHOLDER APPROVAL. To the extent that Section 422 of the Code,
other applicable law, or the rules, regulations, procedures or listing agreement
of any national securities exchange or quotation system, requires that any
amendment of the Plan be approved by the stockholders of the Company, no such
amendment shall be effective unless and until it is approved by the stockholders
in such a manner and to such a degree as is required.
5
<PAGE>
(c) TERMINATION. Unless the Plan shall theretofore have been terminated as
above provided, the Plan (but not the awards theretofore granted under the Plan)
shall terminate on and no awards shall be granted after October 1, 2007.
10. EFFECTIVE DATE.
The Plan is effective on October 1, 1997, the date on which it was adopted
by the Board of Directors of the Company and the holders of the majority of the
Common Stock of the Company.
11. GOVERNING LAW.
The Plan and any agreements entered into thereunder shall be construed and
governed by the laws of the State of Delaware applicable to contracts made
within, and to be performed wholly within, such state, without regard to the
application of conflict of laws rules thereof.
6
<PAGE>
OPTION CERTIFICATE
(NON-STATUTORY STOCK OPTION)
THIS IS TO CERTIFY that Tag-It Pacific, Inc., a Delaware corporation (the
"COMPANY"), has granted to the person named below ("OPTIONEE") a non-statutory
stock option (the "OPTION") to purchase shares of the Company's Common Stock
(the "SHARES") under its 1997 Stock Plan and upon the terms and conditions as
follows:
Name of Optionee:_____________________________________________
Address of Optionee:
__________________________________________
__________________________________________
__________________________________________
Number of Shares: __________________________________________
Option Exercise Price: $__________________________ per share
Date of Grant: ______________________ __ , 199_
Option Expiration Date: ______________________ __ , 200_
EXERCISE SCHEDULE: The Option shall become exercisable as follows:
SUMMARY OF OTHER TERMS: This Option is defined in the Stock Option
Agreement (Non-statutory Stock Option) (the "OPTION AGREEMENT") which is
attached to this Option Certificate (the "CERTIFICATE") as Annex I. This
Certificate summarizes certain of the provisions of the Option Agreement for
your information, but is not complete. Your rights are governed by the Option
Agreement, NOT by this summary. The Company strongly suggests that you
carefully review the full Option Agreement prior to signing this Certificate or
exercising the Option.
<PAGE>
Among the terms of the Option Agreement are the following:
EMPLOYMENT: The Option Agreement does not obligate the Company to retain
you for any period of time. Unless otherwise agreed IN WRITING, the Company
reserves the right to terminate any employee at any time, with or without cause.
See Section 5(d) of the Option Agreement.
TERMINATION OF EMPLOYMENT: While the Option terminates on the Option
Expiration Date, it will terminate earlier if you cease to be employed by the
Company. If your employment ends due to death or permanent disability, the
Option terminates six months after the date of death or disability, and is
exercisable during such six-month period as to the portion of the Option which
had vested prior to the date of death or disability. In all other cases, the
Option terminates 30 days after the date of termination of employment, and is
exercisable during such time period as to the portion of the Option which had
vested prior to the date of termination of employment; PROVIDED, HOWEVER, if you
are terminated "for cause," the Option will terminate 5 days after the date of
termination of your employment and is exercisable during such time period as to
the portion of the Option which had vested prior to the date of termination of
employment. See Section 5 of the Option Agreement.
TRANSFER: The Option is personal to you, and cannot be sold, transferred,
assigned or otherwise disposed of to any other person, except on your death.
See Section 15(d) of the Option Agreement.
EXERCISE: You can exercise the Option (once it is exercisable), in whole
or in part, by delivering to the Company a Notice of Exercise identical to
Exhibit "A" attached to the Option Agreement, accompanied by payment of the
Exercise Price for the Shares to be purchased. The Company will then issue a
certificate to you for the Shares you have purchased. You are under no
obligation to exercise the Option. See Section 4 of the Option Agreement.
MARKET STAND-OFF: The Option provides that in connection with any
underwritten public offering by the Company, you may not sell or transfer any of
your Shares without the prior written consent of the Company or its underwriters
for a period of up to 365 days after the effective date of the offering. See
Section 6(a) of the Option Agreement.
ADJUSTMENTS UPON RECAPITALIZATION: The Option contains provisions which
affect your rights in the event of stock splits, stock dividends, mergers and
other major corporate reorganizations. See Section 7 of the Option Agreement.
WAIVER: By signing this Certificate, you will be agreeing to all of the
terms of the Option Agreement, including those not summarized in this
Certificate. You will waive your rights to options or stock which may otherwise
have been promised to you. See Section 8 of the Option Agreement.
2
<PAGE>
WITHHOLDING: The Company may require you to make any arrangements
necessary to insure the proper withholding of any amount of tax, if any,
required to be withheld by the Company as a result of the exercise of the
Option. See Section 13 of the Option Agreement.
3
<PAGE>
AGREEMENT
Tag-It Pacific, Inc., a Delaware corporation, and Optionee each hereby
agrees to be bound by all of the terms and conditions of the Stock Option
Agreement (Non-Statutory Stock Option) which is attached hereto as Annex I and
incorporated herein by this reference as if set forth in full in this document.
DATED:
------------------------------
TAG-IT PACIFIC, INC.
By:
----------------------------------
Its:
--------------------------------
OPTIONEE
-------------------------------------
Name:
-------------------------------------
(Please print your name exactly as you wish
it to appear on any stock certificates issued
to you upon exercise of the Option)
4
<PAGE>
ANNEX I
STOCK OPTION AGREEMENT
(NON-STATUTORY STOCK OPTION)
This STOCK OPTION AGREEMENT (this "OPTION AGREEMENT") is made and entered
into as of the execution date of the Option Certificate to which it is attached
(the "CERTIFICATE") by and between Tag-It Pacific, Inc., a Delaware corporation
(the "COMPANY"), and the person named in the Certificate ("OPTIONEE").
Pursuant to the Tag-It Pacific, Inc. 1997 Stock Plan (the "PLAN"), the
Board of Directors of the Company (the "BOARD") has authorized the grant to
Optionee of a non-statutory stock option to purchase shares of the Company's
Common Stock, par value $.001 per share (the "COMMON STOCK"), upon the terms and
subject to the conditions set forth in this Option Agreement and in the Plan.
The Company and Optionee agree as follows:
1. GRANT OF OPTION.
The Company hereby grants to Optionee the right and option (the
"OPTION"), upon the terms and subject to the conditions set forth in this Option
Agreement and the Plan, to purchase all or any portion of that number of shares
of the Common Stock (the "SHARES") set forth in the Certificate at the Option
exercise price set forth in the Certificate (the "EXERCISE PRICE").
2. TERM OF OPTION.
The Option shall terminate and expire on the Option Expiration Date
set forth in the Certificate (the "EXPIRATION DATE"), unless sooner terminated
as provided herein. In no event shall the Option be exercisable after the
expiration of ten years from the date it was granted.
3. EXERCISE PERIOD.
(a) Subject to the provisions of Sections 3(b), 5 and 7(b) of this
Option Agreement, the Option shall become exercisable (in whole or in part) upon
and after the dates set forth under the caption "Exercise Schedule" in the
Certificate. The installments shall be cumulative; I.E., the Option may be
exercised, as to any or all Shares covered by an installment, at any time or
times after the installment first becomes exercisable and until the Option
Expiration Date or the termination of the Option.
<PAGE>
(b) Notwithstanding anything to the contrary contained in this Option
Agreement, the Option may not be exercised, in whole or in part, unless and
until any then-applicable requirements of all federal, state and local laws and
regulatory agencies shall have been fully complied with to the satisfaction of
the Company and its counsel.
4. EXERCISE OF OPTION.
There is no obligation to exercise the Option, in whole or in part.
The Option may be exercised, in whole or in part, only by delivery to the
Company of:
(a) written notice of exercise in form and substance identical to
Exhibit "A" attached to this Option Agreement stating the number of Shares then
being purchased (the "PURCHASED SHARES");
(b) payment of the Exercise Price of the Purchased Shares, either (1)
in cash, or (2) with the consent of the Board (which may be withheld in its
absolute discretion), by (i) delivery to the Company of other shares of Common
Stock with an aggregate Fair Market Value equal to the total Exercise Price of
the Purchased Shares, (ii) according to a deferred payment or other arrangement
(which may include without limiting the generality of the foregoing, the use of
other shares of Common Stock) with the person to whom the Option is granted or
to whom the Option is transferred pursuant to the terms of this Option
Agreement, or (iii) in any other form of legal consideration that may be
acceptable to the Board; and
(c) if requested by the Company, a letter of investment intent in
such form and containing such provisions as the Company may require.
In the case of any deferred payment arrangement, interest shall be
payable at least annually and shall be payable at the minimum rate of interest
necessary to avoid the imputation of interest, under the applicable provision of
the Internal Revenue Code of 1986, as amended (the "CODE"), and Treasury
Regulations.
Following receipt of the notice and payment referred to above, the
Company shall issue and deliver to Optionee a stock certificate or stock
certificates evidencing the Purchased Shares; PROVIDED, HOWEVER, that the
Company shall not be obligated to issue a fraction or fractions of a share of
its Common Stock, and may pay to Optionee, in cash or by check, the Fair Market
Value of any fraction or fractions of a share exercised by Optionee. "FAIR
MARKET VALUE" shall be determined as follows: (1) if the Common Stock is listed
on any established stock exchange or a national market system, including without
limitation the Nasdaq NMS, the Fair Market Value of a share of Common Stock
shall be the closing sales price for such stock (or the closing bid, if no sales
were reported) as quoted on such system or exchange (or the exchange with the
greatest volume of trading in the Common Stock) on the last market trading day
prior to the day of determination, as reported in the Wall Street Journal or
such other source as the Board deems reliable; (2) if the Common Stock is quoted
on the Nasdaq System (but not on the Nasdaq NMS) or is regularly quoted by a
recognized securities dealer but selling prices
2
<PAGE>
are not reported, the Fair Market Value of a share of Common Stock shall be the
mean between the bid and asked prices for the Common Stock on the last market
trading day prior to the day of determination, as reported in the Wall Street
Journal or such other source as the Board deems reliable; and (3) in the absence
of an established market for the Common Stock, the Fair Market Value shall be
determined in good faith by the Board.
5. TERMINATION OF SERVICES.
(a) If Optionee shall cease to be an officer, director, consultant or
employee of the Company or any "Affiliate" of the Company (as that term is
defined in Rule 501(b) of the Rules and Regulations under the Securities Act of
1933, as amended (the "1933 ACT")) for any reason other than death or permanent
disability (a "TERMINATING EVENT"), Optionee shall have the right, subject to
the provisions of Section 5(c) below, to exercise the Option at any time
following such Terminating Event until the earlier to occur of (1) 30 days
following the date of such Terminating Event and (2) the Expiration Date. The
Option may be exercised following a Terminating Event only to the extent
exercisable as of the date of the Terminating Event. To the extent unexercised
at the end of the period referred to above, the Option shall terminate. The
Board, in its sole and absolute discretion, shall determine whether or not
authorized leaves of absence shall constitute termination of employment for
purposes of this Option Agreement.
(b) If, by reason of death or disability (a "SPECIAL TERMINATING
EVENT"), Optionee shall cease to be an officer, director, consultant or employee
of the Company or any Affiliate, then Optionee, Optionee's executors or
administrators or any person or persons acquiring the Option directly from
Optionee by bequest or inheritance, shall have the right to exercise the Option
at any time following such Special Terminating Event until the earlier to occur
of (1) six months following the date of such Special Terminating Event and (2)
the Expiration Date. The Option may be exercised following a Special
Terminating Event only to the extent exercisable at the date of the Special
Terminating Event. To the extent unexercised at the end of the period referred
to above, the Option shall terminate. For purposes of this Option Agreement,
"disability" shall mean total and permanent disability as defined in Section
22(e)(3) of the Code. Optionee shall not be considered permanently disabled
unless he furnishes proof of such disability in such form and manner, and at
such times, as the Board may from time to time require.
(c) If Optionee's employment shall be terminated "for cause" by the
Company or any Affiliate, Optionee shall have the right to exercise the Option
at any time following such Terminating Event until the earlier to occur of (1) 5
days following the date of such Terminating Event and (2) the Expiration Date.
For purposes of this Option Agreement, "for cause" shall mean:
(1) with respect to employees of the Company or any Affiliate
the following to the extent it results in substantial harm to the Company or any
Affiliate or could reasonably be expected to result in substantial harm to the
Company or any Affiliate:
3
<PAGE>
(i) the willful failure or refusal by Optionee to perform
his duties to the Company or any Affiliate; or
(ii) Optionee's willful disobedience of any orders or
directives of the Board of Directors of the Company or any Affiliate or any
officers thereof acting under the authority thereof or Optionee's deliberate
interference with the compliance by other employees of the Company or any
Affiliate with any such orders or directives; or
(iii) the willful failure or refusal of Optionee to abide
by or comply with the written policies, standard procedures or regulations of
the Company or any Affiliate; or
(iv) any willful or continued act or course of conduct by
Optionee which the Board in good faith determines might reasonably be expected
to have a material detrimental effect on the Company or any Affiliate or their
respective business, operations, affairs or financial position; or
(v) the committing by the Optionee of any fraud, theft,
embezzlement or other dishonest act against the Company or any Affiliate;
(vi) the determination by the Board, in good faith and in
the exercise of reasonable discretion, that Optionee is not competent to perform
his duties of employment;
(vii) the determination by the Board, in good faith and in
the exercise of reasonable discretion, that under Section 4(f) of the Plan,
Optionee has committed an act of misconduct described therein; and
(2) with respect to consultants, any material breach of their
consulting agreement with the Company or any Affiliate.
(d) Nothing in the Plan, the Certificate or this Option Agreement
shall confer upon Optionee any right to continue in the service and/or employ of
the Company or any Affiliate or shall affect the right of the Company or any
Affiliate to terminate the relationship or employment of Optionee, with or
without cause.
6. RESTRICTIONS ON PURCHASED SHARES.
(a) MARKET STAND-OFF.
(1) In connection with any underwritten public offering by the
Company of its equity securities pursuant to an effective registration statement
filed under the 1933 Act, including the Company's initial public offering,
Optionee shall not sell, make any short sale of, loan, hypothecate, pledge,
grant any option for the purchase of, or otherwise
4
<PAGE>
dispose or transfer for value or otherwise agree to engage in any of the
foregoing transactions with respect to any Purchased Shares without the prior
written consent of the Company or its underwriters, for such period of time from
and after the effective date of such registration statement as may be requested
by the Company or such underwriters; PROVIDED, HOWEVER, that in no event shall
such period exceed 365 days. This Section 6(a)(1) shall only remain in effect
for the two-year period immediately following the effective date of the
Company's initial public offering and shall thereafter terminate and cease to be
in force or effect. Optionee agrees to execute and deliver to the Company such
further documents or instruments as the Company reasonably determines to be
necessary or appropriate to effect the provisions of this Section 6(a).
(2) In the event of any stock dividend, stock split,
recapitalization or other transaction resulting in an adjustment under Section 7
hereof, then any new, substituted or additional securities or other property
which is by reason of such transaction distributed with respect to or in
exchange for the Purchased Shares shall be immediately subject to the provisions
of this Section 6(a), to the same extent the Purchased Share are at such time
covered by such provisions.
(3) In order to enforce the provisions of Section 6(a), the
Company may impose stop-transfer instructions with respect to the Purchased
Shares until the end of the applicable stand-off period.
(b) SECURITIES LAW RESTRICTIONS. In the event that the issuance of
the Purchased Shares shall not be registered under the 1933 Act, none of the
Purchased Shares shall be sold, transferred, assigned, pledged, hypothecated or
otherwise disposed of ("TRANSFERRED") (with or without consideration), and the
Company shall not be required to register any such sale, transfer, assignment,
pledge, hypothecation or other disposition ("TRANSFER") and the Company may
instruct its transfer agent not to register any such Transfer, unless and until
one of the following events shall have occurred:
(1) The Purchased Shares are Transferred pursuant to and in
conformity with (i) an effective registration statement filed with the
Securities and Exchange Commission (the "COMMISSION") pursuant to the 1933 Act,
and (ii) the qualification and/or registration requirements under any applicable
securities laws of any state of the United States; or
(2) Optionee has, prior to the Transfer of such Purchased
Shares, and if requested by the Company, provided all relevant information to
the Company's counsel so that upon the Company's request, the Company's counsel
is able to, and actually prepares and delivers to the Company a written opinion
that the proposed Transfer (i) is exempt from registration under the 1933 Act as
then in effect, and the Rules and Regulations of the Commission thereunder, and
(ii) is exempt from qualification and/or registration under any applicable state
securities laws. The Company shall bear all reasonable costs of preparing such
opinion.
5
<PAGE>
(c) NONCOMPLYING TRANSFERS INVALID. Any attempted Transfer which is
not in full compliance with this Section 6 shall be null and void AB INITIO, and
of no force or effect.
7. ADJUSTMENTS UPON RECAPITALIZATION.
(a) Subject to the provisions of Section 7(b), if any change is made
in the Common Stock, without receipt of consideration by the Company or its
shareholders (through merger, consolidation, reorganization, recapitalization,
reincorporation, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares, change
in corporate structure or other transaction not involving the receipt of
consideration by the Company or its shareholders), the Option will be
appropriately adjusted in the class(es) and number of shares and price per share
of stock subject to the Option. Such adjustments shall be made by the Board,
the determination of which shall be final, binding and conclusive. The
conversion of any convertible securities of the Company shall not be treated as
a change "without the receipt of consideration by the Company or its
shareholders."
(b) In the event of: (1) a dissolution, liquidation or sale of
substantially all of the assets of the Company; (2) a merger or consolidation in
which the Company is not the "surviving corporation" (as defined below); or (3)
a merger in which the Company is the surviving corporation but the shares of the
Common Stock outstanding immediately preceding the merger are converted by
virtue of the merger into other property, whether in the form of securities,
cash or otherwise, then, at the sole discretion of the Board and to the extent
permitted by applicable law, the Option shall (i) terminate upon such event and
may be exercised prior thereto to the extent the Option is then exercisable or
(ii) continue in full force and effect and, if applicable, the surviving
corporation or an Affiliate of such surviving corporation shall assume the
Option and/or shall substitute a similar option or award in place of the Option.
(c) To the extent that the foregoing adjustments relate to stock or
securities of the Company, such adjustments shall be made by the Board, and its
determination shall be final, binding and conclusive.
(d) The provisions of this Section 7 are intended to be exclusive,
and Optionee shall have no other rights upon the occurrence of any of the events
described in this Section 7.
(e) The grant of the Option shall not affect in any way the right or
power of the Company to make adjustments, reclassifications, reorganizations or
changes in its capital or business structure, or to merge, consolidate, dissolve
or liquidate, or to sell or transfer all or any part of its business or assets.
(f) The determination as to which party is a "surviving corporation"
in a merger or consolidation shall be made on the basis of the relative equity
interests of the shareholders in the corporation existing after the merger or
consolidation, as follows: If following any merger or consolidation the holders
of outstanding voting securities of the Company prior to the merger or
consolidation own equity securities possessing more than 50%
6
<PAGE>
of the voting power of the corporation existing after the merger or
consolidation, then for purposes of the Option Agreement, the Company shall be
the surviving corporation. In all other cases, the Company shall not be the
surviving corporation.
8. WAIVER OF RIGHTS TO PURCHASE STOCK.
By signing this Option Agreement, Optionee acknowledges and agrees
that neither the Company nor any other person or entity is under any obligation
to sell or transfer to Optionee any option or equity security of the Company,
other than the Shares subject to the Option and any other right or option to
purchase Common Stock which was previously granted in writing to Optionee by the
Board. By signing this Option Agreement, Optionee specifically waives all
rights which he or she may have had prior to the date of this Option Agreement
to receive any option or equity security of the Company.
9. INVESTMENT INTENT.
Optionee represents and agrees that if he or she exercises the Option
in whole or in part, and if at the time of such exercise the Plan and/or the
Purchased Shares have not been registered under the 1933 Act, he or she will
acquire the Shares upon such exercise for the purpose of investment and not with
a view to the distribution of such Shares, and that upon each exercise of the
Option he or she will furnish to the Company a written statement to such effect.
10. LEGEND ON STOCK CERTIFICATES.
Optionee agrees that all certificates representing the Purchased
Shares will be subject to such stock transfer orders and other restrictions (if
any) as the Company may deem advisable under the rules, regulations and other
requirements of the Commission, any stock exchange upon which the Common Stock
is then listed and any applicable federal or state securities laws, and the
Company may cause a legend or legends to be put on such certificates to make
appropriate reference to such restrictions.
11. NO RIGHTS AS SHAREHOLDER.
Except as provided in Section 7 of this Option Agreement, Optionee
shall have no rights as a shareholder with respect to the Shares until the date
of the issuance to Optionee of a stock certificate or stock certificates
evidencing such Shares. Except as may be provided in Section 7 of this Option
Agreement, no adjustment shall be made for dividends (ordinary or extraordinary,
whether in cash, securities or other property) or distributions or other rights
for which the record date is prior to the date such stock certificate is issued.
12. MODIFICATION.
Subject to the terms and conditions and within the limitations of the
Plan, the Board (excluding the Optionee) may modify, extend or renew the Option
or accept the surrender
7
<PAGE>
of, and authorize the grant of a new option in substitution for, the Option (to
the extent not previously exercised). No modification of the Option shall be
made which, without the consent of Optionee, would alter or impair any rights of
the Optionee under the Option.
13. WITHHOLDING.
(a) The Company shall be entitled to require as a condition of
delivery of any Purchased Shares upon exercise of any Option that the Optionee
agree to remit, at the time of such delivery or at such later date as the
Company may determine, an amount sufficient to satisfy all federal, state and
local withholding tax requirements relating thereto, and Optionee agrees to take
such other action required by the Company to satisfy such withholding
requirements.
(b) With the consent of the Board (excluding the Optionee), and in
accordance with any rules and procedures from time to time adopted by the Board,
Optionee may elect to satisfy his or her obligations under Section 13(a) above
by (1) directing the Company to withhold a portion of the Shares otherwise
deliverable (or to tender back to the Company a portion of the Shares issued
where the Optionee (a "SECTION 16(b) RECIPIENT") is required to report the
ownership of the Shares pursuant to Section 16(a) of the Securities Exchange Act
of 1934, as amended, and has not made an election under Section 83(b) of the
Code (a "WITHHOLDING RIGHT")); or (2) tendering other shares of the Common Stock
of the Company which are already owned by Optionee which in all cases have a
Fair Market Value (as determined in accordance with the provisions of Section 4
hereof) on the date as of which the amount of tax to be withheld is determined
(the "TAX DATE") equal to the amount of taxes to be paid by such method.
(c) To exercise a Withholding Right, the Optionee must follow the
election procedures set forth below, together with such additional procedures
and conditions set forth in this Option Agreement or otherwise adopted by the
Board:
(1) the Optionee must deliver to the Company a written notice of
election (the "ELECTION") and specify whether all or a stated percentage of the
applicable taxes will be paid in accordance with Section 13(b) above and whether
the amount so paid shall be made in accordance with the "flat" withholding rates
for supplemental wages or as determined in accordance with Optionee's form W-4
(or comparable state or local form);
(2) unless disapproved by the Board (excluding the Optionee) as
provided in subsection (3) below, the Election once made will be irrevocable;
(3) no Election is valid unless the Board (excluding the
Optionee) has the right and power, in its sole discretion, with or without cause
or reason therefor, to consent to the Election, to refuse to consent to the
Election, or to disapprove the Election; and if the Board has not consented to
the Election on or prior to the Tax Date, the Election will be deemed approved;
and
8
<PAGE>
(4) if the Optionee on the date of delivery of the Election to
the Company is a Section 16(b) Recipient, the following additional provisions
will apply:
(i) the Election cannot be made during the six calendar
month period commencing with the date of grant of the Withholding Right (even if
the Option to which such Withholding Right relates has been granted prior to
such date); and
(ii) the Election (and the exercise of the related Option)
must be made either during the period beginning on the third business day
following the date of release for publication of the quarterly or annual summary
statements of sales and earnings of the Company and ending on the 12th business
day following such date or at least six calendar months or more prior to the Tax
Date.
14. CHARACTER OF OPTION.
The Option is not intended to qualify as an "incentive stock option"
as that term is defined in Section 422 of the Code.
15. GENERAL PROVISIONS.
(a) FURTHER ASSURANCES. Optionee shall promptly take all actions and
execute all documents requested by the Company which the Company deems to be
reasonably necessary to effectuate the terms and intent of this Option
Agreement.
(b) NOTICES. All notices, requests, demands and other communications
under this Option Agreement shall be in writing and shall be given to the
parties hereto as follows:
(1) If to the Company, to:
Tag-It Pacific, Inc.
3820 South Hill Street
Los Angeles, CA 90037
(2) If to Optionee, to the address set
forth on the Certificate,
or at such other address or addresses as may have been furnished by such either
party in writing to the other party hereto. Any such notice, request, demand or
other communication shall be effective (i) if given by mail, 72 hours after such
communication is deposited in the mail by first-class certified mail, return
receipt requested, postage prepaid, addressed as aforesaid, or (ii) if given by
any other means, when delivered at the address specified in this subsection (b).
9
<PAGE>
(c) TRANSFER OF RIGHTS UNDER THIS OPTION AGREEMENT. The Company may
at any time transfer and assign its rights and delegate its obligations under
this Option Agreement to any other person, corporation, firm or entity,
including its officers, directors and stockholders, with or without
consideration.
(d) OPTION NON-TRANSFERABLE. Optionee may not Transfer the Option
except by will or the laws of descent and distribution, and the Option may be
exercised during the lifetime of Optionee only by Optionee or by his or her
guardian or legal representative in the case of a disability, and upon
Optionee's death only by his or her Estate or by any person who acquired the
Option by bequest or inheritance or by reason of the death of Optionee.
(e) SUCCESSORS AND ASSIGNS. Except to the extent specifically
limited by the terms and provisions of this Option Agreement, this Option
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors, assigns, heirs and personal representatives.
(f) GOVERNING LAW. THIS OPTION AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO
CONTRACTS MADE IN, AND TO BE PERFORMED WITHIN, THAT STATE, EXCEPT TO THE EXTENT
PREEMPTED BY FEDERAL LAW, WHICH SHALL TO THAT EXTENT GOVERN.
(g) INCORPORATION OF PLAN BY REFERENCE. This Option is granted
pursuant to the terms of the Plan, the terms of which are incorporated herein by
reference, and it is intended that this Option Agreement shall be interpreted in
a manner to comply therewith. Any provision of this Option Agreement
inconsistent with the Plan shall be superseded and governed by the Plan.
(h) A COMMITTEE. As provided in the Plan, the Board may delegate
administration of the Plan and this Option Agreement to a committee (the
"COMMITTEE"). If administration is delegated to a Committee, the Committee
shall have, in connection with the this Option Agreement, the powers theretofore
possessed by the Board (and references in this Option Agreement to the Board
shall thereafter be to the Committee).
(i) MISCELLANEOUS. Titles and captions contained in this Option
Agreement are inserted for convenience of reference only and do not constitute a
part of this Option Agreement for any other purpose. Except as specifically
provided herein, neither this Option Agreement nor any right pursuant hereto or
interest herein shall be assignable by any of the parties hereto without the
prior written consent of the other party hereto.
THE SIGNATURE PAGE TO THIS OPTION AGREEMENT CONSISTS OF THE LAST PAGE
OF THE CERTIFICATE.
10
<PAGE>
Exhibit "A"
NOTICE OF EXERCISE
(To be signed only upon exercise of the Option)
To: Tag-It Pacific, Inc.
The undersigned, the holder of the enclosed Stock Option Agreement
(Non-Statutory Stock Option), hereby irrevocably elects to exercise the purchase
rights represented by the Option and to purchase thereunder _________ * shares
of Common Stock of Tag-It Pacific, Inc. (the "COMPANY"), and herewith encloses
payment of $__________ and/or _________ shares of the Company's Common Stock in
full payment of the purchase price of such shares being purchased.
Dated:
---------------------------------
-----------------------------
(Signature must conform in all
respects to name of holder as
specified on the face of the
Option)
-----------------------------
(Please Print Name)
-----------------------------
(Address)
* Insert here the number of Shares called for on the face of the Option
(or, in the case of a partial exercise, the number of Shares being exercised),
in either case without making any adjustment for additional Common Stock of the
Company, other securities or property which, pursuant to the adjustment
provisions of the Option, may be deliverable upon exercise.
<PAGE>
PROMISSORY NOTE
$71,542 Los Angeles, California
August 31, 1997
For good and valuable consideration, the receipt and sufficiency of which
is acknowledged, the undersigned, Colin Dyne ("Payor"), hereby promises to pay
to Tag-It, Inc., a California corporation ("Payee"), or order, the principal sum
of Seventy One Thousand Five Hundred Forty Two Dollars ($71,542), with simple
interest thereon at a rate of Seven and One-Half percent (7.5%) per annum from
the date hereof. All payments on this Note shall be made at such address as the
holder of this Note may advise Payor in writing, in lawful money of the United
States of America.
Principal shall be due and payable in four equal installments of Seventeen
Thousand Eight Hundred Eighty Five and 50/100 Dollars ($17,885.50) on, and all
accrued but unpaid interest shall be due and payable on, June 30, 1998, December
31, 1998, June 30, 1999 and December 31, 1999. This Note may be prepaid in
whole or in part at any time without penalty.
Payor hereby waives presentment for payment, protest, notice of protest and
notice of non-payment of this Note. In the event that any suit or proceeding is
instituted by the holder of this Note for collection hereof, the holder of this
Note shall be entitled to repayment by the Payor of all costs and expenses
incurred in connection therewith, including court costs and attorneys' fees,
regardless of whether a lawsuit is instituted. This Note may be extended or
renewed by the holder hereof, at the holder's option, but no such extension or
renewal shall be effective unless made in writing, and Payor acknowledges that
it is not entitled to any such extension or renewal and has been given no
assurance of any nature with respect thereto. No failure on the part of the
holder of this Note to exercise, or delay in exercising, any right, remedy or
privilege under this Note shall operate as a wavier thereof, nor shall a single
or partial exercise thereof preclude any further exercise of such right, remedy,
power or privilege. The waiver by the holder of this Note of any default
hereunder shall not be deemed, nor shall the same constitute, waiver of any
subsequent default on the part of Payor of a same or different nature. This
Note shall be governed by the laws of the State of California.
/s/ COLIN DYNE
---------------------------
Colin Dyne
<PAGE>
PROMISSORY NOTE
$19,649 Los Angeles, California
August 31, 1997
For good and valuable consideration, the receipt and sufficiency of which
is acknowledged, the undersigned, Harold Dyne ("Payor"), hereby promises to pay
to Pacific Trim & Belt, Inc, a California corporation ("Payee"), or order, the
principal sum of Nineteen Thousand Six Hundred Forty Nine Dollars ($19,649),
without interest except as provided below. All payments on this Note shall be
made at such address as the holder of this Note may advise Payor in writing, in
lawful money of the United States of America.
At such time as any profits of Payee are distributed by Payee to its
shareholders, Payee shall have the right to offset against amounts owing to
Payee under this Note, any portion of such distribution to which Payor is
entitled as a shareholder of Payee. To the extent any losses of Payee are
allocated to the shareholders of Payee, the principal amount of this Note shall
be increased by the portion of such losses allocated to Payor as a shareholder
of Payee, and interest shall begin to accrue on the outstanding principal
balance of this Note at a rate of Seven and One-Half percent (7.5%) per annum
thereafter.
All interest and the entire principal amount of this Note shall be payable
to Payee on the fifteenth day following the date of delivery by Payee to Payor
of written demand therefor (the "Maturity Date"). This Note may be prepaid in
whole or in part at any time without penalty.
Payor hereby waives presentment for payment, protest, notice of protest and
notice of non-payment of this Note. In the event that any suit or proceeding is
instituted by the holder of this Note for collection hereof, the holder of this
Note shall be entitled to repayment by the Payor of all costs and expenses
incurred in connection therewith, including court costs and attorneys' fees,
regardless of whether a lawsuit is instituted. This Note may be extended or
renewed by the holder hereof, at the holder's option, but no such extension or
renewal shall be effective unless made in writing, and Payor acknowledges that
it is not entitled to any such extension or renewal and has been given no
assurance of any nature with respect thereto. No failure on the part of the
holder of this Note to exercise, or delay in exercising, any right, remedy or
privilege under this Note shall operate as a wavier thereof, nor shall a single
or partial exercise thereof preclude any further exercise of such right, remedy,
power or privilege. The waiver by the holder of this Note of any default
hereunder shall not be deemed, nor shall the same constitute, waiver of any
subsequent default on the part of Payor of a same or different nature. This
Note shall be governed by the laws of the State of California.
/s/ HAROLD DYNE
--------------------------
Harold Dyne
<PAGE>
PROMISSORY NOTE
$6,089 Los Angeles, California
October 15, 1997
For good and valuable consideration, the receipt and sufficiency of which
is acknowledged, the undersigned, Colin Dyne ("Payor"), hereby promises to pay
to Tag-It, Inc., a California corporation ("Payee"), or order, the principal sum
of Six Thousand Eighty Nine Dollars ($6,089), with simple interest thereon at a
rate of Seven and One-Half percent (7.5%) per annum from the date hereof. All
payments on this Note shall be made at such address as the holder of this Note
may advise Payor in writing, in lawful money of the United States of America.
All interest and the entire principal amount of this Note shall be due and
payable to Payee on December 31, 1998. This Note may be prepaid in whole or in
part at any time without penalty.
Payor hereby waives presentment for payment, protest, notice of protest and
notice of non-payment of this Note. In the event that any suit or proceeding is
instituted by the holder of this Note for collection hereof, the holder of this
Note shall be entitled to repayment by the Payor of all costs and expenses
incurred in connection therewith, including court costs and attorneys' fees,
regardless of whether a lawsuit is instituted. This Note may be extended or
renewed by the holder hereof, at the holder's option, but no such extension or
renewal shall be effective unless made in writing, and Payor acknowledges that
it is not entitled to any such extension or renewal and has been given no
assurance of any nature with respect thereto. No failure on the part of the
holder of this Note to exercise, or delay in exercising, any right, remedy or
privilege under this Note shall operate as a wavier thereof, nor shall a single
or partial exercise thereof preclude any further exercise of such right, remedy,
power or privilege. The waiver by the holder of this Note of any default
hereunder shall not be deemed, nor shall the same constitute, waiver of any
subsequent default on the part of Payor of a same or different nature. This
Note shall be governed by the laws of the State of California.
/s/ COLIN DYNE
------------------------
Colin Dyne
<PAGE>
PROMISSORY NOTE
$3,000 Los Angeles, California
October 15, 1997
For good and valuable consideration, the receipt and sufficiency of which
is acknowledged, the undersigned, Harold Dyne ("Payor"), hereby promises to pay
to Pacific Trim & Belt, Inc., a California corporation ("Payee"), or order, the
principal sum of Three Thousand Dollars ($3,000), with simple interest thereon
at a rate of Seven and One-Half percent (7.5%) per annum from the date hereof.
All payments on this Note shall be made at such address as the holder of this
Note may advise Payor in writing, in lawful money of the United States of
America.
All interest and the entire principal amount of this Note shall be due and
payable to Payee on December 31, 1998. This Note may be prepaid in whole or in
part at any time without penalty.
Payor hereby waives presentment for payment, protest, notice of protest and
notice of non-payment of this Note. In the event that any suit or proceeding is
instituted by the holder of this Note for collection hereof, the holder of this
Note shall be entitled to repayment by the Payor of all costs and expenses
incurred in connection therewith, including court costs and attorneys' fees,
regardless of whether a lawsuit is instituted. This Note may be extended or
renewed by the holder hereof, at the holder's option, but no such extension or
renewal shall be effective unless made in writing, and Payor acknowledges that
it is not entitled to any such extension or renewal and has been given no
assurance of any nature with respect thereto. No failure on the part of the
holder of this Note to exercise, or delay in exercising, any right, remedy or
privilege under this Note shall operate as a wavier thereof, nor shall a single
or partial exercise thereof preclude any further exercise of such right, remedy,
power or privilege. The waiver by the holder of this Note of any default
hereunder shall not be deemed, nor shall the same constitute, waiver of any
subsequent default on the part of Payor of a same or different nature. This
Note shall be governed by the laws of the State of California.
/s/ HAROLD DYNE
-------------------------
Harold Dyne
<PAGE>
EXHIBIT 10.35
FORMATION AGREEMENT
OF
AGS HOLDINGS L.L.C.,
A DELAWARE LIMITED LIABILITY COMPANY
DATED AS OF OCTOBER 17, 1997
<PAGE>
FORMATION AGREEMENT
OF
AGS HOLDINGS L.L.C.,
A DELAWARE LIMITED LIABILITY COMPANY
THIS FORMATION AGREEMENT is entered into by TAG-IT PACIFIC L.L.C., a
Delaware limited liability company (the "Member"), and is acknowledged and
accepted by Mark Dyne and Colin Dyne (collectively, the "Managers"), as of
this 17th day of October, 1997.
A G R E E M E N T S:
--------------------
In consideration of the mutual promises herein contained and for other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Member hereby agrees as follows:
ARTICLE 1
FORMATION OF LIMITED LIABILITY COMPANY
The Member hereby forms a limited liability company (the "Company") under
the provisions of the Delaware Limited Liability Company Act (the "Act") and,
except as herein otherwise expressly provided, the rights and liabilities of
the Member shall be as provided in that Act, as amended from time to time.
On this date, and on behalf of the Company, the Member executed Certificate
of Formation, which shall be promptly filed with the Delaware Secretary of
State in accordance with and pursuant to the Act.
ARTICLE 2
NAME
The business of the Company shall be conducted under the name "AGS
HOLDINGS L.L.C." or such other name as the Managers shall hereafter designate.
ARTICLE 3
DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings:
"ACT" shall mean the Delaware Limited Liability Company Act, as it may be
amended from time to time.
<PAGE>
"AGREEMENT" shall mean this Formation Agreement, as amended, modified or
supplemented from time to time.
"AGS" shall mean AGS Stationery, Inc., a California corporation.
"COMPANY" shall mean the limited liability company formed pursuant to
this Agreement, as said company may from time to time be constituted.
"MANAGERS" shall mean Mark Dyne and Colin Dyne.
"MEMBER" shall mean TAG-IT PACIFIC L.L.C., a Delaware limited liability
company.
"MEMBERSHIP INTEREST" shall mean the Member's ownership interest in the
Company, which includes the Member's share of the profits and losses of the
Company, the Member's right to receive distributions of the Company's assets,
the Member's right to vote or participate in the management of the Company as
permitted in this Agreement, and the Member's right to information concerning
the business and affairs of the Company, as provided in this Agreement and
under the Act.
"TRANSFER" shall mean any transfer, sale, assignment, gift, pledge or
other disposition or encumbrance.
ARTICLE 4
NATURE OF BUSINESS
The business and purpose of the Company is to acquire and hold all of the
issued and outstanding shares of stock in AGS, a lower tier subsidiary of the
Member, to vote such shares of stock and appoint the board of directors of
such corporation, to take all actions as may be appropriate as the sole
shareholder of such corporation, and to engage in any lawful act or activity
related thereto or for which limited liability companies may be organized
under the laws of the State of Delaware.
ARTICLE 5
TERM
The term of the Company shall commence on the date hereof and shall
continue until December 31, 2035, unless earlier terminated under the
provisions of Article 12.
-2-
<PAGE>
ARTICLE 6
PRINCIPAL PLACE OF BUSINESS
The principal business office of the Company shall be located at the
principal office of the Member, or at such other place as may be designated
by the Managers from time to time.
ARTICLE 7
CAPITAL AND CONTRIBUTIONS
As a contribution to the capital of the Company, the Member has caused
the shareholders of AGS to transfer to the Company all of the issued and
outstanding shares of capital stock of AGS, pursuant to the terms of that
certain Exchange Agreement, dated October 17, 1997, by and among the Member,
the Company, AGS, such AGS shareholders and certain other parties. Except as
otherwise required by law, the Member shall not be liable to creditors of the
Company, and shall not be required to make additional capital contributions
to the Company or to restore all or any portion of a deficit balance in the
Member's capital account with the Company.
ARTICLE 8
DISTRIBUTIONS AND ALLOCATIONS
For any fiscal year of the Company, distributions in cash or in kind
shall be made to the Member, at such times and in such amounts as determined
by the Managers. The Managers shall have the absolute discretion to
determine the amount of cash to be withheld from distribution as a reserve
for contingencies and anticipated obligations of the Company. Each item of
the Company's income, gain, loss, deduction or credit shall be allocated to
the Member.
ARTICLE 9
BOOKS AND RECORDS; TAX MATTERS PARTNER
There shall be maintained and kept at all times during the continuation
of the Company proper and usual books of account which shall accurately
reflect the condition of the Company and shall account for all matters
concerning the management thereof; and which books shall be maintained and
kept at the principal office of the Company or at such other place or places
as the Managers may from time to time determine. The Company's books and
records shall be maintained on the basis selected by the Managers. The
fiscal year of the Company shall end on August 31 of each year or such other
date as determined by the Managers. The "tax matters partner" of the Company
within the meaning of section 6231(a)(7) of the Internal Revenue Code
-3-
<PAGE>
shall be Mark Dyne or such other person as may be designated by the Managers
from time to time.
ARTICLE 10
MANAGEMENT
The Company shall be managed by the Managers. The Managers shall have
general supervision, direction, and control of the business of the Company,
and shall have the general powers and duties of management typically vested
in the office of president of a corporation, including, but not limited to,
the right to enter into and carry out contracts of all kinds; to employ
employees, agents, consultants and advisors on behalf of the Company; to lend
or borrow money and to issue evidences of indebtedness; to bring and defend
actions in law or at equity; to buy, own, manage, sell, lease, mortgage,
pledge or otherwise acquire or dispose of the Company property. Without
limiting the generality of this paragraph, the Managers shall have power and
authority to act on behalf of the Company, subject to the limitations of the
Act and the limitations set forth hereinafter:
(a) To exercise all rights of the Company as the sole shareholder
of AGS, including without limitation the right to vote the shares of AGS
stock held by the Company, the right to execute written consents and waivers,
and the right to elect and maintain on the board of directors of AGS such
persons as the Managers in their sole discretion shall determined; provided,
however, that at all times such board of directors of AGS shall include at
least one of the Managers;
(b) To acquire, sell, transfer, exchange, lease or dispose of
property from or to any person or entity as the Managers may determine; and
the fact that a Manager or the Member is directly or indirectly affiliated or
connected with any such person or entity shall not prohibit the Managers from
dealing with that person or entity;
(c) To borrow money for the Company from banks, other lending
institutions, the Managers, the Member or affiliates of the Managers or the
Member, or any other individual or entity on such terms as the Managers deem
appropriate, and in connection therewith to hypothecate, encumber and grant
security interests in the assets of the Company to secure repayment of the
borrowed sums;
(d) To purchase liability and other insurance to protect the
property and business of the Company;
-4-
<PAGE>
(e) To hold and own any Company real and personal properties in the
name of the Company;
(f) To invest any funds of the Company temporarily (by way of
example but not limitation) in time deposits, short-term governmental
obligations, commercial paper or other investments;
(g) To execute on behalf of the Company all instruments and
documents, including, without limitation, checks; drafts; notes and other
negotiable instruments; mortgages or deeds of trust; security agreements;
financing statements; documents providing for the acquisition, mortgage or
disposition of property of the Company; assignments; bills of sale; leases;
partnership agreements; and any other instruments or documents necessary or
appropriate, in the opinion of the Managers, to the business of the Company;
(h) To employ accountants, legal counsel, managing agents or other
experts to perform services for the Company and to compensate them from
Company funds;
(i) To retain and compensate employees and agents generally, and to
define their duties;
(j) To merge the Company with any other limited liability company,
a corporation or a general or limited partnership;
(k) To enter into any and all other agreements on behalf of the
Company, with any other person or entity for any purpose necessary or
appropriate to the conduct of the business of the Company;
(l) To pay reimbursement from the Company of all expenses of the
Company reasonably incurred and paid by the Managers on behalf of the
Company; and
(m) To do and perform all other acts as may be necessary or
appropriate to the conduct of the business of the Company.
Every contract, deed, mortgage, lease and other instrument executed by
the Managers shall be conclusive evidence in favor of every person or entity
relying thereon or claiming thereunder that, at the time of the delivery
thereof, (i) the Company was in existence, (ii) neither this Agreement nor
the Certificate of Formation had been amended in any manner so as to restrict
the authority of the Managers, and (iii) the execution and delivery of such
instrument was duly authorized by the Managers.
-5-
<PAGE>
The Managers may appoint a secretary, a chief financial officer, and such
other officers of the Company as appropriate, each of whom shall hold office
for such period, have such authority and perform such duties as the Managers
determine.
The funds of the Company shall be deposited in such bank account or
accounts, or invested in such interest-bearing or non-interest bearing
investments, as shall be designated by the Managers. All withdrawals from
any such bank accounts shall be made by a Manager or a designated officer of
the Company. Company funds shall be separately identifiable from and not
commingled with those of any other person or entity.
ARTICLE 11
TRANSFER OF MEMBERSHIP INTEREST
There shall be no restrictions on the Transfer by the Member of all or
any portion of, or any interest in, its Membership Interest.
ARTICLE 12
DISSOLUTION OF THE COMPANY
The Company shall be dissolved on the earlier of the following events:
(a) The decision of the Member or the Managers to dissolve;
(b) The sale or liquidation of substantially all the assets of the
Company;
(c) The expiration of the term of the Company, or
(d) As otherwise provided by the Act.
The assets of the Company on winding-up shall be applied first to the
expenses of the winding-up, liquidation and dissolution, then to creditors,
in order of priority as provided by law, and thereafter distributed to the
Member. The Member shall not be personally liable for any debts, liabilities
or obligations of the Company, whether to the Company or to the creditors of
the Company, beyond the amount contributed by the Member to the capital of
the Company, the Member's share of the accumulated but undistributed profits
of the Company, if any, and the amount of any distribution (including the
return of any capital contribution) made to the Member required to be
returned to the Company pursuant to the Act.
-6-
<PAGE>
ARTICLE 13
ADMISSION OF NEW MEMBERS; AMENDMENTS
New members may be admitted to the Company as determined by the Member,
and shall be admitted upon such terms and conditions as the Member and the
Managers may determine, consistent with this Agreement, the Company's
Certificate of Formation and any applicable provision of law or rule of a
governmental agency or self-regulating organization which has jurisdiction
over the business of the Company. This Agreement and the Certificate of
Formation may be amended at any time and from time to time as determined by
the Member.
ARTICLE 14
LIABILITY AND INDEMNIFICATION
Neither the Member nor any Manager, officer, employee or agent of the
Company, the Member or a Manager shall be liable to the Company or the Member
for any expenses, damages or losses arising out of the performance of his
duties for the Company other than those expenses, damages or losses directly
attributable to such person or entity not acting in good faith and in a
manner that he reasonably believed to be in or not opposed to the best
interests of the Company or attributable to such person's breach of his duty
of loyalty to the Company. The Company shall indemnify any person or entity
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (including, without limitation, an action by
or in the right of the Company or by the Member) by reason of the fact that
he, she or it is or was the Member, a Manager, or an employee or agent of the
Company, the Member or a Manager against expenses (including attorneys' fees)
judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding to the
fullest extent permitted under Delaware law.
ARTICLE 15
MISCELLANEOUS
This Agreement and the rights of the Member hereunder shall be governed
by and interpreted in accordance with the laws of the State of Delaware.
Whenever possible, each provision of this Agreement shall be interpreted in
such manner as to be effective and valid under applicable law, but if any
provision of this Agreement, or the application of such provision to any
person or circumstances shall be held invalid, the remainder of this
Agreement, or the application of such provision to persons or circumstances
other than those to which it is held invalid, shall not be affected hereby.
Captions contained in this Agreement are inserted only as a matter of
convenience and in no way define, limit or extend the scope or intent of this
Agreement or any provision thereof.
-7-
<PAGE>
All pronouns shall be deemed to refer to the masculine, feminine, neuter,
singular or plural, as the identity of the person, firm or corporation may
require in the context thereof.
IN WITNESS WHEREOF, the undersigned has caused this Agreement to be
executed as of the date first set forth above.
TAG-IT PACIFIC L.L.C.,
a Delaware limited liability company
By: /s/ COLIN DYNE
--------------------------
Its: Managing Member
--------------------------
ACKNOWLEDGED AND ACCEPTED BY:
/s/ MARK DYNE
- -------------------------
Mark Dyne
/s/ COLIN DYNE
- -------------------------
Colin Dyne
-8-
<PAGE>
EXHIBIT 10.36
PROMISSORY NOTE
$101,972 Los Angeles, California
September 25, 1997
For good and valuable consideration, the receipt and sufficiency of which
is acknowledged, the undersigned, Tag-It, Inc., a California corporation
("Payor"), hereby promises to pay to NPM Investments, Inc. ("Payee"), or order,
the principal sum of One Hundred One Thousand Nine Hundred Seventy Two Dollars
($101,972) with simple interest thereon at a rate of Seven and One-Half percent
(7.5%) per annum from the date hereof. All payments on this Note shall be made
at such address as the holder of this Note may advise Payor in writing, in
lawful money of the United States of America.
All interest and the entire principal amount of this Note shall be payable
to Payee on the fifteenth day following the date of delivery by Payee to Payor
of written demand therefor at any time following December 31, 1998 (the
"Maturity Date"). This Note may be prepaid in whole or in part at any time
without penalty.
Payor hereby waives presentment for payment, protest, notice of protest and
notice of non-payment of this Note. In the event that any suit or proceeding is
instituted by the holder of this Note for collection hereof, the holder of this
Note shall be entitled to repayment by the Payor of all costs and expenses
incurred in connection therewith, including court costs and attorneys' fees,
regardless of whether a lawsuit is instituted. This Note may be extended or
renewed by the holder hereof, at the holder's option, but no such extension or
renewal shall be effective unless made in writing, and Payor acknowledges that
it is not entitled to any such extension or renewal and has been given no
assurance of any nature with respect thereto. No failure on the part of the
holder of this Note to exercise, or delay in exercising, any right, remedy or
privilege under this Note shall operate as a wavier thereof, nor shall a single
or partial exercise thereof preclude any further exercise of such right, remedy,
power or privilege. The waiver by the holder of this Note of any default
hereunder shall not be deemed, nor shall the same constitute, waiver of any
subsequent default on the part of Payor of a same or different nature. This
Note shall be governed by the laws of the State of California.
Tag-It, Inc.,
a California corporation
By: /S/ COLIN DYNE
--------------------------
Colin Dyne
Its: President
<PAGE>
EXHIBIT 10.39
WARRANT AGREEMENT
This WARRANT AGREEMENT (this "Agreement") is made and entered into as of
the 1st day of June, 1994, by and between Tag-It, Inc., a California
corporation (the "Company"), and Jonathan Markiles ("Holder"). In
consideration of these premises and the mutual covenants and agreements
hereinafter set forth, and other good and valuable consideration the receipt
and sufficiency of which are hereby acknowledged, the Company and Holder
agree as follows:
1. GRANT OF WARRANT.
In consideration of the sum of $100, the Company hereby grants to Holder
the right and option (the "Warrant"), upon the terms and subject to the
conditions set forth in this Agreement, to purchase all or any portion of 14
shares of the Common Stock of the Company (the "Warrant Shares") at an
exercise price of $2,000 per share (the "Exercise Price").
2. TERM OF WARRANT.
The Warrant shall terminate and expire at 5:00 p.m., Los Angeles time, on
December 31, 2002 (the "Warrant Expiration Date"), unless sooner terminated
as provided herein.
3. VESTING.
(a) The Warrant is immediately exercisable with respect to all
Warrant Shares.
(b) Notwithstanding anything to the contrary contained in this
Agreement, the Warrant may not be exercised, in whole or in part, unless and
until any then-applicable requirements of all state and federal laws and
regulatory agencies shall have been fully complied with to the satisfaction
of the Company and its counsel.
4. EXERCISE OF WARRANT.
There is no obligation to exercise the Warrant, in whole or in part. The
Warrant may be exercised, in whole or in part, only by delivery to the
Company of:
(a) written notice of exercise in form and substance identical to
Exhibit "A" attached to this Agreement stating the number of Warrant Shares
then being purchased (the "Purchased Shares"); and
(b) payment of the Exercise Price of the Purchased Shares in cash,
by check, or by wire transfer.
<PAGE>
Upon receipt of the foregoing, the Company shall promptly issue in the
name of the Holder a stock certificate evidencing the Purchased Shares by
such exercise and deliver such certificate to the Holder.
5. RESTRICTIONS ON PURCHASED SHARES.
(a) Each certificate for Purchased Shares initially issued upon the
exercise of the Warrants, shall be stamped or otherwise imprinted with a
legend in substantially the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
THE CONDITIONS SPECIFIED IN A CERTAIN WARRANT AGREEMENT
DATED JUNE 1, 1994. NO TRANSFER, SALE, PLEDGE,
HYPOTHECATION, ENCUMBRANCE OR OTHER DISPOSITION OF THE
SHARES REPRESENTED BY THIS CERTIFICATE SHALL BE VALID OR
EFFECTIVE UNTIL REGISTERED OR THE COMPANY HAS RECEIVED AN
OPINION OF COUNSEL, SATISFACTORY TO IT, THAT THE TRANSACTION
IS EXEMPT FROM REGISTRATION, AND UNTIL SUCH CONDITIONS AS
ARE CONTAINED IN THE WARRANT AGREEMENT HAVE BEEN FULFILLED.
A COPY OF THE FORM OF THE WARRANT AGREEMENT IS ON FILE AT
THE OFFICES OF TAG-IT, INC. THE HOLDER OF THIS CERTIFICATE,
BY ACCEPTANCE OF THIS CERTIFICATE, AGREES TO BE BOUND BY THE
PROVISIONS OF THE WARRANT AGREEMENT."
If the Purchased Shares are no longer subject to the transfer
restrictions imposed by applicable state and Federal securities law because
either (i) the Purchased Shares or the resale of the Purchased Shares has
been registered on a registration statement declared effective by the
Commission, or (ii) in the reasonable opinion of counsel for the Company, or
the opinion of counsel for Holder, which opinion is reasonably satisfactory
to counsel for the Company, all future dispositions of any of the Purchased
Shares by the contemplated transferee would be exempt from or would satisfy
the registration and prospectus delivery requirements of the Securities Act
and the qualification requirements of the applicable state securities laws,
then the restrictions on transfer of such securities contained in this
Section 5(a) shall not apply to any subsequent transfer thereof and the
Company shall, promptly upon request by Holder, remove the legend set forth
above and shall promptly issue, in exchange for the certificate bearing such
legend, a certificate without such legend to Holder.
(b) HOLDER AGREES THAT THE WARRANT MAY NOT BE TRANSFERRED, SOLD,
ASSIGNED OR HYPOTHECATED EXCEPT (i) TO ITS SUCCESSORS IN A MERGER OR
CONSOLIDATION OR OTHER BUSINESS COMBINATION; (ii) TO PURCHASERS OF ALL OR
SUBSTANTIALLY ALL OF ITS ASSETS; OR (iii) BY OPERATION OF LAW. HOLDER
FURTHER AGREES THAT THE COMPANY SHALL HAVE NO OBLIGATION TO EFFECT ANY
TRANSFER OF THE WARRANTS DURING THE TIME PERIOD REFERRED TO ABOVE, UNLESS THE
TRANSFEREE, PURCHASER, ASSIGNEE OR PLEDGEE, AS THE CASE MAY BE, SHALL HAVE
EXECUTED AN AGREEMENT OBLIGATING THE TRANSFEREE TO COMPLY WITH ALL TERMS AND
CONDITIONS OF THIS AGREEMENT APPLICABLE TO THE TRANSFEROR.
2
<PAGE>
(c) Prior to any exercise of the Warrants or any transfer or
attempted transfer of any of the Warrants or Warrant Shares, the Holder shall
give the Company written notice of Holder's intention so to do, describing
briefly the manner of any such proposed exercise, sale or transfer. The
Holder may effect such exercise or transfer, provided that such exercise or
transfer is not prohibited by this Section 5 and such exercise or transfer
complies with all applicable federal and state securities laws and
regulations. If in the reasonable opinion of counsel for the Company,
notwithstanding the opinion of counsel to a Holder to the contrary, if any,
the proposed transfer of such Warrant Shares or the Warrant may not be
effected without registration thereof under the Securities Act and such
registration has not been accomplished, the Company shall, as promptly as
practicable, so notify the Holder and the Holder shall not consummate the
proposed transfer.
6. ADJUSTMENTS UPON RECAPITALIZATION.
(a) In the event the Company should at any time or from time to
time after the date of this Warrant (the "Issuance Date") fix a record date
for the effectuation of a split or subdivision of the outstanding shares of
Common Stock or the determination of holders of Common Stock entitled to
receive a dividend or other distribution payable in additional shares of
Common Stock or other securities or rights convertible into, or entitling the
holder thereof to receive, directly or indirectly, additional shares of
Common Stock (hereinafter referred to as "Common Stock Equivalents") without
payment of any consideration by such holder for the additional shares of
Common Stock or the Common Stock Equivalents (including the additional shares
of Common Stock issuable upon conversion or exercise thereof), then, as of
such record date (or the date of such dividend distribution, split or
subdivision if no record date is fixed), the Exercise Price shall be
appropriately decreased (i.e., the per share Exercise Price shall be adjusted
such that the aggregate exercise price for all Warrant Shares issuable upon
exercise of the Warrants in full, as adjusted, shall remain the same) and the
number of Warrant Shares shall be increased in proportion to such increase in
the aggregate number of shares of Common Stock outstanding and those issuable
with respect to such Common Stock Equivalents.
(b) If the number of shares of Common Stock outstanding at any time
after the Issuance Date is decreased by a combination of the outstanding
shares of Common Stock, then, following the record date of such combination,
the Exercise Price shall be appropriately increased (i.e., the per share
Exercise Price shall be adjusted such that the aggregate exercise price for
all Warrant Shares issuable upon exercise of the Warrants in full, as
adjusted, shall remain the same) and the number of Warrant Shares shall be
decreased in proportion to such decrease in the aggregate number of shares of
Common Stock outstanding and those issuable with respect to such Common Stock
Equivalents.
(c) In case of any capital reorganization, any reclassification of
the Common Stock (other than a change in par value or a recapitalization
described in Section 6(a) or 6(b) of this Agreement), or the consolidation of
the Company with, or a sale of substantially all of the assets of the Company
to (which sale is followed by a liquidation or dissolution of the
3
<PAGE>
Company), or merger of the Company with, another person, the Holder shall
thereafter be entitled upon exercise of the Warrant to purchase the kind and
number of shares of stock or other securities or the amount or value of any
cash, assets or other property receivable upon such event by a holder of the
number of shares of the Common Stock which the Warrant entitles the holder of
the Warrant to purchase from the Company immediately prior to such event; and
in any such case, appropriate adjustment shall be made in the application of
the provisions set forth in this Agreement with respect to the Holder's
rights and interests thereafter, to the end that the provisions set forth in
this Agreement (including the specified changes and other adjustments to the
Exercise Price) shall thereafter be applicable in relation to any shares or
other property thereafter purchasable upon exercise of the Warrant.
(d) In the event the Company should at any time or from time to
time after the Issuance Date fix a record date for the determination of
holders of Common Stock entitled to receive a dividend or other distribution
payable in securities or rights convertible into, or entitling the holder
thereof to receive, directly or indirectly, additional shares of Common Stock
or the securities or such rights of any other corporation (other than Common
Stock Equivalents covered be Section 6(a) hereof), the Holder shall
thereafter be entitled upon exercise of the Warrant to receive, in addition
to the Purchased Shares being purchased upon such exercise, the securities or
rights convertible into securities receivable upon such event by a holder of
the number of shares of the Common Stock which the Holder is purchasing upon
such exercise.
(e) If it is expected that there will occur any event described in
Section 6(c) or 6(d) hereof, the Company shall give the holder of the
Warrants notice thereof, which notice shall be given at such time or times as
notice is given to the holders of the Company's Common Stock.
(f) The provisions of this Section 6 are intended to be exclusive,
and the holder of the Warrant shall have no rights other than as set forth in
this Agreement (and the rights of a stockholder upon exercise of the Warrant)
upon the occurrence of any of the events described in this Section 6.
(g) The grant of the Warrant shall not affect in any way the right
or power of the Company to make adjustments, reclassifications,
reorganizations or changes in its capital or business structure, or to merge,
consolidate, dissolve or liquidate, or to sell or transfer all or any part of
its business or assets.
7. REPRESENTATIONS AND WARRANTIES OF HOLDER.
Holder makes the following representations and warranties:
(a) Holder is acquiring the Warrants for its own account with the
present intention of holding such securities for investment purposes only and
not with a view to, or for sale in connection with, any distribution of such
securities (other than a distribution in compliance with all applicable
federal and state securities laws).
4
<PAGE>
(b) Holder is an experienced and sophisticated investor and has
such knowledge and experience in financial and business matters that it is
capable of evaluating the relative merits and the risks of an investment in
the Warrants and in the Warrant Shares and of protecting its own interests in
connection with this transaction.
(c) Holder is willing to bear and is capable of bearing the
economic risk of an investment in the Warrants and the Warrant Shares.
(d) The Company has made available, prior to the date of this
Agreement, to Holder the opportunity to ask questions of the Company and its
officers, and to receive from the Company and its officers information
concerning the terms and conditions of the Warrants and this Agreement and to
obtain any additional information with respect to the Company, its business,
operations and prospects, as reasonably requested by Holder.
(e) Holder is an "accredited investor" as that term is defined
under Rule 501(a) of Regulation D promulgated by the Securities and Exchange
Commission under the Act.
(f) For purposes of the application of federal and state securities
laws, Holder acknowledges that the offer and sale of the Warrants to such
Holder occurred in the State of California and that such Holder is a resident
of the State of California.
8. LEGEND ON STOCK CERTIFICATES.
Holder agrees that all certificates representing the Purchased Shares
will be subject to such stock transfer orders and other restrictions as the
Company may deem advisable under the rules, regulations and other
requirements of the Securities and Exchange Commission (the "Commission"),
any stock exchange upon which the Common Stock is then listed and any
applicable federal or state securities laws, and the Company may cause the
following legend to be put on such certificates to make appropriate reference
to such restrictions:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
TRANSFERRED OR OTHERWISE HYPOTHECATED WITHOUT REGISTRATION UNDER SUCH
ACT OR PURSUANT TO AN EXEMPTION THEREFROM.
9. NO RIGHTS AS STOCKHOLDER.
Holder shall have no rights as a stockholder of the Company with respect
to the Warrant Shares until the date of the issuance to Holder of a stock
certificate or stock certificates evidencing such Warrant Shares. Except as
may be provided in Paragraph 6 of this Agreement, no adjustment shall be made
for dividends (ordinary or extraordinary, whether in cash, securities or
other property) or distributions or other rights for which the record date is
prior to the date such stock certificate is issued.
5
<PAGE>
10. MODIFICATION.
The Board or a committee thereof may modify, extend or renew the Warrant
or accept the surrender of, and authorize the grant of a new option in
substitution for, the Warrant (to the extent not previously exercised). No
modification of the Warrant shall be made without the consent of Holder which
would alter or impair any rights of Holder under the Warrant.
11. COVENANTS OF HOLDER AND THE COMPANY.
(a) DEMAND REGISTRATION.
i) At the later to occur of (i) one year following the closing of
any initial public offering of the Company's securities, and (ii) that date
upon which the Company is eligible to register the Warrant Shares for resale
on a Form S-3, the Holder may deliver a written request (the "Notice")
executed by the Holder and requesting registration of the resale by Holder of
all of the Purchased Shares. As soon as practicable after receipt of the
Notice, the Company shall at its sole cost and expense file a registration
statement with the Commission on Form S-3 or any successor form, under the
Securities Act, covering the issuance of the Warrant Shares issuable to the
Holder upon exercise of the Warrant or the resale of the Warrant Shares
issuable upon exercise of the Warrant by the Holder. The Company will use
its best efforts to have such registration statement declared effective as
soon as possible thereafter, and shall keep such registration statement
current and effective until such time as the Warrant Shares issuable upon
exercise of the Warrant may be sold by the Holder at any time without
restriction or pursuant to the provisions of Rule 144(k) of the Commission or
until such earlier date as all of the Purchased Shares registered pursuant to
such registration statement shall have been sold or otherwise transferred by
the Holder to a third party. The Company shall also prepare and file with
the Commission such amendments and supplements to such registration statement
(and the prospectus used in connection therewith) as may be necessary to
update and keep such registration statement (and the prospectus used in
connection therewith) current and effective for such three-year period and to
comply with the provisions of the Securities Act with respect to the sale of
all securities covered by such registration statement.
ii) The Company shall not be required to effect a registration
pursuant to this Section 11(a): (i) after the Company has effected one (1)
registration pursuant to this Section 11(a), and such registration has either
(A) been declared or ordered effective or (B) the request for such
registration has been subsequently withdrawn by the Holder (and such
withdrawal is not based on materially adverse information concerning the
Company of which the Holder was not reasonably aware at the time of such
request); or (ii) if the Warrant Shares issuable upon exercise of the Warrant
may be sold by the Holder at any time without restriction or pursuant to the
provisions of Rule 144(k); or (iii) if Form S-3 (or a successor or similar
form) is not available for such offering by the Holder; or (iv) if the
Company shall furnish to the Holder following receipt of his written request
for registration, a certificate signed on behalf of the Board of Directors by
the Chairman of the Board stating that in the good faith judgment of the
Board of Directors of the Company, it would be seriously detrimental to the
Company and its
6
<PAGE>
shareholders for such registration statement to be filed and it is therefore
essential to defer the filing of such registration statement, in which event
the Company shall have the right to defer such filing for a period of not
more than one hundred eighty (180) days after receipt of the Holder's request
for registration.
(b) PIGGYBACK REGISTRATION OF WARRANT SHARES. If, at any time
during the period commencing on the date that is 180 days from the date upon
which any initial public offering ("IPO") is declared effective by the
Commission and on or before December 31, 2002, the Company shall propose to
register any shares of Common Stock (but excluding any shares or securities
being registered pursuant to Form S-8 or Form S-4 or any successor form
thereto), the Company shall (i) give the Holder written notice, or
telegraphic, telecopy or telephonic notice followed as soon as practicable by
written confirmation thereof, of such proposed registration at least 20
business days prior to the filing of such registration statement and, (ii)
upon written notice, or telegraphic or telephonic notice followed as soon as
practicable by written confirmation thereof, given to the Company by the
Holder within 15 days after the giving of such written confirmation or
written notice by the Company, the Company shall include or cause to be
included in any such registration statement all or such portion of the
Warrant Shares as the Holder may request; PROVIDED, HOWEVER, that the Company
may at any time withdraw or cease proceeding with any such registration if it
shall at the same time withdraw or cease proceeding with the registration of
the Common Stock originally proposed to be registered; and PROVIDED FURTHER,
that in connection with any registered public offering involving an
underwriting, the managing underwriter may (if in its reasonable opinion
marketing factors so require) limit the number of securities (including any
Warrant Shares) included in such offering (other than securities of the
Company). In the event of any such limitation, the total number of Warrant
Shares to be offered for the account of the Holder in the registration shall
be reduced in proportion to the respective number of shares requested to be
included therein by all holders of the Company's Common Stock (other than the
Company) entitled to include shares of Common Stock in the registration to
the extent necessary to reduce the total number of shares proposed to be
registered to the number of shares recommended by the managing underwriter.
(c) COMPANY'S OBLIGATIONS IN REGISTRATION. The following
provisions shall also be applicable at the sole cost and expense of the
Company in the case of registrations under Section 11:
i) Following the effective date of such registration statement,
the Company shall, upon the request of the Holder, forthwith supply such
number of prospectuses meeting the requirements of the Securities Act as
shall be requested by the Holder to permit it to make a public distribution
of all of its Warrant Shares, provided that the Holder shall from time to
time furnish the Company with such appropriate information (relating to the
intentions of the Holder) in connection therewith as the Company shall
request in writing.
ii) the Company shall bear the entire cost and expense of the
registration of securities provided for in this Section (but not the selling
expenses of the Holder).
7
<PAGE>
iii) the Company shall indemnify and hold harmless the Holder from
and against any and all losses, claims, damages and liabilities (including
reasonable fees and expenses of counsel) arising out of or based upon any
untrue statement or alleged untrue statement of a material fact contained in
any registration statement or any prospectus included therein required to be
filed or furnished by reason of this Section or otherwise or in any
application or other filing under, the Securities Act or any other applicable
Federal or state securities law, or arising out of or based upon any omission
or alleged omission to state therein a material fact required to be stated
therein (i.e., in any such registration statement, prospectus, application or
other filing) or necessary to make the statements therein not misleading, to
which such person may become subject, or any violation or alleged violation
by the Company to which such Person may become subject, under the Securities
Act, the Exchange Act, or other Federal or state laws or regulations, at
common law or otherwise, except to the extent that such losses, claims,
damages or liabilities are caused by any such untrue statement or alleged
untrue statement or omission or alleged omission based upon and in strict
conformity with written information furnished to the Company by such person
expressly for use therein; PROVIDED HOWEVER, that the Holder shall at the
same time indemnify the Company, its directors, each officer signing the
related registration statement, and each person, if any, who controls the
Company within the meaning of the Securities Act, from and against any and
all losses, claims, damages and liabilities (including reasonable fees and
expenses of counsel) arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained in any registration
statement or any prospectus included therein required to be filed or
furnished by reason of this Section, or otherwise or in any application or
other filing under, the Securities Act or any other applicable Federal or
state securities law, or arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein
(i.e., in any such registration statement, prospectus, application or other
filing) or necessary to make the statements therein not misleading, to which
such person may become subject, or any violation or alleged violation by the
Holder to which the Company, its directors, each officer signing the related
registration statement, and each person, if any, who controls the Company
within the meaning of the Securities Act, may become subject, under the
Securities Act, the Exchange Act, or other Federal or state laws or
regulations, at common law or otherwise, to the extent that such losses,
claims, damages or liabilities are caused by any such untrue statement or
alleged untrue statement or omission or alleged omission based upon and in
strict conformity with written information furnished to the Company by the
Holder expressly for use therein.
(d) In the event any person entitled to indemnification hereunder
receives in writing a complaint, claim or other written notice of any loss,
claim, damage, liability or action giving rise to a claim for indemnification
under Section 11(c)(iii), the person claiming indemnification under Section
11(c)(iii) shall promptly notify the person or persons against whom
indemnification is sought (the "Indemnitor") of such complaint, notice, claim
or action, and the Indemnitor shall have the right to investigate and defend
any such loss, claim, damage, liability or action. The person claiming
indemnification shall have the right to employ separate counsel in any such
action and to participate in the defense thereof but the fees and expenses of
such counsel shall not be at the expense of the Indemnitor. In no event
shall the Indemnitor be
8
<PAGE>
obligated to indemnify any person for any settlement of any claim or action
effected without the Indemnitor's consent, which consent shall not be
unreasonably withheld.
12. DISPUTES.
(a) ARBITRATION. All disputes arising in connection with this
Agreement shall be finally settled by arbitration in Los Angeles, California, in
accordance with the rules of the American Arbitration Association (the "Rules of
Arbitration") and judgment on the award rendered by the arbitration panel (the
"Arbitration Panel") may be entered in any court or tribunal of competent
jurisdiction.
(b) Any party which desires to initiate arbitration proceedings as
provided in Section 11(a) above may do so by delivering written notice to the
other party (the "Arbitration Notice") specifying (A) the nature of the dispute
or controversy to be arbitrated, (B) the name and address of the arbitrator
appointed by the party initiating such arbitration and -C- such other matters as
may be required by the Rules of Arbitration.
(c) The Parties shall appoint a single arbitrator who shall constitute
the Arbitration Panel hereunder. Should the parties not agree upon the
appointment of the arbitrator within 30 days of delivery of the Arbitration
Notice, the Arbitrator shall be appointed in accordance with the Rules of
Arbitration.
(d) In any arbitration proceeding conducted pursuant to the provisions
of this Section 11, both parties shall have the right to discovery, to call
witnesses and to cross-examine the opposing party's witnesses, either through
legal counsel, expert witnesses or both.
(e) FINALITY OF DECISION. All decisions of the Arbitration Panel
shall be final, conclusive and binding on all parties and shall not be subject
to judicial review. The arbitrator shall divide all costs (other than fees of
counsel) incurred in conducting the arbitration proceeding and the final award
in accordance with what they deem just and equitable under the circumstances.
(f) LIMITATIONS. Notwithstanding anything to the contrary contained
in Sections 11(a) and 11(b) above, any claim by either party for injunctive or
other equitable relief, including specific performance, may be brought in any
court of competent jurisdiction and any judgment, order or decree relating
thereto shall have precedence over any arbitral award or proceeding.
13. GENERAL PROVISIONS.
(a) FURTHER ASSURANCES. Holder shall promptly take all actions and
execute all documents requested by the Company which the Company deems to be
reasonably necessary to effectuate the terms and intent of this Agreement.
9
<PAGE>
(b) NOTICES. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be given to
the parties hereto as follows:
If to the Company, to:
Tag-It, Inc.
3820 South Hill Street
Los Angeles, California 90037
Attention: Chief Executive Officer
If to Holder, to the address set
forth in the records of the Company,
or at such other address or addresses as may have been furnished by either party
in writing to the other party hereto. Any such notice, request, demand or other
communication shall be effective (i) if given by mail, two days after such
communication is deposited in the mail by first-class certified mail, return
receipt requested, postage prepaid, addressed as aforesaid, or (ii) if given by
any other means, when delivered at the address specified in this subparagraph
(b).
(c) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO CONTRACTS
MADE IN, AND TO BE PERFORMED WITHIN, THAT STATE. JURISDICTION AND VENUE OVER
ANY LEGAL ACTION BROUGHT HEREUNDER SHALL RESIDE EXCLUSIVELY IN THE COUNTY OF LOS
ANGELES, STATE OF CALIFORNIA. EACH OF THE PARTIES HERETO WAIVE THEIR RIGHT TO A
JURY TRIAL WITH RESPECT TO ANY SUCH LEGAL ACTIONS.
(d) ATTORNEYS' FEES. In the event that any action, suit or
arbitration or other proceeding is instituted upon any breach of this Agreement,
the prevailing party shall be paid by the other party thereto an amount equal to
all of the prevailing party's costs and expenses, including attorneys' fees
incurred in each and every such action, suit or proceeding (including any and
all appeals or petitions therefrom). As used in this Agreement, "attorneys'
fees" shall mean the full and actual cost of any legal services actually
performed in connection with the matter involved calculated on the basis of the
usual fee charged by the attorney performing such services and shall not be
limited to "reasonable attorneys' fees" as defined in any statute or rule of
court.
(e) AMENDMENT; WAIVER. This Agreement shall be binding upon and
inure to the benefit of the parties to this Agreement and their respective
successors, heirs and personal representatives. No provision of this Agreement
may be amended or waived unless in writing signed by all of the parties to this
Agreement. Waiver of any one provision of this Agreement shall not be deemed to
be a waiver of any other provision.
10
<PAGE>
(f) NO FINDERS. The parties each agree to indemnify and hold
harmless the other against any expense incurred by reason of any consulting,
brokerage commission or finder's fee alleged to be payable to any person in
connection with the transactions contemplated hereby because of any act,
omission or statement of indemnifying party or any dealings by the indemnifying
party with any consultant, broker or finder.
(g) EXPENSES. Each of the parties shall pay its own expenses
incurred in connection with the preparation of this Agreement and the
consummation of the transactions contemplated hereby.
(h) SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such a manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be or become
prohibited or invalid under applicable law, such provision shall be ineffective
to the extent of such prohibition or invalidity without invalidating the
remainder of such provision or the remaining provisions of this Agreement.
(i) COUNTERPARTS. This Agreement may be executed in several
counterparts, all of which together shall constitute one agreement binding on
all parties hereto, notwithstanding that all of the parties have not signed the
same counterpart.
(j) ENTIRE AGREEMENT. This Agreement constitutes and embodies the
entire understanding and agreement of the parties hereto relating to the subject
matter hereof and there are no other agreements or understandings, written or
oral, in effect between the parties relating to such subject matter except as
expressly referred to herein.
(k) MISCELLANEOUS. Titles and captions contained in this Agreement
are inserted for convenience of reference only and do not constitute a part of
this Agreement for any other purpose. Except as specifically provided herein,
neither this Agreement nor any right pursuant hereto or interest herein shall be
assignable by any of the parties hereto without the prior written consent of the
other party hereto.
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
TAG-IT, INC.
By: /s/ COLIN DYNE
------------------------------------
Colin Dyne
Its: President
/s/ JONATHAN MARKILES
---------------------------------------
Jonathan Markiles
12
<PAGE>
EXHIBIT "A"
NOTICE OF EXERCISE
(TO BE SIGNED ONLY UPON EXERCISE OF THE WARRANT)
TO: Tag-It, Inc.
The undersigned hereby irrevocably elects (to the extent indicated herein)
to exercise the purchase right represented by the Warrant granted to the
undersigned on June 1, 1994 and to purchase thereunder ___________ shares of
Common Stock of Tag-It, Inc., a California corporation (the "Company"). The
closing of the exercise of the purchase right shall take place at _____ on
_________________, ____ at the principal executive office of the Company located
at 3820 South Hill Street, Los Angeles, California 90037.
HOLDER
_______________________________
13
<PAGE>
TAG-IT PACIFIC, INC.
EXHIBIT 11
FOR THE YEAR ENDED AUGUST 31, 1997
-----------
Net loss $ 56,843
-----------
Weighted average common shares outstanding 2,085,599
Effect of options issued after August 31, 1997
at below the offering price 263,724
Effect of debt converted on October 14, 1997
at below the offering price 384,401
Option proceeds used to re-acquire treasury
stock at the offering price (194,836)
-----------
Weighted average shares outstanding 2,538,888
-----------
Loss per share $ 0.02
-----------
-----------
<PAGE>
EXHIBIT 21.1
List of Subsidiaries
1. Tag-It, Inc., a California corporation
2. Tag-It Printing & Packaging Ltd., a BVI corporation
3. Tagit de Mexico, SA de CV
4. A.G.S. Stationery, Inc., a California corporation
5. Pacific Trim & Belt, Inc., a California corporation
6. A.G.S. Holdings, L.L.C., a Delaware limited liability company
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
TAG-IT PACIFIC, INC.
Los Angeles, California
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated October 20, 1997, except for the
recapitalization described in Note 1, as to which the date is , 1997
relating to the consolidated financial statements of Tag-It Pacific, Inc.
We also consent to the reference to us under the caption 'Experts' in the
Prospectus.
BDO SEIDMAN, LLP
Los Angeles, California
October 21, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF TAG-IT PACIFIC, INC. FOR THE YEARS ENDED
AUGUST 31, 1996 AND 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> AUG-31-1996 AUG-31-1997
<PERIOD-START> SEP-01-1995 SEP-01-1996
<PERIOD-END> AUG-31-1996 AUG-31-1997
<CASH> 89,873 148,062
<SECURITIES> 0 0
<RECEIVABLES> 866,095 1,895,420
<ALLOWANCES> 0 0
<INVENTORY> 1,206,026 2,017,503
<CURRENT-ASSETS> 0 0
<PP&E> 1,036,164 1,619,915
<DEPRECIATION> 429,606 697,653
<TOTAL-ASSETS> 3,116,287 5,350,170
<CURRENT-LIABILITIES> 5,008,264 6,185,994
<BONDS> 0 0
0 0
0 0
<COMMON> 2,086 2,086
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 3,116,287 5,350,170
<SALES> 14,738,041 19,539,411
<TOTAL-REVENUES> 14,738,041 19,539,411
<CGS> 10,090,538 12,546,541
<TOTAL-COSTS> 10,090,538 12,546,541
<OTHER-EXPENSES> 4,973,058 6,128,346
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 325,555 864,524
<INCOME-PRETAX> (790,360) 53,843
<INCOME-TAX> 0 113,043
<INCOME-CONTINUING> (790,360) (59,200)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (790,360) (59,200)
<EPS-PRIMARY> 0 (.02)
<EPS-DILUTED> 0 (.02)
</TABLE>
<PAGE>
CONSENT OF NOMINEE
I, Brent Cohen, do hereby consent to being named as a nominee for
director of Tag-It Pacific, Inc., a Delaware corporation (the "Company"), in
the Company's Registration Statement on Form SB-2 (the "Registration
Statement") to be filed with the Securities and Exchange Commission (the
"Commission"). I understand that the Registration Statement is being filed
with the Commission in connection with the Company's initial public offering
of Common Stock.
Date: October 16, 1997 /s/ Brent Cohen
------------------------
Brent Cohen
<PAGE>
CONSENT OF NOMINEE
I, Diana Maranon, do hereby consent to being named as a nominee for
director of Tag-It Pacific, Inc., a Delaware corporation (the "Company"), in
the Company's Registration Statement on Form SB-2 (the "Registration
Statement") to be filed with the Securities and Exchange Commission (the
"Commission"). I understand that the Registration Statement is being filed
with the Commission in connection with the Company's initial public offering
of Common Stock.
Date: October 16, 1997 /s/ Diana Maranon
------------------------
Diana Maranon
