<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 21, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
STEVEN MYERS & ASSOCIATES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
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CALIFORNIA 8742 33-0080929
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
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4695 MACARTHUR COURT, EIGHTH FLOOR
NEWPORT BEACH, CALIFORNIA 92660
(714) 975-1550
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
RONALD A. HUNN
CHIEF FINANCIAL OFFICER
STEVEN MYERS & ASSOCIATES, INC.
4695 MACARTHUR COURT, EIGHTH FLOOR
NEWPORT BEACH, CALIFORNIA 92660
(714) 975-1550
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
Copies to:
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THOMAS J. CRANE, ESQ. KENNETH J. BARONSKY, ESQ.
SCOTT SANTAGATA, ESQ. MILBANK, TWEED, HADLEY & MCCLOY
NATALIE DUNDAS, ESQ. 601 SOUTH FIGUEROA STREET, 30TH FLOOR
RUTAN & TUCKER, LLP LOS ANGELES, CALIFORNIA 90017
611 ANTON BOULEVARD, 14TH FLOOR (213) 892-4000
COSTA MESA, CALIFORNIA 92626
(714) 641-5100
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, 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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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========================================================================================================
PROPOSED MAXIMUM
AGGREGATE
TITLE OF EACH CLASS OF OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED PRICE(1)(2) REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------
Common Stock, no par value.......................................... $46,000,000 $13,939
========================================================================================================
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(1) Includes shares of Common Stock issuable upon exercise of the
Underwriters' over-allotment option.
(2) Estimated solely for the purpose of calculating the registration fee under
Rule 457.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT 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> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED NOVEMBER 21, 1997
PROSPECTUS
, 1998
SHARES
[SM&A LOGO]
COMMON STOCK
Of the shares of Common Stock offered hereby, shares
are being sold by Steven Myers & Associates, Inc. ("SM&A" or the "Company") and
shares are being sold by the Selling Shareholders. See "Principal and
Selling Shareholders." The Company will not receive any of the proceeds from the
sale of shares by the Selling Shareholders.
Prior to this offering, there has been no public market for the Common
Stock of the Company. It is currently estimated that the initial public offering
price will be between $ and $ per share. See "Underwriting" for
information related to the factors to be considered in determining the initial
public offering price.
Application will be made to have the Common Stock approved for quotation on
the Nasdaq National Market under the symbol "WINS."
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
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.
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PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO THE DISCOUNTS AND TO THE THE SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS
- -------------------------------------------------------------------------------------------------------
Per Share.......................... $ $ $ $
Total(3)........................... $ $ $ $
- -------------------------------------------------------------------------------------------------------
</TABLE>
(1) See "Underwriting" for indemnification arrangements with the Underwriters.
(2) Before deducting expenses estimated at $ to be paid by the Company.
The Company has agreed to pay the expenses of the Selling Shareholders,
other than Underwriting Discounts and Commissions.
(3) The Company and the Selling Shareholders have granted to the Underwriters a
30-day option to purchase up to additional shares of Common Stock
at the Price to the Public, less Underwriting Discounts and Commissions,
solely to cover over-allotments, if any. If the Underwriter's over-allotment
option is exercised in full, the total Price to the Public, Underwriting
Discounts and Commissions, Proceeds to the Company and Proceeds to the
Selling Shareholders will be , , and
, respectively. The Company will not receive any of the proceeds
from the sale of the shares of Common Stock by the Selling Shareholders
pursuant to the Underwriters' over-allotment option, if exercised. See
"Underwriting" and "Principal and Selling Shareholders."
The shares of Common Stock are being offered by the several Underwriters,
subject to prior sale, when, as and if delivered to and accepted by the
Underwriters, and subject to various prior conditions, including their right to
reject orders in whole or in part. It is expected that delivery of share
certificates will be made in New York, New York, on or about , 1998.
DONALDSON, LUFKIN & JENRETTE LEHMAN BROTHERS
SECURITIES CORPORATION
<PAGE> 3
COLOR PHOTOGRAPHY
The first page of photography will depict the core business of the Company,
proposal management, with graphic, including statement "SM&A is growing by
building on its proposal success with 88.8% of wins in dollars awarded" and
winning proposal covers.
The second page of photography (fold out) will include graphic art
demonstrating the relationship between proposal management (including the
increased deployment of Proposal Development Centers) and the Company's
increasing role in contract support services (with emphasis on systems
engineering and Program Integration).
The third page of photography (back inside cover) will be an array of
photography of the Company's headquarters facilities, employees at work, and
advertisements.
This Prospectus contains certain forward-looking statements that involve
substantial risks and uncertainties. When used in this Prospectus, the words
"anticipate," "believe," "estimate," "expect" and similar expressions as they
relate to the Company or its management are intended to identify such
forward-looking statements. The Company's actual results, performance or
achievements could differ materially from the results expressed in, or implied
by, these forward-looking statements. Factors that could cause or contribute to
such differences include those discussed in "Risk Factors."
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING SYNDICATE SHORT COVERING TRANSACTIONS OR THE IMPOSITION OF PENALTY
BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
Celestri(TM) is a trademark of Motorola, Inc.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and Financial Statements and Notes thereto appearing elsewhere in
this Prospectus. Unless otherwise indicated, the information in this Prospectus,
including share and per share data, (i) assumes no exercise of the Underwriters'
over-allotment option, and (ii) reflects the conversion upon, consummation of
the offering hereby (the "Offering") of common stock of the Company ("Common
Stock"), of all of the outstanding shares of Series A and Series B Common Stock
of the Company into an aggregate of shares of Common Stock. See
"Recapitalization."
THE COMPANY
Steven Myers & Associates, Inc. ("SM&A" or the "Company") is the largest
proposal management company in the United States. The Company's superior
proposal management processes and team of approximately 150 highly experienced
professionals help its clients to achieve a higher probability of winning the
government and commercial contracts that are critical to their success. The
Company is also significantly expanding systems engineering and program
integration services to aerospace, communications and engineering companies. The
Company's success is evidenced by a compound annual revenue growth rate of
approximately 30%, from $9.4 million for 1992 to $32.9 million for the twelve
months ended September 30, 1997.
The Company has amassed a win rate of 88.8% of all dollars awarded on SM&A
engagements since its inception in 1982. The Company's win rate greatly exceeds
the results disclosed in a recent survey which indicated that a majority of the
companies surveyed considered a 30% win rate as positive. The Company has worked
on or is currently engaged on $133.6 billion of government and commercial
procurements. The Company leverages its success in winning business for its
clients and its early involvement in the project life cycle to extend its
services beyond proposal development to systems engineering and program
integration. Such contract support services have grown from 3.0% of the
Company's revenues for 1994 to 18.4% for the nine months ended September 30,
1997.
The Company's core business consists of providing proposal management
services to its clients. For programs in excess of $100 million, the Company
assembles a dedicated team that manages all phases of the proposal development
process from strategy formulation through proposal preparation and review to the
proposal submittal and post-submittal process. SM&A's clients include industry
leaders such as Bechtel Corporation, The Boeing Company (including the former
McDonnell Douglas and the aerospace and defense group of Rockwell International
Corporation), Harris Corporation, Hughes Electronics Corporation, ITT
Corporation, Litton Industries, Inc., Lockheed Martin Corporation, Loral Space &
Communications, Ltd., Motorola, Inc. and Raytheon Company. SM&A's 88.8% win rate
covers 375 major proposals managed for its clients, including such high profile
programs as the next generation space-based surveillance program for the Air
Force, the Tomahawk improvement and Sidewinder missile replacement programs for
the Navy, environmental clean up projects for the Department of Energy, and a
new space shuttle design for NASA. SM&A is leveraging its successful win rate in
large programs to penetrate the substantial market for proposals for smaller
programs (generally less than $100 million each) by creating, staffing and
operating Proposal Development Centers ("PDCs"). The Company's PDCs are
typically located within its clients' facilities to bring SM&A's quality and
expertise to smaller client programs and reduce the cost per proposal. The
Company currently operates PDCs for GDE Systems, Inc., Hughes Electronics
Corporation, ITT Corporation, Litton Industries, Inc., Motorola, Inc., and
Raytheon Company. After installation of a PDC, clients typically experience win
rates of two to three times that previously achieved by their internal proposal
teams. The Company anticipates installing PDCs at five additional clients' sites
by the end of 1998.
3
<PAGE> 5
The demand for the Company's services is increasing as the aerospace and
defense industry consolidates. In this highly competitive environment, major
contractors find it is increasingly vital to win new contracts in order to
survive, increasing their incentive to employ the Company's professional
proposal management services. Based on procurement data from the Department of
Defense and NASA, the Company estimates that the annual government proposal
management market is approximately $325 million, and the Company believes that
the market for commercial procurement is at least as large. In addition, the
increasing trend toward utilizing outsourced expertise has created a significant
opportunity for the Company to expand its systems engineering and program
integration services. The Company's participation in the proposal management
process uniquely positions SM&A to extend its involvement into contract support
services and management consulting roles on projects won by its clients. By
leveraging its client relationships and engineering expertise, the Company has
obtained 20 support services contracts in the last 18 months. The Company
estimates the annual market for high-end engineering and consulting services is
approximately $10 billion and the Company's plan is to generate an increasing
percentage of its revenue from these services.
The Company believes that several factors distinguish it from its
competitors and position it to capitalize on the rapidly growing demand for its
services, such as (i) the expertise resulting from SM&A's professionals who have
an average of more than 20 years of relevant industry experience; (ii) a proven
track record and superior reputation based on an impressive win rate established
over the past 15 years; (iii) an ability to recruit and retain highly
experienced personnel capable of providing both proposal management and contract
support services; and (iv) deep-rooted client relationships that lead to
multiple engagements and often create additional growth opportunities into
complementary lines of business.
The Company's strategy is to expand its position as the largest proposal
management company and to continue to develop its rapidly growing contract
support services. The key elements of the Company's growth strategy are to (i)
capitalize on trends toward increased outsourcing of proposal management and
contract support functions; (ii) increase the number and scope of the Company's
PDCs; (iii) leverage existing relationships to obtain support services contracts
upon completion of the proposal management stage; (iv) aggressively pursue
opportunities in the growing market for large commercial programs; and (v)
pursue strategic acquisitions that provide the Company with an expeditious and
cost-effective method of expanding into complementary engineering and management
consulting services.
Established as a sole proprietorship in 1982, the Company was incorporated
in California in 1985. The Company's principal executive offices are located at
4695 MacArthur Court, Eighth Floor, Newport Beach, California 92660, and its
telephone number is (714) 975-1550.
4
<PAGE> 6
THE OFFERING
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Common Stock offered by the Company............ shares
Common Stock offered by the Selling
Shareholders................................. shares
--------
Total................................ shares
=======
Common Stock to be outstanding after the
Offering(1).................................. shares
Repayment of existing indebtedness and general
corporate purposes, which may include
Use of Proceeds................................ strategic acquisitions. See "Use of Proceeds."
Proposed Nasdaq National Market symbol......... WINS
</TABLE>
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(1) Excludes shares of Common Stock reserved for issuance under the 1997
Stock Option Plan, of which are expected to be granted upon
consummation of this Offering.
RISK FACTORS
Prospective investors should carefully consider the factors discussed in
detail elsewhere in this Prospectus under the caption "Risk Factors."
5
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SUMMARY FINANCIAL INFORMATION
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<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------------------- -------------------------
1992 1993 1994(1) 1995 1996 1996 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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STATEMENT OF OPERATIONS
DATA(2):
Net revenues................ $ 9,407 $10,738 $15,220 $20,777 $25,699 $19,462 $ 26,639
Gross profit................ 3,854 3,622 5,771 8,464 11,187 8,063 11,801
Operating income............ 325 830 878 671 438 656 6,843
Earnings (loss) before
income taxes.............. 306 817 (823) 678 574 741 6,694
Net earnings (loss)......... $ 301 $ 801 $ (811) $ 668 $ 565 $ 734 $ 6,594
====== ======= ======= ======= ======= ======= =======
PRO FORMA STATEMENT OF OPERATIONS DATA(3):
Earnings (loss) before income taxes................................... $ 3,049 $ 2,725 $ 5,851
Provision for income taxes............................................ 1,219 1,090 2,340
------- ------- -------
Net earnings (loss)..................................................... $ 1,830 $ 1,635 $ 3,511
======= ======= =======
Net earnings per share................................................ $ $
======= =======
Weighted average common shares(4).....................................
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<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
-------------------------
(IN THOUSANDS)
ACTUAL AS ADJUSTED(5)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.......................................................... $ 478
Working capital.................................................................. (1,120)
Total assets..................................................................... 7,923
Total debt....................................................................... 5,066
Total shareholders' equity (deficit)............................................. (4,873)
</TABLE>
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(1) In 1994, the Company wrote off $1.7 million of receivables from California
Kamchatka Company, Inc. ("CKC"), an affiliated entity. See "Certain
Transactions" and Note (10) of the Notes to Financial Statements.
(2) In connection with the Offering, the Company will be converting to a C
corporation under the Internal Revenue Code of 1986, as amended (the
"Code"). Prior to conversion, the Company had been an S corporation for
federal and certain state income tax purposes. See "Prior S Corporation
Status."
(3) For additional pro forma statement of operations data for 1994, 1995, and
1996 and for the nine months ended September 30, 1996 and 1997, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Amounts reflect pro forma adjustments for (a) the elimination
of salaries and bonuses paid to the three principal executive officers
(which have historically been included in selling, general and
administrative expenses) in excess of $2.7 million in the aggregate (which
amount is equal to the maximum salaries and bonuses payable for 1998 under
an Executive Compensation Plan consisting of an Executive Employment
Agreement and an Executive Bonus Plan (the "Executive Compensation Plan")),
and (b) adjustments for federal and state income taxes as if the Company had
been taxed as a C corporation at an assumed effective income tax rate of
approximately 40%.
(4) In January 1997, the Company repurchased shares of Common Stock from
certain of its existing shareholders for approximately $5.9 million using
borrowings under the Bank Facility. See "Certain Transactions."
(5) Adjusted to give effect to the sale by the Company of shares of Common
Stock offered hereby at an assumed public offering price of $ per share,
and the application of the estimated net proceeds therefrom, including
repayment of the Company's indebtedness. See "Use of Proceeds."
6
<PAGE> 8
RISK FACTORS
In addition to the other information in this Prospectus, prospective
investors should carefully consider the following factors in evaluating the
Company and its business before purchasing any shares of the Common Stock
offered hereby.
DEPENDENCE ON DEFENSE INDUSTRY AND RISKS OF GOVERNMENT CONTRACTING
For the fiscal year ended December 31, 1996, approximately 82.8% of the
Company's revenues were derived from proposal management services, including
PDCs, related to government procurement contracts. For the foreseeable future,
the Company expects that the percentage of its revenues attributable to such
contracts will continue to be substantial. U.S. Government expenditures for
defense products may decline after fiscal 1997 with such reductions having an
effect on the Company's clients, or, indirectly, the Company. In the event
expenditures for products of the type manufactured by the Company's clients are
reduced and not offset by other new programs or products, there will be a
reduction in the volume of contracts or subcontracts to be bid upon by the
Company's clients and, as a result, a reduction in the volume of proposals
managed by the Company. Unless offset, such reductions could materially and
adversely affect the Company's business, operating results and financial
condition. In addition to its dependence on government contracts, the Company,
through its government-contractor clients, is subject to risks associated with
compliance with governmental regulations. The fines and penalties which could
result from noncompliance with appropriate standards and regulations, or a
client's suspension or debarment from the bidding process for future government
contracts could have a material adverse effect on the Company's business,
operating results and financial condition. The Company relies for the
continuance and expansion of its business on a facility security clearance from
the U.S. Government, and individual security clearances, at various levels, for
nearly all members of its staff. There can be no assurance that necessary
security clearances will continue to be made available by the U.S. Government.
CLIENT CONCENTRATION
SM&A derives a significant portion of its revenues from a relatively
limited number of clients. For example, revenues from the Company's ten most
significant clients accounted for approximately 93.0% and 98.0% of its total
revenues for the nine months ended September 30, 1997 and for the year ended
December 31, 1996, respectively. Lockheed Martin Corporation is the Company's
single largest client, accounting for approximately 23.0% and 22.9% of the
Company's total revenues for the nine months ended September 30, 1997 and for
the year ended December 31, 1996, respectively. Clients typically retain the
Company for major proposals as needed on an engagement basis rather than
pursuant to long-term contracts, and a client can usually terminate an
engagement at any time without a significant penalty. Moreover, there can be no
assurance that the Company's existing clients will continue to engage the
Company for additional assignments or do so at the same revenue levels. The loss
of any significant client could materially and adversely affect the Company's
business, financial condition and results of operations. In addition, the level
of the Company's services required by an individual client may diminish over the
life of its relationship with the Company, and there can be no assurance that
the Company will be successful in establishing relationships with new clients as
this occurs. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations," and "Business -- Clients and Representative
Engagements."
COMPETITION AND MARKET PENETRATION
The market for proposal management services in the procurement of
government and commercial contracts for aerospace and defense is a niche market
with a number of competitors. The Company is the largest provider of such
services and principally competes with numerous smaller proposal management
companies in this highly specialized industry. The Company also competes with
some of its clients' internal proposal development resources.
The Company has recently entered and seeks to achieve significant growth in
the contract support services market. The market for services in the contract
support industry is competitive, highly fragmented
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<PAGE> 9
and subject to rapid change. Such competition is likely to increase in the
future. Many of the Company's competitors have greater personnel, financial,
technical and marketing resources than the Company. Such competitors include
many larger management consulting firms such as McKinsey & Company, Booz Allen &
Hamilton, and Bain & Company, as well as the consulting arms of major accounting
firms. The Company also competes with its clients' in-house resources. This
source of competition may increase as consolidation of the aerospace and defense
industry creates larger organizations. Although the Company believes that it has
the ability to further penetrate the contract support services market, there can
be no assurance that the Company will be successful in such efforts. In
addition, significant further expense for sales and marketing may be required to
promote a major expansion of the Company's services in such area. If the Company
is unsuccessful in its efforts to penetrate further the market for such
services, or if its current 88.8% win rate in the proposal management business
drops significantly, the Company's growth prospects could be materially and
adversely affected. See "Business -- Market Opportunity."
MANAGEMENT OF GROWTH
The Company's business involves the delivery of services through an
experienced team of trained professionals. The Company's success depends in
large part upon its ability to attract, develop, motivate and retain
highly-skilled professionals and administrative employees. The Company has
experienced significant growth in recent years and intends to pursue further
growth as part of its business strategy. This growth strategy will require an
increase in the Company's personnel, particularly skilled systems engineers and
program managers. Qualified professionals are currently in great demand and
there is significant competition for employees with the requisite skills from
other major and boutique consulting firms, research firms, government
contractors, proposal management or business acquisition departments of major
corporations and other professional services firms. There can be no assurance
that the Company will be able to attract and retain the qualified personnel
necessary to pursue its growth strategy. There can be no assurance that the
Company will be able to maintain or accelerate its current growth, effectively
manage its expanding operations or achieve planned growth on a timely or
profitable basis. To the extent the Company is unable to manage its growth
effectively and efficiently, the Company's business, financial condition and
results of operations could be materially and adversely affected. See
"Business -- Growth Strategy."
RISKS RELATED TO POSSIBLE ACQUISITIONS
An element of SM&A's growth strategy is to expand its operations through
the acquisition of complementary businesses. The Company has no prior history of
making acquisitions and there can be no assurance that the Company will be able
to identify, acquire, profitably manage or successfully integrate any such
businesses into the Company without incurring substantial expenses, delays or
other operational or financial problems. Moreover, competitors of the Company
are also soliciting potential acquisition candidates, which could both increase
the price of any acquisition targets and decrease the number of attractive
companies available for acquisition. Further, acquisitions may involve a number
of special risks, including diversion of management's attention, failure to
retain key acquired personnel, increased costs to improve managerial,
operational, financial and administrative systems, legal liabilities, and
increased interest expense and amortization of acquired intangible assets, some
or all of which could materially and adversely affect the Company's business,
operating results and financial condition. Client satisfaction or performance
problems at a single acquired firm could have a materially adverse impact on the
reputation of the Company as a whole. In addition, there can be no assurance
that acquired businesses, if any, will achieve anticipated revenues and earnings
or performance at levels historically enjoyed by the Company. The failure of the
Company to manage its acquisition strategy successfully could materially and
adversely affect the Company's business, operating results and financial
condition. See "Business -- Growth Strategy."
DEPENDENCE ON KEY EMPLOYEES
The success of SM&A is highly dependent upon the efforts, abilities,
business generation capabilities and project execution of its executive
officers, in particular those of Steven S. Myers, the Company's Chief Executive
Officer, President and Chairman of the Board, and Kenneth W. Colbaugh, the
Company's Executive Vice President and Chief Operating Officer. The Company has
entered into two year employment agreements with both of these individuals. The
loss of the services of either of these individuals for any reason
8
<PAGE> 10
could materially and adversely affect the Company's business, operating results
and financial condition, including its ability to secure and complete
engagements. The Company maintains key-man life insurance policies, in the
amount of $2.0 million, on each of Mr. Myers and Mr. Colbaugh. See "Management."
BROAD MANAGEMENT DISCRETION AS TO USE OF PROCEEDS
The net proceeds to be received by the Company in connection with this
Offering will be used to repay approximately $7.2 million of existing
indebtedness and for general corporate purposes, which may include strategic
acquisitions. Accordingly, management will have broad discretion with respect to
the expenditure of such proceeds. Purchasers of shares of Common Stock offered
hereby will be entrusting their funds to the Company's management, upon whose
judgment they must depend. See "Use of Proceeds."
VARIABILITY IN QUARTERLY RESULTS
The Company may experience significant fluctuations in future quarterly
operating results due to a number of factors, including the size, timing and
duration of client engagements. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
CONTROL BY PRINCIPAL SHAREHOLDER
Following the consummation of the Offering, Mr. Steven S. Myers (the
"Principal Shareholder") will beneficially own approximately % of the
Company's outstanding Common Stock (approximately % if the Underwriters'
over-allotment option granted is exercised in full), and will have the ability
to control the election of directors and the results of other matters submitted
to a vote of shareholders. Such concentration of ownership may have the effect
of delaying or preventing a change in control of the Company and may adversely
affect the voting or other rights of other holders of Common Stock. The Board of
Directors of the Company is expected to be initially comprised entirely of
designees of Mr. Myers. See "Management" and "Principal and Selling
Shareholders."
ANTI-TAKEOVER PROVISIONS
The Board of Directors has the authority to issue up to ten million shares
of preferred stock and to determine the price, rights, preferences, privileges
and restrictions, including voting rights, of those shares without any vote or
action by the shareholders. The rights of the holders of the 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 the
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. The Company has no present plan to
issue any shares of preferred stock. See "Description of Capital Stock."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have shares of
Common Stock outstanding. The Company has also granted options to directors and
employees to acquire shares of Common Stock subject to certain vesting
requirements pursuant to the Company's 1997 Stock Option Plan. The Company
intends to register on a registration statement on Form S-8, shortly after the
date of this Prospectus, all shares of Common Stock underlying the
options then outstanding or issuable under the 1997 Stock Option Plan.
Immediately following the completion of this Offering, a total of
shares of Common Stock will be freely tradable without restriction. An
additional shares of Common Stock will become freely tradable without
restriction after , 1998, upon expiration of lockup agreements with
certain shareholders of the Company. All of the remaining shares are
"restricted securities" as defined by Rule 144 promulgated under the Securities
Act of 1933, as amended (the "Securities Act"), of which shares will
be eligible for sale in the public market on the date of this Prospectus in
reliance on Rule 144(k). The possibility that substantial amounts of Common
Stock may be sold in the public market would likely have a material adverse
effect on prevailing market prices of the Common Stock and could impair
9
<PAGE> 11
the Company's ability to raise capital through the sale of its equity
securities. See "Shares Eligible for Future Sale."
IMMEDIATE AND SUBSTANTIAL DILUTION
The Offering price for the shares of Common Stock in this Offering is
substantially higher than the book value per share of the Common Stock.
Purchasers of shares of Common Stock in this Offering will therefore incur
immediate and substantial dilution. See "Dilution."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Company's
Common Stock, and there can be no assurance that an active public market for the
Common Stock will develop or be sustained after the Offering. The initial public
offering price will be determined by negotiations among the Company and the
Representatives of the Underwriters and may bear no relationship to the price at
which the Common Stock will trade after the Offering. See "Underwriting" for
factors to be considered in determining the initial public offering price. The
Company believes that factors such as announcements of developments related to
the Company's business, fluctuations in operating results of the Company or its
competitors, the Company's failure to meet securities analysts' expectations,
general conditions in the proposal management and contract support services
markets and the worldwide economy, announcements of technological innovations,
new systems or product enhancements by the Company or its competitors,
acquisitions, changes in government regulations, developments in patents or
other intellectual property rights and changes in the Company's relationships
with clients could cause the price of the Company's Common Stock to fluctuate,
perhaps substantially. In addition, in recent years the stock market has
experienced extreme price and volume fluctuations which have affected the market
price of many service based companies and which have at times been unrelated to
the operating performance of the specific companies whose stocks were affected.
Such fluctuations could adversely affect the market price of the Company's
Common Stock.
FORWARD LOOKING STATEMENTS AND ASSOCIATED RISKS
This Prospectus contains certain forward-looking statements, including,
among others (i) the anticipated growth in the proposal management and contract
support services markets; (ii) anticipated trends in the Company's financial
condition and results of operations (including expected changes in the Company's
gross margin and general, administrative and selling expenses); (iii) the
ability of the Company to finance its working capital requirements; (iv) the
Company's business strategy for expanding its presence in the proposal
management and contract support services markets; and (v) the Company's ability
to distinguish itself from its current and future competitors. These
forward-looking statements are based largely on the Company's current
expectations and are subject to a number of risks and uncertainties. Actual
results could differ materially from these forward-looking statements. In
addition to the other risks described elsewhere in this "Risk Factors"
discussion, important factors to consider in evaluating such forward-looking
statements include (i) the shortage of reliable market data regarding the
proposal management and contract support services markets; (ii) changes in
external competitive market factors or in the Company's internal budgeting
process which might impact trends in the Company's results of operations; (iii)
unanticipated working capital or other cash requirements; (iv) changes in the
Company's business strategy or an inability to execute its strategy due to
unanticipated changes in the proposal management and contract support services
markets; and (v) various other factors that may prevent the Company from
competing successfully in the marketplace. In light of these risks and
uncertainties, many of which are described in greater detail elsewhere in this
"Risk Factors" discussion, there can be no assurance that the actual results
will not differ materially from such forward-looking statements contained in
this Prospectus.
10
<PAGE> 12
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of
Common Stock offered by the Company hereby, after deducting Underwriting
Discounts and Commissions and other Offering expenses (estimated to be
approximately $ ), all of which are payable by the Company, are
estimated to be approximately $ million ($ million if the Underwriters'
over-allotment option is exercised in full). The net proceeds will be used to
repay approximately $7.2 million of existing indebtedness and for general
corporate purposes, which may include future acquisitions of complementary
businesses.
The Company's current indebtedness consists of (i) a revolving line of
credit and a term loan with a bank with maximum principal amounts of $4.0
million each (the "Bank Facility"), and (ii) a note payable to NationsBank in
the original principal amount of $560,000 (the "NationsBank Note"). The interest
rate on the revolving line of credit agreement is the daily prime rate and the
interest rate on the term loan is 2.50% in excess of the London InterBank
Offered Rate. In January 1997, the Company repurchased 13.4% of its outstanding
Common Stock for $5.9 million, using the proceeds from borrowings on the Bank
Facility. The Company has used the revolving line of credit for cash flow
requirements and general corporate purposes, including the payment of dividends
to shareholders. As of October 31, 1997, the revolving line of credit had an
outstanding principal balance of $3.2 million and the term note had an
outstanding principal balance of $3.5 million. The NationsBank Note bears
interest at an annual rate of 10.74% and, as of October 31, 1997, had an
outstanding principal balance of $519,000. Upon the consummation of the
Offering, the Company intends to pay off the outstanding balances of the Bank
Facility and the NationsBank Note in connection with their termination. The
Company is currently negotiating with lenders regarding a new credit facility.
The principal purposes of this Offering are to increase the Company's
equity capital and financial flexibility, create a public market for the Common
Stock, facilitate future access by the Company to the public equity markets,
create a currency for potential acquisitions, enhance the Company's ability to
use the Common Stock as a means of attracting, retaining and incentivizing
senior managers and professionals and provide working capital to fund the
Company's growth strategy. See "Business -- Growth Strategy."
Pending their application by the Company, the net proceeds of this Offering
not immediately required for the purposes described above will be invested
principally in U.S. Government securities, short-term certificates of deposit,
money market funds or other short-term, interest-bearing securities.
RECAPITALIZATION
As of October 31, 1997, the Company had outstanding 202,292 shares of
Series A Common Stock and 812,829 shares of Series B Common Stock. In
, 199 , the Company filed Restated Articles of Incorporation with the
California Secretary of State providing for the conversion of each of its issued
and outstanding shares of Series A Common Stock and Series B Common Stock into
shares of Common Stock, or an aggregate of shares (the
"Recapitalization").
PRIOR S CORPORATION STATUS
Since January 1, 1991, the Company has been treated as an S corporation for
purposes of federal and state income taxes. Accordingly, the Company has not
been subject to regular federal income tax and has been subject to California
income tax at a rate of 1.5% of its taxable income. Each of the Company's
shareholders was required to include the Company's taxable income in his
individual income for state and federal income tax purposes. Effective upon the
date of completion of this Offering, the Company's S corporation status will
terminate, the Company will be taxed as a C corporation, and will become subject
to regular federal and state income taxes.
11
<PAGE> 13
S CORPORATION DIVIDEND
On January 2, 1998, the Company will declare a dividend, estimated to be
$2.9 million, to its then-current shareholders, representing all undistributed
earnings of the Company from September 30, 1997 through December 31, 1997.
Immediately prior to consummating this Offering, the Company will declare an S
corporation dividend, estimated to be $775,000, to its then-current
shareholders, representing all undistributed earnings of the Company from
January 1, 1998 through the date of this Prospectus (the "S Corporation
Dividend"). Purchasers of Common Stock in this Offering will not receive any
portion of the S Corporation Dividend.
DIVIDEND POLICY
The Company anticipates that, after payment of the S Corporation Dividend
to its current shareholders in connection with the termination of the Company's
S corporation status, all future earnings will be retained for development of
its business. See "Prior S Corporation Status." The Company does not anticipate
paying cash dividends on its Common Stock in the foreseeable future. The payment
of any future dividends will be at the discretion of the Company's Board of
Directors and will depend upon, among other things, future earnings, capital
requirements, the general financial condition of the Company and restrictions
that may be contained in the Company's financing agreements.
12
<PAGE> 14
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1997, and as adjusted to reflect the sale by the Company of
shares of Common Stock offered hereby (assuming an initial public
offering price of $ per share) and the application of the estimated net
proceeds therefrom. See "Use of Proceeds."
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1997
--------------------------
(IN THOUSANDS)
(UNAUDITED)
--------------------------
ACTUAL AS ADJUSTED
<S> <C> <C>
Cash................................................................ $ 478 $
======== =========
Long term obligations, including current portion.................... 5,066
Shareholders' equity (deficit):
Common Stock, no par value, shares authorized;
shares issued and outstanding actual; and
shares issued and outstanding, as adjusted(1)........ 5
Preferred Stock, no par value, 10,000,000 shares authorized; no
shares issued and outstanding actual; and no shares issued and
outstanding, as adjusted.......................................
Additional paid-in-capital........................................ 316
Due from shareholder.............................................. (1,367)
Retained earnings (deficit)....................................... (3,827)
-------- -----------
Total shareholders' equity (deficit)......................... (4,873)
-------- -----------
Total capitalization...................................... $ 193 $
======== =========
</TABLE>
- ---------------
(1) Excludes shares of Common Stock reserved for issuance under the
1997 Stock Option Plan, of which are expected to be granted upon
the consummation of this Offering.
13
<PAGE> 15
DILUTION
As of September 30, 1997, the Company had a pro forma net tangible book
value of $ or $ per share of Common Stock. Pro forma deficit
in net tangible book value per share represents tangible book value (total
tangible assets of the Company less its total liabilities) divided by the total
number of shares of Common Stock outstanding after giving effect to the
Recapitalization. Without taking into account any changes in the pro forma
deficit in net tangible book value after September 30, 1997, other than to give
effect to the sale by the Company of shares of Common Stock offered
hereby (at an assumed initial public offering price of $ per share),
the Company's pro forma net tangible book value at September 30, 1997 would have
been $ or $ per share. This represents an immediate increase
in the pro forma net tangible book value of $ per share to existing
shareholders and an immediate dilution of $ per share to persons
purchasing Common Stock in this Offering (the "New Investors"). The following
table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................. $
-------
Pro forma deficit in net tangible book value per share before
the Offering................................................
-------
Increase in net tangible book value per share attributable to
New Investors...............................................
-------
Pro forma net tangible book value per share after the Offering...
Dilution per share to New Investors(1)........................... $
=======
</TABLE>
- ---------------
(1) If the Underwriters' over-allotment option is exercised in full, the net
tangible book value per share will be $ , resulting in dilution
to New Investors in the Offering of $ per share. See "Underwriting."
14
<PAGE> 16
SELECTED FINANCIAL DATA
The statement of operations data for the years ended December 31, 1994,
1995 and 1996, and the balance sheet data as of December 31, 1994, 1995 and
1996, have been derived from the Company's Financial Statements and Notes
thereto, which statements have been audited by KPMG Peat Marwick LLP,
independent auditors, and are included elsewhere in this Prospectus. The balance
sheet data as of December 31, 1992 and 1993 and the statement of operations data
for each of the two fiscal years ended December 31, 1992 and 1993 has been
derived from the Company's unaudited financial statements, which statements are
not included herein and which, in the opinion of management, include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair statement of the results for the periods presented. The data for the nine
months ended September 30, 1996, and September 30, 1997 has been derived from
the Company's unaudited financial statements also appearing elsewhere herein and
which, in the opinion of management, include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair statement of the results for
the interim periods presented. The results of operations for the period ended
September 30, 1997 are not necessarily indicative of the results to be expected
for any other interim period or for the full year. The following information
should be read in conjunction with the Financial Statements and the Notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------------------- ------------------
1992 1993 1994(1) 1995 1996 1996 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(2):
Net revenues..................... $ 9,407 $10,738 $15,220 $20,777 $25,699 $19,462 $26,639
Cost of revenues................. 5,553 7,116 9,449 12,313 14,512 11,399 14,838
------ ------- ------- ------- ------- ------- -------
Gross profit..................... 3,854 3,622 5,771 8,464 11,187 8,063 11,801
Selling, general and
administrative expenses........ 3,529 2,792 4,893 7,793 10,749 7,407 4,958
------ ------- ------- ------- ------- ------- -------
Operating income................. 325 830 878 671 438 656 6,843
Other income (expense)........... (19) (13) (1,701) 7 136 85 (149)
------ ------- ------- ------- ------- ------- -------
Earnings (loss) before income
taxes.......................... 306 817 (823) 678 574 741 6,694
Income tax expense
(benefit)(3)................... 5 16 (12) 10 9 7 100
------ ------- ------- ------- ------- ------- -------
Net earnings (loss).............. $ 301 $ 801 $ (811) $ 668 $ 565 $ 734 $ 6,594
====== ======= ======= ======= ======= ======= =======
PRO FORMA STATEMENT OF OPERATIONS DATA(4):
Net revenues............................................................... $25,699 $19,462 $26,639
Cost of revenues........................................................... 14,512 11,399 14,838
------- ------- -------
Gross profit............................................................... 11,187 8,063 11,801
Selling, general and administrative expenses............................... 8,274 5,424 5,801
------- ------- -------
Operating income........................................................... 2,913 2,639 6,000
Other income (expense)..................................................... 136 86 (149)
------- ------- -------
Earnings before income taxes............................................... 3,049 2,725 5,851
Income tax expense......................................................... 1,219 1,090 2,340
------- ------- -------
Net earnings............................................................... $ 1,830 $ 1,635 $ 3,511
======= ======= =======
Net earnings per share..................................................... $ $
======= =======
Weighted average common shares(5)..........................................
</TABLE>
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, SEPTEMBER 30,
----------------------------------------------- -------------
1992 1993 1994 1995 1996 1997
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash........................................ $ 35 $ 189 $ 242 $ 269 $ 1,927 $ 478
Working capital............................. 181 868 95 794 (279) (1,120)
Total assets................................ 1,210 2,269 2,320 3,034 11,820 7,923
Total debt(5)(6)............................ 346 283 541 605 6,250 5,066
Total shareholders' equity (deficit)(5)..... 117 918 114 668 755 (4,873)
</TABLE>
(footnotes on the following page)
15
<PAGE> 17
- ------------------------------
(1) In 1994, the Company wrote off $1.7 million of receivables from CKC, an
affiliated entity. See "Certain Transactions" and Note (10) of the Notes to
Financial Statements.
(2) In connection with the Offering, the Company will be converting to a C
corporation under the Code. Prior to conversion, the Company had been an S
corporation for federal and certain state income tax purposes. See "Prior S
Corporation Status."
(3) Represents California and other state franchise taxes accrued by the
Company.
(4) For additional pro forma statement of operations data for 1994, 1995, and
1996 and for the nine months ended September 30, 1996 and 1997, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Amounts reflect pro forma adjustments for (a) the elimination
of salaries and bonuses paid to the three principal executive officers
(which have historically been included in selling, general and
administrative expenses) in excess of $2.7 million in the aggregate (the
maximum salaries and bonuses payable for 1998 under the Executive
Compensation Plan), and (b) adjustments for federal and state income taxes
as if the Company had been taxed as a C corporation rather than an S
corporation.
(5) In January 1997, the Company repurchased shares of Common Stock from
certain of its existing shareholders for approximately $5.9 million using
borrowings under the Bank Facility. See "Certain Transactions."
(6) In April 1996, the Company purchased a Hawker 800 aircraft for $5.8 million
and financed the purchase through a bank. In January 1997, the Company sold
the Hawker aircraft to a company which is owned by the principal
shareholder. See Note (4) of the Notes to Financial Statements.
16
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company derives most of its revenues from professional service
activities. The majority of these activities are provided under "time and
expenses" billing arrangements, and revenues are recorded as work is performed.
Revenues are directly related to the total number of hours billed to clients and
the associated hourly billing rates. The Company has several labor
classifications at various billing rates, depending on the level of expertise
needed by the client, and charges all clients rates consistent with these labor
classifications. The majority of the billable labor is performed at client
locations, and travel and lodging expenses incurred by the Company's direct
labor employees are reimbursed by the client. Revenues are also derived from
success fees offered to clients as a pricing option, and recorded as revenue
only upon the attainment of the specified incentive criteria. The Company offers
to discount labor rates from 5% to 15% in return for a success fee which is
billed at a multiple of two to three times the discounted amount. This success
fee is billable by the Company when a contract is won by the client.
Cost of revenues consists primarily of labor, incentives, and travel and
lodging expenses directly related to consulting services rendered by the
Company. The Company's direct labor employees are paid based upon total hours
billed to the clients. Direct labor employees work predominately at the client's
facilities, and actual travel and lodging expenses incurred are paid by the
client. The number of direct labor employees assigned to a proposal will vary
according to the size, complexity, duration and demands of the project. Proposal
terminations, completions and scheduling delays may result in periods when
direct labor employees are not fully utilized. However, lower utilization would
result in minimal downward pressure on margins, as the Company's direct labor
employees are paid a nominal bi-weekly salary, which is offset against payments
for actual hours worked.
Selling, general and administrative ("SG&A") expenses consist primarily of
executive compensation, administrative labor and incentives, marketing expenses,
office expenses and general overhead. As an S corporation the Company
distributed the majority of its net income to shareholders each year as bonus
compensation. This bonus compensation was in addition to regular salaries and
incentives. From 1991 through 1996, these revenues were distributed as wages,
and were included in SG&A expenses. In 1997, the Company instituted quarterly
dividend payments to all shareholders of record, replacing this bonus
compensation.
Historically, executive compensation expense consisted of salaries,
incentive bonuses and discretionary bonuses paid to the three senior executive
shareholders. Paula K. Myers, one of the senior executive shareholders, resigned
in October 1997. The Company's historical levels of executive compensation were
related primarily to the Company's status as an S Corporation and period to
period increases in executive compensation expense were related primarily to the
Company's period to period earnings growth. Total compensation paid to the three
senior executive shareholders was $2.7 million, $4.6 million, and $5.2 million
in 1994, 1995 and 1996, respectively, and $4.0 million and $1.2 million for the
nine months ended September 30, 1996 and 1997, respectively. In November 1997,
the Company adopted an Executive Compensation Plan, which provides maximum
annual compensation in an aggregate amount of approximately $2.7 million for the
two remaining senior executive shareholders, comprised of base salary and bonus
amounts to be awarded based on the attainment of certain financial performance
criteria.
As the Company elected to be taxed as an S corporation, substantially all
taxes and benefits from income, losses and tax credits have flowed through the
Company to its shareholders for federal income and state franchise tax reporting
purposes. The Company is also taxed as an S corporation in California at the
appropriate statutory tax rate.
RESULTS OF OPERATIONS
The following table sets forth pro forma operating results for the periods
indicated. Amounts reflect pro forma adjustments for (a) the elimination of
salaries and bonuses paid to the three principal executive officers (which have
historically been included in SG&A expenses) in excess of $2.7 million in the
aggregate (which
17
<PAGE> 19
amount is equal to the maximum salaries and bonuses payable for 1998 under the
Executive Compensation Plan), and (b) adjustments for federal and state income
taxes as if the Company had been taxed as a C corporation at an assumed
effective income tax rate of approximately 40%.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- -------------------
1994 1995 1996 1996 1997
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net revenues............................. $15,220 $20,777 $25,699 $19,462 $26,639
Cost of revenues......................... 9,449 12,313 14,512 11,399 14,838
------- ------- ------- ------- -------
Gross profit............................. 5,771 8,464 11,187 8,063 11,801
SG&A expenses............................ 4,856 5,851 8,274 5,424 5,801
------- ------- ------- ------- -------
Operating income......................... 915 2,613 2,913 2,639 6,000
Other income (expense)................... (1,701) 7 136 86 (149)
------- ------- ------- ------- -------
Earnings (loss) before income taxes...... (786) 2,620 3,049 2,725 5,851
Income tax expense (benefit)............. (314) 1,048 1,219 1,090 2,340
------- ------- ------- ------- -------
Net earnings (loss)...................... $ (472) $ 1,572 $ 1,830 $ 1,635 $ 3,511
======= ======= ======= ======= =======
</TABLE>
The following table sets forth certain pro forma operating data as a
percentage of net revenues for 1994, 1995 and 1996 and the nine months ended
September 30, 1996 and 1997.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- -------------------
1994 1995 1996 1996 1997
<S> <C> <C> <C> <C> <C>
Net revenues............................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues......................... 62.1 59.3 56.5 58.6 55.7
----- ----- ----- ----- -----
Gross profit............................. 37.9 40.7 43.5 41.4 44.3
SG&A expenses............................ 31.9 28.1 32.2 27.8 21.8
----- ----- ----- ----- -----
Operating income......................... 6.0 12.6 11.3 13.6 22.5
Other income (expense)................... (11.2) 0.0 0.5 0.4 (0.5)
----- ----- ----- ----- -----
Earnings (loss) before income taxes...... (5.2) 12.6 11.8 14.0 22.0
Income tax expense (benefit)............. (2.1) 5.0 4.7 5.6 8.8
----- ----- ----- ----- -----
Net earnings (loss)...................... (3.1)% 7.6% 7.1% 8.4% 13.2%
===== ===== ===== ===== =====
</TABLE>
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September
30, 1996
Net revenues. Net revenues were $26.6 million for the nine months ended
September 30, 1997 compared to $19.5 million for the nine months ended September
30, 1996, an increase of $7.1 million or 36.4%. Net revenues from proposal
management services were $16.6 million for the nine months ended September 30,
1997 compared to $11.8 million for the comparable nine months of the prior year,
an increase of $4.8 million or 40.7%. This increase was attributable to an
increase in the customer base and number of proposals managed as a result of
increased marketing efforts by the Company. Net revenues from PDCs were $5.1
million for the nine months ended September 30, 1997 compared to $4.9 million
for the comparable nine months of the prior year, an increase of $0.2 million or
4.1%. The increase was the result of an increase in billed hours at existing
PDCs. Net revenues from contract support services for the nine months ended
September 30, 1997 were $4.9 million compared to $2.8 million for the nine
months of the prior year, an increase of $2.1 million or 75.0%. The increase was
due primarily to the expanding number of clients utilizing the Company's
contract support services in 1997.
Gross profit. Gross profit was $11.8 million for the nine months ended
September 30, 1997 compared to $8.1 million for the nine months ended September
30, 1996, an increase of $3.7 million or 45.7%. As a percentage of net revenues,
gross profit increased to 44.3% for the nine months ended September 30, 1997
from 41.4% for the comparable nine months of the prior year. The increase in
gross profit as a percentage of
18
<PAGE> 20
net revenues was primarily attributable to more favorable labor margins realized
on average from the new employees hired by the Company throughout 1997, and
reduced travel costs as a percentage of net revenues.
SG&A expenses. SG&A expenses were $5.8 million for the nine months ended
September 30, 1997 compared to $5.4 million for the nine months ended September
30, 1996, an increase of $0.4 million or 7.4%. The increase was primarily the
result of non-recurring expenses incurred in relocating the Company to a new
expanded facility in June 1997. As a percentage of net revenues, SG&A expenses
declined to 21.8% for the nine months ended September 30, 1997, from 27.8% for
the comparable nine months of the prior year.
Other income (expense). Other expense was $149,000 for the nine months
ended September 30, 1997 compared to income of $86,000 for the nine months ended
September 30, 1996.
Net earnings. Net earnings were $3.5 million for the nine months ended
September 30, 1997 compared to $1.6 million for the nine months ended September
30, 1996, an increase of $1.9 million or 118.8%.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net revenues. Net revenues were $25.7 million for 1996 compared to $20.8
million for 1995, an increase of $4.9 million or 23.6%. Net revenues from
proposal management services for 1996 were $14.7 million compared to $13.6
million for the prior year, an increase of $1.1 million or 8.1%. This increase
was attributable to the addition of several major proposals in 1996. Net
revenues from PDCs were $7.5 million for 1996 compared to $4.2 million for the
prior year, an increase of $3.3 million or 78.6%. This increase was attributable
to an increase in marketing efforts by the Company to develop additional PDCs at
customer sites. Net revenues from contract support services for 1996 were $3.5
million compared to $3.0 million for the prior year, an increase of $0.5 million
or 16.7%.
Gross profit. Gross profit was $11.2 million for 1996 compared to $8.5
million for 1995, an increase of $2.7 million or 31.8%. As a percentage of net
revenues, gross profit increased to 43.5% for 1996 from 40.7% for the prior
year. The increase as a percentage of net revenues was primarily attributable to
additional success fees earned in 1996 of $873,000, compared to success fees
earned for the prior year of $348,000. Success fees carry a 100% margin.
SG&A expenses. SG&A expenses were $8.3 million for 1996 compared to $5.9
million for 1995, an increase of $2.4 million, or 40.7%. The increase was
primarily attributable to an increase in senior management staff to position the
Company for continued growth, expenses associated with the Hawker aircraft, an
increase in advertising expenses and increased expenses related to additional
employer sponsored benefit plans implemented in 1996. As a percentage of net
revenues, SG&A expenses increased to 32.2% for 1996, from 28.1% for the prior
year.
Other income (expense). Other income was $136,000 for 1996 compared to
income of $7,000 for 1995. This increase in income was primarily due to revenues
recognized in 1996 from aircraft charter services from a Hawker aircraft
purchased by the Company in April 1996, and subsequently sold in January 1997.
Net earnings. Net earnings were $1.8 million for 1996 compared to $1.6
million for 1995, an increase of $0.2 million or 12.5%.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Net revenues. Net revenues were $20.8 million for 1995 compared to $15.2
million for 1994, an increase of $5.6 million or 36.8%. Net revenues from
proposal management services were $13.6 million for 1995 compared to $13.6
million for the prior year. Net revenues from PDCs were $4.2 million for 1995
compared to $1.1 million for the prior year, an increase of $3.1 million or
281.8%. This increase in PDC revenue was due primarily to the expansion of
existing PDCs at client sites, and the addition of a substantial new PDC in
1995. Net revenues from contract support services were $3.0 million for 1995
compared to $0.5 million for the prior year, an increase of $2.5 million or
500%. This increase was attributable to an increased marketing emphasis for this
segment of the Company's business in 1995.
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<PAGE> 21
Gross profit. Gross profit was $8.5 million for 1995 compared to $5.8
million for 1994, an increase of $2.7 million or 46.6%. As a percentage of net
revenues, gross profit increased to 40.7% for 1995 from 37.9% for the prior
year. The increase in gross profit as a percentage of net revenues was primarily
attributable to an hourly rate increase phased in throughout 1995 for new
proposal work started in 1995.
SG&A expenses. SG&A expenses were $5.9 million for 1995 compared to $4.9
million for 1994, an increase of $1.0 million, or 20.4%. The increase was
primarily attributable to the Company increasing indirect staff in 1995 to
improve its administrative support infrastructure and update its computer system
capabilities. Also, prior to 1995 the Company had not utilized advertising
strategies, and in 1995 the Company launched its first advertising campaign. As
a percentage of net revenues, SG&A expenses decreased to 28.1% for 1995, from
31.9% for the prior year.
Other income (expense). Other income was $7,000 for 1995 compared to
expense of $1.7 million for 1994. The Company wrote off $1.7 million of
receivables in 1994 from CKC, an affiliated entity. This write-off represented
the Company's termination of its affiliation with CKC and the amount written off
represented all amounts previously due from CKC.
Net earnings. Net earnings increased to $1.6 million in 1995 from a net
loss of $472,000 in 1994, an increase of $2.1 million.
QUARTERLY RESULTS
The following table sets forth pro forma unaudited selected quarterly
financial information. This information has been derived from unaudited
financial statements which, in the opinion of management, include all
adjustments (consisting of normal recurring entries) necessary for a fair
presentation of such information. Results of operations for any one or more
quarters are not necessarily indicative of results for an entire year or the
results to be expected for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------------------------------
DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1995 1996 1996 1996 1996 1997 1997 1997
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PRO FORMA STATEMENT OF OPERATIONS
DATA:
Net revenues.......................... $ 5,597 $ 7,546 $ 7,824 $ 4,092 $ 6,237 $ 7,229 $ 8,544 $10,866
Cost of revenues...................... 3,316 4,422 4,544 2,433 3,113 3,865 4,792 6,181
--------
--
------ ------ ------ ------ ------ ------ ------
Gross profit.......................... 2,281 3,124 3,280 1,659 3,124 3,364 3,752 4,685
SG&A expenses......................... 1,615 1,497 2,207 1,720 2,850 1,507 1,818 2,476
--------
--
------ ------ ------ ------ ------ ------ ------
Operating income...................... 666 1,627 1,073 (61) 274 1,857 1,934 2,209
Other income (expense):
Interest expense.................... 14 17 109 149 145 124 124 130
Miscellaneous income (expense)...... 43 24 149 188 195 174 24 31
--------
--
------ ------ ------ ------ ------ ------ ------
Earnings (loss) before income taxes... 695 1,634 1,113 (22) 324 1,907 1,834 2,110
Income tax expense (benefit).......... 278 654 445 (9) 129 762 734 844
--------
--
------ ------ ------ ------ ------ ------ ------
Net earnings (loss)................... $ 417 $ 980 $ 668 $ (13) $ 195 $ 1,145 $ 1,100 $ 1,266
====== ====== ====== ====== ====== ====== ====== ==========
</TABLE>
The Company, prior to 1997, experienced some seasonality, with third
quarter earnings dropping slightly as clients reduced their bid and proposal
activity in anticipation of the release of the federal budget in October. The
success of the Company's increase of non-seasonal contract support services
revenue and the increase in the number of PDCs has mitigated the impact of
seasonality during the third quarter of 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of liquidity has been cash flow from
operations and the timely collection of its accounts receivable. Accounts
receivable at December 31, 1996 was $3.6 million as compared to the Company's
September 30, 1997 balance of $6.5 million. Due to a large and diverse client
base which consists mostly of Fortune 100 companies, management expects to
continue the trend of timely accounts receivable collections.
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<PAGE> 22
The principal use of cash for investing activities during the year ended
December 31, 1996 and the nine months ended September 30, 1997 was for the
purchase of office computer equipment used primarily for enhancing the Company's
data processing, marketing and financial reporting systems. The Company does not
anticipate making any significant capital expenditures in the near future.
Financing activities provided funds of $4.5 million for the nine months
ended September 30, 1997. Net cash used by financing activities totaled
approximately $7.0 million for the nine months ended September 30, 1997. The
primary uses of cash were for the stock repurchase in January and the payment of
dividends. In 1997, the Company repurchased shares or 13.4% of its Common
Stock for $5.9 million, using the proceeds from borrowings on the Bank Facility.
The Company's Bank Facility consists of a revolving line of credit and a term
loan, each with a maximum loan amount of $4.0 million. The interest rate on the
revolving line of credit agreement is the daily prime rate and the interest rate
on the term loan is 2.50% in excess of the London InterBank Offered Rate.
Amounts outstanding under the Bank Credit Facility are secured by the Company's
receivables. The NationsBank Note bears interest at an annual rate of 10.74%
and, as of October 31, 1997, had an outstanding balance of $519,000.
The Company believes the net proceeds from the sale of Common Stock offered
hereby, together with funds generated by operations, will provide adequate cash
to fund its anticipated cash needs, which includes the repayment of all
indebtedness under the Bank Facility and the Note and may include future
acquisitions of complementary businesses, for at least the next twelve months.
The Company is currently negotiating with lenders regarding a new credit
facility.
RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS
128"), effective for fiscal years ending after December 15, 1997. SFAS 128
introduces and requires the presentation of "basic" earnings per share which
represents net earnings divided by the weighted average shares outstanding
excluding all common stock equivalents. Dual presentation of "diluted" earnings
per share, reflecting the dilutive effects of all common stock equivalents, will
also be required. The diluted presentation is similar to the current
presentation of fully diluted earnings per share. Management has not determined
whether the adoption of SFAS 128 will have a material impact on the Company's
combined financial position or results of operations.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 establishes
standards for the reporting and display of comprehensive income and its
components (revenues, expenses, gains and losses) in a full set of general-
purpose financial statements. SFAS 130 requires all items that are required to
be recognized under accounting standards as components of comprehensive income
to be reported in a financial statement that is displayed with the same
prominence as other financial statements. SFAS 130 does not require a specific
format for that financial statement but requires that an enterprise display an
amount representing total comprehensive income for the period covered by that
financial statement. SFAS 130 requires an enterprise to (a) classify items of
other comprehensive income by their nature in a financial statement and (b)
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of a
statement of financial position. SFAS 130 is effective for fiscal years
beginning after December 15, 1997. Management has not determined whether the
adoption of SFAS 130 will have a material impact on the Company's combined
financial position or results of operations.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"). SFAS 131 establishes standards for public business enterprises to
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. This statement supersedes FASB Statement
No. 14, "Financial Reporting for Segments of a Business Enterprise," but retains
the requirement to report information about major customers. It amends FASB
Statement No. 94, "Consolidation of All Majority-Owned Subsidiaries,"
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<PAGE> 23
to remove the special disclosure requirements for previously unconsolidated
subsidiaries. SFAS 131 requires, among other items, that a public business
enterprise report a measure of segment profit or loss, certain specific revenue
and expense items, and segment assets, information about the revenues derived
from the enterprise's products or services, and major customers. SFAS 131 also
requires that the enterprise report descriptive information about the way that
the operating segments were determined and the products and services provided by
the operating segments. SFAS 131 is effective for financial statements for
periods beginning after December 15, 1997. In the initial year of application,
comparative information for earlier years is to be restated. SFAS 131 need not
be applied to interim financial statements in the initial year of its
application, but comparative information for interim periods in the initial year
of application is to be reported in financial statements for interim periods in
the second year of application. Management has not determined whether the
adoption of SFAS 131 will have a material impact on the Company's segment
reporting.
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<PAGE> 24
BUSINESS
INTRODUCTION
The Company is the largest proposal management company in the United
States. The Company's superior proposal management processes and team of
approximately 150 highly experienced professionals help its clients to achieve a
higher probability of winning the government and commercial contracts that are
critical to their success. The Company also is significantly expanding systems
engineering and program integration services to aerospace, communications and
engineering companies. The Company's success is evidenced by a compound annual
revenue growth rate of approximately 30%, from $9.4 million for 1992 to $32.9
million for the twelve months ended September 30, 1997.
The Company has amassed a win rate of 88.8% of all dollars awarded on SM&A
engagements since its inception in 1982. The Company's win rate greatly exceeds
the results disclosed in a recent survey which indicated that a majority of the
companies surveyed considered a 30% win rate as positive. The Company has worked
on or is currently engaged on $133.6 billion of government and commercial
procurements. The Company leverages its success in winning business for its
clients and its early involvement in the project life cycle to extend its
services beyond proposal development to systems engineering and program
integration. Such contract support services have grown from 3.0% of the
Company's revenues for 1994 to 18.4% for the nine months ended September 30,
1997.
MARKET OPPORTUNITY
The Company believes that the competitive procurement process for both
government and commercial projects presents significant market opportunities for
proposal management and contract support services. Companies competing for large
government and commercial contracts often seek the assistance of an outside firm
of experts that can manage the proposal process and maximize the company's
prospects of winning the business. Likewise, companies competing for small to
mid-size contracts benefit significantly from having on-site PDCs managed by an
outside firm. After a company wins a government or commercial contract, it often
requires contract support services including high-level systems engineering,
program integration and management consulting services in order to fulfill the
contract. Outside firms who have assisted in the preparation of the proposal are
uniquely qualified to provide such contract support services. Both of these
areas represent a significant and growing market opportunity.
The markets for proposal management and contract support services are
significant in size. In 1998, the Department of Defense has estimated that it
alone will award contracts totalling approximately $80 billion for thousands of
military and civilian projects. Competitions for procurement of parts and
subassemblies conducted by private industry represent another significant
market. Based on procurement data from the Department of Defense and NASA, the
Company estimates that the annual government proposal generation market is
approximately $325 million, and the Company believes that the market for
commercial procurement is at least as large. The Company estimates the annual
market for high-end engineering and management consulting services is
approximately $10 billion.
While already significant in size, the Company believes that a number of
factors are causing the markets for proposal management and contract support
services to continue to grow:
- Consolidation of Aerospace and Defense Industry. The consolidation of the
aerospace and defense industry has resulted in fewer, larger firms as
well as an increased disparity between the resources of such larger firms
and the remaining "smaller" firms. Consequently, the large consolidated
firms are more motivated to win programs because of the substantial
amount of revenues necessary to support their operations. In addition,
the smaller firms have an even greater need to access the resources
necessary to compete with larger firms for programs. Proposal management
services therefore have become increasingly important to competitors of
all sizes.
- "Winner-Take-All" Programs. The U.S. Government has also conducted a
number of "winner-take-all" competitions in which the government chose a
single winner from two large aerospace suppliers that had traditionally
jointly supplied a weapon (such as the Navy's Tomahawk missile which was
built
23
<PAGE> 25
for many years by both McDonnell Douglas and Hughes Electronics
Corporation). These competitions are among the most hard fought as the
winner may receive a multi-billion dollar contract for many years of work
and the loser may be required to shut down an existing production
facility and re-assign or lay off several thousand workers. The
procurement of each project therefore has become more important, thus
creating an increased need for the expertise offered by proposal
management specialists.
- Corporate Outsourcing. There has also been a trend among large
corporations to increase efficiencies in the procurement and performance
of government and commercial projects of all sizes. As a result, major
companies are "outsourcing" more services, instead of maintaining and
expanding internal groups. Through outsourcing, companies receive the
trained expertise needed without incurring the overhead expenses
associated with an in-house team.
- Government Outsourcing. In response to a reduced federal budget and
demands for efficiencies in government operations, many projects that
were once performed "in house" by the U.S. Government are now being
outsourced to private industry. The increase in the number of these
projects creates a corresponding opportunity to provide proposal
management and contract support services in connection with such
projects.
- New Technology. The rapid technological advances made in recent years
render "old" technology obsolete. Consequently, both the U.S. Government
and private industry are creating new programs to upgrade their products
accordingly. The result is an increased need for proposal management and
contract support services to secure and perform these new projects.
- Increase in Commercial Projects. U.S. industry is making major
investments to exploit new markets in commercial data and
telecommunications systems. For example, both Teledesic and Motorola are
building multi-billion dollar satellite commercial communication
networks. This dramatic increase in programs requiring expertise in
proposal management, systems engineering and program integration has
created a growing market for the Company's services.
STRENGTHS AND DIFFERENTIATION
The Company believes that the following business strengths and
differentiating characteristics position it to capitalize on the significant
market opportunities presented by the changing environment of competitive
procurements and contract support services for both government and commercial
programs.
Proven Track Record in Proposal Management
The Company's superior processes and exceptional management talent have
resulted in a proposal win rate of 88.8% of all dollars awarded on SM&A
engagements since its inception in 1982. The Company's win rate greatly exceeds
the results revealed by a recent survey which indicated that a majority of the
companies surveyed considered a 30% win rate as positive. Another recent survey
ranked Lockheed Martin Corporation as the aerospace and defense industry's most
competitive company in 1996 with a 63% win rate. As a partner in this success,
SM&A managed three of the largest programs highlighted in Lockheed Martin
Corporation's 1996 annual report: VentureStar X-33 (the new space shuttle),
Space Based Infra-red Sensor System (SBIRS) and Joint Strike Fighter (JSF).
SM&A's impressive track record provides it with an advantage over its
competitors in the increasingly competitive contract procurement market where
winning is critical to the client's survival and growth.
Size of the Firm
SM&A is the largest proposal management firm in the U.S., with
approximately 150 highly qualified professionals with extensive industry
experience. The Company addresses the needs of its clients in various aspects of
proposal management, systems engineering and program integration. The Company's
size provides it with the capability to increase staffing or augment particular
expertise on a project to respond to a client's needs and immediately adjust the
staff when such needs change. As a result, clients have access to the
24
<PAGE> 26
Company's pool of professional talent without incurring the cost for
professionals when their services are not needed.
Skills of SM&A's Personnel
The Company's employees are highly qualified and experienced professionals.
The typical SM&A employee has more than 20 years of applicable experience and a
majority possess advanced degrees in science or engineering fields. SM&A's
professionals also participate in continual education and training to be fully
conversant with the latest trends in the contract procurement process, including
electronic proposal preparation and submittal. Given the practical expertise of
the Company's professionals, the SM&A team is not only highly skilled in the
proposal management process, but well versed in the cultural nuances of the
procurement being pursued, whether government or commercial.
SM&A has the ability to staff a winning proposal team with leadership
personnel who are able to provide the contract support services needed to
transition a winning proposal into a successful program. The skills and breadth
of the Company's professionals means that SM&A has enough highly skilled people
to both manage proposals and provide effective contract support services. This
is a competitive advantage for SM&A as it provides clients with high confidence
that once the program is won, the critical SM&A skills will remain available to
the client's program management team. These skills include top level systems
engineering (understanding the customer's requirements and converting them into
affordable products) and comprehensive program planning (organizing the work of
perhaps thousands of persons over many years to deliver products on time and
within budget).
Established Client Relationships
SM&A has forged a superior reputation among its clients in the proposal
management business. A majority of SM&A's revenue each year is generated through
repeat business from existing clients. Business relationships with the Company's
clients span various levels within client organizations, ranging from corporate
board members, chief executive officers and other senior management, to
operational managers. Clients have come to rely upon SM&A not only for its
impressive track record but also the quality of the services provided by
experienced professionals, the versatility of the Company in responding to
clients' needs, and the accessibility of the Company's senior executive
management. The Company's reputation and relationships with its clients have
enabled the Company not only to acquire repeat proposal development business but
to expand its services to include post-proposal contract support.
A Winning Process
The Company's impressive win rate is the result of the creation and
implementation of a successful, proprietary proposal management process. The
SM&A process is a formal, well documented series of actions, honed by SM&A over
the years, that both increase the probability of a win and reduce the overall
cost of the proposal effort by eliminating "non value-added" work, such as
costly and unnecessary engineering. The Company seeks to secure the protection
of applicable copyright, trade secret and other intellectual property protection
for its proprietary process. The success of the SM&A process is also dependent,
in large part, upon its proper implementation by the Company's proposal
management specialists. Thus, the Company's competitive advantage is derived
from having both a proven winning process and the professionals with the
discipline and experience to successfully implement that process on behalf of a
client.
Client Reliance on SM&A Senior Management Participation
The Company's 14 vice presidents are always "on call" to respond to each
client's needs. Clients depend upon them to help formulate the winning strategy,
respond promptly to changes in the government's procurement plan and quickly
solve problems that may occur during the proposal process. The availability of
SM&A senior management to respond to each client's needs has been a particular
competitive advantage for SM&A.
25
<PAGE> 27
GROWTH STRATEGY
The Company's objectives are to: (i) win and perform for its clients by
continuing to provide the highest level of service and expertise, (ii) provide
an attractive work environment and career path for employees, and (iii) enhance
shareholder value. The key elements in the Company's strategy to achieve these
objectives are to:
- Capitalize on Industry Trends to Expand Core Proposal Management
Business. The Company believes that it is well-positioned to benefit
from the increase in demand for proposal management services due to
increasing industry consolidation and "winner-take-all" programs which
drive the growing importance of winning each new contract. To achieve
these "must win" contracts, SM&A believes that companies will be
motivated to increase their use of the services that SM&A provides.
SM&A's 88.8% win rate and breadth of impressive staff professionals
facilitate the Company's acquisition of this "must win" business.
Additionally, clients have increasingly come to realize that hiring SM&A
is a defensive move as well as an offensive one. Because SM&A contracts
with the first client that contacts it, hiring SM&A on a proposal for a
large program prevents a competitor from utilizing the Company's
services.
- Increase Number and Scope of the Company's PDCs. SM&A takes advantage of
its proven expertise in proposal development and broadens its potential
market by expanding into smaller proposals through the creation of PDCs.
The Company operated six PDCs in 1997 and expects to be operating up to
11 by the end of 1998. The Company plans to expand its operation of PDCs
through three avenues: (i) capitalizing on its proposal management
expertise to deploy new PDCs at other clients' sites, (ii) building on
its early success in operating PDCs for a specific client to provide
satellite PDCs at the client's other locations, and (iii) expanding the
role of existing PDCs to increase the number of proposals generated by
them. The Company believes that installation of PDCs at its clients'
sites allows the Company to realize a recurring annual income stream and
further strengthens the Company's position as the largest provider of
proposal management services to its clients.
- Leverage Existing Relationships to Obtain Support Services
Contracts. SM&A is able to leverage a successful proposal management
assignment by negotiating support services contracts to perform systems
engineering, management support and specialized services for each
project. The Company is ideally positioned as a result of its early
involvement in the planning process to extend its role beyond the
proposal management stage into contract support assignments after the
project is won. Through its in-depth involvement in the project from its
inception, the Company offers knowledge-base continuity and close
familiarity with the proposal, the project and the client team. This
approach has avoided the traditional problem of a loss of focus and
momentum by the client after the proposal has been won. The Company's
early efforts with this strategy have resulted in 20 support service
contracts won in the last 18 months.
- Pursue Opportunities in the Growing Market for Large Commercial Programs.
The Company's process, expertise and experience are well suited to the
growing sector of large commercial programs. These programs often require
both proposal management and contract support services. The Company's
proven methodology typically increases the probability of winning and
reduces the proposal costs of such commercial projects. In addition, the
Company's expertise is directly applicable to providing systems
engineering and program management support to such programs. Examples
include the Company's work for Boeing on the next-generation expendable
space booster and for Motorola on the Celestri(TM) telecommunications
system.
- Pursue Strategic Acquisitions. The Company intends to pursue strategic
acquisitions of management consulting and systems engineering firms in
order to penetrate new markets, increase its array of services, and add
qualified professionals to its existing staff. Given the highly
fragmented nature of the contract support services industry, the Company
believes there will be numerous opportunities for such acquisitions.
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<PAGE> 28
SERVICES
SM&A offers its clients a variety of services to assist both in the
procurement of programs as well as the successful implementation of programs
once they are won.
Proposal Management
SM&A's core business is proposal management. The process whereby SM&A
manages a proposal can be divided into three phases: organization and strategy,
proposal preparation, and post submittal.
Organization and Strategy. Once hired to manage a proposal, SM&A assembles
a team of proposal specialists at the client's site -- typically deploying a
proposal manager, volume leaders for each of the major proposal volumes,
specialists well versed in the new management processes required by the
government, and production specialists expert in the new forms of electronic
proposals often required by a government acquisition agency. Each SM&A team
manages a client team, typically 50 to 200 engineers and managers, providing
full time, hands-on execution of the SM&A process from strategy formulation,
through all phases of proposal preparation and review, to the post-submittal
answers to the government's questions. SM&A personnel, drawing on their strong
technical and program management experience, ensure that the distinctive
technical, cost and management advantages of the client's proposal are clearly
described and easy to evaluate.
The proposal process typically requires three to twelve months of intensive
activity at the client's site. The SM&A proposal manager is usually the first
member of the team engaged. The proposal manager is responsible for the
"rightsizing" of the team throughout the effort, and directs the activities of
volume leaders, program planners and production experts.
The SM&A team assists the client in the creation of a win strategy that
leads to selection of sub-contractors, an investment plan, a technical baseline,
and a program implementation plan. Each of these is adjusted as needed to
reflect changes in the procurement (the emergence of competing teams, the
available government funding, the government's objectives, the government's
award schedule, etc.)
During the months before a formal solicitation, it is normal practice for
the government to issue a series of drafts of its Request for Proposal ("RFP"),
to get feedback from the bidding teams. The SM&A team uses these draft RFPs to
both respond to the government, and to create the early building blocks of the
proposal.
Proposal Preparation. The SM&A team manages a process that starts with
analysis of the draft RFP and results in the creation of a series of proposal
documents, each following a proprietary SM&A template developed over the past 15
years by SM&A. These templates guide the team in developing the key "facts" that
will win, which typically consist of the most cost-effective technical solution
to meet the government's needs and a low-risk program plan that will deliver the
product on time and within budget. At each step in proposal preparation, the
completed SM&A templates are reviewed in detail by internal team reviewers and
outside experts, as appropriate, to ensure that (i) the requirements of the RFP
are fully complied with; (ii) the team's win strategy is being enforced; (iii)
the flow of ideas is clear and consistent among all the proposal volumes; (iv)
each proposal graphic conveys a compelling idea; and (v) the text supports and
enlarges upon the ideas in the graphics.
Following SM&A's page-by-page quality review, the proposal is submitted,
and if required, an oral presentation is made. SM&A creates the materials
(charts, videos, models) for the oral presentations, which are becoming more
common. SM&A also trains the presenters to clearly convey the needed information
and to stick rigorously to the presentation plan and schedule.
Post Submittal. Many proposals are won by maintaining the team's energy
level to deal with subsequent government requests, after the proposal is
submitted. The ability of SM&A to maintain the team's collective focus on
winning once the proposal is submitted, is vital. Many teams submit their
proposals and then disintegrate. The intellectual critical mass of the proposal
team is dispersed, key people go on vacation, or on to other jobs, and the
facility is transitioned to other uses. Conversely, in an SM&A-managed proposal,
the core competence is maintained to answer formal questions from the
government, and prepare the Best and
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<PAGE> 29
Final Offer. The proposal team's interaction with the U.S. Government after the
proposal is submitted is a critical part of the SM&A winning process.
Another area of SM&A action during the government's proposal evaluation
period is working with the client's team in preparation for winning the award.
Many proposals include a very aggressive start-up phase that requires the
delivery of significant products within the first 30 to 60 days after the
contract award. These deliverables, that often include detailed program plans,
component prototypes, and mission or system analyses, require intensive work
during the evaluation period, in order to meet the post-award deadlines. SM&A
provides management support, program planners and schedulers and systems
engineers to assist the client's team to meet early post-award commitments.
Proposal Development Centers
Another innovative SM&A response to its clients' changing needs is the
creation of Proposal Development Centers. In contrast to the work done for large
proposals (programs in excess of $100 million), in which a dedicated team is
specifically created for the proposal, PDCs are established for clients who
expect to produce a number of smaller proposals (programs in the $10 - $100
million range) over a given period of time. The Company believes installation of
a PDC at a client site allows the Company to realize a recurring annual income
stream. Each PDC has an SM&A team permanently located at a client's facility,
managing the resources needed to produce 10 to 50 proposals per year. The number
of SM&A employees located at a PDC ranges from three to ten. As of November 21,
1997, SM&A was managing six PDCs at clients' sites. The Company anticipates
operating up to 11 PDCs by the end of 1998. Firms lacking the resources to have
a dedicated PDC can employ the PDC maintained at SM&A headquarters to provide an
instantly available turnkey proposal creation resource.
Contract Support Services
SM&A has negotiated and obtained support services contracts on programs won
by SM&A's clients. Contract support services engagements typically are larger
than proposal management efforts and often run for several years. This contract
support service role increases the continuity of personnel from the proposal
phase to the program execution phase, and provides the program execution team
with knowledge of exactly what was promised in the proposal. The Company is also
taking advantage of changing industry dynamics and the growth of the market for
such contract support services by expanding its services beyond projects that it
helped its client win. For example, the Company is moving rapidly into providing
such services in commercial projects for large high technology firms.
Whether the contract support services are performed in connection with a
proposal won by SM&A or to support an independent project, the Company has
focused on two areas: (i) systems engineering and (ii) program integration.
Systems Engineering. The Company's systems engineering work helps its
clients to fully define the work that must be done to meet the program's
objectives. The first step is to formally define the top level program
objectives and flow them down to each engineering and management
department -- including mission requirements, annual and total budget, and the
schedule for each major program milestone. The systems engineers perform trade
studies and analyses to objectively evaluate the cost, schedule, risk and likely
performance of alternative solutions. The systems engineers then manage the top
level program requirements data base. As the program evolves from design through
development, test and production phases, they constantly evaluate the work of
the program's design and test groups to be certain that these top level
requirements are being met.
Program Integration. Concurrent with systems engineering are the Company's
program integration functions. This work is done to ensure that the program has
been meticulously planned and that the program team follows the plan. In many
modern aerospace procurements, the government insists that (i) the program plan
be submitted with the proposal, (ii) it become a binding contractual document
upon award, and (iii) there be significant financial incentives for meeting plan
milestones on time and financial penalties in case of failure to adhere to the
plan. The SM&A program integration effort is therefore critical to the financial
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<PAGE> 30
success of the client. The work has an initial phase in which the program to be
accomplished is defined in detail. This includes the detailed description of all
tasks to be done by all of the participants over the lifetime of the program
(usually involving work by thousands of individuals in many companies across the
nation), the scheduling of these tasks, the sizing of each task (how many person
hours and how much equipment is needed) and the definition of the
inter-relationship among the tasks (what task depends on what other task). This
information is maintained by the program integration team in an electronic
format easily accessible to the management team. After the definition work is
completed, the program integration staff focuses on the execution of the
program, in which the status of each task is constantly evaluated (and reported
to management, including the government project office), the likely attainment
of future milestones is predicted, and the program risks are constantly
reevaluated to allow proactive management decisions to mitigate risk.
CLIENTS AND REPRESENTATIVE ENGAGEMENTS
Clients
The Company provides its proposal management and contract support services
to numerous Fortune 100 clients including, among others, Bechtel Corporation,
The Boeing Company (including former McDonnell Douglas and Rockwell
International Corporation), Harris Corporation, Hughes Electronics Corporation,
ITT Corporation, Litton Industries, Inc., Lockheed Martin Corporation, Loral
Space & Communications, Ltd., Motorola, Inc. and Raytheon Company. The clients
who have utilized the Company's PDCs are fewer in number but are generally
derived from the same pool as its proposal management clients.
Lockheed Martin Corporation, Hughes Electronics Corporation and Motorola,
Inc. accounted for approximately 22.9%, 19.1% and 18.5%, respectively, of the
Company's revenue in 1996. These revenues are a result of various engagements by
several business units of Lockheed Martin Corporation, Hughes Electronics
Corporation and Motorola, Inc. Although such business units are affiliated with
the parent entities, the Company's experience has indicated that the particular
engagements are subject to the discretion of each individual business unit.
Representative Engagements
Examples of the Company's recent engagements which are representative of
the nature of the Company's services and client relationships are set forth
below:
- AIM-9X Competition. SM&A was hired by Hughes Missiles Systems Company in
1993 to manage the proposal effort for the next generation of Sidewinder
short range air-to-air missiles to be supplied to U.S. and NATO fighter
aircraft. In the first phase of the competition Raytheon, Hughes and
Loral submitted bids to the government. Awards were made in December 1994
to Raytheon and Hughes for two years of intensive design, test and
program planning, prior to the ultimate selection of a single contractor.
In December 1996, the Naval Air Systems Command awarded a $169.2 million
contract to Hughes ($252.5 million with options) to complete the
engineering, development and test, and early manufacturing of the next
generation Sidewinder. Once the next phase is completed in January 2002,
Hughes is expected to sell over 10,000 AIM-9X missiles to supply the
needs of the U.S. forces (on today's F/A18C/D and the Air Force F-15C/D,
and follow-on aircraft including F/A-18E/F, F-15E, F-16 and F-22) and
international sales -- a program worth approximately $5 billion. SM&A
worked on the program for more than three years. Over the course of the
effort, SM&A's participation grew and shrank as the needs of the program
dictated -- but typically included a full time proposal manager, a
technical volume leader, a management volume leader, a life cycle
analyst, and part time support in strategy development, executive summary
preparation, and production support.
- SBIRS Competition. In February 1990, SM&A was hired by Lockheed Missiles
and Space Company (now Lockheed Martin Corporation) to provide systems
engineering and program integration support and to manage what became the
longest duration proposal effort in SM&A's history -- lasting over six
years. The Air Force had decided to replace its aging space based
surveillance system (designed to quickly detect and report the launching
of ballistic missiles). In the first phase of the competition
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Hughes, Lockheed and Northrop Grumman submitted bids to the Air Force. In
August 1995, Northrop Grumman was eliminated and both Hughes and Lockheed
were awarded $23 million contracts for preliminary work before the
selection of a prime contractor. In November 1996, Lockheed was awarded
the contract as prime contractor for approximately $1.6 billion in funding
for the early satellites and ground stations (an award with the potential
to grow to over $10 billion over the life of the program). The program
continuity provided by SM&A's constant presence on the Lockheed team and
the high quality of all of the proposal products delivered to the
government during the six years leading to success was a significant
factor in Lockheed's victory. SM&A was awarded a support services contract
by Lockheed to be performed over the next few years.
- Contract Support Services. SM&A has been engaged by Motorola to perform
support services both in connection with programs it has helped Motorola
win and in connection with projects in which SM&A did not provide
proposal management services. The Company managed the proposal process
whereby Motorola secured the Network Security Managers project and the
Company was retained to provide contract support services. This National
Security Agency project involves the creation of a multi-level security
architecture, software, and protocol to allow sensitive government data
to be securely transmitted on the Internet. SM&A's contract support
services include providing program managers, logisticians, trainers,
systems engineers and software development managers to Motorola in
support of the completion of this project. SM&A is also supporting
Motorola in the creation of the multi-billion dollar Celestri(TM)
"bandwidth on demand" space-based telecommunications system. SM&A is
currently supporting the conceptual development, design, deployment and
operations of the Celestri(TM) system.
- PDC Operation. Over a three-year period, SM&A's operation of a PDC for a
major client (who wishes to remain unidentified for competitive reasons)
exemplifies the Company's success in applying the SM&A process to programs
under $100 million. In the year prior to utilizing the PDC, the client had
experienced a low win rate (25%) and low revenues (approximately $13
million) from projects under $100 million. Following SM&A's assessment of
the situation, it presented the client with a proposal consisting of a PDC
design and operations plan and specific metrics against which progress
could be managed. After the PDC was implemented, the client enjoyed rapid
improvements in bidding results for the subsequent years. The value of
small programs won by the client climbed to $32 million, $55 million, and
$225 million in the three years of SM&A's engagement, with win rates of
52%, 57% and 95%, respectively. The increase in win rates was achieved
along with an approximately 75% decrease in the overall cost per dollar
bid on small programs.
BACKLOG
The Company's backlog represents an estimate of the remaining future
revenues from existing signed contracts and letters of intent concerning
contracts that have been awarded but in some cases not yet signed. The backlog
estimates include revenues expected under the current terms of executed
contracts and revenues from contracts in which the scope and duration of the
services required are not definite but estimable.
At October 31, 1997 the Company's backlog was approximately $51.3 million,
of which $31.3 million is scheduled for 1998. The Company's engagements are
terminable at will and no assurance can be given that the Company will receive
any of the fees associated with the backlog described above.
SALES AND MARKETING
The Company markets its services directly to senior executives of major
corporations. The Company employs a variety of business development and
marketing techniques to communicate directly with current and prospective
clients, including making on-site presentations, attending industry seminars
featuring presentations by SM&A personnel, and authoring of articles and other
publications about the industry and the Company's methodologies and processes.
A significant portion of new business arises from prior client engagements.
Clients frequently expand the scope of engagements during delivery to add
complementary activities. Also, the Company's on-site presence
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<PAGE> 32
affords it the opportunity to become aware of, and to help define, additional
project opportunities as they are identified by the client. The strong client
relationships arising out of many engagements facilitates the Company's ability
to market additional capabilities to its clients in the future. In addition, the
SM&A senior management team is actively involved in meeting with companies that
have not yet engaged SM&A and newly appointed senior managers in current SM&A
clients who might not be thoroughly knowledgeable of SM&A's previous assistance
to the client.
In the past four years, SM&A has also increased it marketing efforts
through participation in major industrial trade shows and paid advertising. SM&A
regularly runs full page ads in the national trade journals such as Aviation
Week, Space Weekly and Defense Weekly.
COMPETITION
Proposal Management and Proposal Development Centers
The market for proposal management services in the procurement of
government and commercial contracts for aerospace and defense is a niche market
with a number of competitors. The Company is the largest provider of such
services and principally competes with numerous smaller proposal management
companies in this highly specialized industry. The Company also competes with
some of its client's internal proposal development resources. A number of SM&A's
clients maintain internal business acquisition teams that are designed to handle
the procurement of government contracts, although the number of such in-house
departments has been decreasing in recent years.
The Company believes that the principal competitive factors in the market
for proposal management include reputation, the level of experience and skill of
staff professionals, industry expertise, quality of service, responsiveness, and
procurement success rate. The need to provide efficient and cost-effective
service is of even greater importance in PDCs where the cost of proposal
development is likely to be a larger percentage of the contract amount than with
a large program.
Contract Support Services
The contract support services market is highly competitive and includes a
large number of highly capable contract support services firms in the United
States. For this reason, the focus of SM&A has been on providing contract
support services for programs which it has won together with its clients. This
significantly enhances the competitive position of the Company because the
contract support to be provided by SM&A is often included in the proposal that
was won. Upon the win, SM&A is awarded its contract and work begins thereafter.
Should there be additional opportunities for SM&A to contribute to the team, the
client often adds scope (and funds) to the SM&A contract. This permits the
growth of the SM&A role over the lifetime of the program -- which often lasts
many years.
In the case of contract support services for projects in which the Company
did not provide proposal management services, the market is highly fragmented
and competitive. Many of the Company's competitors are larger and have greater
resources than the Company. See "Risk Factors -- Market Penetration." The
Company, however, has found increasing opportunities to work with clients who
have previously retained SM&A. The Company believes that the principal
competitive factors in the contract support services market include program
knowledge, rapidly deployable skilled personnel, responsiveness, reputation and
price.
EMPLOYEES
The Company employs approximately 160 persons: 150 persons are proposal and
engineering professionals at SM&A's headquarters or deployed at clients'
facilities across the nation and ten are administrative personnel at the
corporate headquarters. The Company believes that its success depends
significantly upon attracting, retaining and motivating talented, innovative and
experienced professionals. For this reason, SM&A is comprised of highly
experienced program managers, tested in some of the largest and most complex
military, commercial and government programs of the past 30 years. The typical
SM&A employee has more
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<PAGE> 33
than 20 years of applicable experience and a majority of them possess advanced
degrees in science or engineering fields.
The Company has instituted a training and recruitment program to help
ensure retention of high quality personnel and to enable it to respond to
expanding customer needs. The Company's recruitment process brings new personnel
to the Company through three avenues: (i) by the personal recommendation of SM&A
employees, (ii) by recruiting persons with whom SM&A has done business in the
past and who are well acquainted with the Company's work ethic and employment
standards, and (iii) by considering persons who become acquainted with SM&A
through its advertising campaign which has, over the past year, encouraged
qualified persons to submit their resumes for consideration.
Successful candidates are then brought into the SM&A training class. The
SM&A training process is a three day, formal process, conducted by three SM&A
vice presidents for all SM&A employees upon hiring, with refresher courses as
needed to maintain proficiency and keep employees abreast of advances in the
SM&A process and applicable technologies. The course, conducted at SM&A
headquarters, is highly interactive, with class size limited to five to ten
persons. After two days of lectures and discussions on SM&A processes, and a
review of case studies of recent SM&A managed proposals, the students are
conducted through a fast-paced mock proposal exercise in which their ability to
implement the SM&A process with both diligence (to stick to the proven process)
and innovation (to use the process to create innovative solutions) is tested.
The successful students are sent into the field. Despite new employees'
extensive industry experience, they are introduced to the SM&A process at a
relatively junior level.
The performance of each SM&A employee is being constantly evaluated both by
the SM&A team with whom the employee is working and by the client who has
engaged SM&A. All clients know that SM&A executives are always on call to
discuss any and all personnel issues. SM&A has maintained the highest standards
of performance to ensure client satisfaction. The Company also attracts and
motivates its professional and administrative staff by offering competitive
packages of base and incentive compensation and benefits. An indication of the
effectiveness of the recruitment, hiring and training process to pick the best
people and to maintain their skills over the long term is that the 88.8% win
rate for SM&A-managed proposals is being accomplished by a professional staff
that is rapidly growing with only a 2.4% annual employee turnover rate from
January 1, 1995 through September 30, 1997.
The Company's employees are not represented by any labor union and the
Company has never experienced a work stoppage. The Company believes that its
relations with its employees are good.
FACILITIES
The Company occupies offices adjacent to the Orange County (John Wayne)
International Airport in Newport Beach California. The Company has 19,487 square
feet of total office space, divided into 3,897 square feet for the Company's
executive management, 5,846 square feet for administration, 7,795 square feet
for the in-house PDC, and 1,949 square feet is available for growth. The Company
has a top secret facility clearance.
LEGAL PROCEEDINGS
The Company is involved in routine litigation incidental to the conduct of
its business. Except as set forth below, there are currently no material pending
litigation proceedings to which the Company is a party or to which any of its
property is subject.
On March 18, 1997, SM&A filed a complaint in the Orange County Superior
Court for the State of California against ICF Kaiser Engineers, Inc. and ICF
Kaiser International, Inc. (collectively "ICF Kaiser") for balances allegedly
due on two contracts performed by SM&A for ICF Kaiser. A claim for fraud was
also asserted. The complaint was subsequently amended to assert a claim for a
balance allegedly due on a third contract performed by SM&A for ICF Kaiser. The
total amount of SM&A's claims exclusive of interest and punitive damages is
$247,179. On May 2, 1997, ICF Kaiser filed a cross-complaint against SM&A for
damages for breach of contract, declaratory relief, fraud, negligent
misrepresentation and account stated. ICF
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Kaiser contends that SM&A failed to properly perform pursuant to the three
contracts and that as a result, it incurred damages of at least $397,268 to
complete the work which allegedly was to have been performed by SM&A, plus
overhead loss of $115,777, plus interest and punitive damages. ICF Kaiser
further denies owing anything to SM&A for balances due on the three contracts.
SM&A believes that the claims made by ICF Kaiser are without merit because SM&A
fully performed under the contracts in issue. SM&A does not believe this action
will have a material adverse effect on its business and it is vigorously
defending the cross-complaint. However, given the early stage of this
litigation, no assurance can be given that SM&A will prevail on its complaint or
be successful in its defense of the cross-complaint, which could result in a
material adverse effect on SM&A's business, financial condition and results of
operations.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The names, ages and positions held by the directors, executive officers and
certain key employees of the Company as of November 21, 1997 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Steven S. Myers............... 51 President, Chief Executive Officer and Chairman of
the Board, Director
Kenneth W. Colbaugh........... 44 Executive Vice President, Chief Operating Officer
and Director
Ronald A. Hunn................ 49 Vice President, Chief Financial Officer and
Secretary
Thomas F. Heinsheimer......... 58 Senior Vice President, Chief Scientist
James F. Madewell............. 64 Vice President, Business Development
Ajaykumar K. Patel............ 37 Vice President, Operations
J. Christopher Lewis(1)(2).... 41 Director
James R. Mellor(3)............ 67 Proposed Director
</TABLE>
- -----------------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
(3) Proposed member of the Audit Committee and the Compensation Committee.
All directors hold office until the next annual meeting of shareholders or
the election and qualification of their successors. Officers are elected
annually by the Board of Directors and serve at the discretion of the Board.
Steven S. Myers founded the Company in 1982 and has been the President,
Chief Executive Officer and Chairman of the Board of the Company since its
incorporation in 1985. Prior to forming SM&A, Mr. Myers was Vice President of
Marketing for Loral Data Systems and held several other key management positions
with Ball Aerospace Systems Division, Fairchild Space and Electronics Company,
and Watkins-Johnson Company. Mr. Myers holds a B.S. degree in mathematics from
Stanford University.
Kenneth W. Colbaugh, a director of the Company, has served in such capacity
and has been an Executive Vice President and Chief Operating Officer of the
Company since January 1990. Mr. Colbaugh previously held numerous management
positions with Lockheed Corporation, including Director of Program Management on
the Advanced Solid Rocket Motor Program. Mr. Colbaugh is a graduate of the
Lockheed Management Institute and Lockheed Advanced Management Institute. Mr.
Colbaugh holds a B.S. degree in business from San Jose State University.
Ronald A. Hunn has served as Vice President and Chief Financial Officer of
the Company since September 1995, and since August 1997 has served as Secretary
of the Company. Mr. Hunn joined the Company in April 1992 as its Controller and
Chief Accounting Officer. Mr. Hunn's professional career includes twenty four
years of experience in all aspects of accounting, information systems and
financial management. From 1987 to 1991, Mr. Hunn held a number of management
positions with Xidex Magnetics, a producer of rigid and flexible disc media,
most recently as the Vice President and Corporate Controller. Xidex was an
independent public company until the August 1988 acquisition by Anacomp, Inc.
From 1984 until 1987, Mr. Hunn served as the Controller of Xebec Corporation, a
publicly traded manufacturer of disc drive controllers and memory storage
subsystems. Mr. Hunn holds a B.A. in financial accounting from National
University.
Thomas F. Heinsheimer, Ph.D. has served as the Company's Senior Vice
President and Chief Scientist since joining the Company in 1989. Dr. Heinsheimer
began his career on Project Mercury at General Dynamics in 1960 and then at the
Massachusetts Institute of Technology Instrumentation Laboratory on Project
Apollo. He has worked with the Israel Aircraft Industries, the French Space
Administration and the
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<PAGE> 36
Soviet (now Russian) Academy of Sciences on a number of international scientific
programs. He was a participant in the planning and implementation of the Defense
Support Program while at the Aerospace Corporation, and served as Vice President
for Space Systems at Titan Systems Inc. He has designed, built and piloted
experimental balloon systems for scientific research that hold over 20 national
and world ballooning records. Dr. Heinsheimer holds a B.S.E.E. from the
Massachusetts Institute of Technology and a Ph.D. in atmospheric physics from
the University of Paris. He is a seven-term Councilman and former Mayor of
Rolling Hills, California.
James F. Madewell, Vice President -- Business Development, joined the
Company in August 1997. Mr. Madewell retired from Lockheed Martin Corporation in
July 1997 where he had served as Vice President -- Business Development for the
Lockheed Martin Corporation Aeronautics Sector since 1995. Prior to that, Mr.
Madewell was appointed Vice President -- Group Business Strategy for Lockheed
Aeronautical Systems Group in August, 1994. From 1992 until 1994, he held the
position of Vice President and director of Advanced Programs at the Lockheed
Space Operations Company. He is a graduate of the Lockheed Executive Institute
and the Rockwell Executive Institute. Mr. Madewell is a Registered Professional
Engineer. Mr. Madewell holds a B.S.M.E. from the University of Houston and an
M.S. in engineering from the University of Alabama.
Ajaykumar K. Patel has served as the Company's Vice President -- Operations
since July 1997. Mr. Patel joined the Company in January 1994 as Director of
Marketing for the Department of Energy and Environmental Services. Mr. Patel's
professional career includes over fifteen years of experience in systems
engineering, business development, finance and company operations in the
aerospace, environmental and software industries. Prior to joining the Company,
Mr. Patel served as Vice President of Business Development and a director for
Weiss Associates, an environmental engineering firm from January 1993 until
January 1994. Mr. Patel holds an M.B.A. in finance and strategic planning from
the University of Southern California and a B.S. degree in physics from The
Johns Hopkins University.
J. Christopher Lewis was elected a director of the Company in September
1996. Since 1982, Mr. Lewis has been a general partner of Riordan, Lewis &
Haden, a Los Angeles based partnership which invests in management buy-out and
venture capital transactions. Mr. Lewis also serves as a director of California
Beach Restaurants, Inc., Tetra Tech, Inc., PIA Merchandising Services, Inc.,
Data Processing Resources Corporation and several private companies. Mr. Lewis
holds a B.A. in accounting and finance and an M.B.A. in finance from the
University of Southern California.
James R. Mellor, a proposed director of SM&A, retired from the office of
Chairman and Chief Executive Officer of General Dynamics in May 1997; he
continues to serve on the General Dynamics Board of Directors and as a
consultant to the Company. Mr. Mellor was elected Chairman of General Dynamics
in May 1994. He had served as President and Chief Executive Officer since May
1993, and as President and Chief Operating Officer since January 1991. He is
presently on the Board of Directors of Aeromovel USA Inc., Bergen Brunswig
Corporation, Computer Sciences Corporation, General Dynamics Corporation, IDT,
Kerr Group Inc., Pinkerton Inc., Scripps Research Institute, and U.S. Surgical
Corporation. He is a member of the National Advisory Committee of the University
of Michigan, and is currently a Member of the United States-Egypt President's
Council, as well as several other professional and social organizations. Mr.
Mellor holds a B.S. degree in electrical engineering and mathematics and a
Masters of Science degree from the University of Michigan. Mr. Mellor
anticipates joining the Company's Board of Directors immediately following the
Offering.
DIRECTOR COMPENSATION
The Company's nonemployee directors receive $1,000 for each board or
committee meeting attended and are reimbursed for out-of-pocket expenses
incurred in connection with attendance at board and committee meetings.
BOARD COMMITTEES; COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors has established an Audit Committee and a
Compensation Committee.
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<PAGE> 37
The Audit Committee, which will consist of Messrs. Lewis and Mellor, will
review the adequacy of internal controls and the results and scope of the audit
and other services provided by the Company's independent auditors. The Audit
Committee will meet periodically with management and the Company's independent
auditors.
The Compensation Committee, which will consist of Messrs. Lewis and Mellor,
will establish salaries and other forms of compensation for officers and other
employees of the Company and will administer the Company's option plans. During
the fiscal year ended September 30, 1997, the Company's Board of Directors
established levels of compensation for certain of the Company's executive
officers without the involvement of the Compensation Committee, as the
Compensation Committee had not yet been formed during that period. Mr. Myers,
the Company's President, Chief Executive Officer, and Chairman of the Board,
Kenneth W. Colbaugh, the Company's Executive Vice President, Chief Operating
Officer and a director of the Company and Paula K. Myers, then serving as a Vice
President, Secretary and a director of the Company, participated in the
deliberations regarding executive compensation for 1997. Mr. Myers, Mr. Colbaugh
and Mr. Lewis, a director of the Company, participated in the deliberations
regarding executive compensation for 1998.
J. Christopher Lewis, a member of the Compensation Committee, acquired a
beneficial ownership interest in the Company's Common Stock in September 1996.
See "Certain Relationships and Related Transactions."
EXECUTIVE COMPENSATION
The following table sets forth certain summary information concerning
compensation paid or accrued for services rendered to the Company in all
capacities during the year ended December 31, 1996 to the Company's Chief
Executive Officer and to each of the four other most highly compensated
executive officers whose total salary and bonus for 1996 exceeded $100,000 (the
"Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1)
-----------------------
NAME AND PRINCIPAL POSITION SALARY BONUS
<S> <C> <C>
Steven S. Myers...................................................... $590,000 $3,387,325
President and Chief Executive Officer
Kenneth W. Colbaugh.................................................. 360,000 689,364
Executive Vice President and
Chief Operating Officer
Thomas F. Heinsheimer................................................ 75,000 390,246
Senior Vice President
Ronald A. Hunn(2).................................................... 171,600 60,494
Vice President and Chief Financial Officer
Paula K. Myers(2).................................................... 150,000 --
Senior Vice President and Secretary
</TABLE>
- -----------------------------
(1) Excludes perquisites and other personal benefits that, in the aggregate, do
not exceed the lesser of either $50,000 or 10% of the total annual salary
and bonus reported for the Named Executive Officer.
(2) Paula K. Myers resigned from all positions with the Company in October 1997.
Ronald A. Hunn was appointed Secretary of the Company upon the resignation
of Paula K. Myers.
STOCK OPTIONS
The Company did not grant stock options or stock appreciation rights during
the year ended December 31, 1996. The Company granted options to purchase
shares of Common Stock, including shares to
, shares to , and shares to
upon the consummation of this Offering. All options were
granted with an exercise price per share equal to the initial public offering
price.
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<PAGE> 38
1997 STOCK OPTION PLAN
The Company's 1997 Stock Option Plan (the "1997 Stock Option Plan") will be
administered by the Compensation Committee of the Board of Directors, which will
have the discretion and authority, consistent with the provisions of the 1997
Stock Option Plan, to determine which eligible participants will receive
options, the time when options will be granted, the terms of options granted and
the number of shares which will be subject to options. Until the members of the
Compensation Committee are appointed, the 1997 Stock Option Plan will be
administered by the Board of Directors.
The Company's 1997 Stock Option Plan provides for the granting of
"incentive stock options," within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended ("Incentive Stock Options") and nonstatutory
options. Under the 1997 Stock Option Plan, options covering an aggregate of
shares of the Company's Common Stock may be granted, in each case to
directors, employees and consultants of the Company, except that Incentive Stock
Options may not be granted to nonemployee directors or nonemployee consultants.
The exercise price of Incentive Stock Options must not be less than the fair
market value of a share of Common Stock on the date the option is granted (110%
with respect to optionees who own at least 10% of the outstanding Common Stock).
The Company's Compensation Committee has the authority to determine the time or
times at which options granted under the 1997 Stock Option Plan become
exercisable, provided that options expire no later than ten years from the date
of grant. Options are nontransferable, other than by will and the laws of
descent and distribution, and generally may be exercised only by an employee
while employed by the Company or within 90 days after termination of employment
(one year for termination resulting from death or disability). The 1997 Stock
Option Plan terminates in October 2007. As of September 30, 1997, there were no
options to purchase shares of Common Stock outstanding under the 1997 Stock
Option Plan. It is currently intended that options to purchase shares
will be granted to certain employees of the Company upon the consummation of
this Offering with an exercise price per share equal to the initial public
offering price.
BONUS PLAN
In November 1997, the Company's Board of Directors adopted an annual
executive bonus plan (the "Executive Bonus Plan") under which participating
executive officers of the Company are eligible to receive bonus payments. Once
established, the Executive Bonus Plan will be administered by the Company's
Compensation Committee (the "Committee"). The Board of Directors currently has
the discretion to designate eligible participants under the Executive Bonus Plan
and initially designated Mr. Myers and Mr. Colbaugh as eligible participants.
Bonus awards are determined based on a consideration of the achievement of
certain performance targets by the Company as well as the individual performance
of each participant. At the beginning of each fiscal year, performance targets
are established based on measures of operating income, earnings per share and/or
other factors considered relevant by the Committee (calculated without regard to
awards to be paid under the Executive Bonus Plan). Criteria for 1998 will be
established by the Board of Directors. Under the terms of the Executive Bonus
Plan the maximum annual bonus payable to Mr. Myers and Mr. Colbaugh are $900,000
and $450,000, respectively.
EMPLOYMENT AGREEMENTS
In November 1997, the Company entered into an employment agreement with
each of (i) Steven S. Myers, President, the Chief Executive Officer and Chairman
of the Board of the Company, and (ii) Kenneth W. Colbaugh, the Executive Vice
President, Chief Operating Officer and a director of the Company. Each
employment agreement provides for a two year term, participation in the
Company's Executive Bonus Plan, and a severance benefit payment equal to twice
the annual salary upon a termination of the employee by the Company without
"cause." The annual salary of Mr. Myers and Mr. Colbaugh under their respective
employment agreements is $900,000 and $450,000, respectively.
37
<PAGE> 39
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Articles of Incorporation provide that the liability of the
Company's directors for monetary damages shall be eliminated to the fullest
extent permissible under California law. This is intended to eliminate the
personal liability of a director for monetary damages in an action brought by or
in the right of the Company for breach of a director's duties to the Company or
its shareholders except for liability: (i) for acts or omissions that involve
intentional misconduct or a knowing and culpable violation of law; (ii) for acts
or omissions that a director believes to be contrary to the best interests of
the Company or its shareholders or that involve the absence of good faith on the
part of the director; (iii) for any transaction for which a director derived an
improper personal benefit; (iv) for acts or omission that show a reckless
disregard for the director's duty to the Company or its shareholders in
circumstances in which the director was aware, or should have been aware, in the
ordinary course of performing a director's duties, of a risk of serious injury
to the Company or its shareholders; (v) for acts or omissions that constitute an
unexcused pattern of inattention that amounts to an abdication of the director's
duty to the Company or its shareholders; (vi) with respect to certain
transactions, or the approval of transactions in which a director has a material
financial interest; and (vii) expressly imposed by statute, for approval of
certain improper distributions to shareholders or certain loans or guarantees.
The Articles also provide that the Company is authorized to provide
indemnification to its agents (as defined in Section 317 of the California
Corporations Code), through the Company's Bylaws or through agreements with such
agents or both, for breach of duty to the Company and its shareholders, in
excess of the indemnification to agents or both, for breach of duty to the
Company and its shareholders, in excess of the indemnification otherwise
permitted by Section 317 of the California Corporations Code, subject to the
limits on such excess indemnification set forth in Section 204 of the California
Corporations Code.
The Bylaws of the Company provide for indemnification of the Company's
officers, directors, employees, and other agents to the extent and under the
circumstances permitted by California law. The Bylaws further provide that no
indemnification shall be made in the case of a derivative suit in respect to any
claim as to which such person has been adjudged to be liable to the corporation,
except with court approval, nor shall indemnification be made for amounts paid
in settling or otherwise disposing of a threatened or pending action, with or
without court approval, or for expenses incurred in defending a threatened or
pending action which is settled or otherwise disposed of without court approval.
Indemnification under the Bylaws is mandatory in the case of an agent of the
Company (present or past) who is successful on the merits in defense of a suit
against him or her in such capacity. In all other cases where indemnification is
permitted by the Bylaws, a determination to indemnify such person must be made
by a majority of a quorum of disinterested directors, a majority of
disinterested shareholders, or the court in which the suits it pending.
The Company has entered into agreements to indemnify its directors and
executive officers in addition to the indemnification provided for in the
Articles of Incorporation and Bylaws. Among other things, these agreements
provide that the Company will indemnify, subject to certain requirements, each
of the Company's directors and executive officers for certain expenses
(including attorneys' fees), judgments, fines and settlement amounts incurred by
such person in any action or proceeding, including any action by or in the right
of the Company, on account of services by such person as a director or officer
of the Company, or as a director or officer of any other company or enterprise
to which the person provides services at the request of the Company.
CERTAIN TRANSACTIONS
In November 1997, the Company entered into Indemnification Agreements with
all of its directors and executive officers providing for indemnification rights
in certain circumstances. See "Management -- Indemnification of Officers and
Directors."
In November 1997, the Company entered into Executive Employment Agreements
with (i) Mr. Steven S. Myers, the President, Chief Executive Officer and
Chairman of the Board of the Company, and (ii) Mr. Kenneth W. Colbaugh, the
Executive Vice President, Chief Operating Officer and a director of the
38
<PAGE> 40
Company. The Executive Employment Agreements were approved by the Company's
Board of Directors. See "Management -- Employment Agreements."
Paula K. Myers, the wife of Steven S. Myers, has served in various
executive capacities to the Company since its founding, recently serving as a
director, Vice President and Secretary of the Company. In October 1997, Mrs.
Myers resigned from all her positions with the Company, including those as a
director and Secretary. Mrs. Myers was paid compensation from the Company
totalling $550,000, $550,000 and $150,000, respectively, during the Company's
fiscal years ended December 31, 1994, 1995 and 1996 and $90,000 during 1997.
In January 1997, the Company repurchased shares of its Common Stock
representing 13.4% of its then outstanding Common Stock from the following
officers of the Company: Steven S. Myers, Kenneth W. Colbaugh, Thomas F.
Heinsheimer, Charles A. Cullian, and John W. Montgomery, for an aggregate
purchase price of $5,863,000.
In January 1997, the Company sold its Hawker 800 aircraft (the "Aircraft")
to Summit Aviation, Inc. ("Summit"), a company wholly owned by Steven S. Myers,
for a sales price of $5,635,000. Concurrent with the sale, Summit assumed
$5,630,000 of the Company's long-term notes payable bearing interest rate of
7.30% and 10.07% per annum, and Summit paid the Company $5,000 in cash. The
Aircraft was purchased by the Company in April 1996 for $5,788,000. The sales
price of the Aircraft was based on a determination of its fair market value by
the Company's Board of Directors. The Company charters the Aircraft from time to
time as required in connection with Company business through an independent air
service chartering company. During the period from the Aircraft's purchase by
Summit through September 30, 1997, the Company incurred $313,000 in charter fees
for the Aircraft. The terms of use and charter rates paid by the Company
concerning the Aircraft are established by the air service chartering company
and are considered by the Company to be competitive with charter rates and on
terms as favorable as those from unaffiliated third parties for similar
aircraft.
In September 1997, the Company made a short term advance of $731,000 to
Steven S. Myers, which advance was repaid in full on October 1, 1997. In
December 1996, Steven S. Myers borrowed $632,000 from the Company under the
terms of a promissory note (the "Myers Note"). The Myers Note provides for
interest at the rate of 7.30% per annum and all amounts thereunder are due and
payable on February 1, 1998. As of November 21, 1997, there was a total of
$673,000 in principal and unpaid interest due and owing under the Myers Note.
In December 1996, the Company borrowed $667,000 from Steven and Paula Myers
under the terms of a promissory note (the "Company Note"). The Company Note
provided for interest at the rate of 7.30% per annum and all amounts thereunder
were due and payable on January 31, 1998. In January 1997, in connection with
the sale of the Aircraft to Summit, all obligations under the Company Note were
assumed by Summit.
In September 1996, J. Christopher Lewis, a director of the Company and a
member of the Compensation Committee, and certain affiliates, purchased an
aggregate of shares of the Company's Common Stock for an aggregate
purchase price of $5,000,000. Following the consummation of the stock
acquisition, Mr. Lewis became a director of the Company. Mr. Lewis is the sole
trustee of a trust which holds shares in the Company.
In May 1995, Steven and Paula Myers guaranteed the Company's obligations
under a promissory note in the original principal amount of $560,000, which was
incurred to finance the acquisition of the Company's Rockwell Commander
Aircraft. The note bears interest at an annual rate of 10.74% and, as of October
31, 1997, had an outstanding principal balance of $519,000.
During 1994, the Company wrote off $1,716,000 of receivables from CKC, an
affiliate of the Company. This write-off represented the Company's termination
of its affiliation with CKC and the amount written off represented all amounts
previously due from CKC. This amount consists of rent, labor charges and
unsecured advances to CKC. Steven S. Myers, the Company's President, Chief
Executive Officer and Chairman of the Board was a controlling shareholder,
director and officer, and Paula K. Myers and Kenneth W. Colbaugh were
39
<PAGE> 41
each directors and shareholders of both CKC and the Company during the
transactions and periods described above.
In January 1993, Kenneth W. Colbaugh purchased Common Stock from the
Company as part of the Company's employee equity ownership program. In
connection with the purchase of shares by Mr. Colbaugh, he became indebted to
the Company under the terms of a Note Secured by Stock Pledge Agreement in the
original principal amount of $316,260 (the "Colbaugh Note"). The Colbaugh Note
provided for interest at a rate of 7.30% per annum, periodic payments out of
Company income distributions to Mr. Colbaugh, and that all amounts due
thereunder were due and payable in January 2003. In January 1997, Mr. Colbaugh
paid in full all amounts owing under the Colbaugh Note.
The Company has agreed to pay the expenses of the Selling Shareholders in
connection with the Offering, other than Underwriting Discounts and Commissions.
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of November 21, 1997 and
as adjusted to reflect the sale of Common Stock Offered hereby, by (i) each
person known by the Company to beneficially own more than 5% of the outstanding
shares of Common Stock; (ii) each of the Company's directors; (iii) each of the
Named Executive Officers; (iv) each Selling Shareholder; and (v) all directors
and executive officers of the Company as a group. Except as otherwise indicated,
the Company believes that the beneficial owners of the Common Stock listed
below, based on information furnished by such owners, have sole investment and
voting power with respect to such shares, subject to community property laws
where applicable.
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING NUMBER OF OFFERING
NAME OF BENEFICIAL OWNER ----------------- SHARES BEING -----------------
OR IDENTITY OF GROUP(1)(2) NUMBER PERCENT OFFERED NUMBER PERCENT
<S> <C> <C> <C> <C> <C>
Steven S. Myers and Paula K. Myers(3)............ 69.2%
Kenneth W. Colbaugh and Robin E. Colbaugh(3)..... 8.6
Ronald A. Hunn and Linda E. Hunn(3).............. 1.0
J. Christopher Lewis(4).......................... 13.1
John W. Montgomery and Dian Y. Montgomery(3)..... 1.1
Thomas F. Heinsheimer and Julianne
Heinsheimer(3)................................. 1.8
Charles A. Cullian............................... 1.1
All directors and executive officers as a group
(7 persons).................................... 94.7
</TABLE>
- -----------------------------
(1) The address of each person listed is c/o Steven Myers & Associates, Inc.,
4695 MacArthur Court, Eighth Floor, Newport Beach, California 92660.
(2) Mr. Myers is the President, Chief Executive Officer, and Chairman of the
Board of the Company; Mr. Colbaugh is the Executive Vice President, Chief
Operating Officer and a director of the Company; Mr. Hunn is the Vice
President, Chief Financial Officer and Secretary of the Company; Mr. Lewis
is a director of the Company; and Messrs. Montgomery, Heinsheimer and
Cullian are Vice Presidents of the Company.
(3) Includes shares over which shareholders have beneficial ownership as
trustees.
(4) Includes shares over which Mr. Lewis has sole voting and investment power as
trustee, which shares shall be transferred to RLH SM&A, L.P. in connection
with the Offering.
40
<PAGE> 42
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of shares of
Common Stock, no par value, and shares of Preferred Stock, no par value.
The following description of the Company's capital stock is qualified in all
respects by reference to the Company's Amended and Restated Articles of
Incorporation ("Articles of Incorporation"), which has been filed as an exhibit
to the Registration Statement incorporating this Prospectus. As of November 21,
1997, there were 18 holders of the Company's Common Stock.
COMMON STOCK
The holders of outstanding shares of Common Stock are entitled to receive
dividends out of assets legally available therefor at such times and in such
amounts as the Board of Directors may, from time to time, determine, subject to
any preferences which may be granted to the holders of Preferred Stock. Holders
of Common Stock are entitled to one vote per share on all matters on which the
holders of Common Stock are entitled to vote and may not cumulate their votes.
The Common Stock is not entitled to preemptive rights and is not subject to
redemption or conversion. Upon liquidation, dissolution or winding-up of the
Company, the assets (if any) legally available for distribution to shareholders
are distributable ratably among the holders of the Common Stock after payment of
all debts and liabilities of the Company and the liquidation preference of any
outstanding class or series of Preferred Stock. All outstanding shares of Common
Stock are, and the shares of Common Stock to be issued pursuant to this Offering
will be, when issued and delivered, validly issued, fully paid and
nonassessable. The rights, preferences and privileges of holders of Common Stock
are subject to any series of Preferred Stock that the Company may issue in the
future.
PREFERRED STOCK
Preferred Stock may be issued from time to time in one or more series, and
the Board of Directors, without action by the holders of the Common Stock, may
fix or alter the voting rights, redemption provisions (including sinking fund
provisions), dividend rights, dividend rates, liquidation preferences,
conversion rights and any other rights, preferences, privileges and restrictions
of any wholly unissued series of Preferred Stock. The Board of Directors,
without shareholder approval, can issue shares of Preferred Stock with rights
that could adversely affect the rights of the holders of Common Stock. No shares
of Preferred Stock presently are outstanding, and the Company has no present
plans to issue any such shares. The issuance of shares of Preferred Stock could
adversely affect the voting power of holder of Common Stock and could have the
effect of delaying, deferring or preventing a change in control of the Company
or other corporate action.
TRANSFER AGENT AND REGISTRAR
The stock transfer agent and registrar for the Common Stock is U.S. Stock
Transfer Corporation, Glendale, California.
41
<PAGE> 43
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have shares of
Common Stock outstanding. All shares sold pursuant to this Offering
(assuming the overallotment option is not exercised) will be freely tradeable
without restriction or further registration under the Securities Act, unless
held by an "affiliate" of the Company (as that term is defined below). Any such
affiliate would be subject to the resale limitations of Rule 144 adopted under
the Securities Act.
The remaining shares of outstanding Common Stock are "restricted
securities" (the "Restricted Shares") within the meaning of Rule 144 under the
Securities Act and may not be sold in the absence of a registration under the
Securities Act unless an exemption from registration is available, including an
exemption contained in Rule 144. In general, under Rule 144 as currently in
effect, any person (or persons whose shares are aggregated for purposes of Rule
144) who has beneficially owned restricted securities, as that term is defined
in Rule 144, for at least one year (including, in the case of a nonaffiliate
holder, any period of ownership of preceding nonaffiliate holders) is entitled
to sell, within 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 of the
Company, or (ii) the average weekly trading volume in Common Stock during the
four calendar weeks preceding such sale, provided that certain public
information about the Company, as required by Rule 144, is then available and
the seller complies with the manner of sale and notification requirements of the
rule. A person who is not an affiliate and has not been an affiliate within
three months prior to the sale and has, together with any previous owners who
were not affiliates, beneficially owned restricted securities for at least two
years is entitled to sell such shares under Rule 144(k) without regard to any of
the volume limitations described above. None of the Restricted Shares are
presently eligible for sale upon compliance with Rule 144(k).
It is currently intended that, upon consummation of this Offering, options
to purchase shares of the Company's Common Stock will be granted to
certain employees of the Company pursuant to the 1997 Stock Option Plan. The
Company intends to register on a registration statement on Form S-8, shortly
after the date of this Prospectus, all shares of Common Stock underlying
the options that are then outstanding or issuable pursuant to the 1997 Stock
Option Plan.
No predictions can be made of the effect, if any, that future sales of
shares of Common Stock, and grants of options to acquire shares of Common Stock,
or the availability of shares for future sale, will have on the market price of
the Common Stock prevailing from time to time. Sales of substantial amounts of
Common Stock in the public market, or the perception that such sales could
occur, could adversely affect the prevailing market prices of the Common Stock.
See "Principal and Selling Shareholders," "Description of Capital Stock" and
"Underwriting."
42
<PAGE> 44
UNDERWRITING
Subject to certain terms and conditions contained in an underwriting
agreement (the "Underwriting Agreement"), the Underwriters named below for whom
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") and Lehman Brothers
Inc. are serving as representatives (the "Representatives"), have severally
agreed to purchase from the Company and the Selling Shareholders the respective
number of shares of Common Stock set forth opposite their names below:
<TABLE>
<CAPTION>
NUMBER
OF
UNDERWRITERS SHARES
---------------------------------------------------------------- --------
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation.............
Lehman Brothers Inc. ...........................................
--------
Total......................................................
========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase shares of Common Stock are subject to the approval of
certain legal matters by counsel and to certain other conditions. If any of the
shares of Common Stock are purchased by the Underwriters pursuant to the
Underwriting Agreement, all of the shares of Common Stock (other than the shares
of Common Stock covered by the Underwriters' over-allotment option described
below) must be so purchased.
Prior to this Offering, there has been no established trading market for
the Common Stock. The initial price to the public for the Common Stock offered
hereby will be determined by negotiation between the Company and the
Representatives. The factors to be considered in determining the initial price
to the public include the history of and the prospects for the industry in which
the Company competes, the performance and ability of the Company's management,
the past and present operations of the Company, the historical results of
operations of the Company, the prospects for future earnings of the Company, the
general condition of the securities markets at the time of this Offering and the
recent market prices of securities of generally comparable companies. The
estimated initial public Offering price range set forth on the cover page of
this Prospectus is subject to change as a result of market conditions and other
factors.
The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock to the public initially at the price
to the public set forth on the cover page of this Prospectus and to certain
dealers (who may include the Underwriters) at such price less a concession not
to exceed $ per share. The Underwriters may allow, and such dealers may
reallow, discounts not in excess of $ per share to any other
Underwriter and certain other dealers. After this Offering, the offering price
and other selling terms may be changed by the Underwriters.
The Company and the Selling Shareholders have granted to the Underwriters
an option to purchase up to an aggregate of additional shares of
Common Stock, at the initial public offering price less underwriting discounts
and commissions, solely to cover over-allotments. Such option may be exercised
in whole or in part from time to time during the 30-day period after the date of
this Prospectus. To the extent that the Underwriters exercise such option, each
of the Underwriters will be committed, subject to certain conditions, to
purchase from the Company and the Selling Shareholders on a pro rata basis a
number of option shares proportionate to such Underwriter's initial commitment
as indicated in the preceding table.
43
<PAGE> 45
The Company, and each of its directors, executive officers and the Selling
Shareholders have agreed not to offer, sell contract to sell or otherwise
dispose of any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock, or in any manner transfer all or a
portion of the economic consequences associated with the ownership of such
Common Stock, or to cause a registration statement covering any shares of Common
Stock to be filed, for 180 days after the date of this Prospectus without the
prior written consent of DLJ, subject to certain limited exceptions, and
provided that the Company may grant options pursuant to, and issue shares of
Common Stock upon the exercise of options under the 1997 Stock Option Plan. See
"Shares Eligible for Future Sale."
In connection with this Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriters may over-allot the Offering,
creating a syndicate short position. In addition, the Underwriters may bid for
and purchase shares of Common Stock in the open market to cover syndicate short
positions or to stabilize the price of the Common Stock. Finally, the
underwriting syndicate may reclaim selling concessions from syndicate members in
the Offering, if the syndicate repurchases previously distributed Common Stock
in syndicate covering transactions, in stabilization transactions or otherwise.
Any of these activities may stabilize or maintain the market price of the Common
Stock above independent market levels. The Underwriters are not required to
engage in these activities and may end any of these activities at any time.
The Representatives have informed the Company that they do not expect to
make sales to accounts over which they exercise discretionary authority in
excess of % of the number of shares of Common Stock offered hereby.
Application will be made to have the Common Stock approved for listing on
the Nasdaq National Market ("Nasdaq") under the symbol "WINS," pending
notification of issuance.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Rutan & Tucker, Costa Mesa, California. Certain matters
will be passed upon for the Underwriters by Milbank, Tweed, Hadley & McCloy, Los
Angeles, California.
EXPERTS
The financial statements of the Company at December 31, 1995 and 1996, and
for each of the years in the three-year period ended December 31, 1996, have
been included herein and in the Registration Statement, in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
44
<PAGE> 46
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission,
Washington, D.C. 20549, a Registration Statement on Form S-1 under the
Securities Act, and the rules and regulations promulgated thereunder, with
respect to the Common Stock offered hereby. This Prospectus, which constitutes a
part of the Registration Statement, does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules thereto.
Statements contained in this Prospectus as to the contents of any contract or
other document referred to are not necessarily complete, and in each instance
reference is made to the full text of such contract or other document which is
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference. For further information with
respect to the Company and the Common Stock offered hereby, reference is made to
such Registration Statement and the exhibits and schedules thereto. The
Registration Statement, including the exhibits and schedules thereto, may be
inspected without charge at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's regional offices located at 7 World Trade Center, 13th Floor, New
York, New York 10048 and at Citicorp Center, 50 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such documents may be obtained from the
Commission at its principal office in Washington, D.C. upon the payment of the
charges prescribed by the Commission.
The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding issuers that file
electronically with the Commission. The Commission's address on the World Wide
Web is http://www.sec.gov.
The Company intends to distribute to its shareholders annual reports
containing financial statements audited by the Company's independent accountants
and quarterly reports for the first three quarters of each fiscal year
containing unaudited interim financial information.
45
<PAGE> 47
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.......................................................... F-2
Balance Sheets -- December 31, 1995 and 1996 and September 30, 1997 (unaudited)....... F-3
Statements of Operations -- Years ended December 31, 1994, 1995 and 1996 and nine
months ended September 30, 1996 and 1997 (unaudited)................................ F-4
Statements of Shareholders' Equity -- Years ended December 31, 1994, 1995 and 1996 and
nine months ended September 30, 1997 (unaudited).................................... F-5
Statements of Cash Flows -- Years ended December 31, 1994, 1995 and 1996 and nine
months ended September 30, 1996 and 1997 (unaudited)................................ F-6
Notes to Financial Statements......................................................... F-7
</TABLE>
F-1
<PAGE> 48
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Steven Myers & Associates, Inc.:
We have audited the accompanying balance sheets of Steven Myers &
Associates, Inc. as of December 31, 1995 and 1996 and the related statements of
operations, shareholders' equity and cash flows for each of the three years
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Steven Myers & Associates,
Inc. as of December 31, 1994, 1995 and 1996 and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Orange County, California
April 3, 1997
F-2
<PAGE> 49
STEVEN MYERS & ASSOCIATES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
-------------------------- --------------
ASSETS 1995 1996 1997
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash............................................... $ 269,000 $ 1,927,000 $ 478,000
Accounts receivable, net of allowance of $0,
$27,000 and $105,000 (unaudited) at December 31,
1995 and 1996 and September 30, 1997,
respectively.................................... 2,287,000 3,637,000 6,501,000
Other accounts receivable.......................... 3,000 186,000 79,000
Prepaid expenses and other current assets.......... 25,000 45,000 317,000
---------- ---------- ----------
Total current assets....................... 2,584,000 5,795,000 7,375,000
Property and equipment, net (notes 3 and 4).......... 427,000 5,869,000 408,000
Other assets......................................... 23,000 156,000 140,000
---------- ---------- ----------
$3,034,000 $11,820,000 $ 7,923,000
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................... $ 67,000 $ 367,000 $ 64,000
Dividend payable (note 9).......................... -- -- 2,500,000
Current portion of long-term debt (note 4)......... 29,000 1,259,000 765,000
Accrued salaries, wages and payroll taxes.......... 1,352,000 3,839,000 3,964,000
Accrued bonus...................................... 342,000 474,000 902,000
Other liabilities.................................. -- 135,000 300,000
---------- ---------- ----------
Total current liabilities.................. 1,790,000 6,074,000 8,495,000
Long-term debt, excluding current portion (note 4)... 576,000 4,991,000 4,301,000
---------- ---------- ----------
Total liabilities.......................... 2,366,000 11,065,000 12,796,000
Shareholders' equity (deficit) (note 5):
Common stock, no par value. Authorized 1,000,000
and 2,000,000 shares of Series A and Series B,
respectively; issued and outstanding 234,000 and
938,000 of Series A and Series B, respectively,
in 1996 and 1995 and 202,000 and 813,000 of
Series A and Series B, respectively, at
September 30, 1997 (unaudited).................. 5,000 5,000 5,000
Additional paid-in capital......................... 316,000 316,000 316,000
Stock subscription note receivable (note 2)........ (205,000) (51,000) --
Due from shareholder (note 2)...................... -- (632,000) (1,367,000)
Retained earnings (accumulated deficit)............ 552,000 1,117,000 (3,827,000)
---------- ---------- ----------
Total shareholders' equity (deficit)....... 668,000 755,000 (4,873,000)
Commitments and contingencies (notes 4 and 7)........
---------- ---------- ----------
$3,034,000 $11,820,000 $ 7,923,000
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 50
STEVEN MYERS & ASSOCIATES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------- -------------------------
1994 1995 1996 1996 1997
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues.................... $15,220,000 $20,777,000 $25,699,000 $19,462,000 $26,639,000
Cost of revenues................ 9,449,000 12,313,000 14,512,000 11,399,000 14,838,000
----------- ----------- ----------- ----------- -----------
Gross profit.......... 5,771,000 8,464,000 11,187,000 8,063,000 11,801,000
Selling, general and
administrative expenses (note
9)............................ 4,893,000 7,793,000 10,749,000 7,407,000 4,958,000
----------- ----------- ----------- ----------- -----------
Operating income...... 878,000 671,000 438,000 656,000 6,843,000
Other expense (income):
Interest expense.............. 24,000 62,000 420,000 275,000 378,000
Other income, net............. (39,000) (69,000) (556,000) (360,000) (229,000)
Write-off of amounts due from
affiliated company (note
10)........................ 1,716,000 -- -- -- --
----------- ----------- ----------- ----------- -----------
Earnings (loss) before
income taxes........ (823,000) 678,000 574,000 741,000 6,694,000
Income tax expense (benefit)
(note 6)...................... (12,000) 10,000 9,000 7,000 100,000
----------- ----------- ----------- ----------- -----------
Net earnings (loss)... $ (811,000) $ 668,000 $ 565,000 $ 734,000 $ 6,594,000
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 51
STEVEN MYERS & ASSOCIATES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
SERIES A AND SERIES B
(NOTE 5) STOCK RETAINED TOTAL
--------------------- ADDITIONAL SUBSCRIPTION DUE EARNINGS SHAREHOLDERS'
SHARES PAID-IN NOTE FROM (ACCUMULATED EQUITY
OUTSTANDING AMOUNT CAPITAL RECEIVABLE SHAREHOLDER DEFICIT) (DEFICIT)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1993...................... 234,000 $5,000 $316,000 $ (316,000) -- $ 913,000 $ 918,000
Net loss.................... -- -- -- -- -- (811,000) (811,000)
Collection of stock
subscription receivable... -- -- -- 7,000 -- -- 7,000
Tax-free distribution....... -- -- -- 6,000 -- (6,000) --
Recapitalization of
Corporation............... 938,000 -- -- -- -- -- --
--------- ------ ------- -------- ---------- ---------- ----------
Balance at December 31,
1994...................... 1,172,000 5,000 316,000 (303,000) -- 96,000 114,000
Net earnings................ -- -- -- -- -- 668,000 668,000
Collection of stock
subscription receivable... -- -- -- 89,000 -- -- 89,000
Tax-free distribution....... -- -- -- 9,000 -- (212,000) (203,000)
--------- ------ ------- -------- ---------- ---------- ----------
Balance at December 31,
1995...................... 1,172,000 5,000 316,000 (205,000) -- 552,000 668,000
Net earnings................ -- -- -- -- -- 565,000 565,000
Note due from shareholder
(note 2).................. -- -- -- -- (632,000) -- (632,000)
Collection of stock
subscription receivable... -- -- -- 154,000 -- -- 154,000
--------- ------ ------- -------- ---------- ---------- ----------
Balance at December 31,
1996...................... 1,172,000 5,000 316,000 (51,000) (632,000) 1,117,000 755,000
Net earnings (unaudited).... -- -- -- -- -- 6,594,000 6,594,000
Collection of stock
subscription receivable
(unaudited)............... -- -- -- 51,000 -- -- 51,000
Note due from shareholder
(note 2).................. -- -- -- -- (735,000) -- (735,000)
Dividends declared
(unaudited) (note 9)...... -- -- -- -- -- (5,675,000) (5,675,000)
Repurchase and retirement of
common stock
(unaudited)............... (157,000) -- -- -- -- (5,863,000) (5,863,000)
--------- ------ ------- -------- ---------- ---------- ----------
Balance at September 30,
1997 (unaudited).......... 1,015,000 $5,000 $316,000 $ -- $(1,367,000) $(3,827,000) $ (4,873,000)
========= ====== ======= ======== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 52
STEVEN MYERS & ASSOCIATES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------- ---------------------------
1994 1995 1996 1996 1997
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss)........................... $ (811,000) $ 668,000 $ 565,000 $ 734,000 $ 6,594,000
Adjustments to reconcile net earnings (loss)
to net cash provided by operating
activities:
Provision for doubtful accounts............. 1,716,000 -- 27,000 -- 78,000
Depreciation and amortization............... 115,000 175,000 448,000 117,000 98,000
(Gain) loss on sale of fixed asset.......... 25,000 -- -- -- (137,000)
Changes in assets and liabilities:
Accounts receivable....................... (627,000) (713,000) (1,377,000) (453,000) (2,942,000)
Other accounts receivables................ 29,000 (2,000) (183,000) (136,000) 107,000
Prepaid expenses and other current
assets................................. (6,000) (18,000) (20,000) 5,000 (272,000)
Other assets.............................. (12,000) (3,000) (133,000) 4,000 16,000
Accounts payable.......................... 70,000 (34,000) 300,000 323,000 (303,000)
Dividend payable.......................... -- -- -- -- 2,500,000
Accrued salaries, wages and payroll
taxes.................................. 257,000 408,000 2,487,000 1,253,000 125,000
Accrued bonus............................. -- 14,000 132,000 49,000 428,000
Other liabilities......................... 270,000 (292,000) 135,000 -- 165,000
----------- --------- ----------- --------- -----------
Net cash provided by operating
activities........................... 1,026,000 203,000 2,381,000 1,896,000 6,457,000
----------- --------- ----------- --------- -----------
Cash flows from investing activities:
Net purchases of property and equipment....... (163,000) (325,000) (5,890,000) (5,895,000) (136,000)
Advances to affiliated company (note 10)...... (675,000) -- -- -- --
Proceeds from sale of fixed assets............ -- -- -- -- 6,000
Due to (from) shareholder (note 2)............ (200,000) 200,000 (632,000) -- (735,000)
----------- --------- ----------- --------- -----------
Net cash used in investing
activities........................... (1,038,000) (125,000) (6,522,000) (5,895,000) (865,000)
----------- --------- ----------- --------- -----------
Cash flows from financing activities:
Increase in long-term debt.................... 58,000 63,000 5,645,000 5,118,000 4,446,000
Distribution to shareholders.................. (7,000) (212,000) -- -- (5,675,000)
Repurchase of common stock.................... -- -- -- -- (5,863,000)
Decrease in stock subscription note
receivable.................................. 14,000 98,000 154,000 154,000 51,000
----------- --------- ----------- --------- -----------
Net cash provided by (used in)
financing activities................. 65,000 (51,000) 5,799,000 5,272,000 (7,041,000)
----------- --------- ----------- --------- -----------
Net increase (decrease) in cash........ 53,000 27,000 1,658,000 1,273,000 (1,449,000)
Cash at beginning of period..................... 189,000 242,000 269,000 269,000 1,927,000
----------- --------- ----------- --------- -----------
Cash at end of period........................... $ 242,000 $ 269,000 $ 1,927,000 $ 1,542,000 $ 478,000
=========== ========= =========== ========= ===========
Supplemental disclosures:
Cash paid during the year for:
Interest.................................... $ 21,000 $ 64,000 $ 421,000 $ 275,000 $ 378,000
Income taxes................................ $ 2,000 $ 1,000 $ -- $ 2,000 $ 58,000
=========== ========= =========== ========= ===========
</TABLE>
Supplemental schedule of noncash investing activity:
In 1994, the Company assumed a $200,000 note payable from an affiliated
company (note 10).
In 1997, the Company sold the Hawker Jet to an affiliated company for
$5,635,000. Terms of payment included $5,000 cash and transfer of the related
long-term note payable of $5,630,000 (unaudited) (note 4).
See accompanying notes to financial statements.
F-6
<PAGE> 53
STEVEN MYERS & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1995, 1996 AND SEPTEMBER 30, 1996 AND 1997
(UNAUDITED)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Steven Myers & Associates, Inc. (the Company) was incorporated in
California on January 25, 1985. The Company's primary business is providing
proposal management and contract support services.
Interim Financial Data
The interim financial statements as of September 30, 1997 and for the nine
month periods ended September 30, 1996 and 1997 are unaudited. The information
reflects all adjustments, consisting only of normal recurring entities, that, in
the opinion of management, are necessary to present fairly the financial
position and results of operations of the Company for the periods indicated.
Results of operations for the interim periods are not necessarily indicative of
the results of operations for the full fiscal year.
Property and Equipment
Property and equipment is stated at cost. Depreciation is calculated using
the double declining method over the estimated useful lives of the assets,
except for the Hawker 800 jet which is depreciated using the straight-line
method. Estimated useful lives range from five to ten years.
Revenue Recognition
The Company derives most of its revenue from professional service
activities. The majority of these activities are provided under "time and
expenses" billing arrangements, and revenues are recorded as work is performed.
Revenues are directly related to the total number of hours billed to clients and
the associated hourly billing rates. Revenues are also derived from success fees
offered to clients as a pricing option, and recorded as revenue only upon the
attainment of the specified incentive criteria. This success fee is billable by
the Company when a contract is won by the client.
Income Taxes
The Company has elected to be taxed as an S corporation under the
provisions of the Internal Revenue Code and similar statutes in the state of
California. Accordingly, the Company's taxable income is treated as if it were
distributed to the shareholders, who are responsible for payment of taxes
thereon. Additionally, in accordance with state laws regarding S corporations,
the Company is subject to a 1.5% California franchise tax. Deferred taxes are
provided on items for which there are temporary differences in recording such
items for financial and income tax reporting purposes.
Fair Value of Financial Instruments
The carrying value of cash, accounts receivable, other accounts
receivables, accounts payable and other accrued liabilities are measured at cost
which approximates their fair value.
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
reporting period. Actual results could differ from those estimates.
F-7
<PAGE> 54
STEVEN MYERS & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Supplemental Net Income per Share
Historical net income per common share is not presented because it is not
meaningful.
(2) STOCK SUBSCRIPTION NOTE RECEIVABLE AND OTHER ACCOUNTS RECEIVABLE
In 1993, the Company entered into a stock subscription agreement with an
officer of the Company for common stock valued at $316,000. Included in the
accompanying balance sheets are stock subscription receivable balances of
$205,000 and $51,000 at December 31, 1995 and 1996, respectively. The stock
subscription receivable balance was paid in full during the nine months ended
September 30, 1997.
Included in shareholders' equity at December 31, 1996 is an amount due from
an officer and principal shareholder of the Company totaling $632,000. This
balance is to be paid by February 1, 1998 by offsetting dividends to the
shareholder against the receivable.
In addition to the $632,000 receivable balance from the shareholder plus
accrued interest of $35,000, both which remained outstanding at September 30,
1997, was an advancement to the same officer and principal shareholder in the
amount of $700,000. The $700,000 advancement was paid in full on October 1, 1997
by offsetting dividends to the shareholder against the receivable.
(3) PROPERTY AND EQUIPMENT
A summary of property and equipment follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
-------------------------- -------------
1995 1996 1997
(UNAUDITED)
<S> <C> <C> <C>
Aircraft and automobile.............. $ 958,000 $ 6,746,000 $ 958,000
Furniture and equipment.............. 283,000 385,000 518,000
---------- ---------- ----------
1,241,000 7,131,000 1,476,000
Less accumulated depreciation........ (814,000) (1,262,000) (1,068,000)
---------- ---------- ----------
$ 427,000 $ 5,869,000 $ 408,000
========== ========== ==========
</TABLE>
(4) DEBT
In 1995, the Company refinanced an aircraft loan for the corporate aircraft
(Turbo Commander). The new agreement provides for a long-term note in the
principal amount of $560,000, of which there was a remaining principal balance
of $536,000 at December 31, 1996. The note bears annual interest at a fixed rate
of 10.74% and is payable monthly, expiring in June 2010. The note is secured by
the aircraft.
In April 1996, the Company purchased a Hawker 800 jet for $5,788,000 and
financed the purchase with a bank. The financing arrangement consisted of a note
in the amount of $4,962,000 bearing interest at 10.07%, payable annually, with
the full principle balance due and payable in April 2001. The note is secured by
the Hawker jet. In January 1997, the Company sold the Hawker jet to a company
which is owned by an officer and principal shareholder.
F-8
<PAGE> 55
STEVEN MYERS & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company also financed the acquisition of an automobile and certain
office equipment through capital leases. These leases bear interest at 7.25% and
15.71%, respectively, and are payable monthly. Future minimum lease payments
under these capital lease agreements as of September 30, 1997 are as follows:
<TABLE>
<S> <C>
Year ending December 31:
1997............................................ $ 8,000
1998............................................ 32,000
1999............................................ 31,000
2000............................................ 10,000
--------
81,000
Less amount representing interest................. (12,000)
--------
Present value of minimum lease payments...... 69,000
Less current portion.............................. (25,000)
--------
$ 44,000
========
</TABLE>
Bank debt at September 30, 1997 consists of $815,000 and $3,660,000
outstanding under the revolving line of credit and the term loan, respectively,
for the purchase of Company stock from various shareholders. The revolving line
of credit bears interest at the Bank's prime rate of 8.50% at September 30,
1997. The term loan is payable in graduated quarterly installments ranging from
$170,000 to $230,000 and bears interest at LIBOR plus 2.50%. The term loan
interest rate was 8.28% at September 30, 1997.
A summary of debt is provided as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------------ -------------
1995 1996 1997
(UNAUDITED)
<S> <C> <C> <C>
Bank debt..................................... $ -- $ -- $ 4,475,000
Aircraft loans................................ 553,000 5,498,000 522,000
Shareholder note payable...................... -- 667,000 --
Capital leases................................ 52,000 85,000 69,000
-------- ---------- ---------
605,000 6,250,000 5,066,000
Less current portion of long-term debt........ (29,000) (1,259,000) (765,000)
-------- ---------- ---------
$576,000 $ 4,991,000 $ 4,301,000
======== ========== =========
</TABLE>
Included in short-term debt at December 31, 1996 was a $667,000 note due to
an officer and principal shareholder of the Company. The note, which bore
interest at 7.30% per annum, pertained to an advancement for working capital
purposes and was assumed by Summit Aviation Inc. (SAI) as part of the Hawker
sales transaction.
On January 2, 1997, the Company entered into a credit agreement with a
financial institution under which it may borrow up to $8,000,000. The agreement,
as amended on July 21, 1997, has two parts: a $4,000,000 revolving line of
credit is available with a sub-limit of $2,000,000 to finance a portion of the
repurchase of the Company's stock and a $4,000,000 term loan is also available
to finance the repurchase of Company stock. The rates of interest applicable to
the revolving line of credit and the term loan are the Bank's prime rate and
2.50% in excess of the LIBOR rate (London Interbank Offered Rate), respectively.
The revolving line of credit expires in 1999 and the term loan expires in 2001.
As of March 31, 1997, $5,863,000 was used to finance the repurchase of the
Company's stock from various shareholders.
On January 9, 1997, the Company sold its Hawker jet to Summit Aviation
Inc., a company owned by one of the shareholders, for a purchase price of
approximately $5,635,000. Concurrent with the sale, the Company
F-9
<PAGE> 56
STEVEN MYERS & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
transferred $5,630,000 of long-term notes payable to SAI bearing interest rate
of 7.30% and 10.07% per annum, and SAI paid the Company $5,000 in cash. The sale
was finalized and recorded in the second quarter of 1997 and resulted in a gain
of $137,000.
(5) COMMON STOCK
In November 1994, the Board of Directors approved the recapitalization of
the Company through the amendment of the Articles of Incorporation. The
amendment authorized all outstanding common shares to be exchanged for a new
series of common stock designated as Series A. In total, 250,000 shares of
Series A common stock were authorized. Additionally, the amendment authorized
the issuance of 2,000,000 shares of a new Series B common stock. The Series A
and Series B common stock are identical in all respects and have equal rights
and privileges, except that Series B common stock has no voting rights. The
amendment had no effect on the ownership structure of the Company (note 12).
(6) INCOME TAXES
For all periods presented, the Company has provided for income taxes at the
appropriate California statutory state income tax rate imposed on S
Corporations.
The provision for income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------- -------------------
1994 1995 1996 1996 1997
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current:
State.......................... $(12,000) $10,000 $9,000 $7,000 $100,000
======== ======= ====== ====== =======
</TABLE>
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," (SFAS 109). Under
SFAS 109, deferred tax assets and liabilities are established for temporary
differences at tax rates expected to be in effect when such assets or
liabilities are realized or settled. Net deferred tax assets are considered
immaterial and do not have a significant impact on the financial results of the
Company.
(7) COMMITMENTS AND CONTINGENCIES
Leases
In June 1997, the Company entered into a ten year lease agreement for a new
office facility, at which time the lease agreement on the old facility was
terminated for a penalty of $28,000. Additionally, the Company has entered into
various lease agreements for office equipment. Future minimum lease payments
under noncancelable operating leases as of September 30, 1997 are as follows:
<TABLE>
<S> <C>
Year ending December 31:
1997........................................... $ 135,000
1998........................................... 435,000
1999........................................... 451,000
2000........................................... 468,000
2001........................................... 487,000
Thereafter..................................... 2,963,000
----------
$4,939,000
==========
</TABLE>
F-10
<PAGE> 57
STEVEN MYERS & ASSOCIATES, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Rent expense totaled $136,000, $177,000 and $184,000 for years ended
December 31, 1994, 1995 and 1996, respectively, and $154,000 and $278,000 for
the nine months ended September 30, 1996 and 1997, respectively (unaudited).
Pending Claims and Litigation
The Company has been named in a lawsuit arising in the normal course of
business. In the opinion of management, the outcome of the claim will not have a
material effect on the Company's financial position or results of operations.
(8) MAJOR CUSTOMER
Revenue from major customers is summarized as follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------- ---------------
1994 1995 1996 1996 1997
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Customer:
A 30% 23% 19% 16% 10%
B 25 27 23 28 23
C 13 -- 10 12 11
D 10 -- -- -- --
E -- 10 18 19 13
F -- 10 -- -- --
G -- -- -- -- 13
H -- -- -- -- 13
</TABLE>
(9) COMPENSATION TO THREE SENIOR EXECUTIVE SHAREHOLDERS
Included in selling, general and administrative expense is total
compensation paid to three senior executive shareholders in the amount of
$2,737,000, $4,642,000 and $5,175,000 for the years ended December 31, 1994,
1995 and 1996, respectively, and $4,009,000 and $1,182,000 for the nine months
ended September 30, 1996 and 1997, respectively.
In fiscal 1997, the Company changed the manner of distributions to
shareholders. For the nine months ended September 30, 1997, $5,675,000 in
dividends were declared and all but $2,500,000 were paid. Dividends will be paid
out of future earnings.
(10) WRITE-OFF OF AMOUNTS DUE FROM AFFILIATED COMPANY
During fiscal year 1994, the Company wrote off $1,716,000 of receivables
from California Kamchatka Company, Inc. ("CKC"), an affiliated entity that was
dissolved. This write-off represented the Company's advances to CKC. Included in
this amount was a $200,000 note payable assumed by the Company on behalf of CKC.
Additionally, $578,000 of the above amount was a proration of rent and labor
charges from the Company to CKC related to services provided to CKC during 1993
and 1994.
(11) EMPLOYEE BENEFIT PLAN
The Steven Myers & Associates 401(k) Plan and Trust is a defined
contribution plan. The Plan includes a tax-deferred 401(k) provision. The Plan
covers all employees of the Company. Contributions are made to the Plan by
participants only.
F-11
<PAGE> 58
======================================================
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 AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY OF THE SELLING
SHAREHOLDERS OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SHARES BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH
THE PERSON MAKING THE OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL CREATE ANY
IMPLICATION THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary......................... 3
Risk Factors............................... 7
Use of Proceeds............................ 11
Recapitalization........................... 11
Prior S Corporation Status................. 11
S Corporation Dividend..................... 12
Dividend Policy............................ 12
Capitalization............................. 13
Dilution................................... 14
Selected Financial Data.................... 15
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 17
Business................................... 23
Management................................. 34
Certain Transactions....................... 38
Principal and Selling Shareholders......... 40
Description of Capital Stock............... 41
Shares Eligible For Future Sale............ 42
Underwriting............................... 43
Legal Matters.............................. 44
Experts.................................... 44
Additional Information..................... 45
Index to Financial Statements.............. F-1
</TABLE>
------------------
UNTIL , 199 , (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING) ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
======================================================
======================================================
SHARES
[SM&A LOGO]
COMMON STOCK
-------------------------
PROSPECTUS
-------------------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
LEHMAN BROTHERS
, 1998
======================================================
<PAGE> 59
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table itemizes the estimated expenses incurred in connection
with the Offering described in this Registration Statement.
<TABLE>
<S> <C>
Registration fee................................................... $13,939
NASD filing fee.................................................... 5,100
Printing and engraving expenses.................................... *
Nasdaq application fee............................................. *
Blue sky qualification fees and expenses........................... *
Legal fees and expenses............................................ *
Accountants' fees and expenses..................................... *
Transfer agent and registrar fees.................................. *
Miscellaneous...................................................... *
------
Total.................................................... $ *
======
</TABLE>
- -----------------------------
* To be supplied by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Underwriting Agreement (Exhibit 1.1 hereto) provides for
indemnification by the Underwriters of the Registrant and its officers and
directors, and by the Registrant of the Underwriters for certain liabilities
arising under the Securities Act or otherwise.
The Company's Articles of Incorporation provide that the liability of the
Company's directors for monetary damages shall be eliminated to the fullest
extent permissible under California law. This is intended to eliminate the
personal liability of a director for monetary damages in an action brought by or
in the right of the Company for breach of a director's duties to the Company or
its shareholders except for liability: (i) for acts or omissions that involve
intentional misconduct or a knowing and culpable violation of law; (ii) for acts
or omissions that a director believes to be contrary to the best interests of
the Company or its shareholders or that involve the absence of good faith on the
part of the director; (iii) for any transaction for which a director derived an
improper personal benefit; (iv) for acts or omission that show a reckless
disregard for the director's duty to the Company or its shareholders in
circumstances in which the director was aware, or should have been aware, in the
ordinary course of performing a director's duties, of a risk of serious injury
to the Company or its shareholders; (v) for acts or omissions that constitute an
unexcused pattern of inattention that amounts to an abdication of the director's
duty to the Company or its shareholders; (vi) with respect to certain
transactions, or the approval of transactions in which a director has a material
financial interest; and (vii) expressly imposed by statute, for approval of
certain improper distributions to shareholders or certain loans or guarantees.
The Articles also provide that the Company is authorized to provide
indemnification to its agents (as defined in Section 317 of the California
Corporations Code), through the Company's Bylaws or through agreements with such
agents or both, for breach of duty to the Company and its shareholders, in
excess of the indemnification to agents or both, for breach of duty to the
Company and its shareholders, in excess of the indemnification otherwise
permitted by Section 317 of the California Corporations Code, subject to the
limits on such excess indemnification set forth in Section 204 of the California
Corporations Code.
The Bylaws of the Company provide for indemnification of the Company's
officers, directors, employees, and other agents to the extent and under the
circumstances permitted by California law. The Bylaws further provide that no
indemnification shall be made in the case of a derivative suit in respect to any
claim as to which such person has been adjudged to be liable to the corporation,
except with court approval, nor shall
II-1
<PAGE> 60
indemnification be made for amounts paid in settling or otherwise disposing of a
threatened or pending action, with or without court approval, or for expenses
incurred in defending a threatened or pending action which is settled or
otherwise disposed of without court approval. Indemnification under the Bylaws
is mandatory in the case of an agent of the Company (present or past) who is
successful on the merits in defense of a suit against him or her in such
capacity. In all other cases where indemnification is permitted by the Bylaws, a
determination to indemnify such person must be made by a majority of a quorum of
disinterested directors, a majority of disinterested shareholders, or the court
in which the suits it pending.
The Company has entered into agreements to indemnify its directors and
executive officers in addition to the indemnification provided for in the
Articles of Incorporation and Bylaws. Among other things, these agreements
provide that the Company will indemnify, subject to certain requirements, each
of the Company's directors and executive officers for certain expenses
(including attorneys' fees), judgments, fines and settlement amounts incurred by
such person in any action or proceeding, including any action by or in the right
of the Company, on account of services by such person as a director or officer
of the Company, or as a director or officer of any other company or enterprise
to which the person provides services at the request of the Company.
The inclusion of the above provisions in the Articles of Incorporation and
Bylaws and the existence of the indemnification agreements may have the effect
of reducing the likelihood of derivative litigation against directors and may
discourage or deter shareholders or management from bringing a lawsuit against
directors for breach of their duty of care, even though such an action, if
successful, might otherwise have benefitted the Registrant and its shareholders.
At present, there is no litigation or proceeding pending involving a director of
the Registrant as to which indemnification is being sought, nor is the
Registrant aware of any threatened litigation that may result in claims for
indemnification by any director.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The Registrant has not sold any securities during the past three years:
II-2
<PAGE> 61
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ --------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.*
3.1 Articles of Incorporation, as amended and restated.
3.2 Bylaws of the Registrant, as amended and restated.
4.1 Specimen stock certificate.*
5.1 Opinion of Rutan & Tucker.*
10.1 1997 Stock Option Plan, and related form of Stock Option Agreement.
10.2 Form of Indemnification Agreement.
10.3 Office Facilities Lease.
10.4 Hawker Aircraft Sale Agreement.
10.5 Employment Agreement with Steven S. Myers.
10.6 Employment Agreement with Kenneth W. Colbaugh.
10.7 Security and Loan Agreement dated January 2, 1997 between Imperial Bank and the
Registrant, First Amendment and Addendum thereto and related Note and Addendum
thereto and LIBOR Addendum to Note.
10.8 Commercial Note dated May 30, 1995 between NationsBank, N.A. and the Registrant
and related Aircraft Security Agreement -- Chattel Mortgage, Security Agreement
and Unconditional Guaranty of Payment.
10.9 Steven S. Myers Promissory Note.
10.10 Company Note.
10.11 Executive Bonus Plan.*
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of Rutan & Tucker (included in the opinion filed herewith as Exhibit
5.1).*
24 Power of Attorney (included on the signature page hereof).
27 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
II-3
<PAGE> 62
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes to provide the Underwriters at the closing
specified in the Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
The Registrant hereby undertakes that:
(1) For 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
the form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act shall be deemed to be part of
this Registration Statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities Act
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.
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 provisions described in Item 14 hereof, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-4
<PAGE> 63
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Messrs.
Steven S. Myers and Ronald Hunn his true and lawful attorneys-in-fact and
agents, each acting alone, with full power of substitution and resubstitution,
for him and in his name, place and stead, at any and all capacities, to sign any
and all amendments (including post-effective amendments) to this Registration
Statement, or any Registration Statement for the same Offering that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933,
as amended, and to file the same, with all exhibits thereto, and other documents
in connection therewith or in connection with the registration of the Common
Stock under the Securities Exchange Act of 1934, as amended, with the Securities
and Exchange Commission, granting unto said attorneys-in-fact and agents full
power and authority to do and perform each and every act and thing requisite and
necessary in connection with such matters and hereby ratifying and confirming
that each of said attorneys-in-fact and agents, acting alone, or his substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Newport Beach, State of
California, on November 21, 1997.
STEVEN MYERS & ASSOCIATES, INC.
By: /s/ STEVEN S. MYERS
------------------------------------
Steven S. Myers,
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------------------ ----------------------------- -------------------
<S> <C> <C>
/s/ STEVEN S. MYERS Chairman of the Board, November 21, 1997
- ------------------------------------------ President and
Steven S. Myers Chief Executive Officer
(Principal Executive Officer)
/s/ KENNETH W. COLBAUGH Director, Executive Vice November 21, 1997
- ------------------------------------------ President and
Kenneth W. Colbaugh Chief Operating Officer
/s/ J. CHRISTOPHER LEWIS Director November 21, 1997
- ------------------------------------------
J. Christopher Lewis
/s/ RONALD A. HUNN Vice President of Finance, November 21, 1997
- ------------------------------------------ Chief Financial Officer and
Ronald A. Hunn Secretary (Principal
Financial
Officer and Principal
Accounting Officer)
</TABLE>
II-5
<PAGE> 64
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------ ---------------------------------------------------------------------- ------------
<C> <S> <C>
1.1 Form of Underwriting Agreement*.......................................
3.1 Articles of Incorporation, as amended and restated....................
3.2 Bylaws of the Registrant, as amended and restated.....................
4.1 Specimen stock certificate*...........................................
5.1 Opinion of Rutan & Tucker*............................................
10.1 1997 Stock Option Plan, and related form of Stock Option Agreement....
10.2 Form of Indemnification Agreement.....................................
10.3 Office Facilities Lease...............................................
10.4 Hawker Aircraft Sale Agreement........................................
10.5 Employment Agreement with Steven S. Myers.............................
10.6 Employment Agreement with Kenneth W. Colbaugh.........................
10.7 Security and Loan Agreement dated January 2, 1997 between Imperial
Bank and the Registrant, First Amendment and Addendum thereto and
related Note and Addendum thereto and LIBOR Addendum to Note..........
10.8 Commercial Note dated May 30, 1995 between NationsBank, N.A. and the
Registrant and related Aircraft Security Agreement -- Chattel
Mortgage, Security Agreement and Unconditional Guaranty of Payment....
10.9 Steven S. Myers Promissory Note.......................................
10.10 Company Note..........................................................
10.11 Executive Bonus Plan*.................................................
23.1 Consent of KPMG Peat Marwick LLP......................................
23.2 Consent of Rutan & Tucker (included in the opinion filed herewith as
Exhibit 5.1)*.........................................................
24 Power of Attorney (included on the signature page hereof).............
27 Financial Data Schedule...............................................
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
Steven S. Myers and Ronald A. Hunn hereby certify that:
1. They are the President and Secretary, respectively, of Steven Myers &
Associates, Inc., a California corporation (the "Corporation").
2. The Articles of Incorporation of this Corporation are amended and
restated in full to read as follows:
I.
The name of this corporation is "STEVEN MYERS & ASSOCIATES,
INC."
II.
The purpose of this Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General
Corporation Law of California other than the banking business, the trust
company business or the practice of a profession permitted to be
incorporated by the California Corporations Code.
III.
A. Classes of Stock. This Corporation is authorized to issue two
classes of stock to be designated, respectively, as "Common Stock" and
"Preferred Stock." The total number of shares which the Corporation is
authorized to issue is twenty million (20,000,000) shares. Ten million
(10,000,000) shares shall be Common Stock and ten million (10,000,000)
shares shall be Preferred Stock. The Common Stock shall be issued in two
series designated as "Series A" and "Series B" Common Stock. The number
of shares of each series of Common Stock which this Corporation is
authorized to issue is one million (1,000,000) Series A common shares
and two million (2,000,000) Series B common shares. The shares of Series
A Common Stock and Series B Common Stock shall be identical in all
respects and shall have equal rights and privileges except that Series B
Common Stock shall have no voting rights except as required by law. The
Corporation, when making payment of ordinary dividends or liquidation
distributions to each of the shareholders holding Common Stock shall be
required to make such payments to each of such shareholders pro rata on
a simultaneous basis.
B. Rights, Preferences and Restrictions of Preferred Stock. The
Preferred Stock may be issued from time to time in one or more series.
The Board of Directors is hereby authorized to fix or alter the dividend
rights, dividend rate, conversion rights, voting rights, rights and
terms of redemption
<PAGE> 2
(including sinking fund provisions), redemption price or prices, and the
liquidation preferences of any wholly unissued series of Preferred
Stock, and the number of shares constituting any such series and the
designation thereof, or any of them; and to increase or decrease the
number of shares of any series subsequent to the issuance 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 so
decreased, the shares constituting such decrease shall resume the status
they had prior to the adoption of the resolution originally fixing the
number of shares of such series.
IV.
The liability of the directors of the Corporation for monetary
damages shall be eliminated to the fullest extent permissible under
California law.
V.
The Corporation is authorized to provide indemnification of
agents (as defined in Section 317 of the California Corporations Code)
through bylaw provisions, agreements with agents, approval of
shareholders or disinterested directors or otherwise, in excess of the
indemnification otherwise permitted by Section 317 of the California
Corporations Code, subject only to the applicable limits set forth in
Section 204 of the California Corporations Code with respect to actions
for breach of duty to the Corporation and its shareholders.
Any repeal or modification of this Article shall be prospective
and shall not affect the rights under this Article in effect at the time
of the alleged occurrence of any act or omission to act giving rise to
liability or indemnification.
3. The foregoing amendment and restatement of Articles of Incorporation
has been duly approved by the Board of Directors.
4. The foregoing amendment of Articles of Incorporation has been duly
approved by the required vote of the shareholders of the Corporation in
accordance with Section 902 of the Corporations Code. The total number of
outstanding Series A shares of this Corporation is 202,292 shares. The total
number of outstanding Series B shares of this Corporation is 812,819 shares.
The number of shares voting in favor of the amendment and restatement equaled
or exceed the vote required. The percentage vote required was more than 50% of
the outstanding shares of Series A Common Stock voting as a separate class and
more than 50% of the outstanding shares of Series A Common Stock and Series B
Common Stock voting together as a class.
-2-
<PAGE> 3
We further declare under penalty of perjury under the laws of the State
of California that the matters set forth in this certificate are true and
correct of our own knowledge.
DATED:___________, 1997
/s/ STEVEN S. MYERS
-----------------------------------
Steven S. Myers, President
/s/ RONALD A. HUNN
-----------------------------------
Ronald A. Hunn, Secretary
-3-
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS
OF
STEVEN MYERS & ASSOCIATES, INC.,
a California corporation
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I OFFICES................................................................. 1
Section 1. Principal Executive Office........................................ 1
Section 2. Other Offices..................................................... 1
ARTICLE II SHAREHOLDERS............................................................ 1
Section 1. Place of Meetings................................................. 1
Section 2. Annual Meetings................................................... 1
Section 3. Special Meetings.................................................. 1
Section 4. Notice of Annual or Special Meeting............................... 2
Section 5. Quorum............................................................ 2
Section 6. Adjourned Meeting and Notice Thereof.............................. 2
Section 7. Voting............................................................ 3
Section 8. Record Date....................................................... 5
Section 9. Consent of Absentees.............................................. 5
Section 10. Action Without Meeting............................................ 6
Section 11. Proxies........................................................... 6
Section 12. Inspectors of Election............................................ 6
ARTICLE III DIRECTORS............................................................... 7
Section 1. Powers............................................................ 7
Section 2. Number of Directors............................................... 8
Section 3. Election and Term of Office....................................... 8
Section 4. Vacancies......................................................... 8
Section 5. Place of Meeting.................................................. 9
Section 6. Regular Meetings.................................................. 9
Section 7. Special Meetings.................................................. 9
Section 8. Quorum............................................................ 9
Section 9. Participation in Meetings by Conference
Telephone......................................................... 10
Section 10. Waiver of Notice.................................................. 10
Section 11. Adjournment....................................................... 10
Section 12. Fees and Compensation............................................. 10
Section 13. Action Without Meeting............................................ 10
Section 14. Rights and Inspection............................................. 10
Section 15. Committees........................................................ 11
ARTICLE IV OFFICERS................................................................ 11
Section 1. Officers.......................................................... 11
Section 2. Election.......................................................... 12
Section 3. Subordinate Officers.............................................. 12
Section 4. Removal and Resignation........................................... 12
Section 5. Vacancies......................................................... 12
Section 6. Chairman of the Board............................................. 12
Section 7. President......................................................... 12
Section 8. Vice President.................................................... 13
Section 9. Secretary......................................................... 13
Section 10. Chief Financial Officer........................................... 13
ARTICLE V OTHER PROVISIONS........................................................ 14
Section 1. Inspection of Corporate Records................................... 14
</TABLE>
-i-
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 2. Inspection of Bylaws.............................................. 14
Section 3. Endorsement of Documents; Contracts............................... 15
Section 4. Certificates of Stock............................................. 15
Section 5. Representation of Shares of other Corpora-
tions............................................................. 16
Section 6. Stock Purchase Plans.............................................. 16
Section 7. Annual Report to Shareholders..................................... 16
Section 8. Construction and Definitions...................................... 16
ARTICLE VI INDEMNIFICATION......................................................... 17
Section 1. Definitions....................................................... 17
Section 2. Indemnification in Actions by Third
Parties........................................................... 17
Section 3. Indemnification in Actions by or in the
Right of the Corporation.......................................... 17
Section 4. Mandatory Indemnification Against Expenses........................ 18
Section 5. Required Determinations........................................... 18
Section 6. Advance of Expenses............................................... 18
Section 7. Other Indemnification............................................. 18
Section 8. Circumstances Where Indemnification Not
Permitted......................................................... 19
Section 9. Insurance......................................................... 19
Section 10. Nonapplicability to Fiduciaries of Employee
Benefit Plans..................................................... 19
ARTICLE VII AMENDMENTS.............................................................. 19
</TABLE>
-ii-
<PAGE> 4
AMENDED AND RESTATED BYLAWS
Bylaws for the regulation, except as
otherwise provided by statute or its
Articles of Incorporation
of
STEVEN MYERS & ASSOCIATES, INC.,
a California corporation
ARTICLE I
OFFICES
Section 1. Principal Executive Office. The principal executive office of
the Corporation shall be located at 4695 MacArthur Court, 8th Floor, Newport
Beach, CA 92660. The Board of Directors (herein called the "Board") is granted
full power and authority to change said principal executive office from one
location to another.
Section 2. Other Offices. Branch or subordinate offices may be
established at any time by the Board at any place or places.
ARTICLE II
SHAREHOLDERS
Section 1. Place of Meetings. Meetings of shareholders shall be held
either at the principal executive office of the Corporation or at any other
place within or without the State of California which may be designated either
by the Board or by the written consent of all persons entitled to vote thereat,
given either before or after the meeting and filed with the Secretary.
Section 2. Annual Meetings. The annual meetings of the shareholders
shall be held on such date and at such time as may be fixed by the Board. At
such meetings, directors shall be elected and any other proper business may be
transacted.
Section 3. Special Meetings. Special meetings of the shareholders may be
called at any time by the Board, the Chairman of the Board, the President, or by
the holders of shares entitled to cast not less than ten percent (10%) of the
votes at such meeting. Upon request in writing to the Chairman of the Board, the
President, any Vice President or the Secretary by any person (other than the
Board) entitled to call a special meeting of shareholders, the officer forthwith
shall cause notice to be given to the shareholders entitled to vote that a
meeting will be held at a time requested by the person or persons calling the
meeting, not less than thirty-five nor more than sixty days after the receipt of
the request. If the notice is not given within twenty days after receipt of the
request, the persons entitled to call the meeting may give the notice.
-1-
<PAGE> 5
Section 4. Notice of Annual or Special Meeting. Written notice of each
annual or special meeting of shareholders shall be given not less than ten nor
more than sixty days before the date of the meeting to each shareholder entitled
to vote thereat. Such notice shall state the place, date and hour of the meeting
and (i) in the case of a special meeting, the general nature of the business to
be transacted, and no other business may be transacted, or (ii) in the case of
the annual meeting, those matters which the Board, at the time of the mailing of
the notice, intends to present for action by the shareholders, but, subject to
the provisions of applicable law, any proper matter may be presented at the
meeting for such action. The notice of any meeting at which directors are to be
elected shall include the names of nominees intended at the time of the notice
to be presented by management for election.
Notice of a shareholders' meeting shall be given either personally or by
mail or by other means of written communication, addressed to the shareholder at
the address of such shareholder appearing on the books of the Corporation or
given by the shareholder to the Corporation for the purpose of notice; or, if no
such address appears or is given, at the place where the principal executive
office of the Corporation is located or by publication at least once in a
newspaper of general circulation in the county in which the principal executive
office is located. Notice by mail shall be deemed to have been given at the time
a written notice is deposited in the United States mails, postage prepaid. Any
other written notice shall be deemed to have been given at the time it is
personally delivered to the recipient or is delivered to a common carrier for
transmission, or actually transmitted by the person given the notice by
electronic means, to the recipient.
Section 5. Quorum. A majority of the shares entitled to vote,
represented in person or by proxy, shall constitute a quorum at a meeting of
shareholders. The shareholders present at a duly called or held meeting at which
a quorum is present may continue to do business until adjournment,
notwithstanding the withdrawal of enough shareholders to have less than a
quorum, if any action taken (other than adjournment) is approved by at least a
majority of the shares required to constitute a quorum.
Section 6. Adjourned Meeting and Notice Thereof. Any shareholders'
meeting, whether or not a quorum is present, may be adjourned from time to time
by the vote of a majority of the shares, the holders of which are either present
in person or represented by proxy thereat, but in the absence of a quorum
(except as provided in Section 5 of this Article) no other business may be
transacted at such meeting.
It shall not be necessary to give any notice of the time and place of
the adjourned meeting or of the business to be transacted thereat, other than by
announcement at the meeting at which such adjournment is taken; provided,
however, when any shareholders' meeting is adjourned for more than 45 days or,
if after adjournment a new record date is fixed for the adjourned meeting,
notice of the
-2-
<PAGE> 6
adjourned meeting shall be given as in the case of an original meeting.
Section 7. Voting. The shareholders entitled to notice of any meeting or
to vote at any such meeting shall be only persons in whose name shares stand on
the stock records of the Corporation on the record date determined in accordance
with Section 8 of this Article.
Voting shall in all cases be subject to the provisions of Chapter 7 of
the California General Corporation Law, and to the following provisions:
(a) Subject to clause (g), shares held by an administrator,
executor, guardian, conservator or custodian may be voted by such holder
either in person or by proxy, without a transfer of such shares into the
holder's name; and shares standing in the name of a trustee may be voted
by the trustee, either in person or by proxy, but no trustee shall be
entitled to vote shares held by such trustee without a transfer of such
shares into the trustee's name.
(b) Shares standing in the name of a receiver may be voted by
such receiver; and shares held by or under the control of a receiver may
be voted by such receiver without the transfer thereof into the
receiver's name if authority to do so is contained in the order of the
court by which such receiver was appointed.
(c) Subject to the provisions of Section 705 of the California
General Corporation Law and except where otherwise agreed in writing
between the parties, a shareholder whose shares are pledged shall be
entitled to vote such shares until the shares have been transferred into
the name of the pledgee, and thereafter the pledgee shall be entitled to
vote the shares so transferred.
(d) Shares standing in the name of a minor may be voted and
the Corporation may treat all rights incident thereto as exercisable by
the minor, in person or by proxy, whether or not the Corporation has
notice, actual or constructive, of the nonage, unless a guardian of the
minor's property has been appointed and written notice of such
appointment given to the Corporation.
(e) Shares standing in the name of another corporation,
domestic or foreign, may be voted by such officer, agent or proxyholder
as the bylaws of such other corporation may prescribe or, in the absence
of such provision, as the Board of Directors of such other corporation
may determine or, in the absence of such determination, by the chairman
of the board, president or any vice president of such other corporation.
Shares which are purported to be voted or any proxy purported to be
executed in the name of a
-3-
<PAGE> 7
corporation (whether or not any title of the person signing is
indicated) shall be presumed to be voted or the proxy executed in
accordance with the provisions of this subdivision, unless the contrary
is shown.
(f) Shares of the Corporation owned by any subsidiary shall
not be entitled to vote on any matter.
(g) Shares held by the Corporation in a fiduciary capacity,
and shares of the issuing corporation held in a fiduciary capacity by
any subsidiary, shall not be entitled to vote on any matter, except to
the extent that the settlor or beneficial owner possesses and exercises
a right to vote or to give the Corporation binding instructions as to
how to vote such shares.
(h) If shares stand of record in the names of two or more
persons, whether fiduciaries, members of a partnership, joint tenants,
tenants in common, husband and wife as community property, tenants by
the entirety, voting trustees, persons entitled to vote under a
shareholder voting agreement or otherwise, or if two or more persons
(including proxyholders) have the same fiduciary relationship respecting
the same shares, unless the secretary of the Corporation is given
written notice to the contrary and is furnished with a copy of the
instrument or order appointing them or creating the relationship wherein
it is so provided, their acts with respect to voting shall have the
following effect:
(i) If only one votes, such act binds all;
(ii) If more than one vote, the act of the majority so
voting binds all;
(iii) If more than one vote, but the vote is evenly
split on any particular matter, each faction may vote the
securities in question proportionately.
If the instrument so filed or the registration of the shares shows that
any such tenancy is held in unequal interests, a majority or even split
for the purpose of this section shall be a majority or even split in
interest.
Subject to the following sentence and to the provisions of Section 708
of the California General Corporation Law, every shareholder entitled to vote at
any election of directors may cumulate such shareholder's votes and give one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of votes to which the shareholder's shares are normally
entitled, or distribute the shareholder's votes on the same principle among as
many candidates as the shareholder thinks fit. No shareholder shall be entitled
to cumulate votes for any candidate or candidates pursuant to the preceding
sentence unless such candidate or candidates' names have been placed in
nomination
-4-
<PAGE> 8
prior to the voting and the shareholder has given notice at a meeting prior to
the voting of the shareholder's intention to cumulate the shareholder's votes.
If any one shareholder has given such notice, all shareholders may cumulate
their votes for candidates in nomination.
Elections need not be by ballot; provided, however, that all elections
for directors must be by ballot upon demand made by a shareholder at the meeting
and before the voting begins.
In any election of directors, the candidates receiving the highest
number of votes of the shares entitled to be voted for them up to the number of
directors to be elected by such shares are elected.
Section 8. Record Date. The Board may fix, in advance, a record date for
the determination of the shareholders entitled to notice of any meeting to vote
or entitled to receive payment of any dividend or other distribution, or any
allotment of rights, or to exercise rights in respect of any other lawful
action. The record date so fixed shall be not more than 60 days nor less than 10
days prior to the date of the meeting nor more than 60 days prior to any other
action. When a record date is so fixed, only shareholders of record on that date
are entitled to notice of and to vote at the meeting or to receive the dividend,
distribution, or allotment of rights, or to the exercise of the rights, as the
case may be, notwithstanding any transfer of shares on the books of the
Corporation after the record date. A determination of shareholders of record
entitled to notice of or to vote at a meeting of shareholders shall apply to any
adjournment of the meeting unless the Board fixes a new record date for the
adjourned meeting. The Board shall fix a new record date if the meeting is
adjourned for more than 45 days.
If no record date is fixed by the Board, the record date for determining
shareholders entitled to notice of or to vote at a meeting of shareholders shall
be at the close of business on the business day next preceding the day on which
notice is given or, if notice is waived, at the close of business on the next
business day next preceding the day on which the meeting is held. The record
date for determining shareholders for any purpose other than set forth in this
Section 8 or Section 10 of this Article shall be at the close of business on the
day on which the Board adopts the resolution relating thereto, or the sixtieth
day prior to the date of such other action, whichever is later.
Section 9. Consent of Absentees. The transactions of any meeting of
shareholders, however called and noticed, and wherever held, are as valid as
though had at a meeting duly held after regular call and notice, if a quorum is
present either in person or by proxy, and if, either before or after the
meeting, each of the persons entitled to vote, not present in person or by
proxy, signs a written waiver of notice, or a consent to the holding of the
meeting or an approval of the minutes thereof. All such waivers,
-5-
<PAGE> 9
consents or approvals shall be filed with the corporate records or made a part
of the minutes of the meeting. Neither the business to be transacted at nor the
purpose of any regular or special meeting of shareholders need be specified in
any written waiver of notice, except as provided in Section 601(f) of the
California General Corporation Law.
Section 10. Action Without Meeting. Subject to Section 603 of the
California General Corporation Law, any action which, under any provision of the
California General Corporation Law, may be taken at any annual or special
meeting of shareholders, may be taken without a meeting and without prior notice
if a consent in writing, setting forth the action so taken, shall be signed by
the holders of outstanding shares having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted. Unless a
record date for voting purposes be fixed as provided in Section 8 of this
Article, the record date for determining shareholders entitled to give consent
shall be the day on which the first written consent is given.
Section 11. Proxies. Every person entitled to vote shares has the right
to do so either in person or by one or more persons authorized by a written
proxy executed by such shareholder and filed with the Secretary. Every proxy
duly executed shall continue in full force and effect until revoked by the
person executing it prior to the vote pursuant thereto effected by a writing
delivered to the Corporation stating that the proxy is revoked or by a
subsequent proxy executed by the person executing the prior proxy and presented
to the meeting, or by attendance at the meeting and voting in person by the
person executing the proxy; provided, however, that no proxy shall be valid
after the expiration of eleven months from the date of its execution unless
otherwise provided in the proxy.
Section 12. Inspectors of Election. In advance of any meeting of
shareholders, the Board may appoint any persons, other than nominees for office
inspectors of election to act at such meeting and any adjournment thereof. If
inspectors of election are not so appointed, or if any persons so appointed fail
to appear or refuse to act, the chairman of any such meeting may, and on the
request of any shareholder or shareholder's proxy shall, make such appointment
at the meeting. The number of inspectors shall be either one or three. If
appointed at a meeting on the request of one or more shareholders or proxies,
the majority of shares present shall determine whether one or three inspectors
are to be appointed.
The duties of such inspectors shall be as prescribed by Section 707(b)
of the California General Corporation Law and shall include: determining the
number of shares outstanding and the voting power of each; the shares
represented at the meeting; the existence of a quorum; the authenticity,
validity and effect of proxies; receiving votes, ballots or consents; hearing
and
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determining all challenges and questions in any way arising in connection with
the right to vote; counting and tabulating all votes or consents; determining
when the polls shall close; determining the result; and doing such acts as may
be proper to conduct the election or vote with fairness to all shareholders. If
there are three inspectors of election, the decision, act or certificate of a
majority is effective in all respects as the decision, act or certificate of
all.
ARTICLE III
DIRECTORS
Section 1. Powers. Subject to limitations of the Articles of
Incorporation, of these Bylaws and of the California General Corporation Law
relating to action required to be approved by the shareholders or by the
outstanding shares, the business and affairs of the Corporation shall be managed
and all corporate powers shall be exercised by or under the direction of the
Board. The Board may delegate the management of the day-to-day operation of the
business of the Corporation to a management company or other person provided
that the business and affairs of the Corporation shall be managed and all
corporate powers shall be exercised under the ultimate direction of the Board.
Without prejudice to such general powers, but subject to the same limitations,
it is hereby expressly declared that the Board shall have the following powers
in addition to the other powers enumerated in these Bylaws:
(a) To select and remove all the other officers, agents and
employees of the Corporation, prescribe the powers and duties for them
as may not be inconsistent with applicable law, with the Articles of the
Corporation or these Bylaws, fix their compensation and require from
them security for faithful service.
(b) To conduct, manage and control the affairs and business of
the Corporation and to make such rules and regulations therefor not
inconsistent with applicable law, or with the Articles of the
Corporation or these Bylaws, as they may deem best.
(c) To adopt, make and use a corporate seal, and to prescribe
the forms of certificates of stock, and to alter the form of such seal
and of such certificates from time to time as in their judgment they may
deem best.
(d) To authorize the issuance of shares of stock of the
Corporation from time to time, upon such terms and for such
consideration as may be lawful.
(e) To borrow money and incur indebtedness for the purposes of
the Corporation, and to cause to be executed and delivered therefor, in
the corporate name, promissory notes, bonds, debentures, deeds of trust,
mortgages, pledges,
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hypothecation or other evidences of debt and securities thereof.
Section 2. Number of Directors. The authorized number of directors shall
be, until changed by amendment of the Articles or by a Bylaw duly adopted by the
shareholders, such number as may from time to time be authorized by resolution
of the Board of Directors or the shareholders, provided that such number shall
not be less than three (3) nor more than five (5).
Section 3. Election and Term of Office. The directors shall be elected
at each annual meeting of the shareholders, but if any such annual meeting is
not held or the directors are not elected thereat, the directors may be elected
at any special meeting of shareholders held for that purpose. Each director
shall hold office until the next annual meeting and until a successor has been
elected and qualified.
Section 4. Vacancies. Any director may resign effective upon giving
written notice to the Chairman of the Board, the President, Secretary or the
Board, unless the notice specifies a later time for the effectiveness of such
resignation. If the resignation is effective at a future time, a successor may
be elected to take office when the resignation becomes effective.
Vacancies in the Board, except those existing as a result of a removal
of a director, may be filled by a majority of the remaining directors, though
less than a quorum, or by a sole remaining director, and each director so
elected shall hold office until the next annual meeting and until such
director's successor has been elected and qualified.
A vacancy or vacancies in the Board shall be deemed to exist in the case
of the death, resignation or removal of any director, or if the authorized
number of directors be increased, or if the shareholders fail, at any annual or
special meeting of shareholders at which any director or directors are elected,
to elect the full authorized number of directors to be voted for at that
meeting.
The Board may declare vacant the office of a director who has been
declared of unsound mind by an order of court or convicted of a felony.
The shareholders may elect a director or directors at any time to fill
any vacancy or vacancies not filled by the directors. Any such election by
written consent other than to fill a vacancy created by removal requires the
consent of a majority of the outstanding shares entitled to vote. If the Board
accepts the resignation of a director tendered to take effect at a future time,
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the Board or the shareholders shall have power to elect a successor to take
office when the resignation is to become effective.
No reduction of the authorized number of directors shall have the effect
of removing any director prior to the expiration of the director's term of
office.
Section 5. Place of Meeting. Regular or special meetings of the Board
shall be held at any place within or without the State of California which has
been designated from time to time by the Board. In the absence of such
designation, regular meetings shall be held at the principal executive office of
the Corporation.
Section 6. Regular Meetings. Immediately following each annual meeting
of shareholders, the Board shall hold a regular meeting for the purpose of
organization, election of officers and the transaction of other business. Call
and notice of all such regular meetings of the Board of Directors is hereby
dispensed with. Other regular meetings of the Board shall be held without call
on such dates and at such times as may be fixed by the Board, and shall be
subject to the notice requirements set forth in Section 7 hereof.
Section 7. Special Meetings. Special meetings of the Board for any
purpose or purposes may be called at any time by the Chairman of the Board, the
President or the Secretary or by any two directors.
Special meetings of the Board shall be held upon four days' written
notice or 48 hours' notice given personally or by telephone, telegraph,
telecopier, telex or other similar means of communication. Any such notice shall
be addressed or delivered to each director at such director's address as it is
shown upon the records of the Corporation or as may have been given to the
Corporation by the director for purposes of notice or, if such address is not
shown on such records or is not readily ascertainable, at the place in which the
meetings of the directors are regularly held.
Notice by mail shall be deemed to have been given at the time a written
notice is deposited in the United States mails, postage prepaid. Any other
written notice shall be deemed to have been given at the time it is personally
delivered to the recipient or is delivered to a common carrier for transmission,
or actually transmitted by the person giving the notice by electronic means, to
the recipient. Oral notice shall be deemed to have been given at the time it is
communicated in person or by telephone or wireless, to the recipient or to a
person at the office or residence of the recipient who the person giving the
notice has reason to believe will promptly communicate it to the recipient.
Section 8. Quorum. One third of the authorized number of directors or
two directors, whichever is larger, constitutes a quorum of the Board for the
transaction of business, except to
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adjourn as hereinafter provided. Every act or decision done or made by a
majority of the directors present at a meeting duly held at which a quorum is
present shall be regarded as the act of the Board, unless a greater number be
required by law or by the Articles. A meeting at which a quorum is initially
present may continue to transact business notwithstanding the withdrawal of
directors, if any action taken is approved by at least a majority of the
required quorum for such meeting.
Section 9. Participation in Meetings by Conference Telephone. Members of
the Board may participate in a meeting through use of conference telephone or
similar communications equipment, so long as all members participating in such
meeting can hear one another.
Section 10. Waiver of Notice. The transactions of any meeting of the
Board, however called and noticed or wherever held, are 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 signs
a written waiver of notice, a consent to holding such a meeting or an approval
of the minutes thereof. All such waivers, consents or approvals shall be filed
with the corporate records or made a part of the minutes of the meeting.
Section 11. Adjournment. A majority of the directors present, whether or
not a quorum is present, may adjourn any directors' meeting to another time and
place. Notice of the time and place of holding an adjourned meeting need not be
given to absent directors if the time and place be fixed at the meeting
adjourned. If the meeting is adjourned for more than 24 hours, notice of any
adjournment to another time or place shall be given prior to the time of the
adjourned meeting to the directors who were not present at the time of the
adjournment.
Section 12. Fees and Compensation. Directors and members of committees
may receive such compensation, if any, for their services, and such
reimbursement for expenses, as may be fixed or determined by the Board.
Section 13. Action Without Meeting. Any action required or permitted to
be taken by the Board may be taken without a meeting if all members of the Board
shall individually or collectively consent in writing to such action. Such
consent or consents shall have the same effect as a unanimous vote of the Board
and shall be filed with minutes of the proceedings of the Board.
Section 14. Rights and Inspection. Every director shall have the
absolute right at any reasonable time to inspect and copy all books, records and
documents of every kind and to inspect the physical properties of the
Corporation and also of its subsidiary corporations, domestic or foreign. Such
inspection by a director may be made in person or by agent or attorney and
includes the right to copy and obtain extracts.
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Section 15. Committees. The Board may appoint one or more committees,
each consisting of two or more directors, and delegate to such committees any of
the authority of the Board except with respect to:
(i) The approval of any action for which the
California General Corporation Law also requires shareholders'
approval of the outstanding shares.
(ii) The filling of vacancies on the Board or in any
committee;
(iii) The fixing of compensation of the directors for
serving on the Board or on any committee;
(iv) The amendment or repeal of Bylaws or the adoption
of new Bylaws;
(v) The amendment or repeal of any resolution of the
Board which by its express terms is not so amendable or
repealable;
(vi) A distribution to the shareholders of the
Corporation except at a rate or in a periodic amount or within
a price range determined by the Board; or
(vii) The appointment of other committees of the Board
or the members thereof.
Any such committee must be appointed by resolution adopted by a majority
of the authorized number of directors and may be designated an Executive
Committee or by such other name as the Board shall specify. The Board shall have
the power to prescribe the manner in which proceedings of any such committee
shall be conducted. In the absence of any such prescription, such committee
shall have the power to prescribe the manner in which its proceedings shall be
conducted. Unless the Board or such committee shall otherwise provide, the
regular and special meetings and other actions of any such committee shall be
governed by the provisions of this Article applicable to meetings and actions of
the Board. Minutes shall be kept of each meeting of each committee.
ARTICLE IV
OFFICERS
Section 1. Officers. The officers of the Corporation shall be a
President, a Secretary and a Chief Financial Officer. The Corporation may also
have, at the discretion of the Board, a Chairman of the Board, one or more Vice
Presidents, one or more Assistant Secretaries, one or more Assistant Financial
Officers and such other officers as may be elected or appointed in accordance
with the provisions of Section 3 of this Article.
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Section 2. Election. The officers of the Corporation, except such
officers as may be elected or appointed in accordance with the provisions of
Section 3 or Section 5 of this Article, shall be chosen annually by, and shall
serve at the pleasure of the Board, and shall hold their respective offices
until their resignation, removal or other disqualification from service, or
until their respective successors shall be elected.
Section 3. Subordinate Officers. The Board may elect, and may empower
the President to appoint such other officers as the business of the Corporation
may require, each of whom shall hold office for such period, have such authority
and perform such duties as are provided in these Bylaws or as the Board may from
time to time determine.
Section 4. Removal and Resignation. Any officer may be removed, either
with or without cause, by the Board of Directors at any time or, except in the
case of an officer chosen by the Board, by any officer upon whom such power of
removal may be conferred by the Board. Any such removal shall be without
prejudice to the rights, if any, of the officer under any contract of
employment.
Any officer may resign at any time by giving written notice to the
Corporation, but without prejudice to the rights, if any, of the Corporation
under any contract to which the officer is a party. Any such resignation shall
take effect at the date of the receipt of such notice or at any later time
specified therein and, unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
Section 5. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled in the
manner prescribed in these Bylaws for regular election or appointment to such
office.
Section 6. Chairman of the Board. The Chairman of the Board, if there
shall be such an officer, shall, if present, preside at all meetings of the
Board and exercise and perform such other powers and duties as may be from time
to time assigned by the Board.
Section 7. President. Subject to such powers, if any, as may be given by
the Board to the Chairman of the Board, if there be such an officer, the
President is the general manager and chief executive officer of the Corporation
and has, subject to the control of the Board, general supervision, direction and
control of the business and officers of the Corporation. The President shall
preside at all meetings of the shareholders and in the absence of the Chairman
of the Board, or if there be none, at all meetings of the Board. The President
has the general powers and duties of management usually vested in the office of
president and general manager of a corporation and such other powers and duties
as may be prescribed by the Board.
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Section 8. Vice President. In the absence or disability of the
President, the Vice Presidents in order of their rank as fixed by the Board or,
if not ranked, the Vice President designated by the Board, shall perform all the
duties of the President and, when so acting, shall have all the powers of, and
be subject to all the restrictions upon, the President. The Vice Presidents
shall have such other powers and perform such other duties as from time to time
may be prescribed for them respectively by the Board.
Section 9. Secretary. The Secretary shall keep or cause to be kept, at
the principal executive office and such other place as the Board may order, a
book of minutes of all meetings of shareholders, the Board and its committees,
with the time and place of holding, whether regular or special, and if special,
how authorized, the notice thereof given, the names of those present at Board
and committee meetings, the number of shares present or represented at
shareholders' meetings, and the proceedings thereof. The Secretary shall keep,
or cause to be kept, a copy of the Bylaws of the Corporation at the principal
executive offices or business office in accordance with Section 213 of the
California General Corporation Law.
The Secretary shall keep, or cause to be kept, at the principal
executive office or at the office of the Corporation's transfer agent or
registrar, if one be appointed, a share register, or a duplicate share register,
showing the names of the shareholders and their addresses, the number and
classes of shares held by each, the number and date of certificates issued for
the same and the number and date of cancellation of every certificate
surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all meetings
of the shareholders of the Board and of any committees thereof required by these
Bylaws or by law to be given, shall keep the seal of the Corporation in safe
custody, and shall have such other powers and perform such other duties as may
be prescribed by the Board.
Section 10. Chief Financial Officer. The Chief Financial Officer is the
chief financial officer of the Corporation and shall keep and maintain, or cause
to be kept and maintained, adequate and correct accounts of the properties and
business transactions of the Corporation, and shall send or cause to be sent to
the shareholders of the Corporation such financial statements and reports as are
by law or these Bylaws required to be sent to them. The books of account shall
at all times be open to inspection by any director.
The Chief Financial Officer shall deposit all monies and other valuables
in the name and to the credit of the Corporation with such depositories as may
be designated by the Board. The Chief Financial Officer shall disburse the funds
of the Corporation as may be ordered by the Board, shall render to the President
and directors, whenever they request it, an account of all transactions entered
into as Chief Financial Officer and of the financial
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condition of the Corporation, and shall have such other powers and perform such
other duties as may be prescribed by the Board.
ARTICLE V
OTHER PROVISIONS
Section 1. Inspection of Corporate Records.
(a) A shareholder or shareholders holding at least five
percent (5%) in the aggregate of the outstanding voting shares of the
Corporation shall have an absolute right to do either or both of the
following:
(i) Inspect and copy the record of shareholders'
names and addresses and shareholdings during usual business
hours upon five business days' prior written demand upon the
Corporation; or
(ii) Obtain from the transfer agent, if any, for the
Corporation, upon five business days' prior written demand and
upon the tender of its usual charges for such a list (the
amount of which charges shall be stated to the shareholder by
the transfer agent upon request), a list of the shareholders'
names and addresses who are entitled to vote for the election
of directors and their shareholdings as of the most recent
record date for which it has been compiled or as of a date
specified by the shareholder subsequent to the date of demand.
(b) The record of shareholders shall also be open to
inspection and copying by any shareholder or holder of a voting trust
certificate at any time during usual business hours upon written demand
on the Corporation, for a purpose reasonably related to such holder's
interest as a shareholder or holder of a voting trust certificate.
(c) The accounting books and records and minutes of
proceedings of the shareholders and the Board and committees of the
Board shall be open to inspection upon written demand on the Corporation
of any shareholder or holder of a voting trust certificate at any
reasonable time during usual business hours, for a purpose reasonably
related to such holder's interests as a shareholder or as a holder of
such voting trust certificate.
(d) Any inspection and copying under this Article may be made
in person or by agent or attorney.
Section 2. Inspection of Bylaws. The Corporation shall keep in its
principal executive office the original or a copy of these Bylaws as amended to
date, which shall be open to inspection by shareholders at all reasonable times,
during office hours. If the
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principal executive office of the Corporation is located outside the State of
California and the Corporation has no principal business office in such state,
it shall upon the written notice of any shareholder furnish to such shareholder
a copy of these Bylaws as amended to date.
Section 3. Endorsement of Documents; Contracts. Subject to the
provisions of applicable law, any note, mortgage, evidence of indebtedness,
contract, share certificate, conveyance or other instrument in writing and any
assignment or endorsements thereof executed or entered into between the
Corporation and any other person, when signed by the Chairman of the Board, the
President or any Vice President and the Secretary, any Assistant Secretary, the
Chief Financial Officer or any Assistant Financial Officer of the Corporation
shall be valid and binding on the Corporation in the absence of actual knowledge
on the part of the other person that the signing officers had no authority to
execute the same. Any such instruments may be signed by another person or
persons and in such manner as from time to time shall be determined by the
Board, and, unless so authorized by the Board, 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
amount.
Section 4. Certificates of Stock. Every holder of shares of the
Corporation shall be entitled to have a certificate signed in the name of the
Corporation by the Chairman of the Board, the President or a Vice President and
by the Chief Financial Officer or an Assistant Financial Officer or the
Secretary or an Assistant Secretary, certifying the number of shares and the
class or series of shares owned by the shareholder. Any or all of the signatures
on the certificate may be facsimile. If any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if such person were an officer, transfer agent or registrar at the date of
issue.
Certificates for shares may be issued prior to full payment under such
restrictions and for such purposes as the Board may provide; provided, however,
that on any certificate issued to represent any partly paid shares, the total
amount of the consideration to be paid therefor and the amount paid thereon
shall be stated.
Except as provided in this section, no new certificate for shares shall
be issued in lieu of an old one unless the latter is surrendered and cancelled
at the same time. The Board may, however, if any certificate for shares is
alleged to have been lost, stolen or destroyed, authorize the issuance of a new
certificate in lieu thereof, and the Corporation may require that the
Corporation be given a bond or other adequate security sufficient to indemnify
it against any claim that may be made
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against it (including expense or liability) on account of the alleged loss,
theft or destruction of such certificate or the issuance of such new
certificate.
Section 5. Representation of Shares of other Corporations. The President
or any other officer or officers authorized by the Board or the President are
each authorized to vote, represent and exercise on behalf of the Corporation all
rights incident to any and all shares of any other corporation or corporations
standing in the name of the Corporation. The authority herein granted may be
exercised either by any such officer in person or by any other person authorized
so to do by proxy or power of attorney duly executed by said officer.
Section 6. Stock Purchase Plans. The Corporation may adopt and carry out
a stock purchase plan or agreement or stock option plan or agreement providing
for the issue and sale for such consideration as may be fixed of its unissued
shares, or of issued shares acquired or to be acquired, to one or more of the
employees or directors of the Corporation or of a subsidiary or to a trustee on
their behalf and for the payment for such shares in installments or at one time,
and may provide for aiding any such persons in paying for such shares by
compensation for services rendered, promissory notes or otherwise.
Any such stock purchase plan or agreement or stock option plan or
agreement may include, among other features, the fixing of eligibility for
participation therein, the class and price of shares to be issued or sold under
the plan or agreement, the number of shares which may be subscribed for, the
method of payment therefor, the reservation of title until full payment
therefor, the effect of the termination of employment and option or obligation
on the part of the Corporation to repurchase the shares upon termination of
employment, restrictions upon transfer of the shares, the time limits of and
termination of the plan, and any other matters, not in violation of applicable
law, as may be included in the plan as approved or authorized by the Board or
any committee of the Board.
Section 7. Annual Report to Shareholders. The annual report to
shareholders referred to in Section 1501 of the California General Corporation
Law is expressly waived, but nothing herein shall be interpreted as prohibiting
the Board from issuing annual or other periodic reports to shareholders.
Section 8. Construction and Definitions. Unless the context otherwise
requires, the general provisions, rules of construction and definitions
contained in the General Provisions of the California Corporations Code and in
the California General Corporation Law shall govern the construction of these
Bylaws.
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ARTICLE VI
INDEMNIFICATION
Section 1. Definitions. For the purposes of this Article, "agent" means
any person who is or was a director, officer, employee or other agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another foreign or domestic corporation,
partnership, joint venture, trust or other enterprise, or was a director,
officer, employee or agent of a foreign or domestic corporation which was a
predecessor corporation of the Corporation or of another enterprise at the
request of such predecessor corporation. "Proceeding" means any threatened,
pending or completed action or proceeding, whether civil, criminal,
administrative or investigative and "expenses" includes without limitation
attorneys' fees and any expenses of establishing a right to indemnification
under Sections 4 or 5(d).
Section 2. Indemnification in Actions by Third Parties. The Corporation
shall have power to indemnify any person who was or is a party or is threatened
to be made a party to any proceeding (other than an action by or in the right of
the Corporation to procure a judgment in its favor) by reason of the fact that
such person is or was an agent of the Corporation, against expenses, judgments,
fines, settlements and other amounts actually and reasonably incurred in
connection with such proceeding if such person acted in good faith and in a
manner such person reasonably believed to be in the best interests of the
Corporation and, in the case of a criminal proceeding, had no reasonable cause
to believe the conduct of such person was unlawful. The termination of any
proceeding by judgment, order, settlement, conviction or upon a plea of nolo
contendere or its equivalent shall not, of itself, create a presumption that the
person did not act in good faith and in a manner which the person reasonably
believed to be in the best interests of the Corporation or that the person had
reasonable cause to believe that the person's conduct was unlawful.
Section 3. Indemnification in Actions by or in the Right of the
Corporation. The Corporation shall have the power to indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action by or in the right of the Corporation to procure a judgment
in its favor by reason of the fact that such person is or was an agent of the
Corporation, against expenses actually and reasonably incurred by such person in
connection with the defense or settlement of such action, provided that no such
person shall be indemnified for acts, omissions or transactions for which
California Corporations Code Section 204(a)(10) disallows eliminating or
limiting the personal liability of a director. No indemnification shall be made
under this Section 3 for any of the following:
(a) In respect of any claim, issue or matter as to which such
person shall have been adjudged to be liable to the Corporation in the
performance of such person's duty to the
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Corporation and its shareholders, unless and only to the extent that the
court in which such proceeding is or was pending shall determine upon
application that, in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for expenses and
then only to the extent that the court shall determine;
(b) Of amounts paid in settling or otherwise disposing of a
pending action without court approval; or
(c) Of expenses incurred in defending a pending action which
is settled or otherwise disposed of without court approval.
Section 4. Mandatory Indemnification Against Expenses. To the extent
that an agent of the Corporation has been successful on the merits in defense of
any proceeding referred to in Sections 2 or 3 or in defense of any claim, issue
or matter therein, the agent shall be indemnified against expenses actually and
reasonably incurred by the agent in connection therewith.
Section 5. Required Determinations. Except as provided in Section 4, any
indemnification under this Article shall be made by the Corporation only if
authorized in the specific case, upon a determination that indemnification of
the agent is proper in the circumstances because the agent has met the
applicable standard of conduct set forth in Sections 2 or 3, by any of the
following:
(a) A majority vote of a quorum consisting of
directors who are not parties to such proceeding;
(b) If a quorum of directors is not obtainable, by independent
legal counsel in a written opinion;
(c) Approval of the shareholders, with the shares owned by the
person to be indemnified not being entitled to vote thereon; or
(d) The court in which such proceeding is or was pending upon
application made by the Corporation or the agent or the attorney or
other person rendering services in connection with the defense, whether
or not such application by the agent, attorney or other person is
opposed by the Corporation.
Section 6. Advance of Expenses. Expenses incurred in defending any
proceeding may be advanced by the Corporation prior to the final disposition of
such proceeding upon receipt of an undertaking by or on behalf of the agent to
repay such amount if it shall be determined ultimately that the agent is not
entitled to be indemnified as authorized in this Article.
Section 7. Other Indemnification. The indemnification provided by this
section shall not be deemed exclusive of any other
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rights to which those seeking indemnification may be entitled under any
agreement, vote of shareholders or disinterested directors or otherwise, both as
to action in an official capacity and as to action in another capacity while
holding such office, to the extent such additional rights to indemnification are
authorized in the Articles of this corporation. The rights to indemnity
hereunder shall continue as to a person who has ceased to be a director,
officer, employee, or agent and shall inure to the benefit of the heirs,
executors, and administrators of the person. Nothing contained in this Article
shall affect any right to indemnification to which persons other than such
directors and officers may be entitled by contract or otherwise.
Section 8. Circumstances Where Indemnification Not Permitted. No
indemnification or advance shall be made under this Article, except as provided
in Sections 4 or 5(d), in any circumstance where it appears:
(a) That it would be inconsistent with a provision of the
Articles, a resolution of the shareholders or an agreement in effect at
the time of the occurrence of the alleged cause of action asserted in
the proceeding in which the expenses were incurred or other amounts were
paid, which prohibits or otherwise limits indemnification; or
(b) That it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
Section 9. Insurance. The Corporation shall have power to purchase and
maintain insurance on behalf of any agent of the Corporation against any
liability asserted against or incurred by the agent in such capacity or arising
out of the agent's status as such whether or not the Corporation would have the
power to indemnify the agent against such liability under the provisions of this
Article.
Section 10. Nonapplicability to Fiduciaries of Employee Benefit Plans.
This Article does not apply to a proceeding against any trustee, investment
manager or other fiduciary of an employee benefit plan in such person's capacity
as such, even though such person may also be an agent as defined in Section 1 of
the employer Corporation. The Corporation shall have power to indemnify such a
trustee, investment manager or other fiduciary to the extent permitted by
subdivision (f) of Section 207 of the California General Corporation Law.
ARTICLE VII
AMENDMENTS
These Bylaws may be amended or repealed either by approval of the
outstanding shares or by the approval of the Board; provided, however, that
after the issuance of shares, a Bylaw specifying or changing a fixed number of
directors or the maximum or minimum number or changing from a fixed to a
variable Board or vice versa may only be adopted by approval of the outstanding
shares.
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<PAGE> 1
EXHIBIT 10.1
STEVEN MYERS & ASSOCIATES, INC.
1997 STOCK OPTION PLAN
NOTICE: QUALIFIED OPTIONS UNDER THIS PLAN BEAR RESTRICTIONS
GOVERNED BY SECTION 422 OF THE INTERNAL REVENUE CODE. PLAN
PARTICIPANTS ARE URGED TO READ SECTION 422 AND TO UNDERSTAND THE
RESTRICTIONS CONTAINED THEREIN. NOT ALL SECTION 422 RESTRICTIONS
ARE REFERENCED IN THIS PLAN. OPTIONS GRANTED HEREUNDER MAY BEAR
RESTRICTIONS IMPOSED BY FEDERAL AND STATE SECURITIES LAWS. PLAN
PARTICIPANTS ARE URGED TO CONSULT WITH THEIR TAX AND LEGAL
ADVISORS CONCERNING THE NATURE AND RESTRICTIONS UPON THE OPTIONS
GOVERNED HEREBY.
1. Purposes.
(a) The purpose of the Plan is to provide a means by which selected
employees, Directors and Consultants of the Company and its Affiliates, may be
given an opportunity to benefit from increases in value of the stock of the
Company through the granting of Incentive Stock Options and Nonstatutory Stock
Options, as defined below.
(b) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees, Directors or Consultants of the Company or its
Affiliates, to secure and retain the services of new Employees, Directors and
Consultants, and to provide incentives for such persons to exert maximum efforts
for the success of the Company and its Affiliates.
(c) The Company intends that the Options issued under the Plan shall, in
the discretion of the Board or any Committee to which responsibility for
administration of the Plan has been delegated pursuant to Section 3(c), be
either Incentive Stock Options and Nonstatutory Stock Options. All Options shall
be separately designated Incentive Stock Options or Nonstatutory Stock Options
at the time of grant, and in such form as issued pursuant to Section 6, and a
certificate or certificates will be issued for shares purchased on exercise of
such Options.
2. Definitions.
(a) "Affiliate" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f) respectively, of the Code.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
<PAGE> 2
(d) "Committee" means a Committee appointed by the Board in accordance
with Section 3(c) of the Plan.
(e) "Company" means Steven Myeres & Associates, Inc., a California
corporation.
(f) "Consultant" means any person, including an advisor, engaged by the
Company or an Affiliate to render consulting or advisory services and who is
compensated for such services, provided that the term "Consultant" shall not
include Directors who are paid only a director's fee by the Company or who are
not compensated by the Company for their services as Directors.
(g) "Continuous Status as an Employee, Director or Consultant" means the
employment or relationship as a Director or Consultant is not interrupted or
terminated. The Board, in its sole discretion, may determine whether Continuous
Status as an Employee, Director or Consultant shall be considered interrupted in
the case of: (i) any leave of absence approved by the Board, including sick
leave, military leave or any other personal leave; provided, however, that for
purposes of Incentive Stock Options, any such leave may not exceed three (3)
months, unless reemployment upon the expiration of such leave is guaranteed by
contract, Company policies or statute; or (ii) transfers between locations of
the Company or between the Company, Affiliates or their successors.
(h) "Director" means a member of the Board.
(i) "Employee" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(k) "Fair Market Value" means, as of any date, the value of the Common
Stock of the Company determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the
National Market System of the National Association of Securities
Dealers, Inc. Automated Quotation ("NASDAQ") System, 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 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;
(ii) If the Common Stock is quoted on the NASDAQ System (but
not on the National Market System thereof) or is regularly quoted by a
recognized securities dealer but selling prices 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;
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<PAGE> 3
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Board.
(l) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(m) "Non-Employee Director" shall mean a director who:
(i) Is not currently an officer (as defined in Rule 16a-1(f)
of the Exchange Act) of the Company or a parent or subsidiary of the
Company, or otherwise currently employed by the Company or a parent or
subsidiary of the Company;
(ii) Does not receive compensation, either directly or
indirectly, from the Company or a parent or subsidiary of the Company,
for services rendered as a consultant or in any capacity other than as a
director, except for an amount that does not exceed the dollar amount
for which disclosure would be required pursuant to Rule 404(a) of the
Exchange Act;
(iii) Does not possess an interest in any other transaction
for which disclosure would be required pursuant to Rule 404(a) of the
Exchange Act; and
(iv) Is not engaged in a business relationship for which
disclosure would be required pursuant to Rule 404(b) of the Exchange
Act.
(n) "Nonstatutory Stock Option" means an Option not intended to qualify
as an Incentive Stock Option.
(o) "Officer" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(p) "Option" means a stock option granted pursuant to the Plan.
(q) "Option Agreement" means a written agreement between the Company and
an Optionee evidencing the terms and conditions of an individual Option grant.
Each Option Agreement shall be subject to the terms and conditions of the Plan.
(r) "Optionee" means an Employee, Director or Consultant who holds an
outstanding Option.
(s) "Participant" means an Employee, Director or Consultant who is
granted Options.
(t) "Plan" means this 1997 Stock Option Plan.
(u) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any successor
to Rule 16b-3, as in effect when discretion is being exercised with respect to
the Plan.
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<PAGE> 4
(v) "Securities Act" means the Securities Act of 1933, as amended.
3. Administration.
(a) The Plan shall be administered by the Board unless and until the
Board delegates administration to a Committee, as provided in Section 3(c).
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(i) To determine from time to time which of the persons
eligible under the Plan shall be granted Options; when and how Options
shall be granted; whether an Option will be an Incentive Stock Option or
a Nonstatutory Stock Option, the provisions of each Option granted
(which need not be identical), including the vesting schedule for the
Options, and the number of shares underlying such Options to be granted
to each such person;
(ii) To construe and interpret the Plan and Options granted
under it, and to establish amend and revoke rules and regulations for
its administration. The Board, in the exercise of this power, may
correct any defect, omission or inconsistency in the Plan or in any
Option Agreement, in a manner and to the extent it shall deem necessary
or expedient to make the Plan fully effective;
(iii) To amend the Plan as provided in Section 12; and
(iv) Generally, to exercise such powers and to perform such
acts as the Board deems necessary or advisable to promote the best
interests of the Company.
(c) The Board may delegate administration of the Plan to a committee
composed of not fewer than two (2) members of the Board (the "Committee"), all
of the members of which Committee shall be Non-Employee Directors. If
administration is delegated to a 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 may abolish the Committee at any time and revest in the Board the
administration of the Plan.
4. Shares Subject to the Plan.
Subject to the provisions of Section 11 relating to adjustments upon
changes in stock, the stock that may be issued pursuant to Options shall not
exceed in the aggregate five hundered thousand (500,000) shares of the Company's
Common Stock. If any Option shall for any reason expire or otherwise terminates,
in whole or in part, without having been exercised in full, the stock not
acquired under such Option shall revert to and again become available for
issuance under the Plan.
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<PAGE> 5
5. Eligibility.
(a) INCENTIVE STOCK OPTIONS MAY BE GRANTED ONLY TO EMPLOYEES.
Nonstatutory Stock Options may be granted only to Employees, Directors or
Consultants.
(b) A Director shall be eligible for the benefits of the Plan provided
that such Director's participation conforms to the requirements of Rule 16b-3,
if applicable.
(c) No person shall be eligible for the grant of an Incentive Stock
Option if, at the time of grant, such person owns (or is deemed to own pursuant
to Section 424(d) of the Code) stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or of any
of its Affiliates unless the exercise price of such Incentive Stock Option is at
least one hundred ten percent (110%) of the Fair Market Value of such stock at
the date of grant.
6. Option Provisions.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:
(a) Term. No Option shall be exercisable after the expiration of ten
(10) years from the date it was granted.
(b) Price. The exercise price of each Incentive Stock Option shall be
not less than one hundred percent (100%) of the Fair Market Value of the stock
subject to the Option on the date the Option is granted. Notwithstanding the
foregoing, the exercise price of any Incentive Stock Option granted hereunder to
any stockholder possessing at least 10% of the total combined voting power of
all classes of stock of the Company shall be not less than one hundred ten
percent (110%) of the Fair Market Value of the stock subject to the Option on
the date the Option is granted.
(c) Consideration. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised, (ii) at the
discretion of the Board or the Committee, either at the time of the grant or
exercise of the Option, by delivering to the Company other shares of Common
Stock of the Company (provided that the shares have been held for the period
required to avoid a charge to the Company's reported earnings), (iii) at the
discretion of the Board or the Committee, either at the time of the grant or
exercise of the Option, by delivering to the Company all or any part of an
Option granted under this Plan for a cashless exercise (provided that such
cashless exchange will not result in a charge to the Company's reported
earnings), or (iv) by tendering any other form of legal consideration that may
be acceptable to the Board.
(d) Transferability. An Incentive Stock Option shall not be transferable
except by will or by the laws of descent and distribution, and shall be
exercisable during the lifetime of the person to whom the Incentive Stock Option
is granted only by such person. A Nonstatutory
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<PAGE> 6
Stock Option granted to an Optionee subject to Section 16 of the Exchange Act on
the date of grant shall not be transferable except by will or by the laws of
descent and distribution or pursuant to a qualified domestic relations order
satisfying the requirements of Rule 16b-3 and the rules thereunder (a "QDRO"),
and shall be exercisable during the lifetime of the person to whom the Option is
granted only by such person or any transferee pursuant to a QDRO. A Nonstatutory
Stock Option granted to an Optionee who is not subject to Section 16 of the
Exchange Act on the date of grant may not be transferable except by will or by
the laws of descent and distribution, unless otherwise permitted by the Board.
The person to whom the Option is granted may, by delivering written notice to
the Company, in a form satisfactory to the Company, designate a third party who,
in the event of the death of the Optionee, shall thereafter be entitled to
exercise the Option.
(e) Vesting. The total number of shares of stock subject to an Option
may, but need not, be allotted in periodic installments (which may, but need
not, be equal). The Option Agreement may provide that from time to time during
each of such installment periods, the Option may become exercisable ("vest")
with respect to some or all of the shares allotted to that period, and may be
exercised with respect to some or all of the shares allotted to such period
and/or any prior period as to which the Option became vested but was not fully
exercised. The Option may be subject to such other terms and conditions on the
time or times when it may be exercised (which may be based on performance or
other criteria) as the Board may deem appropriate. The provisions of this
Section 6(e) are subject to any Option provisions governing the minimum number
of shares as to which an Option may be exercised.
(f) Termination of Employment or Relationship as a Director or
Consultant. In the event an Optionee's Continuous Status as an Employee,
Director or Consultant terminates (other than upon the Optionee's death or
disability), the Optionee may exercise his or her Option (to the extent that the
Optionee was entitled to exercise it at the date of termination) but only within
such period of time ending on the earlier of (i) the date ninety (90) days after
the termination of the Optionee's Continuous Status as an Employee, Director or
Consultant (or such longer period specified in the Option Agreement), or (ii)
the expiration of the term of the Option as set forth in the Option Agreement.
If, after termination, the Optionee does not exercise his or her Option within
the time specified in the Option Agreement, the Option shall terminate, and the
shares covered by such Option shall revert to and again become available for
issuance under the Plan.
(g) Disability of Optionee. In the event an Optionee's Continuous Status
as an Employee, Director or Consultant terminates as a result of the Optionee's
disability, the Optionee may exercise his or her Option (to the extent that the
Optionee was entitled to exercise it at the date of termination), but only
within such period of time ending on the earlier of (i) the date six (6) months
following such termination (or such longer period specified in the Option
Agreement), or (ii) the expiration of the term of the Option as set forth in the
Option Agreement. If, at the date of termination, the Optionee is not entitled
to exercise his or her entire Option, the shares covered by the unexercisable
portion of the Option shall revert to and again become available for issuance
under the Plan. If, after termination, the Optionee does not exercise his or her
Option within the time specified herein, the Option shall terminate, and the
shares covered by such Option shall revert to and again become available for
issuance under the Plan.
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<PAGE> 7
(h) Death of Optionee. In the event of the death of an Optionee during,
or within a period specified in the Option after the termination of, the
Optionee's Continuous Status as an Employee, Director or Consultant, the Option
may be exercised (to the extent the Optionee was entitled to exercise the Option
at the date of death) by the Optionee's estate, by a person who acquired the
right to exercise the Option by bequest or inheritance or by a person designated
to exercise the option upon the Optionee's death pursuant to Section 6(d), but
only within the period ending on the earlier of (i) the date twelve (12) months
following the date of death (or such longer period specified in the Option
Agreement), or (ii) the expiration of the term of such Option as set forth in
the Option Agreement. If, at the time of death, the Optionee was not entitled to
exercise his or her entire Option, the shares covered by the unexercisable
portion of the Option shall revert to and again become available for issuance
under the Plan. If, after death, the Option is not exercised within the time
specified herein, the Option shall terminate, and the shares covered by such
Option shall revert to and again become available for issuance under the Plan.
7. Cancellation and Regrant of Options.
The Board or the Committee shall have the authority to effect, at any
time and from time to time, (i) the repricing of any outstanding Options under
the Plan, and/or (ii) with the consent of the affected holders of Options, the
cancellation of any outstanding Options under the Plan and the grant in
substitution therefor of new Options under the Plan covering the same or
different numbers of shares of stock, but having an exercise price per share not
less than one hundred percent (100%) of the Fair Market Value in the case of an
Incentive Stock Option or, in the case of a ten percent (10%) stockholder (as
described in Section 5(c)) not less than one hundred ten percent (110%) of the
Fair Market Value in the case of an Incentive Stock Option.
8. Covenants of the Company.
(a) During the terms of the Options, the Company shall keep available at
all times the number of shares of stock which would be issuable under such
outstanding Options.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the Options; provided, however,
that this undertaking shall not require the Company to register under the
Securities Act either the Plan, any Options or any stock issued or issuable
pursuant to any such Options. If, after reasonable efforts, the Company is
unable to obtain from any such regulatory commission or agency the authority
which counsel for the Company deems necessary for the lawful issuance and sale
of stock under the Plan, the Company shall be relieved from any liability for
failure to issue and sell stock upon exercise of such Options unless and until
such authority is obtained.
9. Use of Proceeds from Stock.
Proceeds from the sale of Common Stock upon exercise of the Options
shall constitute general funds of the Company.
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<PAGE> 8
10. Miscellaneous.
(a) Neither an Optionee nor any person to whom an Option is transferred
under Section 6(d) shall be deemed to be the holder of, or to have any of the
rights of a holder with respect to, any shares subject to such Option unless and
until such person has satisfied all requirements for exercise of the Option
pursuant to its terms.
(b) Nothing in the Plan or any Option granted pursuant thereto shall
confer upon any Employee, Director, Consultant or other holder of Options any
right to continue in the employ of the Company or any Affiliate (or to continue
acting as a Director or Consultant) or shall affect the right of the Company or
any Affiliate to terminate the employment or relationship as a Director or
Consultant of any Employee, Director, Consultant or other holder of Options with
or without cause.
(c) TO THE EXTENT THAT THE AGGREGATE FAIR MARKET VALUE (DETERMINED AT
THE TIME OF GRANT) OF STOCK WITH RESPECT TO WHICH INCENTIVE STOCK OPTIONS ARE
GRANTED ARE EXERCISABLE FOR THE FIRST TIME BY AN OPTIONEE DURING ANY CALENDAR
YEAR UNDER ALL PLANS OF THE COMPANY AND ITS AFFILIATES EXCEEDS ONE HUNDRED
THOUSAND DOLLARS ($100,000), THE OPTIONS OR PORTIONS THEREOF WHICH EXCEED SUCH
LIMIT (ACCORDING TO THE ORDER IN WHICH THEY WERE GRANTED) SHALL BE TREATED AS
NONSTATUTORY STOCK OPTIONS.
(d) The Company may require any person to whom an Option is granted, or
any person to whom an Option is transferred under Section 6(d), as a condition
of exercising any Option, (1) to give written assurances satisfactory to the
Company as to such person's knowledge and experience in financial and business
matters and/or to employ a purchaser representative reasonably satisfactory to
the Company who is knowledgeable and experienced in financial and business
matters, and that he or she is capable of evaluating, alone or together with the
purchaser representative, the merits and risks of exercising the Option; and (2)
to give written assurances satisfactory to the Company stating that such person
is acquiring the stock subject to the Option for such person's own account and
not with any present intention of selling or otherwise distributing the stock.
The foregoing requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (i) the issuance of the shares upon the
exercise or acquisition of stock under the Option has been registered under a
then currently effective registration statement under the Securities Act, or
(ii) as to any particular requirement, a determination is made by counsel for
the Company that such requirement need not be met in the circumstances under the
then applicable securities laws. The Company may, upon advice of counsel to the
Company, place legends on stock certificates issued under the Plan as such
counsel deems necessary or appropriate in order to comply with applicable
securities laws, including, but not limited to, legends restricting the transfer
of the stock.
(e) To the extent provided by the terms of an Option Agreement, the
person to whom an Option is granted may, at the discretion of the Board, satisfy
any mandatory federal, state or local tax withholding obligation relating to the
exercise or acquisition of stock under an Option by any of the following means
or by a combination of such means: (1) tendering cash payment; (2) authorizing
the Company to withhold shares from the shares of the Common Stock otherwise
issuable to the Participant as a result of the exercise or acquisition of stock
under the Option provided that such arrangement will not result in a charge to
the Company's reported
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<PAGE> 9
earnings; or (3) delivering to the Company owned and unencumbered shares of the
Common Stock of the Company that have been held for the period required to avoid
a charge to the Company's reported earnings. The exercise of the Option may be
conditioned upon the receipt by the Company of satisfactory evidence of the
Participant's satisfaction of any withholding obligations.
11. Adjustments Upon Changes in Stock.
(a) Subject to any required action by stockholders, the number of shares
which may be purchased upon the exercise of each outstanding Option shall be
proportionately increased or decreased upon the occurrence of any change,
increase or decrease in the number and type of issued shares of Common Stock of
the Company, without receipt of consideration by the Company, which change
results from a stock split, a stock dividend, a merger, consolidation,
reorganization, reincorporation, a recapitalization, a combination of shares,
change in corporate structure or other like capital adjustment, so that upon the
exercise of each Option the holders of such Options shall receive the number and
type of securities which the holders would have received had the Options been
exercised on the date preceding such change, increase or decrease. In the event
of any such adjustment, the exercise price for each share shall be likewise
adjusted in inverse proportion to the increase or decrease in the number of
shares purchasable.
(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; or (3) a reverse merger in
which the Company is the surviving corporation but the shares of the Company's
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 to the extent permitted by applicable law: (i) any
surviving corporation shall assume any Options outstanding under the Plan or
shall substitute similar Options for those outstanding under the Plan, or (ii)
such Options shall continue in full force and effect. In the event any surviving
corporation refuses to assume or continue such Options, or to substitute similar
options for those outstanding under the Plan, then, with respect to Options held
by persons then performing services as Employees, Directors or Consultants, the
time during which such Options shall be accelerated and the Options terminated
if not exercised prior to such event.
12. Amendment of the Plan.
(a) The Board at any time, and from time to time, may amend the Plan
provided that the implementation of such amendment by the Company complies with
all applicable law.
(b) The Board may in its sole discretion submit any other amendment to
the Plan for stockholder approval, including, but not limited to, amendments to
the Plan intended to satisfy the requirements of Section 162(m) of the Code and
the regulations promulgated thereunder regarding the exclusion of
performance-based compensation from the limit on corporate deductibility of
compensation paid to certain executive officers.
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<PAGE> 10
(c) It is expressly contemplated that the Board may amend the Plan in
any respect the Board deems necessary or advisable to provide eligible
Employees, Directors or Consultants with the maximum benefits provided or to be
provided under the provisions of the Code and the regulations promulgated
thereunder relating to Incentive Stock Options and/or to bring the Plan and/or
Incentive Stock Options granted under it into compliance therewith.
(d) Rights and obligations under any Option granted before amendment of
the Plan shall not be altered or impaired by any amendment of the Plan unless
(i) the Company requests the consent of the person to whom the Option was
granted, and (ii) such person consents in writing.
13. Termination or Suspension of the Plan.
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate on October 1, 2007, which shall be
within ten (10) years from the date the Plan is adopted by the Board or approved
by the stockholders of the Company, whichever is earlier. No Options may be
granted under the Plan while the Plan is suspended or after it is terminated.
(b) Rights and obligations under any Option granted while the Plan is in
effect shall not be altered or impaired by suspension or termination of the
Plan, except with the consent to the person to whom the Option was granted.
14. Effective Date of Plan.
The Plan shall become effective as determined by the Board, but no
Options granted under the Plan shall be exercised unless and until the Plan has
been approved by the stockholders of the Company, which approval shall be within
twelve (12) months before or after the date the Plan is adopted by the Board.
15. Financial Information.
The Company will provide to each Optionee financial statements of the
Company at least annually in accordance with Section 260.140.46 of Title 10 of
the California Code of Regulations.
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OPTION TO PURCHASE COMMON STOCK
OF
STEVEN MYERS & ASSOCIATES, INC.
VOID AFTER [date]
This certifies that _________________ ("Holder") is entitled to
purchase from Steven Myers & Associates, Inc., a California corporation (the
"Corporation"), _______________ (______) shares of Common Stock, of the
Corporation (the "Shares"), subject to the terms and conditions of the
Corporation's 1997 Stock Option Plan (the "Plan") and such additional terms and
conditions contained herein. Any conflict between the terms and conditions of
the Plan and those contained herein shall be resolved in favor of the Plan. A
copy of the Plan is attached hereto as Exhibit A. Capitalized terms not
otherwise defined herein shall have such definition as is set forth in the Plan.
The number of shares of Common Stock purchasable hereunder may be adjusted upon
the occurrence of certain events, as specified in the Plan and as set forth
below.
The options granted hereby are (check one): ___ Qualified
___ Nonqualified; and are governed by the terms of the Plan concerning such
type of options thereunder.
IMPORTANT! IF THESE ARE QUALIFIED OPTIONS, YOU ARE URGED TO REVIEW CAREFULLY THE
REQUIREMENTS AND RESTRICTIONS OF QUALIFIED OPTIONS UNDER THE PLAN AND SECTION
422 OF THE INTERNAL REVENUE CODE. WHETHER THE OPTIONS ARE QUALIFIED OR
NONQUALIFIED, YOU ARE URGED TO SEEK INDEPENDENT ADVICE CONCERNING THE LEGAL AND
TAX EFFECTS OF THESE OPTIONS AND SHOULD NOT RELY ON ANY SUMMARY OF SUCH MATTERS
CONTAINED HEREIN.
The purchase price to be paid for the Shares upon the exercise of all
or any portion of this Option shall be __________ ($_____) per share of Common
Stock purchased (the "Purchase Price").
1. Exercise of Option; Vesting.
Holder may exercise this Option at any time until 5:00 P.M., California
time on __________, (the "Expiration Date"), in accordance with the Vesting
Schedule (the "Vesting Schedule") set forth below by delivery to the
Corporation, at its principal office, of:
(a) this Option,
(b) the Exercise Form attached to this Option, duly executed and
specifying the number of Shares of Common Stock to be purchased
hereunder, and
(c) cash or a certified or official bank check payable to the
order of the Corporation in the amount of the aggregate Purchase
Price for the number of Shares to be purchased.
<PAGE> 12
Upon receipt thereof, the Corporation shall, as promptly as
practicable, and in any event within 30 days thereafter, cause to be executed
and delivered to Holder a certificate or certificates for the aggregate number
of the Shares issuable upon such exercise. If this Option shall have been
exercised only in part of the total number of vested options, the Corporation
shall, at the time of delivery of such certificate or certificates, deliver to
Holder a new Option evidencing the rights of Holder to purchase the remaining
Shares of Common Stock called for by this Option, pursuant to the same terms and
conditions and with the same restrictions specified herein, and which new Option
shall be of like tenor to this Option. The Corporation shall pay all expenses,
taxes and other charges payable in connection with the preparation, issuance and
delivery of stock certificates.
All shares of Common Stock issuable upon the exercise of this Option
will be validly issued, fully paid and nonassessable.
The Options shall vest in accordance with the following Vesting
Schedule:
________________ ___%
________________ ___%
________________ ___%
2. Lost, Stolen, Mutilated or Destroyed Option.
If this Option is lost, stolen, mutilated or destroyed, the Corporation
may, on such terms as to indemnity or otherwise as the Corporation may in its
discretion impose (which shall, in the case of a mutilated Option, include the
surrender thereof), issue a new Option of like denomination, tenor and date as
this Option.
3. Restrictions on Transfer; Compliance with Securities Act; Legend
Condition.
Neither this Option nor the right to purchase shares of Common Stock
upon exercise of this Option may be transferred by Holder in whole or in part
except that this Option may be exercised by Holder's conservator, trustee or
estate subject to all the terms and conditions set forth herein. To the extent
not exercised by Holder on the Expiration Date, this Option and all rights
hereunder shall expire and the Option and such rights shall thereupon
automatically be cancelled and shall cease to exist. Common Stock issued upon
valid exercise of this Option in whole or in part shall not be transferable by
Holder other than in accordance with the Securities Act of 1933, as amended
("Securities Act"), and the rules and regulations promulgated thereunder,
together with applicable state securities laws. Unless a Registration Statement
concerning such shares is then in effect with the Securities and Exchange
Commission, certificates evidencing shares of the Common Stock issued upon
exercise of this Option shall bear the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED
FOR RESALE OR RESOLD UNLESS REGISTERED PURSUANT TO THE PROVISIONS OF
THAT ACT, UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
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<PAGE> 13
4. Notices.
Any notice or other document required or permitted to be given or
delivered to Holder shall be deemed given to him if given to him at the
following address:
Holder: _________________
_________________
_________________
Any such notice or other document shall be mailed first-class, postage
prepaid, to such address or such other address as shall have been furnished to
the Corporation in writing by Holder. Any notice or other document required or
permitted to be given or delivered to the Corporation shall be mailed
first-class, postage prepaid to the Corporation at its principal executive
offices, 4695 MacArthur Court, Eighth Floor, Newport Beach, California 92660,
Attention: Chief Financial Officer.
5. Applicable Law.
This Option shall be construed and enforced in accordance with and
governed by the laws of the State of California.
6. Headings.
The headings herein are for convenience only and are not part of this
Option and shall not affect the interpretation hereof.
IN WITNESS WHEREOF, the Corporation has caused this Option to be
executed in its name by its Chief Executive Officer and Secretary, thereunto
duly authorized.
Dated: _________________ STEVEN MYERS & ASSOCIATES, INC.,
a California corporation
By:
----------------------------------------
Steven S. Myers, Chief Executive Officer
By:
----------------------------------------
Ronald Hunn, Secretary
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<PAGE> 14
EXERCISE FORM
(To be signed only upon exercise of Option)
To ______________________;
The undersigned, being the holder of the within Option, hereby
irrevocably elects to exercise the rights represented by such Option for, and to
purchase thereunder, *________________ shares of Common Stock of Steven Myers &
Associates, Inc. (subject to adjustment as provided in such Option) and herewith
makes payment of $__________ therefor, and requests that the certificates for
such shares be issued in the name of, and be delivered to _____________________
at the following address: ______________________________________________________
______________________________________________________
The undersigned hereby represents and warrants that he is acquiring
such shares of Common Stock for his own account, for investment and not with a
view to or for resale in connection with the distribution thereof.
Dated:________________ _______________________________________
(Signature must conform in all respects
to name of Holder as specified in the
within Option)
______________________
* Insert here all or such portion of the number of shares specified at the
beginning of the within Option with respect to which the Holder desires to
exercise his purchase right, without adjustment for any other or additional
stock or other securities, property or cash that may be delivered on such
exercise.
-4-
<PAGE> 15
INVESTOR'S CERTIFICATE
The undersigned, as a condition to purchase an Option for the purchase
of _______ shares of Common Stock (the Option and the Common Stock issuable upon
its conversion referred to collectively herein as the "Securities") of Steven
Myers & Associates, Inc. (the "Company"), certifies to the Company as follows:
1. My full name, residence address and business address are as follows:
<TABLE>
<CAPTION>
Name Residence Address Business Address
- ---------------- ----------------- ----------------
<S> <C> <C>
- ---------------- ---------------------- ------------------------------------
- ---------------- ---------------------- ------------------------------------
</TABLE>
2. I am purchasing the Securities in my own name and for my own account
(or for a trust account if I am a trustee), and no other person has any interest
in or right with respect to the Securities, nor have I agreed to give any person
any such interest or right in the future except as follows:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(If none so, state)
3. I am acquiring the Securities for investment and not with a view to
or for sale in connection with any distribution to the Securities. I recognize
that the Securities have not been registered under the Federal Securities Act of
1933 or qualified under the California Corporate Securities Law of 1968, that
any disposition of the Securities is subject to restrictions imposed by federal
and state law, and that the certificates representing the Securities will bear a
restrictive legend. I also recognize that I cannot dispose of the Securities
absent registration and qualification, or an available exemption from
registration and qualification, and that no undertaking has been made with
regard to registering or qualifying the Securities in the future. I understand
that the availability of an exemption in the future will depend in part on
circumstances outside my control and that I may be required to hold the
Securities for a substantial period. I recognize that no public market exists
with respect to the Securities and no representation has been made to me that
such a public market will exist at a future date. I understand that the
California Commissioner of Corporations has made no finding or determination
relating to the fairness for investment of the Securities offered by the Company
and that the Commissioner has not and will not recommend or endorse the
Securities.
4. I have not seen or received any advertisement or general
solicitation with respect to the sale of the Securities.
5. The total consideration to be paid by me for the Option shall be
$__________.
6. I have a preexisting personal or business relationship with the
Company or one or more of its officers, directors or controlling persons more
fully described as follows:
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<PAGE> 16
(Describe relationship. If none, so state.)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
7. I believe, by reason of my business or financial experience
described below, or by reason of the business or financial experience of my
professional advisor named below, who is unaffiliated with and who is not
compensated, directly or indirectly, by the Company or any affiliate or selling
agent of the Company, that I am capable of evaluating the merits and risks of
this investment and of protecting my own interests in connection with this
investment.
(Describe experience. If none, so state.)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
If a professional advisor is used, please complete the following:
I designate ____________________(name) as my professional advisor with
regard to my investment in the Securities. I understand that this professional
advisor is unaffiliated with and will not be compensated by the Company or any
affiliate or selling agent of the Company.
Occupation and business address of professional advisor:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Describe business or financial experience of professional advisor:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
8. I acknowledge that during the course of this transaction and before
purchasing the Securities I have been provided with financial and other written
information about the Company and the terms and conditions of the offering. I
have been given the opportunity by the Company to obtain any information and ask
questions concerning the Company, the Securities, and my investment that I felt
necessary, and to the extent I availed myself of that opportunity, I have
received satisfactory information and answers. If I requested any additional
information that the Company possessed or could acquire without unreasonable
effort or expense and that was necessary to verify the accuracy of the financial
and other written information furnished to me by the Company, that additional
information was provided to me and was satisfactory. In reaching the decision to
invest in the Securities, I have carefully evaluated my financial resources and
investment position and the risks associated with this investment, and I
acknowledge that I am able to bear the economic risks of this investment. By
electing to participate in this investment I realize I may lose my entire
investment. I further acknowledge that my financial condition is such that I am
not under any present necessity or constraint to dispose of the Securities to
satisfy any existing or contemplated debt or undertaking.
-6-
<PAGE> 17
9. Before purchasing the Securities, I received a brief description in
writing of any written information concerning the offering that had been
provided by the Company to any other prospective purchaser of the Securities,
and that notice, if received by me, included information as to how I might
request that the written information also be provided to me. If I requested in
writing that the information be furnished me, it was furnished before my
purchase of the Securities.
Dated: __________________ ________________________________________
[Signature]
________________________________________
[Please Print Name]
-7-
<PAGE> 1
EXHIBIT 10.2
[name]
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT ("Agreement") is made and entered into
this ______________, 1997, by and between STEVEN MYERS & ASSOCIATES, INC., a
California corporation (the "Company"), and ________________ ("Indemnitee").
RECITALS
A. The Company and Indemnitee recognize the increasing difficulty in
obtaining directors' and officers' liability insurance, 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 officers and directors to
expensive litigation risks at the same time as the availability and coverage of
liability insurance has been severely limited and is not currently available to
the Company in such scope and coverage as it desires.
C. Indemnitee does not regard the current protection available as
adequate under the present circumstances, and Indemnitee and other officers and
directors of the Company may not be willing to continue to serve as officers and
directors without additional protection.
D. The Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, to serve as officers and directors of
the Company and to indemnify its officers and directors so as to provide them
with the maximum protection permitted by law.
AGREEMENT
NOW, THEREFORE, The Company and Indemnitee hereby agree as follows:
1. Agreement to Indemnify.
The Company hereby agrees to indemnify Indemnitee and hold him harmless
to the full extent authorized or permitted by the provisions of the General
Corporation Law of California, or by any amendment thereof or other statutory
provision requiring, authorizing or permitting such indemnification which may be
adopted after the date hereof; provided, however, that any such amendment or
other statutory provision which further limits the availability of or further
restricts the Company's ability to provide such indemnification shall operate
prospectively only, to the extent permitted by law.
<PAGE> 2
2. Agreement to Serve.
In consideration of the protection afforded by this Agreement, if
Indemnitee is presently a director of the Company he agrees to serve at least
for the balance of the current term as a director and not to resign voluntarily
during such period without the written consent of a majority of the Board of
Directors. If Indemnitee is presently an officer of the Company not serving
under an employment contract, he agrees to serve in such capacity at least for
the balance of the current fiscal year of the Company and not to resign
voluntarily during such period without the written consent of a majority of the
Board of Directors. Following the applicable period set forth above, Indemnitee
agrees to continue to serve in such capacity at the will of the Company (or
under separate agreement, if such agreement exists) so long as he 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 until such time
as he tenders his resignation in writing. Nothing contained in this Agreement is
intended to create in Indemnitee any right to continued employment.
3. Expenses; Indemnification Procedure.
(a) Advancement of Expenses. The Company shall advance all expenses
incurred by Indemnitee in connection with the investigation, defense, settlement
or appeal of any civil or criminal action, suit or proceeding subject to the
indemnification provided in Section 1 hereof, to the final disposition of 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
the Indemnitee is not entitled to be indemnified by the Company as authorized
hereby. The advances to be made hereunder shall be paid by the Company to the
Indemnitee as soon as possible following delivery of a written request therefor
by Indemnitee to the Company, but in no event more than twenty (20) days after
such request.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall give the Company
notice in writing as soon as practicable 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 Company's executive offices (Attn: Chief
Executive Officer) (or such other address as the Company shall designate in
writing to Indemnitee). Notice shall be deemed received on the third business
day after the date postmarked if sent by domestic certified or registered mail,
properly addressed; otherwise notice shall be deemed received when such notice
shall actually be received by the Company. The Indemnitee's omission to so
notify the Company under this Section 3(b) shall not relieve the Company from
any liability which it may have to Indemnitee under this Agreement (provided
that the Company shall retain the right to reimbursement from the Indemnitee for
any damages it may have suffered as a result of the failure so to notify). In
addition, Indemnitee shall give the Company such information and cooperation as
it may reasonably require and as shall be within Indemnitee's power.
(c) Procedure. Any indemnification and advances provided for in Section
1 and this Section 3 shall be made no later than twenty (20) 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 Articles of Incorporation or
Bylaws providing for indemnification, is not paid in full
-2-
<PAGE> 3
by the Company within twenty (20) 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 11(c) 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 for the amount claimed, but the
burden of proving such defense shall be on the Company and Indemnitee shall be
entitled to receive interim payments of expenses pursuant to Subsection 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 parties'
intention 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 proceeding against
Indemnitee, the Company, if appropriate, shall be entitled to assume the defense
of such proceeding, with counsel reasonably acceptable to the 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 his 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 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.
-3-
<PAGE> 4
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 Articles of
Incorporation, the Company's Bylaws or by statute. In the event of any change,
after the date of this Agreement, in any applicable law, statute, or rule which
expands the right of a California corporation to indemnify a member of its board
of directors or an officer, such changes shall be, ipso facto, within the
purview of Indemnitee's rights and Company's obligations, under this Agreement.
In the event of any change in any applicable law, statute or rule which narrows
the right of a California corporation to indemnify a member of its board of
directors or an officer, such changes, 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 Articles of Incorporation, its Bylaws, any agreement, any vote of
stockholders or disinterested Directors, the General Corporation Law of the
State of California, or otherwise, both as to action in Indemnitee's official
capacity and as to action in another capacity while holding such office (an
"Indemnified Capacity"). 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 an Indemnified
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. Enforcement.
(a) Public Policy. Both the Company and Indemnitee acknowledge that in
certain instances, Federal law or public policy may override applicable state
law and prohibit the Company from indemnifying its directors and officers under
this Agreement or otherwise. For example, the Company and Indemnitee acknowledge
that the Securities and Exchange Commission (the "SEC") has taken the position
that indemnification is not permissible for liabilities arising under certain
federal securities laws, and federal legislation prohibits indemnification for
certain ERISA violations. Indemnitee understands and acknowledges that the
Company has undertaken or may be required in the future to undertake with the
SEC to
-4-
<PAGE> 5
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.
(b) Inducement. The Company expressly confirms and agrees that it has
entered into this Agreement and assumed the obligation imposed on the Company
hereby in order to induce Indemnitee to continue to serve as a director or
officer of the Company and/or one or more of its subsidiaries, and acknowledges
that Indemnitee is relying upon this Agreement in continuing in such capacity.
7. Officer and Director Liability Insurance.
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 a policy
or policies of insurance with reputable insurance companies providing the
officers and directors of the Company with coverage for losses from wrongful
acts, or to ensure the Company's performance of its indemnification obligations
under this Agreement. Among other considerations, the Company will weigh the
costs of obtaining such insurance coverage against the protection afforded by
such coverage. In all policies of director and officer 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 a director of the Company but is an
officer; or of the Company's key employees, if Indemnitee is not an officer or
director but is a key employee. 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 parent or subsidiary 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, and to the extent this Agreement requires any act or omission to act which
would be in violation of applicable law, such requirement shall be ipso facto
eliminated herefrom. 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.
-5-
<PAGE> 6
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 of defense, except with respect to
proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other statute or law or otherwise as required under
applicable law, but such indemnification or advancement of expenses may be
provided by the Company in specific cases if the Board of Directors finds it to
be appropriate; or
(b) 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
actually paid directly to Indemnitee by an insurance carrier under a policy of
officers' and directors' liability insurance maintained by the Company, without
further liability to the Indemnitee for reimbursement of any such amounts.
(c) Claims Under Section 16(b). To indemnify Indemnitee for expenses or
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.
10. Construction of Certain Phrases.
(a) 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, and employees 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.
(b) For purposes of this Agreement, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on 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 which imposes
duties on, or involves services by, such director, officer, employee or agent
with respect to any 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 interests of the Company" as referred to in this Agreement.
-6-
<PAGE> 7
11. Miscellaneous.
(a) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
(b) 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.
(c) 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 or 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.
(d) 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 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.
(e) Consent to Jurisdiction. The Company and the 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.
(f) Choice of Law. This Agreement shall be governed by and its
provisions construed in accordance with the laws of the State of California, as
applied to contracts between California residents entered into and to be
performed entirely within California.
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<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
STEVEN MYERS & ASSOCIATES, INC.
By:
--------------------------------
Steven S. Myers,
Chief Executive Officer
AGREED TO AND ACCEPTED:
INDEMNITEE:
_________________________
(Address)
_________________________
_________________________
_________________________
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<PAGE> 1
EXHIBIT 10.3
OFFICE SPACE LEASE
BETWEEN
THE IRVINE COMPANY
AND
STEVEN MYERS & ASSOCIATES, INC.
<PAGE> 2
OFFICE SPACE LEASE
THIS LEASE is made as of the 18th day of December, 1996, by and between
THE IRVINE COMPANY, a Michigan corporation, hereafter called "Landlord," and
STEVEN MYERS & ASSOCIATES, INC., a California corporation, hereinafter called
"Tenant."
ARTICLE I. BASIC LEASE PROVISIONS
Each reference in this Lease to the "Basic Lease Provisions" shall mean
and refer to the following collective terms, the application of which shall be
governed by the provisions in the remaining Articles of this Lease.
1. Tenant's Trade Name: N/A
2. Premises: Suite No. 800 (the Premises are more particularly described in
Section 2.1).
Address of Building: 4695 MacArthur Court, Newport Beach, CA 92660
Project Description (if applicable): MacArthur Court
3. Use of Premises: General Office and for no other use.
4. Estimated Commencement Date: August 1, 1997
5. Lease Term: One Hundred Twenty (120) months, plus such additional days as
may be required to cause this Lease to terminate on the final day of the
calendar month.
6. Basic Rent: Thirty-Four Thousand Two Hundred Ninety-Seven Dollars
($34,297.00) per month.
Rental Adjustments:
Commencing on the first day of the thirteenth (13th) month of the Lease
Term, the Basic Rent shall be Thirty-Five Thousand Six Hundred Sixty-One
Dollars ($35,661.00) per month.
Commencing on the first day of the twenty-fifth (25th) month of the Lease
Term, the Basic Rent shall be Thirty-Seven Thousand Twenty-Five Dollars
($37,025.00) per month.
Commencing on the first day of the thirty-seventh (37th) month of the
Lease Term, the Basic Rent shall be Thirty-Eight Thousand Five Hundred
Eighty-Four Dollars ($38,584.00) per month.
Commencing on the first day of the forty-ninth (49th) month of the Lease
Term, the Basic Rent shall be Forty Thousand One Hundred Forty-Three
Dollars ($40,143.00) per month.
Commencing on the first day of the sixty-first (61st) month of the Lease
Term, the Basic Rent shall be Forty Thousand Nine Hundred Twenty-Three
Dollars ($40,923.00) per month.
Commencing on the first day of the seventy-third (73rd) month of the Lease
Term, the Basic Rent shall be Forty-Two Thousand Four Hundred Eighty-Two
Dollars ($42,482.00) per month.
Commencing on the first day of the eighty-fifth (85th) month of the Lease
Term, the Basic Rent shall be Forty-Four Thousand Four Hundred Thirty
Dollars ($44,430.00) per month.
Commencing on the first day of the ninety-seventh (97th) month of the
Lease Term, the Basic Rent shall be Forty-Six Thousand One Hundred
Eighty-Four Dollars (46,184.00) per month.
Commencing on the first day of the one hundred ninth (109th) month of the
Lease Term, the Basic Rent shall be Forty-Eight Thousand One Hundred
Thirty-Three Dollars (48,133.00) per month.
7. Property Tax Base: The Property Taxes per rentable square foot actually
incurred by Landlord during the twelve month period ending June 30, 1998.
Building Cost Base: The Building Costs per rentable square foot actually
incurred by Landlord during the twelve month period ending June 30, 1998.
Expense Recovery Period: Every twelve month period during the Term (or
portion thereof during the last Lease year) ending June 30. The first
Expense Recovery Period shall commence July 1, 1998.
8. Floor Area of Premises: approximately 19,487 rentable square feet
9. Security Deposit: $134,401.00 (See Section 4.3)
10. Broker(s): Grubb & Ellis and Principal Funding of California, each as to a
fifty percent (50%) commission.
11. Plan Approval Date: December 20, 1996.
12. Parking: Five (5) contiguous reserved vehicle parking spaces on the ground
floor of the parking structure and Sixty-Nine (69) unreserved parking
spaces in the parking structure.
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13. Address for Payments and Notices:
LANDLORD TENANT
The Irvine Company Steven Myers Associates, Inc.
c/o PM Realty Group 4695 MacArthur Boulevard
4695 MacArthur Court, Suite 480 Suite 800
Newport Beach, CA 92660 Newport Beach, CA 92660
Attn: Property Manager Attn: Mr. Kenneth W. Colbaugh
Executive Vice President
with a copy of notices to:
THE IRVINE COMPANY
P.O. Box 6370
Newport Beach, CA 92658-6370
Attn: Vice President, Operations - Office Properties
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ARTICLE II. PREMISES
SECTION 2.1. LEASED PREMISES.
(a) Landlord leases to Tenant and Tenant rents from Landlord the
premises shown in Exhibit A (the "Premises"), containing approximately the floor
area set forth in Item 8 of the Basic Lease Provisions and known by the suite
number identified in Item 2 of the Basic Lease Provisions. The Premises are
located in the building identified in Item 2 of the Basic Lease Provisions
(which together with the underlying real property, is called the "Building"),
and is a portion of the project described in Item 2 (the "Project"). If, upon
completion of the space plans for the Premises, Landlord's architect or space
planner determines that the rentable square footage of the premises differs from
that set forth in the Basic Lease Provisions, then Landlord shall so notify
Tenant and the Basic Rent (as shown in Item 6 of the Basic Lease Provisions)
shall be promptly adjusted in proportion to the change in square footage. Within
five (5) days following Landlord's request, the parties shall memorialize the
adjustments by executing an amendment to this Lease prepared by Landlord.
(b) Provided Tenant is not then in default hereunder, Landlord hereby
grants Tenant a one-time right ("First Right") to lease the entire rentable
area of the seventh (7th) floor of the Building ("First Right Space") in
accordance with and subject to the provisions of this Section 2.1(b). The
parties agree that because Tenant will not require the First Right Space in the
immediate future, Landlord shall be authorized to lease that space, in one or
more transactions, to third party tenant(s) following the vacation thereof by
Sheppard, Mullin, Richter & Hampton, the current tenant in possession. This
Section 2.1(b) shall not be applicable to such initial releasing of the First
Right Space. Thereafter, prior to leasing the First Right Space, or any
portion thereof, to any other party, and following Landlord's receipt of bona
fide third party interest in that space, Landlord shall give Tenant written
notice of the basic economic terms including but not limited to the Basic Rent,
term, Operating Expense Allowance, and tenant improvement allowance
(collectively, the "Economic Terms"), upon which Landlord is willing to lease
such particular First Right Space to Tenant or to a third party; provided that
the Economic Terms shall exclude brokerage commissions and other Landlord
payments that do not directly inure to the tenant's benefit. It is understood
that should Landlord intend to lease other space in addition to the First Right
Space as part of a single transaction, then Landlord's notice shall so provide
and all such space shall collectively be subject to the following provisions.
Within three (3) business days after receipt of Landlord's notice, Tenant must
give Landlord written notice pursuant to which Tenant shall elect to (i) lease
all, but not less than all, of the space specified in Landlord's notice (the
"Designated Space") upon such Economic Terms and the same non-Economic Terms
as set forth in this Lease; (ii) refuse to lease the Designated Space,
specifying that such refusal is not based upon the Economic Terms, but upon
Tenant's lack of need for the Designated Space, in which event Landlord may
lease the Designated Space upon any terms it deems appropriate and Tenant shall
have no further rights or options thereto; or (iii) refuse to lease the
Designated Space, specifying that such refusal is based upon said Economic
Terms, in which event Tenant shall also specify revised Economic Terms upon
which Tenant shall be willing to lease the Designated Space. In the event that
Tenant does not so respond in writing to Landlord's notice pursuant to clause
(iii) above, Landlord may elect to either (x) lease the Designated Space to
Tenant upon such revised Economic Terms and the same other non-Economic Terms
as set forth in this Lease, or (y) lease the Designated Space to any third
party upon Economic Terms which are not materially more favorable to such party
than those Economic Terms proposed by Tenant, in which event Tenant shall have
no further rights or options to that space. Should Landlord so elect to lease
the Designated Space to Tenant, then Landlord shall promptly prepare and
deliver to Tenant an amendment to this Lease consistent with the foregoing, and
Tenant shall execute and return same to Landlord within ten (10) days. Tenant's
failure to timely return the amendment shall entitle Landlord to specifically
enforce Tenant's commitment to lease the Designated Space, to lease such space
to a third party, and/or to pursue any other available legal remedy.
Notwithstanding the foregoing, it is understood that Tenant's First Right shall
be subject to any extension or expansion rights granted by Landlord to any
third party tenant hereafter occupying the First Right Space or any portion
thereof, and in no event shall any such First Right Space be deemed available
for leasing until the existing tenant thereof shall have vacated the First
Right Space. Tenant's rights under this Section 2.1(b) shall belong solely to
Steven Myers & Associates, Inc., a California corporation and may not be
assigned or transferred by it except in connection with an assignment of this
Lease to a Tenant Affiliate as described in Section 9.1(e). Any other attempted
assignment or transfer shall be void and of no force or effect.
SECTION 2.2. ACCEPTANCE OF PREMISES. Tenant acknowledges that
neither Landlord nor any representative of Landlord has made any representation
or warranty with respect to the Premises or the Building or the suitability or
fitness of either for any purpose, except as set forth in this Lease; provided
that Landlord represents that all work performed by Landlord's contractor
pursuant to Exhibit X hereto shall comply with all applicable laws and building
codes, including without limitation the existing provisions of the Americans
with Disabilities Act (the "ADA"). The taking of possession or use of the
Premises by Tenant for any purpose other than construction shall conclusively
establish that the Premises and the Building were in satisfactory condition and
in conformity with the provisions of this Lease in all respects, except for
those matters which Tenant shall have brought to Landlord's attention on a
written punch list. The list shall be limited to any items required to be
accomplished by Landlord under the Work Letter (if any) attached as Exhibit X,
and shall be delivered to Landlord within thirty (30) days after the term
("Term") of this Lease commences as provided in Article III below.
Notwithstanding the foregoing, however, Landlord agrees that it shall be
responsible for the repair of any defective items within the Premises of which
Landlord is notified within one (1) year following the Commencement Date.
Nothing contained in this Section shall affect the commencement of the Term or
the obligation of Tenant to pay rent. Landlord shall diligently complete all
punch list items of which it is notified as provided above.
SECTION 2.3. BUILDING NAME AND ADDRESS. Tenant shall not utilize any
name selected by Landlord from time to time for the Building and/or the Project
as any part of Tenant's corporate or trade name. Landlord shall have the right
to change the name, number or designation of the Building or Project without
liability to Tenant.
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ARTICLE III. TERM
SECTION 3.1. GENERAL.
(a) The Term shall be for the period shown in Item 5 of the Basic
Lease Provisions. The Term shall commence ("Commencement Date") on the earlier
of (a) subject to the provisions of Section 3.2, the Estimated Commencement
Date as set forth in Item 4 of the Basic Lease Provisions, or (b) the date
Tenant commences its business activities within the Premises. Promptly
following request by Landlord, the parties shall memorialize on a form provided
by Landlord the actual Commencement Date and the expiration date ("Expiration
Date") of this Lease.
(b) Provided that Tenant is not in default under any provision of
this Lease, either at the time of exercise of the extension right granted
herein or at the time of the commencement of such extension, and provided
further that Tenant is occupying the entire Premises and has not assigned or
sublet any of its interest in this Lease, Tenant shall have two (2) successive
options to extend the Term of this Lease for periods of sixty (60) months each.
Tenant shall exercise its right to extend the Term by and only by (i)
delivering to Landlord, not less than nine (9) months or more than twelve (12)
months prior to the then-current expiration date of the Term, Tenant's written
notice of its commitment to extend (the "Commitment Notice"); and (ii)
returning to Landlord, within fifteen (15) days after receipt, an executed
amendment to this Lease (to be prepared by Landlord upon receipt of the
Commitment Notice) setting forth the Basic Rent and other charges payable
during the extension term. The Basic Rent payable under the Lease during each
extension of the Term shall be at the prevailing market rental rate (including
periodic adjustments) for comparable and similarly improved space within the
Building as of the commencement of the applicable extension period, as
determined by Landlord based on a reasonable extrapolation of its then-current
leasing rates. In no event shall the monthly Basic Rent payable for the
extension period be less than the Basic Rent payable during the month
immediately preceding the commencement of such extension period. If Tenant
fails to timely comply with any of the provisions of this paragraph, Tenant's
right to extend the Term shall be extinguished and the Lease shall
automatically terminate as of the expiration date of the Term, without any
extension and without any liability to Landlord. Any attempt to assign or
transfer any right or interest created by this paragraph shall be void from its
inception. Unless agreed to in a writing signed by Landlord and Tenant, any
extension of the Term, whether created by an amendment to this Lease or by a
holdover of the Premises by Tenant, or otherwise, shall be deemed a part of,
and not in addition to, any duly exercised extension period permitted by this
paragraph.
SECTION 3.2. DELAY IN POSSESSION.
(a) Subject to subsection (b) below, if Landlord, for any reason
whatsoever, cannot deliver possession of the Premises to Tenant on or before
the Estimated Commencement Date, this Lease shall not be void or voidable nor
shall Landlord be liable to Tenant for any resulting loss or damage. However,
Tenant shall not be liable for any rent and the Commencement Date shall not
occur until Landlord delivers possession of the Premises and the Premises are
in fact ready for occupancy as defined below, except that if Landlord's failure
to so deliver possession on the Estimated Commencement Date is attributable to
any action or inaction by Tenant (including without limitation any Tenant Delay
described in the Work Letter, if any, attached to this Lease), then the
Commencement Date shall not be advanced to the date on which possession of the
Premises is tendered to Tenant, and Landlord shall be entitled to full
performance by Tenant (including the payment of rent) from the date Landlord
would have been able to deliver the Premises to Tenant but for Tenant's
delay(s). The Premises shall be deemed ready for occupancy upon the tendered
date, but only if and when Landlord, to the extent applicable, (a) has put into
operation all building services essential for the use of the Premises by
Tenant, (b) has provided reasonable access to the Premises for Tenant so that
they may be used without unnecessary interference, (c) has substantially
completed all the work required to be done by Landlord in this Lease, and (d)
has obtained requisite governmental approvals to Tenant's occupancy.
(b) If Landlord fails to deliver possession of the Premises, ready
for occupancy as described above, by the date ("Penalty Date") that is sixty
(60) days following the Estimated Commencement Date, as the Penalty Date shall
be extended both for the period of any Tenant Delays and for the period (but
not to exceed an additional sixty (60) days) of other delays resulting from
matters beyond Landlord's reasonable control as set forth in Section 20.9, then
Tenant shall have the right to terminate this Lease by giving written notice
thereof to Landlord after the Penalty Date but prior to Landlord's delivery of
the Premises ready for Tenant's occupancy as aforesaid. If, from time to time
prior to the Penalty Date, Landlord determines that it will not be able
to deliver possession of the Premises, ready for occupancy, by the Penalty Date,
Landlord shall deliver to Tenant a written notice setting forth Landlord's
opinion as to the revised outside date by which it shall be able to deliver the
Premises to Tenant, ready for occupancy. Within five (5) business days following
delivery of that notice, Tenant may elect by written notice to Landlord to
terminate this Lease; otherwise, the Penalty Date shall be deemed extended to
the revised date set forth in Landlord's notice.
ARTICLE IV. RENT AND OPERATING EXPENSES
SECTION 4.1. BASIC RENT. From and after the Commencement Date, Tenant
shall pay to Landlord without deduction or offset a Basic Rent for the Premises
in the total amount shown (including subsequent adjustments, if any) in Item 6
of the Basic Lease Provisions. Any rental adjustment shown in Item 6 shall be
deemed to occur on the specified monthly anniversary of the Commencement Date,
whether or not that date occurs at the end of a calendar month. The rent shall
be due and payable in advance commencing on the Commencement Date (as prorated
for any partial month) and continuing thereafter on the first day of each
successive calendar month of the Term. No demand, notice or invoice shall be
required. An installment of rent in the amount of one (1) full month's Basic
Rent at the initial rate specified in Item 6 of the Basic Lease Provisions
shall be delivered to Landlord concurrently with Tenant's execution of this
Lease and shall be applied against the Basic Rent first due hereunder.
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SECTION 4.2. OPERATING EXPENSE INCREASE.
(a) Commencing July 1, 1998, Tenant shall compensate Landlord, as
additional rent, for Tenant's proportionate shares of "Building Costs" and
"Property Taxes," as those terms are defined below, incurred by Landlord in the
operation of the Building and Project. Property Taxes and Building Costs are
mutually exclusive and may be billed separately or in combination as determined
by Landlord. Tenant's proportionate share of Property Taxes shall equal the
product of the rentable floor area of the Premises multiplied by the difference
of (i) Property Taxes per rentable square foot less (ii) the Property Tax Base
set forth in Item 7 of the Basic Lease Provisions. Tenant's proportionate share
of Building Costs shall equal the product of the rentable floor area of the
Premises multiplied by the difference of (i) Building Costs per rentable square
foot less (ii) the Building Cost Base set forth in Item 7 of the Basic Lease
Provisions. Tenant acknowledges Landlord's rights to make changes or additions
to the Building and/or Project from time to time pursuant to Section 6.5 below,
in which event the total rentable square footage within the Building and/or
Project may be adjusted. For convenience of reference, Property Taxes and
Building Costs may sometimes be collectively referred to as "Operating
Expenses."
(b) Commencing prior to the start of the first full "Expense
Recovery Period" of the Lease (as defined in Item 7 of the Basic Lease
Provisions), and prior to the start of each full or partial Expense Recovery
Period thereafter, Landlord shall give Tenant a written estimate of the amount
of Tenant's proportionate shares of Building Costs and Property Taxes for the
Expense Recovery Period or portion thereof. Commencing July 1, 1996, Tenant
shall pay the estimated amounts to Landlord in equal monthly installments, in
advance, with Basic Rent. If Landlord has not furnished its written estimate
for any Expense Recovery Period by the time set forth above, Tenant shall
continue to pay cost reimbursements at the rates established for the prior
Expense Recovery Period, if any; provided that when the new estimate is
delivered to Tenant, Tenant shall, at the next monthly payment date, pay any
accrued cost reimbursements based upon the new estimates. Landlord may from
time to time change the Expense Recovery Period to reflect a calendar year or a
new fiscal year of Landlord, as applicable, in which event Tenant's share of
Operating Expenses shall be equitably prorated for any partial year.
(c) Within one hundred twenty (120) days after the end of each
Expense Recovery Period, Landlord shall furnish to Tenant a statement showing
in reasonable detail the actual or prorated Property Taxes and Building
Costs incurred by Landlord during the period, and the parties shall within
thirty (30) days thereafter make any payment or allowance necessary to adjust
Tenant's estimated payments, if any, to Tenant's actual proportionate shares as
shown by the annual statement. If Tenant has not made estimated payments during
the Expense Recovery Period, any amount owing by Tenant pursuant to subsection
(a) above shall be paid to Landlord in accordance with Article XVI. If actual
Property Taxes or Building Costs allocable to Tenant during any Expense Recovery
Period are less than the Property Tax Base or the Building Cost Base,
respectively, Landlord shall not be required to pay the differential to Tenant.
Should Tenant fail to object in writing to Landlord's determination of actual
Operating Expenses within one (1) year following delivery of Landlord's expense
statement, Landlord's determination of actual Operating Expenses for the
applicable Expense Recovery Period shall be conclusive and binding on the
parties.
(d) Even though the Lease has terminated and the Tenant has vacated
the Premises, when the final determination is made of Tenant's share of
Property Taxes and Building Costs for the Expense Recovery Period in which the
Lease terminates, Tenant shall upon notice pay the entire increase due over the
estimated expenses paid. Conversely, any overpayment made in the event expenses
decrease shall be rebated by Landlord to Tenant.
(e) If, at any time during any Expense Recovery Period, any one or
more of the Operating Expenses are increased to a rate(s) or amount(s) in
excess of the rate(s) or amount(s) used in calculating the estimated expenses
for the year, then Tenant's estimated share of Property Taxes or Building
Costs, as applicable, shall be increased for the month in which the increase
becomes effective and for all succeeding months by an amount equal to Tenant's
proportionate share of the increase. Landlord shall give Tenant written notice
of the amount or estimated amount of the increase, the month in which the
increase will become effective, Tenant's monthly share thereof and the months
for which the payments are due. Tenant shall pay the increase to Landlord as a
part of Tenant's monthly payments of estimated expenses as provided in
paragraph (b) above, commencing with the month in which effective.
(f) The term "Building Costs" shall include all expenses of
operation and maintenance of the Building and the Project, together with all
appurtenant Common Areas (as defined in Section 6.2), and shall include the
following charges by way of illustration but not limitation: water and sewer
charges; insurance premiums or reasonable premium equivalents should Landlord
elect to self-insure any risk that Landlord is authorized to insure hereunder;
license, permit, and inspection fees; heat; light; power; janitorial services;
repairs; air conditioning; supplies; materials; equipment; tools; tenant
services; programs instituted to comply with transportation management
requirements; amortization of capital investments reasonably intended to
produce a reduction in operating charges or energy conservation; amortization
of capital investments necessary to bring the Building into compliance with
applicable laws and building codes enacted subsequent to the completion of
construction of the Building (which amortization shall be based on the
reasonably estimated useful life of the applicable capital improvement and
shall not necessarily coincide with the depreciation period for such
improvement pursuant to applicable tax laws); labor; reasonably allocated wages
and salaries, fringe benefits, and payroll taxes for administrative and other
personnel directly applicable to the Building and/or Project, including both
Landlord's personnel and outside personnel; any expense incurred pursuant to
Sections 6.1, 6.2, 6.4, 7.2, and 10.2 and Exhibits B and C below; and a
reasonable overhead/management fee that shall be competitive with the fees
charged at comparable first-class office projects in the vicinity. It is
understood that Building Costs shall include competitive charges for direct
services provided by any subsidiary or division of Landlord. The term "Property
Taxes" as used herein shall include the following: (i) all real estate taxes or
personal property taxes, as such property taxes may be reassessed from time to
time; and (ii) other taxes, documentary transfer fees, charges and assessments
which are levied with respect to this Lease or to the Building and/or the
Project, and any improvements, fixtures and equipment and other property of
Landlord located in the Building and/or the Project, except that general net
income and franchise taxes imposed against Landlord shall be excluded; and
(iii) any tax, surcharge or assessment which shall be levied in addition to or
in lieu of real estate or personal property taxes, other than taxes covered by
Article VIII; and (iv) costs and expenses incurred in contesting the amount or
validity of any Property Tax by appropriate proceedings. A copy of Landlord's
unaudited statement of expenses shall be
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made available to Tenant upon request. The Building Costs may be extrapolated by
Landlord to reflect at least ninety-five percent (95%) occupancy of the rentable
area of the Building.
(g) Notwithstanding the foregoing, Building Costs shall exclude the
following items:
(i) Costs of decorating, redecorating, or a special cleaning of any
tenant suite;
(ii) Wages, salaries, fees, and fringe benefits paid to executive
personnel or officers or partners of Landlord;
(iii) Any charge for depreciation of the Building or equipment and any
interest or other financing charge, except as otherwise authorized herein;
(iv) Any charge for Landlord's income taxes, excess profit taxes,
franchise taxes, or similar taxes on Landlord's business;
(v) All costs relating to activities for the solicitation and execution
of leases of space in the Building or Project;
(vi) All costs for which Tenant or any other tenant in the Project is
being charged other than pursuant to the Operating Expense clauses;
(vii) The cost of correcting material defects in the construction of
the Building or in the Building equipment;
(viii) The cost of any repair made by Landlord because of the total or
partial destruction of the Building or the condemnation of a portion of the
Building to the extent the cost of such repair exceeds Ten Thousand Dollars
($10,000.00) or, if the repair does not result from a loss covered by Landlord's
property insurance, One Hundred Thousand Dollars ($100,000.00);
(ix) Any increase in insurance premiums to the extent that such
increase is caused by or attributable to the use, occupancy or act of another
tenant;
(x) The cost of any items for which Landlord is reimbursed by Insurance
or otherwise compensated by parties other than tenants of the Project;
(xi) Except as specifically authorized above, the cost of any repairs,
alterations, additions, changes, replacement, and other items which under
generally accepted accounting principles are properly classified as capital
expenditures;
(xii) The cost of any removal, treatment or abatement of asbestos,
lead-based paint or any other hazardous substance or gas in the Building not
introduced by Tenant or its employee, representatives or contractors;
(xiii) Any operating expense representing an amount paid to a related
corporation, entity, or person which is in excess of the amount which would be
paid in the absence of such relationship;
(xiv) The cost of tools and equipment used initially in the
construction of the Building;
(xv) The cost of any work or service performed for or facilities
furnished to any tenant of the Project to a greater extent or in a manner more
favorable to such tenant than that available to Tenant without additional
charge;
(xvi) The cost of alterations of space in the Project leased to other
Tenants;
(xvii) The cost of overtime or other expense to Landlord in curing its
defaults or performing work expressly provided in this Lease to be borne at
Landlord's expense;
(xviii) Ground rent or similar payments to a ground lessor; and
(xix) Any material new expense category that was not included in the
Building Cost Base if (A) such expense is not then generally being incurred, and
passed through to tenants, by landlords of other first class high-rise office
projects in the vicinity, and (B) as the result of the inclusion of the expense,
total Building Costs exceed those of comparable first class office projects in
the vicinity.
(h) Provided Tenant is not then in default hereunder, Tenant shall have
the right to cause a certified public accountant to audit Landlord's Operating
Expenses not more than once during any Expense Recovery Period. Tenant shall
give notice to Landlord of Tenant's intent to audit within one (1) year after
Tenant's receipt of Landlord's expense statement which sets forth Landlord's
actual Operating Expenses. Such audit shall be conducted at a mutually agreeable
time during normal business hours at the office of Landlord or its management
agent where the records are maintained. If Tenant's audit determines that actual
Operating Expenses have been overstated by more than five percent (5%), then
subject to Landlord's right to review and/or contest the audit results, Landlord
shall reimburse Tenant for the reasonable out-of-pocket costs of such audit.
Tenant's rent shall be appropriately adjusted to reflect any overstatement in
Operating Expenses. In addition, if any component of Operating Expenses is
determined to be either inappropriate or excessive during an Expense Recovery
Period, and if the Building Cost Base or Property Tax Base also included such
component, than the appropriate Base shall concurrently be adjusted if and to
the extent appropriate. In
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the event of a dispute between Landlord and Tenant regarding the results of such
audit, either party may elect to submit the matter for binding arbitration with
JAMS/ENDISPUTE or its successor in Orange County, California. All of the
information obtained by Tenant and/or its auditor in connection with such
audit, as well as any compromise, settlement, or adjustment reached between
Landlord and Tenant as a result thereof, shall be held in strict confidence
and, except as may be required pursuant to litigation, shall not be disclosed
to any third party, directly or indirectly, by Tenant or its auditor or any of
their officers, agents or employees. Landlord may require Tenant's auditor to
execute a separate confidentiality agreement affirming the foregoing as a
condition precedent to any audit. In the event of a violation of this
confidentiality covenant in connection with any audit, then in addition to any
other legal or equitable remedy available to Landlord, Tenant shall have no
further audit rights under this Lease.
SECTION 4.3. SECURITY DEPOSIT.
(a) Concurrently with Tenant's delivery of this Lease,
Tenant shall deposit with Landlord the sum stated in Item 9 of the Basic Lease
Provisions (the "Security Deposit") to be held by Landlord as security for the
full and faithful performance of Tenant's obligations under this Lease to pay
any rent as and when due, including without limitation such additional rent as
may be owing under any provision hereof, and to maintain the Premises as
required by Sections 7.1 and 15.3. Upon any breach of those obligations by
Tenant, Landlord may apply all or part of the Security Deposit (or any accrued
interest thereon as described below) as full or partial compensation. If any
portion of the principal amount of the Security Deposit is so applied, Tenant
shall within five (5) days after written demand by Landlord deposit cash with
Landlord in an amount sufficient to restore the Security Deposit to its
pre-existing amount. Except as otherwise provided in subsection (b) below,
Landlord shall not be required to keep this Security Deposit separate from its
general funds, and Tenant shall not be entitled to interest on the Security
Deposit. If Tenant fully performs its obligations under this Lease, the
Security Deposit or any balance thereof shall be returned to Tenant or, at
Landlord's option, to the last assignee of Tenant's interest in this Lease.
(b) From the total Security Deposit stated in Item 9 of
the Basic Lease Provisions, Landlord shall segregate the sum of Eighty-One
Thousand Four Hundred Fifty-Five Dollars ($81,455.00) (the "Segregated
Portion"). The Segregated Portion shall be deposited by Landlord into an
interest bearing account and shall accrue interest for the benefit of Landlord
during the Term of this Lease. In the event of a default by Tenant, Landlord
may elect to utilize any accrued interest to cure any such default before
applying the principal balance of the Security Deposit. Provided Tenant has not
been in default under the Lease, Landlord shall return the Segregated Portion
of the Security Deposit to Tenant upon the earlier of: (i) four (4) years
following the Commencement Date of the Lease; or (ii) at such time as Tenant
has sold its common stock pursuant to a public offering and has attained a net
worth of not less than Ten Million Dollars ($10,000,000.00) as evidenced by
audited financial statements provided to Landlord. In the event the Segregated
Portion of the Security Deposit is returned early to Tenant as set forth in the
preceding sentence, then Tenant shall be afforded a credit against the Basic
Rent next payable under this Lease in the amount of the accrued interest earned
by Landlord on the Segregated Portion.
ARTICLE V. USES
SECTION 5.1. USE. Tenant shall use the Premises only for the
purposes stated in Item 3 of the Basic Lease Provisions. The parties agree that
any contrary use shall be deemed to cause material and irreparable harm to
Landlord and shall entitle Landlord to injunctive relief in addition to any
other available remedy. Tenant shall not do or permit anything to be done in
or about Premises which will in any way interfere with the rights or quiet
enjoyment of other occupants of the Building or the Project, or use or allow
the Premises to be used for any unlawful purpose, nor shall Tenant permit any
nuisance or commit any waste in the Premises or the Project. Tenant shall not
do or permit to be done anything which will invalidate or increase the cost of
any insurance policy(ies) covering the Building, the Project and/or their
contents, and shall comply with all applicable insurance underwriters rules
and the requirements of the Pacific Fire Rating Bureau or any other
organization performing a similar function. Tenant shall comply at its expense
with all present and future laws, ordinances and requirements of all
governmental authorities that pertain to Tenant or its use of the Premises,
including without limitation all federal and state occupational health and
safety and handicap access requirements, whether or not Tenant's compliance
will necessitate expenditures or interfere with its use and enjoyment of the
Premises; provided, however, that should a capital expenditure be required to
effect compliance with any such legal requirement, then such expenditure shall
be the responsibility of Landlord (subject to inclusion in Building Costs
pursuant to Section 4.2) if and only if the requirement applies to office
users generally and not to Tenant's specific use of the Premises. Tenant shall
not generate, handle, store or dispose of hazardous or toxic materials (as such
materials may be identified in any federal, state or local law or regulation)
in the Premises or Project without the prior written consent of Landlord;
provided that the foregoing shall not be deemed to proscribe the use by Tenant
of customary office supplies in normal quantities so long as such use comports
with all applicable laws. Tenant agrees that it shall promptly complete and
deliver to Landlord any disclosure form regarding hazardous or toxic materials
that may be required by any governmental agency, provided such disclosure form
either relates to materials introduced by Tenant or is otherwise required to be
completed by a tenant rather than a landlord. Tenant shall also, from time to
time upon request by Landlord, execute such affidavits concerning Tenant's best
knowledge and belief regarding the presence of hazardous or toxic materials in
the Premises. Landlord shall have the right at any time to perform an
assessment of the environmental condition of the Premises and of Tenant's
compliance with this Section. As part of any such assessment, Landlord shall
have the right, upon reasonable prior notice to Tenant, to enter and inspect
the Premises and to perform tests (including physically invasive tests),
provided those tests are performed in a manner that minimizes disruption to
Tenant. Tenant will cooperate with Landlord in connection with any assessment
by, among other things, promptly responding to inquiries and providing relevant
documentation and records. Landlord shall have no liability to Tenant with
respect to the results of any such assessments, inspections or tests. The
reasonable cost of the assessment/testing shall be reimbursed by Tenant to
Landlord if such assessment/testing determines that Tenant failed to comply
with the requirements of this Section, and in that event Tenant shall accept
custody and arrange for the disposal of any hazardous materials found in the
test samples. In all events, Tenant shall indemnify Landlord in the manner
elsewhere provided in this Lease from any release of hazardous or toxic
materials caused by Tenant, its agents, employees, contractors, subtenants or
licensees. Landlord represents that to the best of
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Landlord's knowledge, there are no hazardous or toxic materials (other than
normal maintenance, janitorial and office supplies) on or under the Project;
should any such materials be discovered, and should Landlord be required to
remediate them, then so long as the materials were not introduced by Tenant or
its agents, employees, subtenants, or contractors, Landlord shall do so at its
expense and shall indemnify, defend and hold Tenant harmless from any
liability, cost or expense in connection therewith. The foregoing covenants
shall survive the expiration or earlier termination of this Lease.
SECTION 5.2. SIGNS.
(a) Tenant, upon obtaining the approval of Landlord in
writing, may affix a sign (restricted solely to Tenant's name as set forth
herein or "SM&A" or such other name as Landlord may consent to in writing) in
the eighth floor elevator lobby or adjacent to the entry door of the Premises
and shall maintain the sign in good condition and repair during the Term. The
sign shall conform to the criteria for signs established by Landlord and shall
be ordered through Landlord. Landlord shall also make available signage for
Tenant in its lobby tenant directory, provided that the cost of directory
strips shall be borne by Tenant. Tenant shall not place or allow to be placed
any other sign, decoration or advertising matter of any kind that is visible
from the exterior of the Premises. Any violating sign or decoration may be
immediately removed by Landlord at Tenant's expense without notice and without
the removal constituting a breach of this Lease or entitling Tenant to claim
damages.
(b) Tenant shall have the right to install one line of
signage in the third position on the north block monument sign at the Building,
which signage shall consist only of the name "Stephen Myers Assoc." or SM&A".
The type, location and design of such signage shall be subject to Landlord's
prior written approval and shall be subject to the MacArthur Court Sign
Criteria. Fabrication and installation of such signage shall be at Tenant's sole
cost and expense. Except for the foregoing, no sign, advertisement or notice
visible from the exterior of the Premises shall be inscribed, painted or affixed
by Tenant on any part of the Premises without the prior consent of Landlord.
Tenant's signage right shall belong solely to Steven Myers & Associates, Inc., a
California corporation and may not be transferred or assigned without Landlord's
prior written consent, which may be withheld by Landlord in Landlord's sole
discretion. In the event Tenant, exclusively or any subtenant(s), fails to
occupy the entire Premises, then Tenant shall, within thirty (30) days following
notice from Landlord, remove the monument signage at Tenant's expense. Tenant
shall also remove such signage promptly following the expiration or earlier
termination of this Lease. Any such removal shall be at Tenant's sole expense,
and Tenant shall bear the cost of any resulting repairs to the monument sign
that are reasonably necessary due to the removal.
ARTICLE VI. LANDLORD SERVICES
SECTION 6.1. UTILITIES AND SERVICES. Landlord shall furnish to the
Premises the utilities and services described in Exhibit B, subject to the
conditions and payment obligations and standards set forth in this Lease.
Landlord shall not be liable for any failure to furnish any services or
utilities when the failure is the result of any accident or other cause beyond
Landlord's reasonable control, nor shall Landlord be liable for damages
resulting from power surges or any breakdown in telecommunications facilities
or services. Landlord's temporary inability to furnish any services or
utilities shall not entitle Tenant to any damages, relieve Tenant of the
obligation to pay rent or constitute a constructive or other eviction of
Tenant, except that Landlord shall diligently attempt to restore the service or
utility promptly. Tenant shall comply with all rules and regulations which
Landlord may reasonably establish for the provision of services and utilities,
and shall cooperate with all reasonable conservation practices established by
Landlord. Landlord shall at all reasonable times have free access to all
electrical and mechanical installations of Landlord. Notwithstanding the
foregoing, however, in the event a utility interruption renders the Premises
untenantable for more than five (5) consecutive business days except as the
result of Tenant's negligence or any casualty event governed by Article XI,
then Tenant's rent shall abate from and after the sixth business day until the
utility is restored.
SECTION 6.2. OPERATION AND MAINTENANCE OF COMMON AREAS. During the
Term, Landlord shall operate and maintain in good condition and repair all
Common Areas within the Building and the Project. The term "Common Areas" shall
mean all areas within the Building and other buildings in the Project which are
not held for exclusive use by persons entitled to occupy space, and all other
appurtenant areas and improvements provided by Landlord for the common use of
Landlord and tenants and their respective employees and invitees, including
without limitation parking areas and structures, driveways, sidewalks,
landscaped and planted areas, hallways and interior stairwells not located
within the premises of any tenant, common entrances and lobbies, elevators, and
restrooms not located within the premises of any tenant.
SECTION 6.3. USE OF COMMON AREAS. The occupancy by Tenant of the
Premises shall include the use of the Common Areas in common with Landlord and
with all others for whose convenience and use the Common Areas may be provided
by Landlord, subject, however, to compliance with all rules and regulations as
are prescribed from time to time by Landlord. Landlord shall at all times
during the Term have exclusive control of the Common Areas, and may restrain
any use or occupancy, except as authorized by Landlord's rules and regulations.
Tenant shall keep the Common Areas clear of any obstruction or unauthorized use
related to Tenant's operations. Landlord may temporarily close any portion of
the Common Areas for repairs, remodeling and/or alterations, to prevent a
public dedication or the accrual of prescriptive rights, or for any other
reasonable purpose.
SECTION 6.4. PARKING. Landlord hereby leases to Tenant, and Tenant
hereby agrees to lease from Landlord for the term of this Lease, the number of
reserved vehicle parking spaces set forth in Item 12 of the Basic Lease
Provisions and up to the number of unreserved spaces set forth in Item 12.
Notwithstanding the foregoing, Tenant agrees that it shall commit to lease, for
the remainder of the Term, the number of unreserved spaces that Tenant or its
employees are actually leasing as of the end of the sixth (6th) month of the
Term; any additional spaces shall thereafter be subject to their availability
as determined by Landlord. The parking spaces shall be provided in accordance
with the provisions set forth in Exhibit C to this Lease.
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SECTION 6.5 CHANGES AND ADDITIONS BY LANDLORD. Landlord reserves the
right to make alterations or additions to the Building or the Project, or to the
attendant fixtures, equipment and Common Areas. No change shall entitle Tenant
to any abatement of rent or other claim against Landlord, provided that the
change does not deprive Tenant of reasonable access to or use of the Premises,
does not materially adversely affect Tenant's parking rights, and does not
materially impair the visibility of Tenant's monument sign.
ARTICLE VII. MAINTAINING THE PREMISES
SECTION 7.1. TENANT'S MAINTENANCE AND REPAIR. Tenant at its sole expense
shall make all repairs necessary to keep the Premises in the condition as
existed on the Commencement Date (or on any later date that the improvements
may have been installed), excepting ordinary wear and tear. All repairs shall
be at least equal in quality to the original work, shall be made only by a
licensed, bonded contractor approved in writing in advance by Landlord and
shall be made only at the time or times approved by Landlord. Any contractor
utilized by Tenant shall be subject to Landlord's standard requirements for
contractors, as modified from time to time. Landlord may impose reasonable
restrictions and requirements with respect to repairs, as provided in Section
7.3, and the provisions of Section 7.4 shall apply to all repairs.
Alternatively, Landlord may elect to make any such repair on behalf of Tenant
and at Tenant's expense, and Tenant shall promptly reimburse Landlord as
additional rent for all costs incurred upon submission of an invoice.
SECTION 7.2. LANDLORD'S MAINTENANCE AND REPAIR.
(a) Subject to Section 7.1 and Article XI, Landlord shall
provide service, maintenance and repair with respect to any air conditioning,
ventilating or heating equipment which serves the Premises (exclusive of any
supplemental HVAC equipment installed by or at the request of Tenant) and shall
maintain in good repair the roof, foundations, footings, the exterior surfaces
of the exterior walls of the Building, and the structural, electrical and
mechanical systems, except that Tenant at its expense shall make all repairs
which Landlord deems reasonably necessary as a result of the act or negligence
of Tenant, its agents, employees, invitees, subtenants or contractors. Landlord
shall have the right to employ or designate any reputable person or firm,
including any employee or agent of Landlord or any of Landlord's affiliates or
divisions, to perform any service, repair or maintenance function. Landlord
need not make any other improvements or repairs except as specifically required
under this Lease, and nothing contained in this Section shall limit Landlord's
right to reimbursement from Tenant for maintenance, repair costs and
replacement costs as provided elsewhere in this Lease. Tenant understands that
it shall not make repairs at Landlord's expense or by rental offset.
(a) Except as provided in Sections 11.1 and 12.1 below, there
shall be no abatement of rent and no liability of Landlord by reason of any
injury to or interfere with Tenant's business arising from the making of any
repairs, alterations or improvements to any portion of the Building, including
repairs to the Premises, nor shall any related activity by Landlord constitute
an actual or constructive eviction; provided, however, that in making repairs,
alterations or improvements, Landlord shall interfere as little as reasonably
practicable with the conduct of Tenant's business in the Premises.
SECTION 7.3. ALTERATIONS. Tenant shall make no alterations, additions or
improvements to the Premises without the prior written consent of Landlord.
Landlord's consent shall not be unreasonably withheld as long as the proposed
changes do not affect the structural, electrical or mechanical components or
systems of the Building and are not visible from the exterior of the Premises.
Landlord may impose, as a condition to its consent, any requirements that
Landlord in its discretion may deem reasonable or desirable, including but not
limited to a requirement that all work be covered by a lien and completion bond
satisfactory to Landlord and requirements as to the manner, time, and
contractor for performance of the work. Without limiting the generality of the
foregoing, Tenant shall use Landlord's designated mechanical and electrical
contractors for all work affecting the mechanical or electrical systems of the
Building. Tenant shall obtain all required permits for the work and shall
perform the work in compliance with all applicable laws, regulations and
ordinances, and Landlord shall be entitled to a supervision fee in the amount
of five percent (5%) of the cost of the work. Under no circumstances shall
Tenant make any improvement which incorporates asbestos-containing construction
materials into the Premises. Any request for Landlord's consent shall be made
in writing and shall contain architectural plans describing the work in detail
reasonably satisfactory to Landlord. Unless Landlord otherwise agrees in
writing, all alterations, additions or improvements affixed to the Premises
(excluding moveable trade fixtures and furniture) shall become the property of
Landlord and shall be surrendered with the Premises at the end of the Term,
except that Landlord may, by notice to Tenant given at the time of Landlord's
consent to the alteration or improvement, require Tenant to remove by the
Expiration Date, or sooner termination date of this Lease, all or any
alterations, decorations, fixtures, additions, improvements and the like
installed either by Tenant or by Landlord at Tenant's request and to repair any
damage to the Premises arising from that removal. Landlord may require Tenant
to remove an improvement provided as part of the initial build-out pursuant to
Exhibit X, if any, if and only if the improvement is a non-building standard
item and Tenant is notified of the requirement prior to the build-out. Except
as otherwise provided in this Lease or in any Exhibit to this Lease, should
Landlord make any alteration or improvement to the Premises at the request of
Tenant, Landlord shall be entitled to prompt reimbursement from Tenant for all
costs incurred.
SECTION 7.4. MECHANIC'S LIENS. Tenant shall keep the Premises free from
any liens arising out of any work performed, materials furnished, or
obligations incurred by or for Tenant. Upon request by Landlord, Tenant shall
promptly cause any such lien to be released by posting a bond in accordance
with California Civil Code Section 3143 or any successor statute. In the
event that Tenant shall not, within thirty (30) days following the imposition
of any lien, cause the lien to be released of record by payment or posting of a
proper bond, Landlord shall have, in addition to all other available remedies,
the right to cause the lien to be released by any means it deems proper,
including payment of or defense against the claim giving rise to the lien. All
expenses so incurred by Landlord's attorney's fees, shall be reimbursed by
Tenant promptly following Landlord's demand, together with interest from the
date of payment by Landlord at the maximum rate permitted by law until paid.
Tenant shall give Landlord no less than twenty (20) days' prior notice in
writing before commencing construction of any kind on the Premises so that
Landlord may post and maintain notices of nonresponsibility on the Premises.
SECTION 7.5. ENTRY AND INSPECTION. Landlord shall at all reasonable
times have the right to enter the Premises to inspect them, to supply services
in accordance with this Lease, to protect the interests of Landlord in the
Premises, to make repairs and renovations as reasonably deemed necessary by
Landlord, and submit the Premises to prospective or actual purchasers or
encumbrance holders (or, during the last one hundred and eighty (180) days of
the Term or when an uncured Tenant default exists, to prospective tenants), all
without being deemed to have caused an eviction of Tenant and without abatement
of rent except as provided elsewhere in this Lease. Landlord shall at all times
have and retain a key which unlocks all of the doors in the Premises,
excluding Tenant's vaults and safes, and Landlord shall have the right to use
any and all means which Landlord may deem proper to open the doors in an
emergency in order
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to obtain entry to the Premises, and any entry to the Premises obtained by
Landlord shall not under any circumstances be deemed to be a forcible or
unlawful entry into, or a detainer of, the Premises, or any eviction of Tenant
from the Premises.
ARTICLE VIII. TAXES AND ASSESSMENTS ON TENANT'S PROPERTY
Tenant shall be liable for and shall pay before delinquency, all taxes and
assessments levied against all personal property of Tenant located in the
Premises. When possible Tenant shall cause its personal property to be assessed
and billed separately from the real property of which the Premises form a part.
If any taxes on Tenant's personal property are levied against Landlord or
Landlord's property and if Landlord pays the same, or if the assessed value of
Landlord's property is increased by the inclusion of a value placed upon the
personal property of Tenant and if Landlord pays the taxes based upon the
increased assessment, Tenant shall pay to Landlord the taxes so levied against
Landlord or the proportion of the taxes resulting from the increase in the
assessment.
ARTICLE IX. ASSIGNMENT AND SUBLETTING
SECTION 9.1. RIGHTS OF PARTIES.
(a) Notwithstanding any provision of this Lease to the contrary,
Tenant will not, either voluntarily or by operation of law, assign, sublet,
encumber, or otherwise transfer all or any part of Tenant's interest in this
lease, or permit the Premises to be occupied by anyone other than Tenant,
without Landlord's prior written consent, which consent shall not unreasonably
be withheld in accordance with the provisions of Section 9.1.(c). Landlord
hereby approves a subletting of a portion of the Premises to Summit Aviation,
Inc., a California corporation, a wholly-owned subsidiary of Tenant. No other
assignment (whether voluntary, involuntary or by operation of law) or
subletting shall be valid or effective without Landlord's prior written consent
and, at Landlord's election, shall constitute a material default of this Lease.
Landlord shall not be deemed to have given its consent to any assignment or
subletting by any other course of action, including its acceptance of any name
for listing in the Building directory. To the extent not prohibited by
provisions of the Bankruptcy Code, 11 U.S.C. Section 101 et seq. (the
"Bankruptcy Code"), including Section 365(f)(1), Tenant on behalf of itself and
its creditors, administrators and assigns waives the applicability of Section
365(e) of the Bankruptcy Code unless the proposed assignee of the Trustee for
the estate of the bankrupt meets Landlord's standard for consent as set forth
in Section 9.1(c) of this Lease. If this Lease is assigned to any person or
entity pursuant to the provisions of the Bankruptcy Code, any and all monies or
other considerations to be delivered in connection with the assignment shall be
delivered to Landlord, shall be and remain the exclusive property of Landlord
and shall not constitute property of Tenant or of the estate of Tenant within
the meaning of the Bankruptcy Code. Any person or entity to which this Lease is
assigned pursuant to the provisions of the Bankruptcy Code shall be deemed to
have assumed all of the obligations arising under this Lease on and after the
date of the assignment, and shall upon demand execute and deliver to Landlord
an instrument confirming that assumption.
(b) If Tenant or any guarantor of Tenant ("Tenant's Guarantor") is a
corporation, or is an unincorporated association or partnership, the transfer of
any stock or interest in the corporation, association or partnership which
results in a change in the voting control of Tenant or Tenant's Guarantor, if
any, shall be deemed an assignment within the meaning and provisions of this
Article. In addition, any change in the status of the entity, such as, but not
limited to, the withdrawal of a general partner, shall be deemed an assignment
within the meaning of this Article.
(c) If Tenant desires to transfer an interest in this Lease, it shall
first notify Landlord of its desire and shall submit in writing to Landlord: (i)
the name and address of the proposed transferee; (ii) the nature of any proposed
subtenant's or assignee's business to be carried on in the Premises; (iii) the
terms and provisions of any proposed sublease or assignment; and (iv) any other
information requested by Landlord and reasonably related to the transfer. Except
as provided in Subsection (d) of this Section, Landlord shall not unreasonably
withhold its consent, provided: (1) the use of the Premises will be consistent
with the provisions of this Lease and with Landlord's commitment to other
tenants of the Building and Project; (2) fifty percent (50%) of any excess rent
received by the Tenant from the assignment or subletting, whether during or
after the Term of this Lease, shall be paid to Landlord when received after
amortizing and deducting the out-of-pocket costs (i.e., tenant improvements,
brokerage commissions, and the like) incurred by Tenant in effecting the
transfer; (3) any proposed subtenant or assignee demonstrates that it is
financially responsible by submission to Landlord of all reasonable information
as Landlord may request concerning the proposed subtenant or assignee,
including, but not limited to, a balance sheet of the proposed subtenant or
assignee as of a date within ninety (90) days of the request for Landlord's
consent and statements of income or profit and loss of the proposed subtenant or
assignee for the two-year period preceding the request for Landlord's consent;
(4) any proposed subtenant or assignee demonstrates to Landlord's reasonable
satisfaction a record of successful experience in business; (5) the proposed
assignee or subtenant is neither an existing tenant of the Building or Project
nor a prospective tenant with whom Landlord is then actively negotiating; and
(6) the proposed transfer will not impose additional burdens or adverse tax
effects on Landlord. If Landlord consents to the proposed transfer, Tenant may
within ninety (90) days after the date of the consent effect the transfer upon
the terms described in the information furnished to Landlord; provided that any
material change in the terms shall be subject to Landlord's consent as set forth
in this Section. Landlord shall approve or disapprove any requested transfer
within thirty (30) days following receipt of Tenant's written request and the
information set forth above. Tenant shall pay to Landlord a transfer fee of Five
Hundred Dollars ($500.00) if and when any transfer requested by Tenant is
approved.
(d) Notwithstanding the provisions of Subsection (c) above, in lieu
of consenting to a proposed assignment or subletting, Landlord may elect to
(i) sublease the Premises (or the portion proposed to be subleased), or take an
assignment of Tenant's interest in this Lease, upon the same terms as offered to
the proposed subtenant or assignee (excluding terms relating to the purchase of
personal property, the use of Tenant's name or the continuation of Tenant's
business), or (ii) terminate this Lease as to the portion of the Premises
proposed to be subleased or assigned with a proportionate abatement in the rent
payable under this Lease, effective on the date that the proposed sublease or
assignment would have become effective. Landlord may thereafter, at its option,
assign or re-let any space so recaptured to any third party, including without
limitation the proposed transferee or Tenant. Notwithstanding the foregoing,
however, should Landlord exercise its right of recapture pursuant to this
subsection, Tenant may, within five (5) business days following delivery of
Landlord's recapture notice, elect by written notice to rescind Tenant's
request to sublease or assign this Lease, in which event Landlord's recapture
election shall be null and void.
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(e) Notwithstanding Article IX or anything to the contrary
contained herein, Tenant shall have the right, without Landlord's consent but
with prior written notice to Landlord, to assign this Lease or sublet all of
the Premises for the then remaining term of this Lease to any of the following
entities ("Tenant Affiliate"); (a) any corporation which owns one hundred
percent (100%) of Tenant's stock (Tenant's parent); (b) any corporation in which
Tenant owns one hundred percent (100%) of the stock hereof (Tenant's
subsidiary); (c) any company which directly or indirectly has a controlling
interest in Tenant or in which Tenant has a controlling interest; (d) a
corporation which succeeds to the assets or business of Tenant or Tenant's
parent as a result of merger or consolidation; or (e) a corporation or other
business entity acquiring all or substantially all of Tenant's assets or capital
stock. No such assignment, sublease or other transfer shall release the original
Tenant or any assigns thereof from liability under this Lease, except that a
Tenant/assignor shall be released in the event of merger or consolidation
involving that Tenant/assignor where such party is not the surviving entity and
the survivor assumes liability hereunder.
SECTION 9.2. EFFECT OF TRANSFER. No subletting or assignment, even
with the consent of Landlord, shall relieve Tenant, or any successor-in-interest
to Tenant hereunder, of its obligation to pay rent and to perform all its other
obligations under this Lease. Moreover, Tenant shall indemnify and hold Landlord
harmless, as provided in Section 10.3, for any act or omission by an
assignee or subtenant. Each assignee, other than Landlord, shall be deemed to
assume all obligations of Tenant under this Lease and shall be liable jointly
and severally with Tenant for the payment of all rent, and for the due
performance of all of Tenant's obligations under this Lease. Such joint and
several liability shall not be discharged or impaired by any subsequent
modification or extension of this Lease; provided that no subsequent
modification shall increase the financial liability of a prior transferor
unless such modification either memorializes the exercise of an option existing
at the time of the transfer or is otherwise agreed to in writing by the
transferor. No transfer shall be binding on a Landlord unless any document
memorializing the transfer is delivered to Landlord and both the
assignee/subtenant and Tenant deliver to Landlord an executed consent to
transfer instrument prepared by Landlord and consistent with the requirements of
this Article. The acceptance by Landlord of any payment due under this Lease
from any other person shall not be deemed to be a waiver by Landlord of any
provision of this Lease or to be a consent to any transfer. Consent by Landlord
to one or more transfers shall not operate as a waiver or estoppel to the
future enforcement by Landlord of its rights under this Lease. In addition to
the foregoing, no change in the status of Tenant or any party jointly and
severally liable with Tenant as aforesaid (e.g., by conversion to a limited
liability company or partnership) shall serve to abrogate the liability of any
person or entity for the obligations of Tenant, including any obligations that
may be incurred by Tenant after the status change by exercise of a
pre-existing right in this Lease.
SECTION 9.3. SUBLEASE REQUIREMENTS. The following terms and conditions
shall apply to any subletting by Tenant of all or any part of the Premises and
shall be included in each sublease:
(a) Tenant hereby irrevocably assigns to Landlord all of Tenant's
interest in all rentals and income arising from any sublease of the Premises,
and Landlord may collect such rent and income and apply same toward Tenant's
obligations under this Lease; provided, however, that until a default occurs
in the performance of Tenant's obligations under this Lease, Tenant shall have
the right to receive and collect the sublease rentals. Landlord shall not, by
reason of this assignment or the collection of sublease rentals, be deemed
liable to the subtenant for the performance of any of Tenant's obligations
under the sublease. Tenant hereby irrevocably authorizes and directs any
subtenant, upon receipt of a written notice from Landlord stating that an
uncured default exists in the performance of Tenant's obligations under this
Lease, to pay to Landlord all sums then and thereafter due under the sublease.
Tenant agrees that the subtenant may rely on that notice without any duty of
further inquiry and notwithstanding any notice or claim by Tenant to the
contrary. Tenant shall have no right or claim against the subtenant or Landlord
for any rentals so paid to Landlord. In the event Landlord collects amounts from
subtenants that exceed the total amount then due from Tenant hereunder,
Landlord shall promptly remit the excess to Tenant.
(b) In the event of the termination of this Lease, Landlord may, at
its sole option, take over Tenant's entire interest in any sublease and, upon
notice from Landlord, the subtenant shall attorn to Landlord. In no event,
however, shall Landlord be liable for any previous act or omission by Tenant
under the sublease or for the return of any advance rental payments or deposits
under the sublease that have not been actually delivered to Landlord, nor shall
Landlord be bound by any sublease modification executed without Landlord's
consent or for any advance rental payment by the subtenant in excess of one
month's rent. The general provisions of this Lease, including without
limitation those pertaining to insurance and indemnification, shall be deemed
incorporated by reference into the sublease despite the termination of this
Lease.
(c) Tenant agrees that Landlord may, at its sole option, authorize a
subtenant of the Premises to cure a default by Tenant under this Lease. Should
Landlord accept such cure, the subtenant shall have a right of reimbursement
and offset from and against Tenant under the applicable sublease.
ARTICLE X. INSURANCE AND INDEMNITY
SECTION 10.1. TENANT'S INSURANCE. Tenant, at its sole cost and expense,
shall provide and maintain in effect the insurance described in Exhibit D.
Evidence of that insurance must be delivered to Landlord prior to the
Commencement Date.
SECTION 10.2. LANDLORD'S INSURANCE. Landlord may, at its election,
provide any or all of the following types of insurance, with or without
deductible and in amounts and coverages as may be determined by Landlord in its
discretion: "all risk" property insurance, subject to standard exclusions,
covering the Building or Project, and such other risks as Landlord or its
mortgagees may from time to time deem appropriate, and commercial general
liability coverage. Landlord shall not be required to carry insurance of any
kind on Tenant's trade fixtures, furnishings, equipment, signs and all other
items of personal property, and shall not be obligated to repair or replace
that property should damage occur; provided that Landlord's property insurance
policy shall cover building standard tenant improvement, which improvements
shall at all times by owned by Landlord. All proceeds of insurance maintained by
Landlord upon the Building and Project shall be the property of Landlord,
whether or not Landlord is obligated to or elects to make any repairs.
SECTION 10.3. INDEMNITY.
(a) To the fullest extent permitted by law, but subject to Section
10.5, Tenant shall defend, indemnify and hold harmless Landlord, its agents,
lenders, and any and all affiliates of Landlord, from and against any and all
claims, liabilities, costs or expenses arising either before or after the
Commencement Date from Tenant's use or occupancy of the Premises, the Building
or the Common Areas, or from the conduct of its business, or from any activity,
work, or thing done, permitted or suffered by Tenant or its agents, employees,
subtenants, invitees or licensees in or about
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the Premises, the Building or the Common Areas, or from any default in the
performance of any obligation on Tenant's part to be performed under this
Lease, or from any act or negligence of Tenant or its agents, employees,
subtenants, invitees or licensees. Landlord may, at its option, require Tenant
to assume Landlord's defense in any action covered by this Section through
counsel reasonably satisfactory to Landlord.
(b) To the fullest extent permitted by law, but subject to Sections
10.4 and 10.5, Landlord shall indemnify and hold harmless Tenant from and
against any and all claims, liabilities, costs or expenses arising either
before or after the Commencement Date from any default in the performance of
Landlord's obligations hereunder or from the negligent or willful misconduct of
Landlord or its agents or employees.
SECTION 10.4. LANDLORD'S NONLIABILITY. Landlord shall not be liable to
Tenant, its employees, agents and invitees, and Tenant hereby waives all claims
against Landlord, its employees and agents for loss of or damage to any
property, or any injury to any person, or loss or interruption of business or
income, resulting from any condition including, but not limited to, fire,
explosion, falling plaster, steam, gas, electricity, water or rain which may
leak or flow from or into any part of the Premises or from the breakage,
leakage, obstruction or other defects of the pipes, sprinklers, wires,
appliances, plumbing, air conditioning, electrical works or other fixtures in
the Building, whether the damage or injury results from conditions arising in
the Premises or in other portions of the Building. It is understood that any
such condition may require the temporary evacuation or closure of all or a
portion of the Building. Should Tenant elect to receive any service from a
concessionaire, licensee or third party tenant of Landlord, Tenant shall not
seek recourse against Landlord for any breach or liability of that service
provider. Neither Landlord nor its agents shall be liable for interference with
light or other similar intangible interests. Tenant shall immediately notify
Landlord in case of fire or accident in the Premises, the Building or the
Project and of defects in any improvements or equipment.
SECTION 10.5. WAIVER OF SUBROGATION. Each party hereby agrees to waive
any right of recovery against the other party for any damage to or loss of the
property of the waiving party to the extent such damage or loss is covered by a
property insurance policy carried by the waiving party. Each party further
agrees to cause its property insurance policy to provide for or authorize a
waiver of subrogation in favor of the other party hereto.
ARTICLE XI. DAMAGE OR DESTRUCTION
SECTION 11.1. RESTORATION.
(a) If the Building of which the Premises are a part is damaged as
the result of an event of casualty, Landlord shall repair that damage as soon
as reasonably possible unless: (i) Landlord reasonably determines that the cost
of repair would exceed ten percent (10%) of the full replacement cost of the
Building ("Replacement Cost") and the damage is not covered by Landlord's fire
and extended coverage insurance (or by a normal extended coverage policy should
Landlord fail to carry that insurance); or (ii) Landlord reasonably determines
that the cost of repair would exceed twenty-five percent (25%) of the
Replacement Cost; or (iii) Landlord reasonably determines that the cost of
repair would exceed ten percent (10%) of the Replacement Cost and the damage
occurs during the final twelve (12) months of the Term. Should Landlord elect
not to repair the damage for one of the preceding reasons, Landlord shall so
notify Tenant in the "Casualty Notice" (as defined below), and this Lease shall
terminate as of the date of delivery of that notice.
(b) As soon as reasonably practicable following the casualty event
but not later than sixty (60) days thereafter, Landlord shall notify Tenant in
writing ("Casualty Notice") of Landlord's election, if applicable, to terminate
this Lease. If this Lease is not so terminated, the Casualty Notice shall set
forth the anticipated period for repairing the casualty damage. If the
anticipated repair period exceeds the period (the "Maximum Period") that
commences on the date of the casualty and extends thereafter for two hundred
(210) days (or ninety (90) days if the casualty occurs during the final twelve
months of the Lease Term, as the Term may have been extended), and if the
damage is so extensive as to reasonably prevent Tenant's substantial use and
enjoyment of the Premises, then Tenant may elect to terminate this Lease by
written notice to Landlord within ten (10) days following delivery of the
Casualty Notice. In the event this Lease is not terminated by either party,
Landlord shall update Tenant monthly on its current construction schedule for
the repair work. If the anticipated repair period as set forth in the Casualty
Notice is less than the Maximum Period but Landlord determines subsequently
that the actual repair period will exceed the Maximum Period, then Landlord
shall so notify Tenant and Tenant may, within five (5) business days
thereafter, elect to terminate this Lease by written notice to Landlord;
otherwise, the Maximum Period shall be deemed extended as set forth in
Landlord's notice. Conversely, should Tenant at any time reasonably determine
that Landlord will be unable to substantially complete the repair work within
the Maximum Period (as the Maximum Period may be extended as set forth above),
then subject to Landlord's right to contest that determination by arbitration
pursuant to Section 14.7, Tenant may elect to terminate this Lease by written
notice to Landlord.
(c) Except for Tenant's obligation to pay for its proportionate
share of Landlord's cost of repair as part of Operating Expenses (subject to
the limitation set forth in Section 4.2(g) above), the rental to be paid under
this Lease shall be abated in the same proportion that the floor area of the
Premises that is rendered unusable by the damage from time to time bears to the
total floor area of the Premises.
(d) Notwithstanding the provisions of subsections (a), (b) and (c)
of this Section, but subject to Section 10.5 above, the cost of any repairs
shall be borne by Tenant, and Tenant shall not be entitled to rental abatement
or termination rights, if the damage is due to the fault or neglect of Tenant
or its employees, subtenants, invitees or representatives. In addition, the
provisions of this Section shall not be deemed to require Landlord to repair
any improvements or fixtures that Tenant is obligated to repair or insure
pursuant to any other provision of this Lease.
SECTION 11.2 LEASE GOVERNS. Tenant agrees that the provisions of this
Lease, including without limitation Section 11.1, shall govern any damage or
destruction and shall accordingly supersede any contrary statute or rule of law.
ARTICLE XII. EMINENT DOMAIN
SECTION 12.1 TOTAL OR PARTIAL TAKING. If all or a material portion of
the Premises or the parking structure for the Project is taken by any lawful
authority by exercise of the right of eminent domain, or sold to prevent a
taking, either Tenant or Landlord may terminate this Lease effective as of the
date possession is required to be surrendered to the authority. In the event
title to a portion of the Building or Project, other than the Premises, is
taken or sold in lieu of
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taking, and if Landlord elects to restore the Building in such a way as to
alter the Premises materially, either party may terminate this Lease, by
written notice to the other party, effective on the date of vesting of title.
In the event neither party has elected to terminate this Lease as provided
above, then Landlord shall promptly, after receipt of a sufficient condemnation
award, proceed to restore the Premises and Common Areas to substantially their
condition prior to the taking, and a proportionate allowance shall be made to
Tenant for the rent corresponding to the time during which, and to the part of
the Premises of which, Tenant is deprived on account of the taking and
restoration. In the event of a taking, Landlord shall be entitled to the entire
amount of the condemnation award without deduction for any estate or interest
of Tenant; provided that nothing in this Section shall be deemed to give
Landlord any interest in, or prevent Tenant from seeking any award against the
taking authority for, the taking of personal property and fixtures belonging to
Tenant or for relocation or business interruption expenses recoverable from the
taking authority.
SECTION 12.2 TEMPORARY TAKING. No temporary taking of the Premises shall
terminate this Lease, and any award specifically attributable to a temporary
taking of the Premises shall belong entirely to Landlord. A temporary taking
shall be deemed to be a taking of the use or occupancy of the Premises for a
period of not to exceed ninety (90) days. Landlord agrees that Tenant's rent
shall abate during any temporary taking of the Premises.
ARTICLE XIII. SUBORDINATION; ESTOPPEL CERTIFICATE
SECTION 13.1 SUBORDINATION. Tenant agrees that this Lease and its other
interests, if any, in the Project are and shall be subordinate to any first
lien now of record affecting the Premises and, if the holder of such first lien
also holds a second lien now of record affecting the Premises, to such second
lien (such first lien and such second lien, if any, being hereinafter
collectively called the "Prior Lien"), to any and all advances made or to be
made under the Prior Lien, to the interest on all obligations secured by the
Prior Lien, to all other sums secured or to be secured thereby, including
without limitation attorneys' fees, taxes and insurance premiums, and to all
renewals, replacements, extensions and modifications of the Prior Lien. Tenant
further agrees that this Lease and its other interests, if any, in the Project
shall be subordinate to any first lien that may hereafter be placed on the
Premises, to any and all advances made or to be made under such first lien, to
the interest on all obligations secured by such first lien, and to all
renewals, replacements, extensions and modifications of such first lien,
provided that the holder of such first lien delivers to Tenant an agreement by
such lien holder that Tenant's rights and interests with respect to the
Premises and the Project shall not be impaired or disturbed by foreclosure or
other enforcement or other enforcement of such first lien except as expressly
permitted under this Lease or any related agreement between Landlord and Tenant
with respect to the Project. The holder of any lien described above ("Lien
Holder"), at any time prior to foreclosure or other enforcement of its lien(s),
may elect to subordinate such lien(s) to this Lease by recording a
subordination agreement effecting such subordination and delivering a copy
thereof to Tenant at the address set forth in this Lease. The failure of any
Lien Holder to include Tenant in a judicial foreclosure action or the election
by such Lien Holder to foreclose non-judicially its encumbrance on Landlord's
reversionary interest in the Premises under this Lease only, expressly
excluding Tenant's leasehold estate under this Lease, shall be deemed (i) an
election by such Lien Holder not to impair or disturb Tenant's rights and
interests with respect to the Premises and the Project except as expressly
permitted under this Lease or any related agreement between Landlord and Tenant
with respect to the Project, and (ii) the agreement by Tenant to attorn to any
person who succeeds to Landlord's interest in the Premises. In the event of any
foreclosure or other enforcement of an encumbrance on the Premises which is
subordinate to this Lease pursuant to the foregoing provisions or otherwise,
Tenant agrees to attorn to any person who succeeds to Landlord's interest in
the Premises. Tenant further agrees that, if requested by such transferee,
Tenant shall enter into a new lease of the Premises with such transferee for
the balance then remaining of the term of the Lease and upon the same terms and
conditions as are then contained in the Lease. In the event of any foreclosure
or other enforcement of a Prior Lien or other first lien on the Premises which
is subordinate to this Lease as aforesaid, Tenant agrees that its rights to
insurance and/or condemnation proceeds pursuant to this Lease shall be
subordinate to the lien holder's rights to such proceeds pursuant to its
security instruments. Any subordination or agreement to attorn by Tenant and
any subordination by a Lien Holder pursuant to this Section shall be effective
without the need for any further act of Tenant. However, within ten (10) days
of any written request from Landlord or any Lien Holder, Tenant shall execute
and deliver any documents or instruments that may be required by the Lien
Holder to effectuate any such subordination or attornment. If Tenant fails to
timely execute and deliver any such documents or instruments, then in addition
to any other available remedy, Tenant irrevocably constitutes and appoints
Landlord as Tenant's special attorney-in-fact, coupled with an interest, to
execute and deliver any such documents or instruments. Tenant acknowledges that
Landlord's Lien Holders and successors-in-interest are intended third party
beneficiaries of this Section.
SECTION 13.2 ESTOPPEL CERTIFICATE. Tenant shall, at any time upon not
less than ten (10) days prior written notice from Landlord, execute,
acknowledge and deliver to Landlord, in any form that Landlord may reasonably
require, a statement in writing in favor of Landlord and/or any prospective
purchaser or encumbrancer of the Building (i) certifying that this Lease is
unmodified and in full force and effect (or, if modified, stating the nature of
the modification and certifying that this Lease, as modified, is in full force
and effect) and the dates to which the rental, additional rent and other
charges have been paid in advance, if any, and (ii) acknowledging that, to
Tenant's knowledge, there are no uncured defaults on the part of Landlord, or
specifying each default if any are claimed, and (iii) setting forth all further
information that Landlord may reasonably require. Tenant's statement may be
relied upon by any prospective purchaser or encumbrancer of all or any portion
of the Building or Project. Tenant's failure to deliver any estoppel statement
within the provided time shall constitute a default under this Lease and shall
be conclusive upon Tenant that (i) this Lease is in full force and effect,
without modification except as may be represented by Landlord, (ii) there are
no uncured defaults in Landlord's performance, and (iii) not more than one
month's rental has been paid in advance. Upon request by Tenant in connection
with a proposed sale or financing of Tenant's business, Landlord shall furnish,
not more than once annually, a corresponding estoppel statement for Tenant's
benefit.
ARTICLE XIV. DEFAULTS AND REMEDIES
SECTION 14.1 TENANT'S DEFAULTS. In addition to any other event of
default set forth in this Lease, the occurrence of any one or more of the
following events shall constitute a default by Tenant:
(a) The failure by Tenant to make any payment of rent or additional
rent required to be made by Tenant, as and when due, where the failure
continues for a period of three (3) days after written notice from Landlord to
Tenant; provided, however, that any such notice shall be in lieu of, and not in
addition to, any notice required under California Code of Civil Procedure
Section 1161 and 1161(a) as amended. For purpose of these default and remedies
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provisions, the term "additional rent" shall be deemed to include all amounts of
any time whatsoever other than Basic Rent to be paid by Tenant pursuant to the
terms of this Lease.
(b) Assignment, sublease, encumbrance or other transfer of
the Lease by Tenant, either voluntarily or by operation of law, whether by
judgment, execution, transfer by intestacy or testacy, or other means, without
the prior written consent of Landlord.
(c) The discovery by Landlord that any financial statement
provided by Tenant, or by any affiliate, successor or guarantor of Tenant, was
materially false.
(d) The failure or inability by Tenant to observe or
perform any of the covenants or provisions of this Lease to be observed or
performed by Tenant, other than as specified in any other subsection of this
Section, where the failure continues for a period of thirty (30) days after
written notice from Landlord to Tenant; provided, however, that any such notice
shall be in lieu of, and not in addition to, any notice required under
California Code of Civil Procedure Section 1161 and 1161(a) as amended.
However, if the nature of the failure is such that more than thirty (30) days
are reasonably required for the cure, then Tenant shall not be deemed to be in
default if Tenant commences the cure within thirty (30) days, and thereafter
diligently pursues the cure to completion.
(e) (i) The making by Tenant of any general assignment for
the benefit of creditors; (ii) the filing by or against Tenant of a petition to
have Tenant adjudged a Chapter 7 debtor under the Bankruptcy Code or to have
debts discharged or a petition for reorganization or arrangement under any law
relating to bankruptcy (unless, in the case of a petition filed against Tenant,
the same is dismissed within sixty (60) days); (iii) the appointment of a
trustee or receiver to take possession of substantially all of Tenant's assets
located at the Premises or of Tenant's interest in this Lease, if possession is
not restored to Tenant within thirty (30) days; (iv) the attachment, execution
or other judicial seizure of substantially all of Tenant's assets located at
the Premises or of Tenant's interest in this Lease, where the seizure is not
discharged within thirty (30) days; or (v) Tenant's convening of a meeting of
its creditors for the purpose of effecting a moratorium upon or composition of
its debts. Landlord shall not be deemed to have knowledge of any event
described in this subsection unless notification in writing is received by
Landlord, nor shall there be any presumption attributable to Landlord of
Tenant's insolvency. In the event that any provision of this subsection is
contrary to applicable law, the provision shall be of no force or effect.
SECTION 14.2 LANDLORD'S REMEDIES.
(a) In the event of any default by Tenant, then in addition
to any other remedies available to Landlord, Landlord may exercise the
following remedies:
(i) Landlord may terminate Tenant's right to
possession of the Premises by any lawful means, in which case this Lease shall
terminate and Tenant shall immediately surrender possession of the Premises to
Landlord. Such termination shall not affect any accrued obligations of Tenant
under this Lease. Upon termination, Landlord shall have the right to reenter
the Premises and remove all persons and property. Landlord shall also be
entitled to recover from Tenant:
(1) The worth at the time of award of the
unpaid rent and additional rent which had been earned at the time of
termination;
(2) The worth at the time of award of the
amount by which the unpaid rent and additional rent which would have been
earned after termination until the time of award exceeds the amount of such
loss than Tenant proves could have been reasonably avoided;
(3) The worth at the time of award of the
amount by which the unpaid rent and additional rent for the balance of the Term
after the time of award exceeds the amount of such loss than Tenant proves
could be reasonably avoided;
(4) Subject also to proof of mitigation,
any other amount necessary to compensate Landlord for all the detriment
proximately caused by Tenant's failure to perform its obligations under this
Lease or which in the ordinary course of things would be likely to result from
Tenant's default, including, but not limited to, the cost of recovering
possession of the Premises, commissions and other expenses of reletting
allocable (on an amortized basis) to the remaining scheduled Term of this
Lease, including necessary repair, renovation, improvement and alteration of
the Premises for a new tenant, reasonable attorneys' fees, and any other
reasonable costs; and
(5) At Landlord's election, all other
amounts in addition to or in lieu of the foregoing as may be permitted by law.
The term "rent" as used in this Lease shall be deemed to mean the Basic Rent
and all other sums required to be paid by Tenant to Landlord pursuant to the
terms of this Lease. Any sum, other than Basic Rent, shall be computed on the
basis of the average monthly amount accruing during the twenty-four (24) month
period immediately prior to default, except that if it becomes necessary to
compute such rental before the twenty-four (24) month period has occurred, then
the computation shall be on the basis of the average monthly amount during the
shorter period. As used in subparagraphs (1) and (2) above, the "worth at the
time of award" shall be computed by allowing interest at the rate of ten
percent (10%) per annum. As used in subparagraph (3) above, the "worth at the
time of award" shall be computed by discounting the amount at the discount rate
of the Federal Reserve Bank of San Francisco at the time of award plus one
percent (1%).
(ii) Landlord may elect not to terminate Tenant's
right to possession of the Premises, in which event Landlord may continue to
enforce all of its rights and remedies under this Lease, including the right to
collect all rent as it becomes due. Efforts by the Landlord to maintain,
preserve or relet the Premises, or the appointment of a receiver to protect the
Landlord's interest under this Lease, shall not constitute a termination of the
Tenant's right to possession of the Premises. In the event that Landlord elects
to avail itself of the remedy provided by this subsection (ii), Landlord shall
not unreasonably withhold its consent to an assignment or subletting of the
Premises subject to the reasonable standards for Landlord's consent as are
contained in this Lease.
(b) The various rights and remedies reserved to Landlord in
this Lease or otherwise shall be cumulative and, except as otherwise provided
by California law, Landlord may pursue any or all of its rights and remedies at
the same time. No delay or omission of Landlord to exercise any right or remedy
shall be construed as a waiver of the right or remedy or of any default by
Tenant. The acceptance by Landlord of rent shall not be a (i) waiver of any
preceding breach or default by Tenant of any provision of this Lease, other
than the failure of Tenant to pay the particular rent accepted, regardless of
Landlord's knowledge of the preceding breach or default at the time of
acceptance of rent, or (ii)
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a waiver of Landlord's right to exercise any remedy available to Landlord by
virtue of the breach or default. The acceptance of any payment from a debtor in
possession, a trustee; a receiver or any other person acting on behalf of
Tenant or Tenant's estate shall not waive or cure a default under Section 14.1.
No payment by Tenant or receipt by Landlord of a lesser amount than the rent
required by this Lease shall be deemed to be other than a partial payment on
account of the earliest due stipulated rent, nor shall any endorsement or
statement on any check or letter be deemed an accord and satisfaction and
Landlord shall accept the check or payment without prejudice to Landlord's
right to recover the balance of the rent or pursue any other remedy available
to it. Tenant hereby waives any right of redemption or relief from forfeiture
under California Code of Civil Procedure Section 1174 or 1179, or under any
other present or future law, in the event this Lease is terminated by reason of
any default by Tenant. No act or thing done by Landlord or Landlord's agents
during the Term shall be deemed an acceptance of a surrender of the Premises,
and no agreement to accept a surrender shall be valid unless in writing and
signed by Landlord. No employee of Landlord or of Landlord's agents shall have
any power to accept the keys to the Premises prior to the termination of this
lease, and the delivery of the keys to any employee shall not operate as a
termination of the Lease or a surrender of the Premises.
SECTION 14.3. LATE PAYMENTS.
(a) Any rent due under this Lease that is not paid to Landlord
within five (5) days of the date when due shall bear interest at the rate of
ten percent (10%) per annum from the date due until fully paid. The payment of
interest shall not cure any default by Tenant under this Lease. In addition,
Tenant acknowledges that the late payment by Tenant to Landlord of rent will
cause Landlord to incur costs not contemplated by this Lease, the exact amount
of which will be extremely difficult and impracticable to ascertain. Those
costs may include, but are not limited to, administrative, processing and
accounting charges, and late charges which may be imposed on Landlord by the
terms of any ground lease, mortgage or trust deed covering the Premises.
Accordingly, if any rent due from Tenant shall not be received by Landlord or
Landlord's designee within five (5) days after the date due, then tenant shall
pay to Landlord, in addition to the interest provided above, a late charge in
the amount of one hundred dollars ($100.00) for each delinquent payment.
Acceptance of a late charge by Landlord shall not constitute a waiver of
Tenant's default with respect to the overdue amount, nor shall it prevent
Landlord from exercising any of its other rights and remedies.
(b) Following each second consecutive installment of rent that is
not paid within five (5) days following notice of nonpayment from Landlord,
Landlord shall have the option (i) to require that beginning with the first
payment of rent next due, rent shall no longer be paid in monthly installments
but shall be payable quarterly three (3) months in advance and/or (ii) to
require that Tenant increase the amount, if any, of the Security Deposit by one
hundred percent (100%). Should Tenant deliver to Landlord, at any time during
the Term, two (2) or more insufficient checks, the Landlord may require that
all monies then and thereafter due from Tenant be paid to Landlord by cashier's
check.
SECTION 14.4. RIGHT OF LANDLORD TO PERFORM. All covenants and agreements
to be performed by Tenant under this Lease shall be performed at Tenant's sole
cost and expense and without any abatement of rent or right of set-off. If
Tenant fails to pay any sum of money, or fails to perform any other act on its
part to be performed under this Lease, and the failure continues beyond any
applicable grace period set forth in Section 14.1, then in addition to any
other available remedies, Landlord may, at its election make the payment or
perform the other act on Tenant's part. Landlord's election to make the payment
or perform the act on Tenant's part shall not give rise to any responsibility
of Landlord to continue making the same or similar payments or performing the
same or similar acts. Tenant shall, promptly upon demand by Landlord, reimburse
Landlord for all sums paid by Landlord and all necessary incidental costs,
together with interest at the maximum rate permitted by law from the date of
the payment by Landlord.
SECTION 14.5. DEFAULT BY LANDLORD. Landlord shall not be deemed to be in
default in the performance of any obligation under this Lease unless and until
it has failed to perform the obligation within thirty (30) days after written
notice by Tenant to Landlord specifying in reasonable detail the nature and
extent of the failure; provided, however, that if the nature of Landlord's
obligation is such that more than thirty (30) days are required for its
performance, then Landlord shall not be deemed to be in default if it commences
performance within the thirty (30) day period and thereafter diligently pursues
the cure to completion. In the event of a default by Landlord, Tenant shall
have all remedies available at law or in equity.
SECTION 14.6. EXPENSES AND LEGAL FEES. Should either Landlord or tenant
bring any action in connection with this Lease, the prevailing party shall be
entitled to recover as a part of the action its reasonable attorneys' fees,
expert witness fees, and all other costs. The prevailing party for the purposes
of this paragraph shall be determined by the trier of the facts.
SECTION 14.7. WAIVER OF JURY TRIAL/RIGHT TO ARBITRATE.
(a) LANDLORD AND TENANT EACH ACKNOWLEDGES THAT IT IS AWARE OF AND
HAS HAD THE ADVICE OF COUNSEL OF ITS CHOICE WITH RESPECT TO ITS RIGHT TO TRIAL
BY JURY, AND EACH PARTY DOES HEREBY EXPRESSLY AND KNOWINGLY WAIVE AND RELEASE
ALL SUCH RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
BROUGHT BY EITHER PARTY HERETO AGAINST THE OTHER (AND/OR AGAINST ITS OFFICERS,
DIRECTORS, EMPLOYEES, AGENTS, OR SUBSIDIARY OR AFFILIATED ENTITIES) ON ANY
MATTERS WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS LEASE,
TENANT'S USE OR OCCUPANCY ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS
LEASE, TENANT'S USE OR OCCUPANCY OF THE PREMISES, AND/OR ANY CLAIM OF INJURY OR
DAMAGE.
(b) SHOULD A DISPUTE ARISE BETWEEN THE PARTIES REGARDING ANY MATTER
DESCRIBED ABOVE, THEN EXCEPT WITH RESPECT TO ACTIONS FOR UNLAWFUL OR FORCIBLE
DETAINER EITHER PARTY MAY CAUSE THE DISPUTE TO BE SUBMITTED TO JAMS/ENDISPUTE
OR ITS SUCCESSOR ("JAMS") IN THE COUNTY IN WHICH THE BUILDING IS SITUATED FOR
BINDING ARBITRATION BEFORE A SINGLE ARBITRATOR. HOWEVER, EACH PARTY RESERVES
THE RIGHT TO SEEK A PROVISIONAL REMEDY BY JUDICIAL ACTION. NO ARBITRATION
ELECTION BY EITHER PARTY PURSUANT TO THIS SUBSECTION SHALL BE EFFECTIVE IF
MADE LATER THAN THIRTY (30) DAYS FOLLOWING SERVICE OF A JUDICIAL SUMMONS AND
COMPLAINT BY OR UPON SUCH PARTY CONCERNING THE DISPUTE. THE ARBITRATION SHALL
BE CONDUCTED IN ACCORDANCE WITH THE RULES OF PRACTICE AND PROCEDURE OF JAMS AND
OTHERWISE PURSUANT TO THE CALIFORNIA ARBITRATION ACT (CODE OF CIVIL PROCEDURE
SECTIONS 1280 ET SEQ.). NOTWITHSTANDING THE FOREGOING, THE ARBITRATOR IS
SPECIFICALLY DIRECTED TO LIMIT DISCOVERY TO THAT WHICH IS ESSENTIAL TO THE
EFFECTIVE PROSECUTION OR DEFENSE OF THE ACTION. THE ARBITRATOR SHALL APPORTION
THE COSTS OF THE ARBITRATION, TOGETHER WITH THE ATTORNEYS' FEES OF THE PARTIES,
IN THE MANNER DEEMED EQUITABLE BY THE ARBITRATOR, IT BEING THE INTENTION OF THE
PARTIES THAT THE PREVAILING PARTY ORDINARILY BE ENTITLED TO RECOVER
15
<PAGE> 17
ITS REASONABLE COSTS AND FEES. JUDGMENT UPON ANY AWARD RENDERED BY THE
ARBITRATOR MAY BE ENTERED BY ANY COURT HAVING JURISDICTION.
ARTICLE XV. END OF TERM
SECTION 15.1. HOLDING OVER. This Lease shall terminate without
further notice upon the expiration of the Term, and any holding over by Tenant
after the expiration shall not constitute a renewal or extension of this Lease,
or give Tenant any rights under this Lease, except when in writing signed by
both parties. If Tenant holds over for any period after the expiration (or
earlier termination) of the Term, Landlord may, at its option, treat Tenant as
a tenant at sufferance only, commencing on the first (1st) day following the
termination of this Lease. Any hold-over by Tenant shall be subject to all of
the terms of this Lease, except that the monthly rental shall be two hundred
percent (200%) of the total monthly rental for the month immediately preceding
the date of termination, subject to Landlord's right to modify same upon thirty
(30) days notice to Tenant. If Tenant fails to surrender the Premises upon the
expiration of this Lease despite demand to do so by Landlord, Tenant shall
indemnify and hold Landlord harmless from all loss or liability, including
without limitation, any claims made by any succeeding tenant relating to such
failure to surrender. Acceptance by Landlord of rent after the termination
shall not constitute a consent to a holdover or result in a renewal of this
Lease. The foregoing provisions of this Section are in addition to and do not
affect the Landlord's right of re-entry or any other rights of Landlord under
this Lease or at law.
SECTION 15.2. MERGER OR TERMINATION. The voluntary or other surrender
of this Lease by Tenant, or a mutual termination of this Lease, shall terminate
any or all existing subleases unless Landlord, at its option, elects in writing
to treat the surrender or termination as an assignment to it of any or all
subleases affecting the Premises.
SECTION 15.3. SURRENDER OF PREMISES; REMOVAL OF PROPERTY. Upon the
Expiration Date or upon any earlier termination of this Lease, Tenant shall
quit and surrender possession of the Premises to Landlord in as good order,
condition and repair as when received or as hereafter may be improved by
Landlord or Tenant, reasonable wear and tear and repairs which are Landlord's
obligation excepted. However, Tenant shall, without expense to Landlord, remove
or cause to be removed all wallpapering (exclusive of any wallpaper installed
as part of the initial Tenant improvement work) and voice and/or data
transmission cabling installed by or for Tenant (exclusive of cabling that
Landlord in good faith determines will be usable by the succeeding tenant),
together with all personal property and debris, except for any items that
Landlord may by written authorization allow to remain. Tenant shall repair all
damage to the Premises resulting from the removal, which repair shall include
the patching and filling of holes and repair of structural damage, provided
that Landlord may instead elect to repair any structural damage at Tenant's
expense. If Tenant shall fail to comply with the provisions of this Section,
Landlord may effect the removal and/or make any repairs, and the cost to
Landlord shall be additional rent payable by Tenant upon demand. If requested
by Landlord, Tenant shall execute, acknowledge and deliver to Landlord an
instrument in writing releasing and quitclaiming to Landlord all right, title
and interest of Tenant in the Premises.
ARTICLE XVI. PAYMENTS AND NOTICES
All sums payable by Tenant to Landlord shall be paid, without deduction
or offset, in lawful money of the United States to Landlord at its address set
forth in Item 13 of the Basic Lease Provisions, or at any other place as
Landlord may designate in writing. Unless this Lease expressly provides
otherwise, as for example in the payment of rent pursuant to Section 4.1, all
payments shall be due and payable within five (5) days after demand. All
payments requiring proration shall be prorated on the basis of a thirty (30)
day month and a three hundred sixty (360) day year. Any notice, election,
demand, consent, approval or other communication to be given or other document
to be delivered by either party to the other may be delivered to the other
party, at the address set forth in Item 13 of the Basic Lease Provisions, by
personal service or telegram, telecopier, or electronic facsimile transmission,
or by any courier or "overnight" express mailing service, or may be deposited
in the United States mail, postage prepaid. Either party may, by written notice
to the other, served in the manner provided in this Article, designate a
different address. If any notice or other document is sent by mail, it shall be
deemed served or delivered three (3) business days after mailing or, if sooner,
upon actual receipt. If more than one person or entity is named as Tenant under
this Lease, service of any notice upon any one of them shall be deemed as
service upon all of them.
ARTICLE XVII. RULES AND REGULATIONS
Tenant agrees to comply with the Rules and Regulations attached as
Exhibit E, and any reasonable and nondiscriminatory amendments, modifications
and/or additions as may be adopted and published by written notice to tenants
by Landlord for the safety, care, security, good order, or cleanliness of the
Premises, Building, Project and/or Common Areas. Landlord shall not be liable
to Tenant for any violation of the Rules and Regulations or the breach of any
covenant or condition in any lease or any other act or conduct by any other
tenant, and the same shall not constitute a constructive eviction hereunder.
One or more waivers by Landlord of any breach of the Rules and Regulations by
Tenant or by any other tenant(s) shall not be a waiver of any subsequent breach
of that rule or any other. Tenant's failure to keep and observe the Rules and
Regulations shall constitute a default under this Lease. In the case of any
conflict between the Rules and Regulations and this Lease, this Lease shall be
controlling.
ARTICLE XVIII. BROKER'S COMMISSION
The parties recognize as the broker(s) who negotiated this Lease the
firm(s), if any, whose name(s) is (are) stated in Item 10 of the Basic Lease
Provisions, and agree that Landlord shall be responsible for the payment of
brokerage commissions to those broker(s) unless otherwise provided in this
Lease. Each party warrants that it has had no dealings with any other real
estate broker or agent in connection with the negotiation of this Lease, and
agrees to indemnify and hold the other party harmless from any cost, expense or
liability (including reasonable attorneys' fees) for any compensation,
commissions or charges claimed by any other real estate broker or agent employed
or claiming to represent or to have been employed by the indemnifying party in
connection with the negotiation of this Lease. The foregoing agreement shall
survive the termination of this Lease.
16
<PAGE> 18
ARTICLE XIX. TRANSFER OF LANDLORD'S INTEREST
In the event of any transfer of Landlord's interest in the Premises,
the transferor shall be automatically relieved of all obligations on the part
of Landlord accruing under this Lease from and after the date of the transfer,
provided that any funds held by the transferor in which Tenant has an interest
shall be turned over, subject to that interest, to the transferee and Tenant is
notified of the transfer as required by law. No holder of a mortgage and/or
deed of trust to which this Lease is or may be subordinate shall be responsible
in connection with the Security Deposit, unless the mortgagee or holder of the
deed of trust or the landlord actually receives the Security Deposit. It is
intended that the covenants and obligations contained in this Lease on the part
of Landlord shall, subject to the foregoing, be binding on Landlord, its
successors and assigns, only during and in respect to their respective
successive periods of ownership.
ARTICLE XX. INTERPRETATION
SECTION 20.1. GENDER AND NUMBER. Whenever the context of this Lease
requires, the words "Landlord" and "Tenant" shall include the plural as well as
the singular, and words used in neuter, masculine or feminine genders shall
include the others.
SECTION 20.2. HEADINGS. The captions and headings of the articles
and sections of this Lease are for convenience only, are not a part of this
Lease and shall have no effect upon its construction or interpretation.
SECTION 20.3. JOINT AND SEVERAL LIABILITY. If more than one person
or entity is named as Tenant, the obligations imposed upon each shall be joint
and several and the act of or notice from, or notice or refund to, or the
signature of, any one or more of them shall be binding on all of them with
respect to the tenancy of this Lease, including, but not limited to, any
renewal, extension, termination or modification of this Lease.
SECTION 20.4. SUCCESSORS. Subject to Articles IX and XIX, all rights
and liabilities given to or imposed upon Landlord and Tenant shall extend to and
bind their respective heirs, executors, administrators, successors and assigns.
Nothing contained in this Section is intended, or shall be construed, to grant
to any person other than Landlord and Tenant and their successors and assigns
any rights or remedies under this Lease.
SECTION 20.5. TIME OF ESSENCE. Time is of the essence with respect
to the performance of every provision of this Lease in which time of performance
is a factor.
SECTION 20.6. CONTROLLING LAW. This Lease shall be governed by and
interpreted in accordance with the laws of the State of California.
SECTION 20.7. SEVERABILITY. If any term or provision of this Lease,
the deletion of which would not adversely affect the receipt of any material
benefit by either party or the deletion of which is consented to by the party
adversely affected, shall be held invalid or unenforceable to any extent, the
remainder of this Lease shall not be affected and each term and provision of
this Lease shall be valid and enforceable to the fullest extent permitted by
law.
SECTION 20.8. WAIVER. One or more waivers by Landlord or Tenant of
any breach of any term, covenant or condition contained in this Lease shall not
be a waiver of any subsequent breach of the same or any other term, covenant or
condition. Consent to any act by one of the parties shall not be deemed to
render unnecessary the obtaining of the party's consent to any subsequent act.
No breach of this Lease shall be deemed to have been waived unless the waiver
is in a writing signed by the waiving party.
SECTION 20.9. INABILITY TO PERFORM. In the event that either party
shall be delayed or hindered in or prevented from the performance of any work or
in performing any act required under this Lease by reason of any cause beyond
the reasonable control of that party, then the performance of the work or the
doing of the act shall be excused for the period of the delay and the time for
performance shall be extended for a period equivalent to the period of the
delay. The provisions of this Section shall not operate to excuse Tenant from
the prompt payment of rent.
SECTION 20.10. ENTIRE AGREEMENT. This Lease and its exhibits and
other attachments cover in full each and every agreement of every kind between
the parties concerning the Premises, the Building, and the Project, and all
preliminary negotiations, oral agreements, understandings and/or practices,
except those contained in this Lease, are superseded and of no further effect.
Tenant waives its rights to rely on any representations or promises made by
Landlord or others which are not contained in this Lease. No verbal agreement or
implied covenant shall be held to modify the provisions of this Lease, any
statute, law, or custom to the contrary notwithstanding.
SECTION 20.11. QUIET ENJOYMENT. Upon the observance and performance
of all the covenants, terms and conditions on Tenant's part to be observed and
performed, and subject to the other provisions of this Lease, Tenant shall
peaceably and quietly hold and enjoy the Premises for the Term without
hindrance or interruption by Landlord or any other person claiming by or
through Landlord.
SECTION 20.12. SURVIVAL. All covenants of Landlord or Tenant which
reasonably would be intended to survive the expiration or sooner termination of
this Lease, including without limitation any warranty or indemnity hereunder,
shall so survive and continue to be binding upon and inure to the benefit of the
respective parties and their successors and assigns.
ARTICLE XXI. EXECUTION AND RECORDING
SECTION 21.1. COUNTERPARTS. This Lease may be executed in one or
more counterparts, each of which shall constitute an original and all of which
shall be one and the same agreement.
SECTION 21.2. CORPORATE AND PARTNERSHIP AUTHORITY. If Tenant is a
corporation or partnership, each individual executing this Lease on behalf of
the corporation or partnership represents and warrants that he is duly
authorized to execute and deliver this Lease on behalf of the corporation or
partnership, and that this Lease is binding upon the corporation or partnership
in accordance with its terms. Tenant shall, at Landlord's request, deliver a
certified copy
17
<PAGE> 19
of its board of directors' resolution or partnership agreement or certificate
authorizing or evidencing the execution of this Lease.
SECTION 21.3. EXECUTION OF LEASE; NO OPTION OR OFFER. The submission
of this Lease to Tenant shall be for examination purposes only, and shall not
constitute an offer to or option for Tenant to lease the Premises. Execution of
this Lease by Tenant and its return to Landlord shall not be binding upon
Landlord, notwithstanding any time interval, until Landlord has in fact executed
and delivered this Lease to Tenant, it being intended that this Lease shall only
become effective upon execution by Landlord and delivery of a fully executed
counterpart to Tenant.
SECTION 21.4. RECORDING. Tenant shall not record this Lease without
the prior written consent of Landlord. Tenant, upon the request of Landlord,
shall execute and acknowledge a "short form" memorandum of this Lease for
recording purposes.
SECTION 21.5. AMENDMENTS. No amendment or mutual termination of this
Lease shall be effective unless in writing signed by authorized signatories of
Tenant and Landlord, or by their respective successors in interest. No actions,
policies, oral or informal arrangements, business dealings or other course of
conduct by or between the parties shall be deemed to modify this Lease in any
respect.
ARTICLE XXII. MISCELLANEOUS
SECTION 22.1. NONDISCLOSURE OF LEASE TERMS. Tenant acknowledges and
agrees that the terms of this Lease are confidential and constitute proprietary
information of Landlord. Disclosure of the terms could adversely affect the
ability of Landlord to negotiate other leases and impair Landlord's relationship
with other tenants. Accordingly, Tenant agrees that it, and its partners,
officers, directors, employees and attorneys, shall not intentionally and
voluntarily disclose the terms and conditions of this Lease to any other tenant
or apparent prospective tenant of the Building or Project, either directly or
indirectly, without the prior written consent of the Landlord; provided,
however, that Tenant may disclose the terms to prospective subtenants or
assignees under this Lease.
SECTION 22.2. REPRESENTATIONS BY TENANT. The application, financial
statements and tax returns, if any, submitted and certified to by Tenant as an
accurate representation of its financial condition have been prepared, certified
and submitted to Landlord as an inducement and consideration to Landlord to
enter into this Lease. The application and statements are represented and
warranted by Tenant to be correct and to accurately and fully reflect the
Tenant's true financial condition as of the date of execution of this Lease by
Tenant. Tenant shall during the Term promptly furnish Landlord with annual
financial statements reflecting Tenant's financial condition upon written
request from Landlord.
SECTION 22.3. MORTGAGEE PROTECTION. No act or failure to act on the
part of Landlord which would otherwise entitle Tenant to be relieved of its
obligations hereunder or to terminate this Lease shall result in such a release
or termination unless (a) Tenant has given notice by registered or certified
mail to any beneficiary of a deed or trust or mortgage covering the Building
whose address has been furnished to Tenant and (b) such beneficiary is afforded
a reasonable opportunity to cure the default by Landlord, including, if
necessary to effect the cure, time to obtain possession of the Building by power
of sale or judicial foreclosure provided that such foreclosure remedy is
diligently pursued.
SECTION 22.4. DISCLOSURE STATEMENT. Tenant acknowledges that it has
read, understands and, if applicable, shall comply with the provisions of
Exhibit F to this Lease, if that Exhibit is attached.
LANDLORD: TENANT:
THE IRVINE COMPANY, STEVEN MYERS & ASSOCIATES, INC.,
a Michigan corporation a California corporation
By /s/ RICHARD G. SIM By /s/ KENNETH W. COLBAUGH
------------------------------- -------------------------------
Richard G. Sim, Group President
Investment Properties Printed Name Kenneth W. Colbaugh
---------------------
Title Chief Operating Officer
----------------------------
By /s/ WILLIAM R. HALFORD By /s/ PAULA K. MYERS
------------------------------- -------------------------------
William R. Halford,
Vice President and General Printed Name Paula K. Myers
Manager, Irvine Office Company, ---------------------
a division of The Irvine Company Title Secretary/Treasurer
----------------------------
15
<PAGE> 20
III. COST OF TENANT IMPROVEMENTS
A. Landlord shall complete, or cause to be completed, the Tenant
improvements, at the construction cost shown in the approved
Final Cost Estimate (subject to the provisions of this Work
Letter), in accordance with final Working Drawings and
Specifications approved by both Landlord and Tenant. Landlord
shall pay towards the final construction costs ("Completion
Cost") as incurred a maximum of Two Hundred Seventy-Four
Thousand Six Hundred Forty Dollars ($274,640.00) ("Landlord's
Contribution"), based on $16.00 per usable square foot of the
Premises, and Tenant shall be fully responsible for the
remainder ("Tenant Contribution"). It is understood, however,
that unless due to matters beyond the reasonable control of
Landlord or its contractor, Tenant shall not be required to pay
for additional costs resulting from Landlord's failure to
perform the work in accordance with the approved Working
Drawings and Specifications. It is further specifically
understood that should the City of Newport Beach require, as a
condition to its issuance of a permit for the Tenant Improvement
work, that Landlord make improvements or alterations to the
Premises that are not reflected in the approved Preliminary Plan
in order to comply with the ADA or other handicap access
requirements, then Landlord shall be responsible for the cost of
those additional improvements or alterations; provided that
those additional costs may be applied by Landlord against any
remaining balance of the Landlord's Contribution after deducting
from the Landlord's Contribution the remainder of the Completion
Cost exclusive of the cost of Tenant Changes. If the actual cost
of completion of the Tenant Improvements is less than the
maximum amount provided for the Landlord's Contribution, Tenant
shall be entitled to apply the unused portion to other
improvements (but not towards personal property or appliances)
in the Premises prior to Tenant's occupancy; however, in no
event will a cash payment or refund to Tenant be made.
B. The Completion Cost shall include all direct costs of Landlord
in completing the Tenant Improvements, including but not limited
to the following: (i) payments made to architects, engineers,
contractors, subcontractors and other third party consultants in
the performance of the work, (ii) salaries and fringe benefits
of persons, if any, in the direct employ of Landlord performing
any part of the construction work, (iii) permit fees and other
sums paid to governmental agencies, (iv) costs of all materials
incorporated into the work or used in connection with the work,
and (v) keying and signage costs. The Completion Cost shall also
include an administrative/supervision fee to be paid to Landlord
in the amount of five percent (5%) of all such direct costs.
C. Prior to start of construction of the Tenant Improvements,
Tenant shall pay to Landlord one-half (1/2) of the amount of the
Tenant's Contribution set forth in the approved Final Cost
Estimate, unless such amount is less than $1,000, in which event
the total sum shall be then due and payable. If the actual
Completion Cost of the Tenant Improvements is greater than the
Final Cost Estimate because of modifications or extras not
reflected on the approved working drawings, or because of delays
caused by Tenant, then Tenant shall be responsible for all such
additional costs, including any additional architectural fee.
The balance of any sums not otherwise paid by Tenant shall be
due and payable on or before the Commencement Date of this
Lease. If Tenant defaults in the payment of any sums due under
this Work Letter, Landlord shall (in addition to all other
remedies) have the same rights as in the case of Tenant's
failure to pay rent under this Lease.
<PAGE> 21
- --------------------------------------------------------------------------------
TICON GENERAL CONTRACTORS -- Construction Summary
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
DATE: 11/21/96 Suite: 800 Contractor Name: TICON GENERAL CONTRACTORS
Tenant Name: STEVEN MYERS (#8576) Address: 4695 MacARTHUR COURT Adddress: 18002 SKYPARK CIRCLE
Usable SQ FT: 17,203 /s/ JOHN SICKLER
Rentable SQ. FT.: 19,487 Preliminary Pricing: [X] Final Pricing: [ ] Irvine, CA 92714
Duration: 8 Weeks Plans Dated: 11/14/96 Revisions: 3 Project Manager: JOHN SICKLER
- ------------------------------------------------------------------------------------------------------------------------------------
DESCRIPTION BLDG STAND B.S. $/USF OVERSTAND O.S. $/USF TOTAL TOTAL $/USF
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
01400--CLEAN UP 3,436 0.20 3,436 0.20
- ------------------------------------------------------------------------------------------------------------------------------------
02110--DEMOLITION 9,875 0.57 9,876 0.57
- ------------------------------------------------------------------------------------------------------------------------------------
08400--CABINETRY & MILLWORK 21,990 1.26 21,990 1.28
- ------------------------------------------------------------------------------------------------------------------------------------
07200--INSULATION
- ------------------------------------------------------------------------------------------------------------------------------------
08200--DOORS/FRAMES/HARDWARE 4,929 0.29 8,202 0.36 11,131 0.65
- ------------------------------------------------------------------------------------------------------------------------------------
06800--GLASS & GLAZING 12,512 0.73 12,512 0.73
- ------------------------------------------------------------------------------------------------------------------------------------
09250--DRYWALL & INSULATION 15,302 0.89 1,499 0.09 16,801 0.98
- ------------------------------------------------------------------------------------------------------------------------------------
09540--ACOUSTICAL CEILING 7,355 0.43 7,355 0.43
- ------------------------------------------------------------------------------------------------------------------------------------
09760--FLOOR COVERING 28,085 1.63 28,085 1.83
- ------------------------------------------------------------------------------------------------------------------------------------
09900--PAINT & WALLCOVERING 12,975 0.75 11,904 0.89 24,879 1.45
- ------------------------------------------------------------------------------------------------------------------------------------
12500--WINDOW COVERING
- ------------------------------------------------------------------------------------------------------------------------------------
13000--SPECIAL CONSTRUCTION 1,800 0.10 1,800 0.10
- ------------------------------------------------------------------------------------------------------------------------------------
15400--PLUMBING 8,380 0.49 8,380 0.49
- ------------------------------------------------------------------------------------------------------------------------------------
15500--FIRE PROTECTION 5,994 0.35 5,994 0.35
- ------------------------------------------------------------------------------------------------------------------------------------
15800--HVAC 24,185 1.41 24,185 1.41
- ------------------------------------------------------------------------------------------------------------------------------------
16000--ELECTRICAL 25,051 1.46 6,656 0.40 31,807 1.85
- ------------------------------------------------------------------------------------------------------------------------------------
16600--LIFE SAFETY 10,943 0.64 10,943 0.64
- ------------------------------------------------------------------------------------------------------------------------------------
17000--PERMITS 2,580 0.15 2,580 0.15
- ------------------------------------------------------------------------------------------------------------------------------------
CONSTRUCTION SUBTOTAL 150,713 8.78 71,143 4.14 221,856 12.00
- ------------------------------------------------------------------------------------------------------------------------------------
GENERAL CONDITIONS 3,014 0.16 1,422 0.08 4,437 0.26
- ------------------------------------------------------------------------------------------------------------------------------------
CONTRACTORS FEE 13,835 0.80 6,530 0.36 20,365 1.18
- ------------------------------------------------------------------------------------------------------------------------------------
CONTRACTORS TOTAL 187,563 9.74 79,098 4.60 246,660 14.34
- ------------------------------------------------------------------------------------------------------------------------------------
KEY & SIGNAGE
- ------------------------------------------------------------------------------------------------------------------------------------
ARCHITECTS FEE 21,111 1.23 21,111 1.23
- ------------------------------------------------------------------------------------------------------------------------------------
ARCHITECTS REIMBURSABLES 300 0.02 300 0.02
- ------------------------------------------------------------------------------------------------------------------------------------
PLAN CHECK FEE 960 0.05 960 0.08
- ------------------------------------------------------------------------------------------------------------------------------------
COORDINATION FEE 9,496 0.55 3,954 0.23 13,451 0.78
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL COST (EXCLUDING ALTERNATES) 199,431 11.59 63,051 4.83 282,463 16.42
- ------------------------------------------------------------------------------------------------------------------------------------
ALTERNATES 7,204 0.42 7,204 0.42
- ------------------------------------------------------------------------------------------------------------------------------------
PROOJECT GRAND TOTAL $208,636 $12.01 $83,051 $4.63 $269,587 $16.84
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page: S1
<PAGE> 22
TICON GENERAL CONTRACTORS - Construction Summary
- -------------------------------------------------------------------------------
Date: 11/21/96 Contractor: TICON GENERAL CONTRACTORS
Tenant Name: STEVEN MYERS (#8576) Address: 18002 SKYPARK CIRCLE
Suite: 800
Address: 4695 MacARTHUR COURT Irvine, CA 92714
- -------------------------------------------------------------------------------
-SCHEDULE-
CONSTRUCTION SHOULD TAKE ABOUT 8 WEEKS DEPENDING ON THE ORDERING OF LEAD ITEMS
& IF THE SUITE IS OCCUPIED.
- -------------------------------------------------------------------------------
-CLARIFICATIONS-
Price is valid for (60) days form receipt of bids
Paint Color Change May Result In Price Increase
All Work To Be Done During Normal Business Hours
DOORS HAVE THREE DIFFERENT FINISHES THRU OUT THE FLOOR, RELOCATED DOORS ARE
GROUPED TO MAINTAIN THE FINISHES AS CLOSELY TOGETHER AS POSSIBLE.
FURNITURE MOVING NOR PREMIUM TIME CAN NOT BE PRICED UNTIL I HAVE MORE OF AN
UNDERSTANDING OF THE OCCUPANCY LOAD OF THE SUITE.
THIS BID IS PRICED TO BE DONE WITH THE SUITE BEING VACATED.
THE PATCHING OF THE CORRIDOR WALLCOVERING IS BASED ON USING THE BUILDING
STANDARD MATERIAL WHICH HAS BEEN DISCONTINUED WITH A LIMITED STOCK AVAILABLE.
THE COSTS ASSOCIATED WITH THIS MATERIAL COULD BE AFFECTED.
- -------------------------------------------------------------------------------
-EXCLUSIONS-
Furniture moving & relocation by others
Any concealed conditions
Any items not noted in estimate
- -------------------------------------------------------------------------------
-LIST OF DRAWINGS-
This price is based on: YES NO By GENSLER
- -------------------------------------------------------------------------------
Page: S2
<PAGE> 23
TICON GENERAL CONTRACTORS - Construction Summary
Date: 11/21/96 Contractor: TICON GENERAL CONTRACTORS
Tenant Name:STEVEN MYERS (#8576) Address: 18002 SKYPARK CIRCLE
Suite: 800
Address: 4695 MacARTHUR COURT Irvine, CA 92714
<TABLE>
<CAPTION>
Space Plan Construction Documents Architect
<S> <C> <C>
DATE SHEET ARCHITECT
11/14/96 PP-1 REVISED GENSLER
</TABLE>
Page: S3
<PAGE> 24
TICON GENERAL CONTRACTORS - Construction Summary
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------------
Date: 11/21/96 Contractor: TICON GENERAL CONTRACTORS
Tenant Name: STEVEN MYERS (#8576) Address: 18002 SKYPARK CIRCLE
Suite: 800
Address: 4695 MacARTHUR COURT Irvine, CA 92714
- -----------------------------------------------------------------------------------------------------------------------------------
BUILDING STANDARD OVER STANDARD TOTAL COST
Category/Description QTY U/M UNIT $ TOTAL $/USF QTY U/M UNIT $ TOTAL $/USF TOTAL $/USF
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
01400 - CLEAN UP
1) Construction Clean Up 12,000 SF 0.10 1,200 0.07 1,200 0.07
2) Dumpster 2 EA 430.00 860 0.05 860 0.05
3) Final Detail Clean Up 17,203 SF 0.08 1,376 0.08 1,376 0.08
----- ---- ----- ----
3,436 0.20 3,436 0.20
- -----------------------------------------------------------------------------------------------------------------------------------
02110 - DEMOLITION
1) Demo Carpet, Base & VCT 1,782 SY 0.90 1,603 0.09 1,603 0.09
2) Demo Door & Frame 36 EA 25.00 900 0.05 900 0.05
3) Demo And Safe Off Electrical 1 LS 800.00 800 0.05 800 0.05
4) Demo Ceiling Height Partition 636 LF 6.00 3,628 0.22 3,628 0.22
5) Demo Existing Soffit 110 SF 3.00 330 0.02 330 0.02
6) Demo Wood Floor 1,165 SF 1.00 1,165 0.07 1,165 0.07
7) Demo Low Walls 124 LF 8.00 744 0.04 744 0.04
8) Millwork Demo 1 LS 400.00 400 0.02 400 0.02
9) Demo Existing Life Safety 1 LS 105.00 105 0.01 105 0.01
----- ---- ----- ----
9,875 0.57 9,875 0.57
- -----------------------------------------------------------------------------------------------------------------------------------
06400 - CABINETRY & MILLWORK
1) ADA Approved Plastic 18 LF 235.00 4,230 0.25 4,230 0.25
Laminated Base, Top, And
Uppers - Note #17
2) Plastic Laminated Counter With 80 LF 55.00 4,400 0.26 4,400 0.26
Corbles - Note #19
3) Full Height Shelving - Note #17C 36 LF 130.00 4,680 0.27 4,680 0.27
4) Plastic Laminated Uppers At 80 LF 90.00 7,200 0.42 7,200 0.42
Note #19
5) Prefinished Base Cabinet And 8 LF 185.00 1,480 0.09 1,480 0.09
Counter Top - Note #17B ------ ---- ------ ----
21,990 1.29 21,990 1.29
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</TABLE>
Page: R1
<PAGE> 25
TICON GENERAL CONTRACTORS - Construction Summary
- --------------------------------------------------------------------------------
Date: 11/21/96 Contractor: TICON GENERAL CONTRACTORS
Tenant Name: STEVEN MYERS (#8576) Address: 18002 SKYPARK CIRCLE
Suite: 800
Address: 4695 MacARTHUR COURT Irvine, CA 92714
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
BUILDING STANDARD OVER STANDARD TOTAL COST
Category/Description QTY U/M UNIT $ TOTAL $/USF QTY U/M UNIT $ TOTAL $/USF TOTAL $/USF
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
08200 - DOORS/FRAMES/HARDWARE
1) Interior Dutch Door Note #7 1 EA 772.00 772 0.04 1 EA 485.00 485 0.03 1,237 0.07
2) 1 HR. Interior H.M. Frame, 1 EA 772.00 772 0.04 1 EA 1,202.00 1,202 0.07 1,974 0.11
Sidalle With (2) Muttons,
Glass & Door Per Note #8
3) Double Entry Door With 1 EA 1,180.00 1,180 0.07 1,180 0.07
Relocated Hardware Per
Note #4
4) Allowance For Cyper Lockset 8 EA 500.00 4,500 0.26 4,500 0.28
5) Relocate Door & Frame 16 EA 60.00 960 0.06 960 0.06
6) Rekey Interior Locks 1 EA 35.00 35 0.00 35 0.00
7) Paint Set Up 1 LG 75.00 75 0.00 75 0.00
8) Install Bldg. Std. Door To 6 EA 70.00 420 0.02 420 0.02
Existing Frames Pulled From
Prestock
9) Install Bldg. Std. Door Assy. 6 EA 125.00 750 0.04 750 0.04
Pulled From Prestock ----- ---- ----- ---- ------ ----
4,929 0.29 6,202 0.36 11,131 0.65
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08800 - GLASS & GLAZING
1) 2' Sidelight 1 EA 345.00 345 0.02 345 0.02
2) 2' Bldg. Std. Side Lights At 1 EA 847.00 847 0.05 847 0.05
Rated Wall With Wire Glass
3) 3' Sidelight With Labor To Make 8 EA 440.00 3,520 0.20 3,520 0.20
It Attached To Existing Frame
4) 3' Sidelight With Labor To Make 7 EA 400.00 2,800 0.16 2,800 0.16
It Attached To Relocated Frame
5) 3' Sidelight With One Mullion 1 EA 675.00 675 0.04 675 0.04
6) 3' Sidelight With Two Mullions 1 EA 1,025,00 1,025 0.05 1,025 0.06
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page: R2
<PAGE> 26
[PLOT PLAN]
EXHIBIT A
<PAGE> 27
EXHIBIT B
UTILITIES AND SERVICES
The following standards for utilities and services shall be in effect
at the Building. Landlord reserves the right to adopt nondiscriminatory
modifications and additions to these standards. In the case of any conflict
between these standards and the Lease, the Lease shall be controlling. Subject
to all of the provisions of the Lease, including but not limited to the
restrictions contained in Section 6.1, the following shall apply:
1. Landlord shall furnish to the Premises during the hours of
8 a.m. to 6 p.m., Monday through Friday, and 8:00 a.m. to 1:00 p.m. on
Saturday, generally recognized national holidays and Sundays excepted,
reasonable air conditioning, heating and ventilation services. Subject to the
provisions set forth below, Landlord shall also furnish the Building with
elevator service (if applicable), reasonable amounts of electric current for
normal lighting by Landlord's standard overhead fluorescent and incandescent
fixtures and for fractional horsepower office machines, and water for lavatory
and drinking purposes. Tenant will not, without the prior written consent of
Landlord, consume electricity in the Premises at a level in excess of 3 watts
per square foot or otherwise increase the amount of electricity, gas or water
usually furnished or supplied for use of the Premises as general office space;
nor shall Tenant connect any apparatus, machine or device with water pipes or
electric current (except through existing electrical outlets in the Premises)
for the purpose of using electric current or water. This paragraph shall at all
times be subject to applicable governmental regulations.
2. Upon written request from Tenant delivered to Landlord at least
24 hours prior to the period for which service is requested, but during normal
business hours, Landlord will provide any of the foregoing building services to
Tenant at such times when such services are not otherwise available. Tenant
agrees to pay Landlord for those afterhour services at rates that Landlord may
establish from time to time, provided that Landlord's rate for after-hours HVAC
service shall be consistent with charges imposed in high-rise office projects of
comparable quality in the John Wayne airport area. If Tenant requires electric
current in excess of that which Landlord is obligated to furnish under this
Exhibit B, Tenant shall first obtain the consent of Landlord, and Landlord may
cause an electric current meter to be installed in the Premises to measure the
amount of electric current consumed. The cost of installation, maintenance and
repair of the meter shall be paid for by Tenant, and Tenant shall reimburse
Landlord promptly upon demand for all electric current consumed for any special
power use as shown by the meter. The reimbursement shall be at the rates charged
for electrical power by the local public utility furnishing the current, plus
any additional expense incurred in keeping account of the electric current
consumed.
3. If any lights, machines or equipment (including without
limitation electronic data processing machines) are used by Tenant in the
Premises which materially affect the temperature otherwise maintained by the air
conditioning system, or generate substantially more heat in the Premises than
would be generated by the building standard lights and usual fractional
horsepower office equipment, Landlord shall have the right at its election to
install or modify any machinery and equipment to the extent Landlord reasonably
deems necessary to restore the temperature balance. The cost of installation,
and any additional cost of operation and maintenance, shall be paid by Tenant to
Landlord promptly upon demand.
4. Landlord shall furnish water for drinking, personal hygiene and
lavatory purposes only. If Tenant requires or uses water for any purposes in
addition to ordinary drinking, cleaning or lavatory purposes, Landlord may, in
its discretion, install a water meter to measure Tenant's water consumption.
Tenant shall pay Landlord for the cost of the meter and the cost of its
installation, and for consumption throughout the duration of Tenant's occupancy.
Tenant shall keep the meter and installed equipment in good working order and
repair at Tenant's own cost and expense, in default of which Landlord may cause
the meter to be replaced or repaired at Tenant's expense. Tenant agrees to pay
for water consumed, as shown on the meter and when bills are rendered, and on
Tenant's default in making that payment Landlord may pay the charges on behalf
of Tenant. Any costs or expenses or payments made by Landlord for any of the
reasons or purposes stated above shall be deemed to be additional rent payable
by Tenant to Landlord upon demand.
5. In the event that any utility service to the Premises is
separately metered or billed to Tenant, Tenant shall pay all charges for that
utility service to the Premises and the cost of furnishing the utility to tenant
suites shall be excluded from the Operating Expenses as to which reimbursement
from Tenant is required in the Lease. If any utility charges are not paid when
due Landlord may pay them, and any amounts paid by Landlord shall immediately
become due to Landlord from Tenant as additional rent. If Landlord elects to
furnish any utility service to the Premises, Tenant shall purchase its
requirements of that utility from Landlord as long as the rates charged by
Landlord do not exceed those which Tenant would be required to pay if the
utility service were furnished it directly by a public utility.
6. Landlord shall provide janitorial services five days per week,
equivalent to that furnished in comparable buildings, and window washing as
reasonably required; provided, however, that Tenant shall pay for any additional
or unusual janitorial services required by reason of any nonstandard
improvements in the Premises, including without limitation wall coverings and
floor coverings installed by or for Tenant, or by reason of any use of Premises
other than exclusively as offices. The cleaning services provided by Landlord
shall also exclude refrigerators, eating utensils (plates, drinking containers
and silverware), and interior glass partitions. Tenant shall pay to Landlord the
cost of removal of any of Tenant's refuse and rubbish, to the extent that they
exceed the refuse and rubbish usually attendant with general office usage.
7. Tenant shall have access to the Building 24 hours per day, 7
days per week, 52 weeks per year; provided that Landlord may install access
control systems as it deems advisable for the Building. Such systems may, but
need not, include full or part-time lobby supervision, the use of a sign-in
sign-out log, a card identification access system, building parking and access
pass system, closing hours procedures, access control stations, fire stairwell
exit door alarm system, electronic guard system, mobile paging system, elevator
control system or any other access controls. In the event that Landlord elects
to provide any or all of those services, Landlord may discontinue providing them
at any time with or without notice. Landlord may impose a reasonable charge for
access control cards and/or keys issued to Tenant. Landlord shall have no
liability to Tenant for the provision by Landlord of improper access control
services, for any breakdown in service, or for the failure by Landlord to
provide access control services. Tenant further acknowledges that Landlord's
access systems may be temporarily inoperative during building emergency and
system repair periods. Tenant agrees to assume responsibility for compliance by
its employees with any regulations established by Landlord with respect to any
card key access or any other system of building access as Landlord may
establish. Tenant shall be liable to Landlord for any loss or damage resulting
from its or its employees use of any access system.
1
<PAGE> 28
EXHIBIT C
PARKING
The following parking regulations shall be in effect at the Building.
Landlord reserves the right to adopt reasonable, nondiscriminatory
modifications and additions to the regulations by written notice to Tenant. In
the case of any conflict between these regulations and the Lease, the Lease
shall be controlling.
1. Landlord agrees to maintain, or cause to be maintained, an
automobile parking area ("Parking Area") in reasonable proximity to the Building
for the benefit and use of the visitors and patrons and, except as otherwise
provided, employees of Tenant, and other tenants and occupants of the Building.
The Parking Area shall include, whether in a surface parking area or a parking
structure, the automobile parking stalls, driveways, entrances, exits,
sidewalks and attendant pedestrian passageways and other areas designated for
parking. Landlord shall have the right and privilege of determining the nature
and extent of the Automobile Parking Area, whether it shall be surface,
underground or other structure, and of making such changes to the Parking Area
from time to time which in its opinion are desirable and for the best interests
of all persons using the Parking Area. Landlord shall keep the Parking Area in
a neat, clean and orderly condition, and shall repair any damage to its
facilities. Landlord shall not be liable for any damage to motor vehicles of
visitors or employees, for any loss of property from within those motor
vehicles, or for any injury to Tenant, its visitors or employees, except to the
extent ultimately determined to be caused by the negligence or willful
misconduct of Landlord. Unless otherwise instructed by Landlord, every parker
shall park and lock his or her own motor vehicle. Landlord shall also have the
right to establish, and from time to time amend, and to enforce against all
users of the Parking Area all reasonable rules and regulations (including the
designation of areas for employee parking) as Landlord may deem necessary and
advisable for the proper and efficient operation and maintenance of the Parking
Area. Garage managers or attendants are not authorized to make or allow any
exceptions to these regulations.
2. Landlord may, if it deems advisable in its sole discretion,
charge for parking and may establish for the Parking Area a system of permit
parking for Tenant, its employees and visitors, which may include, but not be
limited to, a system of charges against nonvalidated parking, verification of
users, a set of regulations governing different parking locations, and an
allotment of reserved or nonreserved parking spaces based upon the charges paid
and the identity of users. In no event shall Tenant or its employees park in
reserved stalls leased to other tenants or in stalls within designated visitor
parking zones. It is understood that Landlord shall not have any obligation to
cite improperly parked vehicles or otherwise attempt to enforce reserved parking
rules during hours when parking attendants are not present at the Parking Area.
Tenant shall comply with such system in its use (and in the use of its
visitors, patrons and employees) of the Parking Area, provided, however, that
the system and rules and regulations shall apply to all persons entitled to the
use of the Parking Area, and all charges to Tenant for use of the Parking Area
shall be no greater than Landlord's then current scheduled charge for parking.
3. Tenant shall, upon request of Landlord form time to time,
furnish Landlord with a list of its employees' names and of Tenant's and its
employees' vehicle license numbers. Tenant agrees to acquaint its employees
with these regulations and assumes responsibility for compliance by its
employees with these parking provisions, and shall be liable to Landlord for
all unpaid parking charges incurred by its employees. Any amount due from Tenant
shall be deemed additional rent. In the event Landlord elects or is required to
limit or control parking by tenants, employees, visitors or invitees of the
Building, whether by validation of parking tickets, parking meters or any other
method of assessment. Tenant agrees to participate in the validation or
assessment program under reasonable rules and regulations as are established by
Landlord and/or any applicable governmental agency.
4. Landlord may establish an identification system for vehicles of
Tenant and its employees which may consist of stickers, magnetic parking cards
or other identification devices supplied by Landlord. All identification
devices shall remain the property of Landlord, shall be displayed as required
by Landlord or upon request and may not be mutilated or obliterated in any
manner. Those devices shall not be transferable and any such device in the
possession of an unauthorized holder shall be void and may be confiscated.
Landlord may impose a reasonable fee for identification devices and a
replacement charge for devices which are lost or stolen. Each identification
device shall be returned to Landlord promptly following the Expiration Date or
sooner termination of this Lease. Loss or theft of parking identification
devices shall be reported to Landlord or its Parking Area operator immediately
and a written report of the loss filed if requested by Landlord or its Parking
Area operator.
5. Persons using the Parking Area shall observe all directional
signs and arrows and any posted speed limits. Unless otherwise posted, in no
event shall the speed limit of 5 miles per hour be exceeded. All vehicles shall
be parked entirely within painted stalls, and no vehicles shall be parked in
areas which are marked as "no parking" or on or in ramps, driveways and aisles.
Only one vehicle may be parked in a parking space. In no event shall Tenant
interfere with the use and enjoyment of the Parking Area by other tenants of
the Building or their employees or invitees.
6. Parking Areas shall be used only for parking vehicles. Washing,
waxing, cleaning or servicing of vehicles, or the parking of any vehicle on an
overnight basis, in the Parking Area (other than emergency services) by any
parker or his or her agents or employees is prohibited unless otherwise
authorized by Landlord. Tenant shall have no right to install any fixtures,
equipment or personal property (other than vehicles) in the Parking Area, nor
shall Tenant make any alteration to the Parking Area.
7. It is understood the employees of Tenant and the other
tenants of Landlord within the Building and Project shall not be permitted to
park their automobiles in the portions of the Parking Area which may from time
to time be designated for patrons of the Building and/or Project and that
Landlord shall at all times have the right to establish rules and regulations
for employee parking. Landlord may authorize persons other than those described
above, including occupants of other buildings, to utilize the Parking Area. In
the event of the use of the Parking Area by other persons, those persons shall
pay for that use in accordance with the terms established above; provided,
however, Landlord may allow those persons to use the Parking Area on weekends,
holidays, and at other non-office hours without payment.
8. Notwithstanding the foregoing paragraphs 1 through 7, Landlord
shall be entitled to pass on to Tenant its proportionate share of any charges
of parking surcharge or transportation management costs levied by any
governmental agency. The foregoing parking provisions are further subject to
any governmental regulations which limit parking or otherwise seek to encourage
the use of carpools, public transit or other alternative transportation forms
or traffic reduction programs. Tenant agrees that it will use its best efforts
to cooperate, including registration and attendance, in programs which may be
undertaken to reduce traffic. Tenant acknowledges that as a part of those
programs, it may be required to distribute employee transportation information,
participate in employee transportation surveys, allow employees to participate
in commuter activities, designate a liaison for commuter transportation
activities, distribute commuter information to all employees, and otherwise
participate in other programs or services initiated under a transportation
management program.
1
<PAGE> 29
9. Should any parking spaces be allotted by Landlord to Tenant,
either on a reserved or nonreserved basis, Tenant shall not assign or sublet
any of those spaces, either voluntarily or by operation of law, without the
prior written consent of Landlord, except in connection with an authorized
assignment of this Lease or subletting of the Premises.
10. During the initial six (6) months of the Lease Term, Tenant
shall pay to Landlord or its agents for the use of employee parking spaces
allotted in Item 12 of the Basic Lease Provisions the amount of Forty Dollars
($40.00) per unreserved stall per month and One Hundred Ten Dollars ($110.00)
per reserved stall per month. Any stalls leased with the permission of Landlord
in excess of that allotted number shall be at Landlord's scheduled parking rates
from time to time. Thereafter and through the initial sixty (60) months of the
Lease Term, Tenant shall continue to pay those same monthly stall charges for
the reserved and unreserved stalls, as applicable, that Tenant is committed to
Lease pursuant to Section 6.4 (the "Committed Stalls"). Following that initial
sixty (60) month period, the stall charge for the Committed Stalls shall be at
Landlord's then-scheduled rate from time to time, except that Landlord agrees
such rate for the Committed Stalls during the Initial Lease Term shall not
exceed Forty-Eight Dollars ($48.00) per unreserved stall per month and One
Hundred Thirty-Four Dollars ($134.00) per reserved stall per month. Tenant
understands and agrees that any parking spaces leased by Tenant in excess of the
Committed Stalls shall be at Landlord's then scheduled rates from time to time
without limitation as aforesaid.
2
<PAGE> 30
EXHIBIT D
TENANT'S INSURANCE
The following standards for Tenant's insurance shall be in effect at the
Building. Landlord reserves the right to adopt reasonable nondiscriminatory
modifications and additions to those standards. Tenant agrees to obtain and
present evidence to Landlord that it has fully complied with the insurance
requirements.
1. Tenant shall, at its sole cost and expense, commencing on the date
Tenant is given access to the Premises for any purpose and during the entire
Term, procure, pay for and keep in full force and effect: (i) commercial
general liability insurance with respect to the Premises and the operations of
or on behalf of Tenant in, on or about the Premises, including but not limited
to personal injury, nonowned automobile, blanket contractual, independent
contractors, broad form property damage, fire legal liability, products
liability (if a product is sold from the Premises), liquor law liability (if
alcoholic beverages are sold, served or consumed within the Premises), and
cross liability and severability of interest clauses, which policy(ies) shall
be written on an "occurrence" basis and for not less than $2,000,000 combined
single limit (with a $50,000 minimum limit on fire legal liability) per
occurrence for bodily injury, death, and property damage liability, or the
current limit of liability carried by Tenant, whichever is greater, and
subject to such increases in amounts as Landlord may determine from time to
time; (ii) workers' compensation insurance coverage as required by law, together
with employers' liability insurance coverage; (iii) with respect to
improvements, alterations, and the like required or permitted to be made by
Tenant under this Lease, builder's all-risk insurance, in amounts satisfactory
to Landlord; (iv) insurance against fire, vandalism, malicious mischief and such
other additional perils as may be included in a standard "all risk" form,
insuring the fixtures, furnishings, equipment and items of personal property in
the Premises, in an amount equal to not less than ninety percent (90%) of their
actual replacement cost (with replacement cost endorsement), which policy shall
also include loss of income/business interruption/extra expense coverage in an
amount not less than seven months loss of income from Tenant's business in the
Premises. In no event shall the limits of any policy be considered as limiting
the liability of Tenant under this Lease.
2. All policies of insurance required to be carried by Tenant pursuant to
this Exhibit D shall be written by responsible insurance companies authorized
to do business in the State of California and with a Best's policyholder rating
of not less than A-X subject to final acceptance and approval by Landlord. Any
insurance required of Tenant may be furnished by Tenant under any blanket
policy carried by it or under a separate policy. A true and exact copy of
each paid up policy evidencing the insurance (appropriately authenticated by the
insurer) or a certificate of insurance, certifying that the policy has been
issued, provides the coverage required by this Exhibit D and contains the
required provisions, shall be delivered to Landlord prior to the date Tenant is
given the right of possession of the Premises. Proper evidence of the renewal
of any insurance coverage shall also be delivered to Landlord not less than
thirty (30) days prior to the expiration of the coverage. Landlord may at any
time, and from time to time, inspect and/or copy any and all insurance
policies required by this Lease.
3. Each party evidencing insurance required to be carried by Tenant
pursuant to this Exhibit D shall contain the following provisions and/or
clauses satisfactory to Landlord: (i) a provision that the policy and the
coverage provided shall be primary and that any coverage carried by Landlord
shall be noncontributory with respect to any policies carried by Tenant: (ii) a
provision including Landlord and any other parties in interest designated by
Landlord as an additional insured, except as to workers compensation insurance;
(iii) a waiver by the insurer of any right to subrogation against Landlord, its
agents, employees, contractors and representatives which arises or might arise
by reason of any payment under the policy or by reason of any act or omission
of Landlord, its agents, employees, contractors or representatives; and (iv) a
provision that the insurer will not cancel or change the coverage provided by
the policy without first giving Landlord thirty (30) days prior written notice.
4. In the event that Tenant fails to procure, maintain and/or pay for,
at the times and for the durations specified in this Exhibit D, any insurance
required by this Exhibit D, or fails to carry insurance required by any
governmental authority, Landlord may at its election procure that insurance and
pay the premiums, in which event Tenant shall repay Landlord all sums paid by
Landlord, together with interest at the maximum rate permitted by law and any
related costs or expenses incurred by Landlord, within ten (10) days following
Landlord's written demand to Tenant.
1
<PAGE> 31
EXHIBIT E
RULES AND REGULATIONS
The following Rules and Regulations shall be in effect at the
Building. Landlord reserves the right to adopt reasonable nondiscriminatory
modifications and additions at any time. In the case of any conflict between
these regulations and the Lease, the Lease shall be controlling.
1. Except with the prior written consent of Landlord, Tenant shall
not sell, or permit the retail sale of, newspapers, magazines, periodicals, or
theater tickets, in or from the Premises, nor shall Tenant carry on, or permit
or allow any employee or other person to carry on, the business of stenography,
typewriting or any similar business in or from the Premises for the service or
accommodation of occupants of any other portion of the Building. Tenant shall
not allow the Premises to be utilized for any manufacturing of any kind, or the
business of a public barber shop, beauty parlor, or a manicuring and
chiropodist business, or any business other than that specifically provided for
in the Lease.
2. The sidewalks, halls, passages, elevators, stairways, and other
common areas shall not be obstructed by Tenant or used by it for storage or for
any purpose other than for ingress to and egress from the Premises. The halls,
passages, entrances, elevators, stairways, balconies and roof are not for the
use of the general public, and Landlord shall in all cases retain the right to
control and prevent access to those areas of all persons whose presence, in the
judgment of Landlord, shall be prejudicial to the safety, character, reputation
and interests of the Building and its tenants. Nothing contained in this Lease
shall be construed to prevent access to persons with whom Tenant normally deals
only for the purpose of conducting its business on the Premises (such as
clients, customers, office suppliers and equipment vendors and the like) unless
those persons are engaged in illegal activities. Neither Tenant nor any
employee or contractor of Tenant shall go upon the roof of the Building without
the prior written consent of Landlord.
3. The sashes, sash doors, windows, glass lights, solar film and/or
screen, and any lights or skylights that reflect or admit light into the halls
or other places of the Building shall not be covered or obstructed. The toilet
rooms, water and wash closets and other water apparatus shall not be used for
any purpose other than that for which they were constructed, and no foreign
substance of any kind shall be thrown in those facilities, and the expense of
any breakage, stoppage or damage resulting from the violation of this rule
shall be borne by Tenant.
4. No sign, advertisement or notice visible from the exterior of the
Premises shall be inscribed, painted or affixed by Tenant on any part of the
Building or the Premises without the prior written consent of the Landlord. If
Landlord shall have given its consent at any time, whether before or after the
execution of this Lease, that consent shall in no way operate as a waiver or
release of any of the provisions of this Lease, and shall be deemed to relate
only to the particular sign, advertisement or notice so consented to by
Landlord and shall not be construed as dispensing with the necessity of
obtaining the specific written consent of Landlord with respect to any
subsequent sign, advertisement or notice. If Landlord, by a notice in writing
to Tenant, shall object to any curtain, blind, tinting, shade or screen
attached to, or hung in, or used in connection with, any window or door of the
Premises, the use of that curtain, shade or screen shall be immediately
discontinued and removed by Tenant. No awnings shall be permitted on any part
of the Premises.
5. Tenant shall not do or permit anything to be done in the
Premises, or bring or keep anything in the Premises, which shall in any way
increase the rate of fire insurance on the Building, or on the property kept in
the Building, or obstruct or interfere with the rights of other tenants, or in
any way injure or annoy them, or conflict with the regulations of the Fire
Department or the fire laws, or with any insurance policy upon the Building, or
any portion of the Building or its contents, or with any rules and ordinances
established by the Board of Health or other governmental authority.
6. The installation and location of any unusually heavy equipment
in the Premises, including without limitation file storage units, safes and
electronic data processing equipment, shall require the prior written approval
of Landlord. Landlord may restrict the weight and position of any equipment
that may exceed the weight load limits for the structure of the Building, and
may further require, at Tenant's expense, the reinforcement of any flooring on
which such equipment may be placed and/or an engineering study to be performed
to determine whether the equipment may safely be installed in the Building and
the necessity of any reinforcement. The moving of large or heavy objects shall
occur only between those hours as may be designated by, and only upon previous
written notice to, Landlord, and the persons employed to move those objects in
or out of the Building must be reasonably acceptable to Landlord. No freight,
furniture or bulky matter of any description shall be received into or moved
out of the lobby of the Building or carried in any elevator other than the
freight elevator designated by Landlord unless approved in writing by Landlord.
7. Landlord shall clean the Premises as provided in the Lease, and
except with the written consent of Landlord, no person or persons other than
those approved by Landlord will be permitted to enter the Building for that
purpose. Tenant shall not cause unnecessary labor by reason of Tenant's
carelessness and indifference in the preservation of good order and cleanliness.
Landlord shall not be responsible to Tenant or its employees for loss or damage
to property in connection with the provision of janitorial services by third
party contractors.
8. Tenant shall not sweep or throw, or permit to be swept or thrown,
from the Premises any dirt or other substance into any of the corridors or halls
or 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 Premises, or permit or suffer the Premises to be occupied or
used in a manner offensive or objectionable to Landlord or other occupants of
the Building by reason of noise, odors, and/or vibrations, or interfere in any
way with other tenants or those having business with other tenants, nor shall
any animals or birds be kept by Tenant in or about the Building. Smoking or
carrying of lighted cigars, cigarettes, pipes or similar products anywhere
within the elevators, restrooms, common corridors, lobbies or other common areas
of the Building is strictly prohibited. Any such activity within the Premises
shall, until further notice, be permitted only absent written notification to
Landlord from another tenant of the Building that such activity is creating
fumes or odors that are offensive or objectionable; in the event such notice is
given to Landlord, Landlord may prohibit smoking within the Premises and may
enforce such prohibition pursuant to Landlord's leasehold remedies. Smoking is
permitted outside the Building and within the project only in areas designated
by Landlord.
9. No cooking shall be done or permitted by Tenant on the Premises,
except pursuant to the normal use of a U.L. approved microwave oven and coffee
maker for the benefit of Tenant's employees and invitees, nor shall the
Premises be used for the storage of merchandise or for lodging. It is
understood that Tenant shall be permitted to have a lunch room in the Premises
for its employees, which room may contain vending machines, microwaves, a
refrigerator and related amenities.
1
<PAGE> 32
10. Tenant shall not use or keep in the Building any kerosene, gasoline,
or inflammable fluid or any other illuminating material, or use any method of
heating other than that supplied by Landlord.
11. If Tenant desires telephone, telegraph, burglar alarm or similar
connections, Landlord will direct electricians as to where and how the wires
are to be introduced. No boring or cutting for wires or otherwise shall be made
without directions from Landlord.
12. Upon the termination of its tenancy, Tenant shall deliver to Landlord
all the keys to offices, rooms and toilet rooms and all access cards which
shall have been furnished to Tenant or which Tenant shall have had made.
13. Tenant shall not mark, drive nails, screw or drill into the
partitions, woodwork or plaster or in any way deface the Premises, except to
install normal wall hangings. Tenant shall not affix any floor covering to the
floor of the Premises in any manner except by a paste, or other material which
may easily be removed with water, the use of cement or other similar adhesive
materials being expressly prohibited. The method of affixing any floor covering
shall be subject to approval by Landlord. The expense of repairing any damage
resulting from a violation of this rule shall be borne by Tenant.
14. On Saturdays, Sundays and legal holidays, and on other days between
the hours of 6:00 p.m. and 8:00 a.m., access to the Building, or to the halls,
corridors, elevators or stairways in the Building or to the Premises, may be
refused unless the person seeking access complies with any access control
system that Landlord may establish. Landlord shall in no case be liable for
damages for the admission to or exclusion from the Building of any person whom
Landlord has the right to exclude under Rules 2 or 18 of this Exhibit. In case
of invasion, mob, riot, public excitement, or other commotion, or in the event
of any other situation reasonably requiring the evacuation of the Building,
Landlord reserves the right at its election and without liability to Tenant to
prevent access to the Building by closing the doors or otherwise, for the
safety of the tenants and protection of property in the Building.
15. Tenant shall be responsible for protecting the Premises from theft,
which includes keeping doors and other means of entry closed and securely
locked. Tenant shall cause all water faucets or water apparatus to be shut off
before Tenant or Tenant's employees leave the Building, and that all
electricity, gas or air shall likewise be shut off, so as to prevent waste or
damage, and for any default or carelessness Tenant shall make good all injuries
sustained by other tenants or occupants of the Building or Landlord.
16. Tenant shall not alter any lock or install a new or additional lock
or any bolt on any door of the Premises without the prior written consent of
Landlord. If Landlord gives its consent, Tenant shall in each case promptly
furnish Landlord with a key for any new or altered lock.
17. Tenant shall not install equipment, such as but not limited to
electronic tabulating or computer equipment, requiring electrical or air
conditioning service in excess of that to be provided by Landlord under the
Lease except in accordance with Exhibit B.
18. Landlord shall have full and absolute authority to regulate or
prohibit the entrance to the Premises of any vendor, supplier, purveyor,
petitioner, proselytizer or other similar person. In the event any such person
is a guest or invitee of Tenant, Tenant shall notify Landlord in advance of
each desired entry, and Landlord shall authorize the person so designated to
enter the Premises, provided that in the sole and absolute discretionary
judgment of Landlord, such person will not be involved in general solicitation
activities, or the proselytizing, petitioning, or disturbance of other tenants
or their customers or invitees, or engaged or likely to engage in conduct which
may in Landlord's opinion distract from the use of the Premises for its
intended purpose. Notwithstanding the foregoing, Landlord reserves the absolute
right and discretion to limit or prevent access to the Buildings by any food or
beverage vendor, whether or not invited by Tenant, and Landlord may condition
such access upon the vendor's execution of an entry permit agreement which may
contain provisions for insurance coverage and/or the payment of a fee to
Landlord.
19. Tenant shall be required to utilize the third party contractor
designated by Landlord for the Building to provide any telephone wiring
services from the minimum point of entry of the telephone cable in the Building
to the Premises. Notwithstanding the foregoing, however, in the event Tenant
does not have a telephone switch within the Premises, Tenant may, with
Landlord's approval and supervision, use a trained contractor to provide such
wiring services, but only from the Premises to the telephone room on the floor
on which the Premises are situated.
20. Landlord may from time to time grant tenants individual and temporary
variances from these Rules, provided that any variance does not have a material
adverse effect on the use and enjoyment of the Premises by Tenant.
2
<PAGE> 33
DOLLAR ALLOWANCE
LANDLORD'S WORK
Landlord shall, at its sole cost and expense, complete the common Facilities
(as defined in the Lease), together with the following items:
A. Structure. The building shell in which the Premises are located shall be
designed by Landlord's architect and shall be completed substantially in
accordance with the architect's designs. Exterior trim and other exterior
work normally requiring staining or painting shall be stained or painted.
B. Exterior Walls. Landlord shall provide the exterior walls of the Premises
bordering on the exterior of the building. Those walls are to be finished
on the exterior side only.
C. Air Conditioning and heating. Landlord shall install the vertical
distribution of the main heating, ventilation and air conditioning system
to the floor on which the Premises are located, together with the main duct
on said floor.
D. Electrical Distribution System. Landlord shall install electrical power to
an electrical panel located on the floor on which the Premises are located,
which power shall be sufficient to meet normal business needs (exclusive of
data processing and other extraordinary or excessive requirements).
E. Telephone system. Landlord shall install telephone conduits from telephone
manholes to a central telephone closet located on the floor on which the
Premises are looted for distribution to the Premises.
F. Sprinkler System. Landlord shall install the main loop for the wet fire
life safety sprinkler system on the floor on which the Premises are
located.
G. Restrooms. Landlord shall provide finished restroom facilities on the
floor on which the Premises are located in accordance with applicable code
requirements for normal office usage.
H. Demising Walls. Landlord shall be responsible for one-half of the cost of
the interior demising walls of the Premises.
I. Corridors. If the Premises are located on a multi-tenant floor of the
building, Landlord shall provide building standard elevator lobby finishes
and minimum common area corridors as required by applicable code
provisions, provided that one-half of the cost of the walls separating the
corridor from the Premises shall be allocated to the Tenant Improvements.
TENANT IMPROVEMENTS
The Tenant Improvement work (herein "Tenant Improvements") shall consist of any
work, exclusive of the Landlord's work specified in Article 1 of this Work
Letter, required to complete the Premises pursuant to the Tenant's approved
plans and specifications. All of the Tenant Improvement work shall be
performed by a contractor selected by Landlord and in accordance with the
following procedures and requirements:
A. Tenant and Landlord have approved both (i) a detailed space plan for the
Premises, prepared by Gensier and dated November 14, 1996, a portion of
which is attached to this Lease as Exhibit A ("Preliminary Plan"), and (ii)
an estimate of the cost for which Landlord will complete or cause to be
completed the Tenant Improvements ("Preliminary Cost Estimate") a copy of
which is attached hereto as Exhibit X-1.
B. On or before the Plan Approval Date, Tenant shall provide in writing to
Landlord or Landlord's architect all specifications and information
requested by Landlord for the preparation of final construction documents
and costing, including without limitation Tenant's final selection of wall
and floor finishes, complete specifications and locations (including load
and HVAC requirements) of Tenant's equipment, and details of all
"Non-Standard Improvements" (as defined below) to be installed in the
Premises (collectively, "Programming information"). Tenant's failure to
provide the Programming information by the Plan Approval Date shall
constitute a Tenant Delay for purposes of this Lease. Notwithstanding the
foregoing, however, Landlord shall advise Tenant, not later than ten (10)
days prior to the Plan Approval Date, of any required Programming
Information, and any delay by Landlord shall extend the Plan Approval Date
of a day-for-day basis. Tenant understands that final construction
documents for the Tenant Improvements shall be predicated on the
Programming Information, and accordingly that such information must be
accurate and complete.
C. Except as otherwise specified by Tenant and authorized herein, the Tenant
Improvements shall incorporate Landlord's building standards materials and
specifications ("Standards"). No deviations from the Standards may be
required by Tenant with respect to doors and frames, finish hardware, entry
graphics, the ceiling system, light fixtures and switches, mechanical
systems, life and safety systems, and/or window coverings; provided that
Landlord may, in its sole discretion, authorize in writing one or more of
such deviations. All other non-standard items ("Non-Standard Improvements")
shall be subject to the reasonable prior approval of Landlord. Landlord
shall in no event be required to approve any Non-Standard Improvement if
Landlord determines that such improvement (i) is of a lesser quality than
the corresponding Standard, (ii) fails to conform to applicable
governmental requirements, (iii) requires building services beyond the
level normally provided to other tenants, (iv) would delay construction of
the Tenant Improvements beyond the Estimated Commencement Date and Tenant
declines to accept such delay in writing as a Tenant Delay, or (v) would
have an adverse aesthetic impact from the exterior of the Premises.
<PAGE> 34
EXHIBIT X
<PAGE> 35
D. Upon Tenant's delivery of the complete Programming information, Landlord's
architect and engineers shall prepare and deliver to Tenant working
drawings and specifications ("Working Drawings and Specifications"), and
Landlord's contractor shall prepare a final construction cost estimate
("Final Cost Estimate") for the Tenant Improvements in conformity with the
Working Drawings and Specifications. The Working Drawings and
Specifications shall be consistent with the Preliminary Plan, Preliminary
Cost Estimate and Programming Information, and shall be provided to Tenant
within three weeks following the later of (i) the mutual execution of this
Lease and (ii) Tenant's delivery of the Programming Information. Tenant
shall have five (5) working days from the receipt thereof to approve or
disapprove the Working Drawings and Specifications and the Final Cost
Estimate. Tenant shall not unreasonably withhold or delay its approval, and
any disapproval or requested modification shall be limited to items not
contained in the approved Preliminary Plan or Preliminary Cost Estimate. In
no event shall Tenant disapprove the Final Cost Estimate if it does not
exceed the approved Preliminary Cost Estimate, such disapproval shall be
accompanied by a detailed list of revisions. Any revision requested by
Tenant and accepted by Landlord shall be incorporated into a revised set of
Working Drawings and Specifications and Final Cost Estimate, and Tenant
shall approve same in writing within five (5) business days of receipt
without further revision. Tenant's failure to comply in a timely manner
with any of the requirements of this Article II.D. shall constitute a
Tenant Delay. Without limiting the rights of Landlord for Tenant Delays as
set forth herein, in the event Tenant has not approved both the Working
Drawings and Specifications and the Final Cost Estimate within forty-five
(45) days after delivery of those documents, then Landlord may, at its
option, elect to terminate this Lease by written notice to Tenant. In the
event Landlord elects to effect such a termination, Tenant shall, within
ten (10) days following demand by Landlord, pay to Landlord any costs
incurred by Landlord in connection with the preparation or review of plans,
construction estimates, price quotations, drawings or specifications under
this Work Letter and for all costs incurred in the preparation and
execution of this Lease, including any leasing commissions.
E. In the event that Tenant requests in writing a revision in the approved
Working Drawings and Specifications ("Change"), Landlord shall advise
Tenant by written change order as soon as is practical of any increase in
the Completion Cost and/or any Tenant Delay such Change would cause. Tenant
shall approve or disapprove such change order in writing within (2) days
following its receipt from Landlord. Landlord shall have the right to
decline Tenant's request for a Change for any of the reasons set forth in
Article II.C above for Landlord's disapproval of a Non-Standard
Improvement. It is understood that Landlord shall have no obligation to
interrupt or modify the Tenant Improvement work pending Tenant's approval
of a change order.
F. Notwithstanding any provision in the Lease to the contrary, if the
prosecution of the Tenant improvement work is actually delayed because
Tenant fails to comply with any of the time periods specified in this Work
Letter, fails otherwise to approve or reasonably disapprove any submittal
within five (5) working days, fails to provide all of the Programming
Information requested by Landlord by the Plan Approval Date, fails to
approve in writing the Working Drawings and Specifications and the Final
Cost Estimate within the time provided herein, requests any Changes,
furnishes inaccurate or erroneous specifications or other information, or
otherwise delays in any manner the completion of the Tenant Improvements
(including without limitation by specifying materials that are not readily
available) or the issuance of an occupancy certificate (any of the
foregoing being referred to in this Lease as a "Tenant Delay"), then Tenant
shall bear any resulting additional construction cost or other expenses,
and the Commencement Date of this Lease shall be deemed to have occurred
for all purposes, including Tenant's obligation to pay rent, as of the date
Landlord reasonably determines that it would have been able to deliver the
Premises to Tenant but for the collective Tenant Delays. In no event,
however, shall such date be earlier than the Estimated Commencement Date
set forth in the Basic Lease Provisions. Should Landlord determine that the
Commencement Date should be advanced in accordance with the foregoing, it
shall so notify Tenant in writing. Landlord's determination shall be
conclusive unless Tenant notifies Landlord in writing, within five (5)
working days thereafter, of Tenant's election to contest same by
arbitration with the Judicial Arbitration and Mediation Service in Orange
County, California. Pending the outcome of such arbitration proceedings,
Tenant shall make timely payment of all rent due under this Lease based
upon the Commencement Date set forth in the aforesaid notice from Landlord.
G. Landlord shall permit Tenant and its agents to enter the Premises prior to
the Commencement Date of the Lease in order that Tenant may perform any
work to be performed by Tenant hereunder through its own contractors,
subject to Landlord's prior written approval, and in a manner and upon
terms and conditions and at times satisfactory to Landlord's
representative. The foregoing license to enter the Premises prior to the
Commencement Date is, however, conditioned upon Tenant's contractors and
their subcontractors and employees working in harmony and not interfering
with the work being performed by Landlord. If at any time that entry shall
cause disharmony or interfere with the work being performed by Landlord,
this license may be withdrawn by Landlord upon twenty-four (24) hours
written notice to Tenant. That license is further conditioned upon the
compliance by Tenant's contractors with all requirements imposed by
Landlord on third party contractors, including without limitation the
maintenance by Tenant and its contractors and subcontractors of workers'
compensation and public liability and property damage insurance in amounts
and with companies and on forms satisfactory to Landlord, with certificates
of such insurance being furnished to Landlord prior to proceeding with any
such entry. The entry shall be deemed to be under all of the provisions of
the Lease except as to the covenants to pay rent. Landlord shall not be
liable in any way for any injury, loss or damage which may occur to any
such work being performed by Tenant, the same being solely at Tenant's
risk. In no event shall the failure of Tenant's contractors to complete any
work in the Premises extend the Commencement Date of this Lease beyond the
date that Landlord has completed its Tenant improvement work and tendered
the Premises to Tenant.
H. Tenant hereby designates Ken Colbaugh, Telephone No. (714) 975-1550, as its
representative, agent and attorney-in-fact, for the purpose of receiving
notices, approving submittals and issuing requests for Changes, and
Landlord shall be entitled to rely upon authorizations and directives of
such person(s) as if given directly by Tenant. Tenant may amend the
designation of its construction representative(s) at any time upon delivery
of written notice to Landlord.
<PAGE> 36
<TABLE>
<CAPTION>
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TICON GENERAL CONTRACTORS - Construction Summary
================================================
- -----------------------------------------------------------------------------------------------------------------------------------
Date: 11/21/96 Contractor: TICON GENERAL CONTRACTORS
Tenant Name: STEVEN MYERS (#8578) Address: 18002 SKYPARK CIRCLE
Suite: 800
Address: 4695 MacARTHUR COURT Irvine, CA 92714
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BUILDING STANDARD OVER STANDARD TOTAL COST
Category/Description QTY U/M UNIT $ TOTAL $/USF QTY U/M UNIT $ TOTAL $/USF TOTAL $/USF
- -----------------------------------------------------------------------------------------------------------------------------------
7) Window Frame With Seven Mullions 1 EA 2,735.00 2,735 0.16 2,735 0.16
8) 6' Window Frame At Projection Room 1 EA 585.00 585 0.03 585 0.03
------ ---- ------ ----
12,512 0.73 12,512 0.73
- -----------------------------------------------------------------------------------------------------------------------------------
09250 - DRYWALL & INSULATION
1) Interior Partition 340 LF 20.71 7,227 0.42 7,227 0.42
2) Corridor Partition 25 LF 19.60 490 0.03 490 0.03
3) 1 Hr. Partition 78 LF 27.50 2,145 0.12 2,145 0.12
4) Modify To 1 Hr Partition 54 LF 16.50 891 0.05 891 0.05
5) Cut In Door 3 EA 65.00 195 0.01 195 0.01
6) Cut In Side Light 11 EA 42.00 482 0.03 482 0.03
7) Create Alcove At Double Entry 1 LS 710.00 710 0.04 710 0.04
Door
8) Fill In Doorway 11 EA 100.00 1,100 0.06 1,100 0.06
9) Scar Patch 52 EA 20.00 1,040 0.06 1,040 0.06
10) Wall Patching 1 LS 350.00 350 0.02 350 0.02
11) Corridor Ceiling Extension 90 SF 4.10 369 0.02 369 0.02
12) Fire Damper Framing 13 EA 55.00 715 0.04 715 0.04
13) Fire Extinguisher Framing 3 EA 35.00 105 0.01 105 0.01
14) Stocking And Scrap Out 1 LS 875.00 875 0.04 875 0.04
15) Support For Conference Room 1 LS 327.00 327 0.02 327 0.02
Glass
------ ---- ----- ---- ------ ----
15,302 0.69 1,499 0.09 16,801 0.98
- -----------------------------------------------------------------------------------------------------------------------------------
09540 - ACOUSTICAL CEILING
1) Ceiling Remove & Replace 9,000 SF 0.32 2,880 0.17 2,880 0.17
2) New Tile Allowance 2,100 SF 1.25 2,625 0.15 2,625 0.15
3) Repair Grid At Wall Demo 1 LS 200.00 200 0.01 200 0.01
- -----------------------------------------------------------------------------------------------------------------------------------
Page R3
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<PAGE> 37
TICON GENERAL CONTRACTORS - CONSTRUCTION SUMMARY
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
Date: 11/21/9 Contractor: TICON GENERAL CONTRACTORS
Tenant Name: STEVEN MYERS (#8576) Address: 18002 SKYPARK CIRCLE
Suite: 800
Address: 4695 MacARTHUR COURT Irvine, CA 92714
- ------------------------------------------------------------------------------------------------------------------------------------
BUILDING STANDARD OVER STANDARD TOTAL COST
Category/Description QTY U/M UNIT $ TOTAL $/USF QTY U/M UNIT $ TOTAL $/USF TOTAL $/USF
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
4) Frame Light Fixture 123 EA 0.60 799 0.05 799 0.05
5) Rework T Bar & Tile For Entry 1 LS 225.00 225 0.01 225 0.01
Door Recess
6) T Bar & Tile At Soffit Demo 110 SF 1.87 205 0.01 205 0.01
7) Cut And Patch Grid At 1 Ht. Wall 1 LS 420.00 420 0.02 420 0.02
----- ---- ----- ----
7,355 0.43 7,355 0.43
- ------------------------------------------------------------------------------------------------------------------------------------
09760 - FLOOR COVERING
1) Building Standard Carpet 1,890 SY 12.25 23,152 1.36 23,152 1.35
2) Stonetex VCT Flooring 785 SF 1.65 1,282 0.07 1,262 0.07
3) Bldg. Std. Topset Base, 2 1/2" 3,824 LF 0.93 3,370 0.20 3,370 0.20
4) Labor To Patch Carpet @ 1 LS 210.00 210 0.01 210 0.01
Corridor, Material Supplied By
Owner
5) Labor To Install Owner Supplied 1 LS 90.00 90 0.01 90 0.01
Carpet At Entry Door Recess
With Base
------ ---- ------ ----
28,085 1.53 28,085 1.63
- ------------------------------------------------------------------------------------------------------------------------------------
09900 - PAINT & WALLCOVERING
1) Paint Walls - Flat, Same Color 22,968 SF 0.19 4,353 0.25 4,383 0.25
2) Paint Soffit - Flat, Same Color 352 LF 1.00 352 0.02 352 0.02
3) Door Finish (Building Standard) 5 EA 50.00 250 0.01 250 0.01
4) Door & Sidelight Frame - Enamel 4 EA 50.00 200 0.01 200 0.01
5) Revarnish Relocated Door Per 9 EA 35.00 315 0.02 315 0.02
Note #3
6) Remove & Prep Existing Wall 5,895 SF 1.00 5,895 0.34 5,895 0.34
Covering
7) Minor Patch And Prep 1 LS 250.00 250 0.01 250 0.01
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 84
<PAGE> 38
<TABLE>
<CAPTION>
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TICON GENERAL CONTRACTORS - Construction Summary
================================================
- -----------------------------------------------------------------------------------------------------------------------------------
Date: 11/21/96 Contractor: TICON GENERAL CONTRACTORS
Tenant Name: STEVEN MYERS (#8578) Address: 18002 SKYPARK CIRCLE
Suite: 800
Address: 4695 MacARTHUR COURT Irvine, CA 92714
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BUILDING STANDARD OVER STANDARD TOTAL COST
Category/Description QTY U/M UNIT $ TOTAL $/USF QTY U/M UNIT $ TOTAL $/USF TOTAL $/USF
- -----------------------------------------------------------------------------------------------------------------------------------
8) Skin Coat For 2 1/2" Base 1 LS 250.00 250 0.01 250 0.01
9) Wallcovering Material Allowance 3,620 SF 2.50 9,050 0.53 9,050 0.53
10) Wallcovering Labor & Primer 3,620 SF 0.70 2,534 0.15 2,534 0.15
11) Corridor Wallcovering Patch At 1 LS 300.00 300 0.02 300 0.02
Double & Single Door Install
12) Remove Wallcovering At 1 LS 150.00 150 0.01 150 0.01
Corridor
13) New Wallcovering At Corridor 1 LS 650.00 650 0.04 650 0.04
With Primer
14) Painted J-Molds 2 EA 35.00 70 0.00 70 0.00
15) Wallcovering At Entry Door 1 LS 250.00 250 0.01 250 0.01
Recess
------ ---- ------ ---- ------ ----
12,975 0.75 11,904 0.69 24,879 1.45
- -----------------------------------------------------------------------------------------------------------------------------------
13000 - SPECIAL CONSTRUCTION
1) 6'x6' Dalite (Board Room 1 EA 1,800.00 1,800 0.10 1,800 0.10
Projection Screen
----- ---- ----- ----
1,800 0.10 1,800 0.10
- -----------------------------------------------------------------------------------------------------------------------------------
15400 - PLUMBING
1) Plumbing Per Note #17(2) 1 LS 7,980.00 7,980 0.46 7,980 0.46
And Note #17B(1)
2) Plumbing Design 1 LS 400.00 400 0.02 400 0.02
----- ---- ----- ----
8,380 0.49 8,380 0.49
- -----------------------------------------------------------------------------------------------------------------------------------
15500- FIRE PROTECTION
1) Add & Relocate Sprinkler Heads 1 LS 5,994.00 5,994 0.35 5,994 0.35
----- ---- ----- ----
5,994 0.35 5,994 0.35
- -----------------------------------------------------------------------------------------------------------------------------------
15800 - HVAC
1) Mechanical Engineering 1 LS 1,500.00 1,500 0.08 1,500 0.08
2) New Exterior VAV 3 EA 1,200.00 3,600 0.21 3,600 0.21
- -----------------------------------------------------------------------------------------------------------------------------------
Page R5
</TABLE>
<PAGE> 39
<TABLE>
<CAPTION>
------------------------------------------------
TICON GENERAL CONTRACTORS - Construction Summary
================================================
- -----------------------------------------------------------------------------------------------------------------------------------
Date: 11/21/96 Contractor: TICON GENERAL CONTRACTORS
Tenant Name: STEVEN MYERS (#8578) Address: 18002 SKYPARK CIRCLE
Suite: 800
Address: 4695 MacARTHUR COURT Irvine, CA 92714
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BUILDING STANDARD OVER STANDARD TOTAL COST
Category/Description QTY U/M UNIT $ TOTAL $/USF QTY U/M UNIT $ TOTAL $/USF TOTAL $/USF
- -----------------------------------------------------------------------------------------------------------------------------------
3) New Interior VAV 1 EA 700.00 700 0.04 700 0.04
4) New Supply Diffuser 2 EA 250.00 250 0.03 500 0.03
5) Relocate Return Air Grille 6 EA 20.00 120 0.01 120 0.01
6) Cap & Demo 1 LS 1,200.00 1,200 0.07 1,200 0.07
7) Relocate Thermostat 11 EA 150.00 1,650 0.10 1,650 0.10
8) Rebalance 1 LS 800.00 800 0.05 800 0.05
9) Return Air Grilles 2 EA 40.00 80 0.00 80 0.00
10) Relocate Supplies 31 EA 185.00 5,735 0.33 5,735 0.33
11) Vertical Smoke Fire Dampers 5 EA 300.00 1,500 0.09 1,500 0.09
12) Main Smoke Fire Dampers 4 EA 1,100.00 4,400 0.26 4,400 0.26
13) Return Air Smoke Dampers 4 EA 600.00 2,400 0.14 2,400 0.14
------ ---- ------ ----
24,185 1.41 24,185 1.41
- -----------------------------------------------------------------------------------------------------------------------------------
16000 - ELECTRICAL
1) Relocate Exit Lights 6 EA 100.00 600 0.03 600 0.03
2) Relocate Light Fixture 2 X 4 108 EA 65.00 7,020 0.41 7,020 0.41
3) Light Fixture 2 X 4 15 EA 175.00 2,625 0.15 2,625 0.15
4) Relocate Light Sensor 10 EA 35.00 350 0.02 350 0.02
5) Light Sensor 2 EA 169.00 338 0.02 338 0.02
6) Fire Damper Smoke Detector 13 EA 200.00 2,600 0.15 2,600 0.15
Connection
7) Light Switch, Sentry 3 EA 85.00 255 0.01 255 0.01
8) 2 X 2 Light Fixture 2 EA 147.00 294 0.02 294 0.02
9) Light Switch, Double 2 EA 66.00 132 0.01 132 0.01
10) Light Switch, 3-Way 10 EA 140.00 1,400 0.08 1,400 0.08
11) Exit Light 7 EA 125.00 875 0.05 875 0.05
12) Duplex Outlet, 110 V. 41 EA 44.00 1,804 0.10 1,804 0.10
13) 4 Plex Outlet 1 EA 44.00 44 0.00 1 EA 10.00 10 0.00 54 0.00
14) Dedicated Duplex Outlet 11 EA 44.00 484 0.03 1 EA 71.00 71 0.00 555 0.03
- -----------------------------------------------------------------------------------------------------------------------------------
Page R6
</TABLE>
<PAGE> 40
TICON GENERAL CONTRACTORS - CONSTRUCTION SUMMARY
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------------
Date: 11/21/9 Contractor: TICON GENERAL CONTRACTORS
Tenant Name: STEVEN MYERS (#8576) Address: 18002 SKYPARK CIRCLE
Suite: 800
Address: 4695 MacARTHUR COURT Irvine, CA 92714
- -----------------------------------------------------------------------------------------------------------------------------------
BUILDING STANDARD OVER STANDARD TOTAL COST
Category/Description QTY U/M UNIT $ TOTAL $/USF QTY U/M UNIT $ TOTAL $/USF TOTAL $/USF
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
15) 2 Gang 3-Way Switch 10 EA 140.00 1,400 0.08 1,400 0.08
16) Insta Hot Power 3 EA 276.00 828 0.05 828 0.05
17) Garbage Disposal Power 0 3 EA 139.00 417 0.02 417 0.02
18) Cut In Boxes 13 EA 20.00 260 0.02 260 0.02
19) Telephone Stub Up 30 EA 35.00 1,050 0.08 1,050 0.06
20) Telephone Homerun 2" 120 LF 8.50 1,020 0.08 1,020 0.06
21) 1500 Watt Dimmer 2 EA 140.00 280 0.02 280 0.02
22) Wallwasher 20 EA 146.00 2,020 0.17 2,920 0.17
23) Telephone Backboard 1 EA 100.00 100 0.01 100 0.01
24) RC-700A Recp/Tele 3 EA 585.00 1,755 0.10 1,755 0.10
25) Magnetic Hold Open At Double 2 EA 180.00 380 0.02 360 0.02
Entry Door
26) Recirculating Of Lights & Power 1 LS 2,000.00 2,000 0.12 2,000 0.12
27) Permit 1 LS 400.00 400 0.02 400 0.02
28) Projection Screen Power 1 EA 145.00 145 0.01 145 0.01
29) Furnish And Install Blank Cover 14 EA 5.00 70 0.00 70 0.00
Plates
------ ---- ----- ---- ------ ----
25,051 1.48 6,658 0.40 31,907 1.85
- -----------------------------------------------------------------------------------------------------------------------------------
16800 - LIFE SAFETY
1) Fire-Smoke Detectors A1 1 LS 8,110.00 8,110 0.47 8,110 0.47
HVAC Smoke Dampers
2) Life Safety Speakers 8 EA 330.00 1,850 0.12 1,980 0.12
3) Life Safety Permit 1 103.00 103 0.01 103 0.01
4) Fire Extinguisher And Cabinet 3 EA 250.00 750 0.04 750 0.04
------ ---- ------ ----
10,843 0.64 10,843 0.64
- -----------------------------------------------------------------------------------------------------------------------------------
17000 - PERMITS
1) Permit Allowances 17,203 SF 0.15 2,580 0.15 2,580 0.15
------ ---- ------ ----
2,580 0.15 2,580 0.15
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 87
<PAGE> 41
- --------------------------------------------------------------------------------
TICON GENERAL CONTRACTORS - CONSTRUCTION SUMMARY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION><S> <C>
Date: 11/21/97 Contractor: TICON GENERAL CONTRACTORS
Tenant Name: STEVEN MYERS (#8578) Address: 16002 SKYPARK CIRCLE
Suite: 800
Address: 4695 MacARTHUR COURT Irvine, CA 92714
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Alternate COMPRESSION POSTS IF REQUIRED
- -----------------------------------------------------------------------------------------------------------------------------------
SCOPE OF WORK LUMP SUM COST CONTR FEE A&E FEE COORD FEE TOTAL ALTERN COST
- -----------------------------------------------------------------------------------------------------------------------------------
PATCH DRYWALL IN LIEU OF COVER PLATES 700
-----------------------------------------------------------------------------
TOTAL 700 63 38 $601
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Alternate NOTE #23
- -----------------------------------------------------------------------------------------------------------------------------------
SCOPE OF WORK LUMP SUM COST CONTR FEE A&E FEE COORD FEE TOTAL ALTERN COST
- -----------------------------------------------------------------------------------------------------------------------------------
PATCH DRYWALL IN LIEU OF COVER PLATES 280
-----------------------------------------------------------------------------
TOTAL 280 25 15 $320
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Alternate FIRELITE GLASS AT RATED OPENING
- -----------------------------------------------------------------------------------------------------------------------------------
SCOPE OF WORK LUMP SUM COST CONTR FEE A&E FEE COORD FEE TOTAL ALTERN COST
- -----------------------------------------------------------------------------------------------------------------------------------
INSTALL CLEAR FIRELITE GLASS IN 1 HR. RATED OPENING. 5,315
GLASS WILL NEED TO BE IN TWO PIECES WHICH WILL
REQUIRE A MUTTON.
-----------------------------------------------------------------------------
TOTAL 5,315 478 289 $6,083
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 10.4
ASSIGNMENT AND ASSUMPTION AGREEMENT
ASSIGNMENT AND ASSUMPTION AGREEMENT (this "Agreement") dated as of
December __, 1996, among STEVEN MYERS & ASSOCIATES, INC., a California
corporation (the "Assignor"), SUMMIT AVIATION, INC., a California corporation
(the "Assignee"), and NATIONSBANC LEASING CORPORATION OF NORTH CAROLINA, a
North Carolina corporation ("Secured Party").
Reference is made to (a) the Aircraft Security Agreement (the "Security
Agreement") dated as of April 25, 1996, among the Assignor, as Debtor, and
Secured Party, as Secured Party as more particularly described on Annex I
attached hereto, (b) the Secured Promissory Note (the "Note") dated April 25,
1996, from the Assignor to the Secured Party, (c) the Guarantees (the
"Guarantees") dated April 25, 1996, from Mr. Steven Myers and Mrs. Paula Myers
(each a "Guarantor" collectively, the "Guarantors") to the Secured Party and
(d) the Aircraft (the "Aircraft") described in the Security Agreement. Loans
made to the Assignor by the Secured Party under the Security Agreement in the
aggregate principal amount of $________________ are outstanding as of the date
hereof.
The Assignor and the Assignee are proposing that Assignor sell the
Aircraft to Assignee (the "Transaction"), and in connection therewith, the
Assignee will assume the due and punctual payment of all amounts payable by the
Assignor under, and the due and punctual performance and observance of all the
terms, covenants, agreements and conditions of, the Security Agreement and the
Note to the same extent as if the Assignee had been the original party to the
Security Agreement and the Note. As a condition to the Transaction, the Secured
Party has required that such assumption be separately evidenced by this
Agreement and that the Guarantors each enter into a new guarantee (a "New
Guarantee") in substantially the form of the Guarantees.
Accordingly, the Assignor and the Assignee, intending to be legally bound,
hereby agree with the Secured Party as follows:
SECTION 1. Definitions. All capitalized terms not otherwise defined
herein shall have the respective meanings set forth in the Security Agreement.
SECTION 2. Assignment and Assumption. The Assignor hereby assigns,
transfers and conveys to the Assignee, as the new owner of the Aircraft, all of
the Assignor's rights, interests, duties, obligations and liabilities in, to
and arising under the Security Agreement and the Note. The Assignee hereby
accepts and acknowledges its assumption of the Security Agreement and the Note
and assumes all of the obligations of the Assignor under the Security Agreement
and the Note, including the due and punctual payment of the principal of and
interest on the Loan, when and as due, and the due and punctual performance and
observance of all the terms, covenants, agreements and conditions of the
Security Agreement and the Note to be performed or observed by the Assignor, to
the same extent as if the Assignee had been the original party the Security
Agreement and the Note (collectively, the "Assigned Obligations"). Upon the
execution and delivery hereof by the Assignor, the Assignee and the Secured
Party and upon the
<PAGE> 2
satisfaction of all the conditions set forth in Exhibit "A" hereto, the
Assignee shall, as of the date hereof, succeed to the rights and be obligated
to perform the Assigned Obligations. The filing of this Agreement with the FAA
shall be deemed evidence of the satisfaction of the conditions set forth in
Exhibit "A" hereto.
SECTION 3. Release. Upon the assignment to, and assumption by, Assignee
of all of the rights and Assigned Obligations, Assignor shall be released of
its duties, obligations and liabilities under the Security Agreement and the
Note.
SECTION 4. Representations and Warranties. Each of the Assignor and the
Assignee represents and warrants with respect to itself to the Secured Party
that (a) all representations and warranties made by it in the Security
Agreement, before the Transaction with respect to Assignor, and after the
Transaction with respect to Assignee, are and will be true and correct in all
material respects, except to the extent such representations and warranties
expressly relate to an earlier date, in which case they will be true and
correct as of such specific date, and (b) all conditions set forth in Exhibit
"A" hereto have been satisfied.
SECTION 5. Indemnification. Each of the Assignor and the Assignee agrees
to indemnify the Secured Party, its affiliates and its directors, officers,
agents and employees (each an "Indemnitee") and hold each Indemnitee harmless
from and against any and all liabilities, losses, damages, costs and expenses
of any kind, including, without limitation, the reasonable fees and
disbursements of counsel, which may be incurred by such Indemnitee by reason of
any breach of or inaccuracy in the representations, warranties and covenants
made by the Assignor or Assignee in this Agreement on and as of the date hereof.
SECTION 6. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of North Carolina.
SECTION 7. Counterparts; Effectiveness. This Agreement may be signed in
any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
SECTION 8. Consent of the Secured Party. Secured Party hereby consents
to the transfer of the Aircraft to the Assignee, the charter of the Aircraft by
the Assignee to the Assignor and the assignment and assumption of the Security
Agreement and the Note pursuant to the terms hereof. Secured Party hereby
waives the requirements of Section 4.3(a) of the Security Agreement solely for
this transfer but not for any other transfers.
SECTION 9. Amendment of Security Agreement. Section 4.3(a) of the
Security Agreement is hereby amended in its entirety to read as follows:
"(a) Conveyance of Interest in Collateral. Sell, lease, assign,
transfer, convey, Grant an interest in, exchange or otherwise dispose of
any of the Collateral, any part thereof or any interest therein or
otherwise cause or permit any of the foregoing to occur; provided, that
Debtor may enter into an aircraft charter agreement with a carrier
appropriately certified under Part 135 of FAR so long as such charter
agreement is subject and subordinate to the Security
-2-
<PAGE> 3
Agreement; provided further, that the Aircraft and Debtor are at all
times in compliance with all statutes, laws, ordinances, regulations
and standards or directives relating to the Aircraft and the use or
operation thereof issued by any governmental agency with jurisdiction
over Debtor or the Aircraft, the non-compliance with which would have
a material adverse effect on the Aircraft, the Secured Party or the
Secured Party's security interest in the Aircraft."
-3-
<PAGE> 4
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered by their duly authorized officers as of the date first above
written.
STEVEN MYERS & ASSOCIATES, INC.,
as Assignor
By /s/ STEVEN S. MYERS
-----------------------------------
Name: Steven S. Myers
Title: President
SUMMIT AVIATION, INC.,
as Assignee
By /s/ STEVEN S. MYERS
-----------------------------------
Name: Steven S. Myers
Title: President
NATIONSBANC LEASING CORPORATION OF
NORTH CAROLINA,
as Secured Party
By
-----------------------------------
Name:
Title:
-4-
<PAGE> 5
EXHIBIT "A"
CONDITIONS TO ASSIGNMENT AND ASSUMPTION
In order to be entitled to the rights and be obligated to perform the
Assumed Obligations, Assignee must provide, at Assignee's sole cost and
expense, to the Secured Party, the following documentation:
1. Assignment and Assumption Agreement executed by the parties thereto;
2. Federal Aviation Administration ("FAA") Bill of Sale from Assignor to
Assignee;
3. the New Guarantees;
4. Uniform Commercial Code filings as deemed appropriate by the Secured
Party's counsel duly executed by Assignee;
5. the FAA Aircraft Registration Application in the name of the Assignee
regarding the Aircraft;
6. evidence of payment of any and all sales, transfer, use, documentation
or similar taxes due in connection with the acquisition of the
Aircraft by Assignee;
7. certificates of insurance required under Section 5.1 of the Security
Agreement amended to reflect the change in ownership of the Aircraft;
8. Opinion of FAA counsel;
9. Opinion of counsel to Assignee;
10. good standing certificates from the Secretary of State of Assignee's
state of incorporation and for the state where the home airport for
the Aircraft is located; and
11. an officer's certificate from Assignee (A) certifying as to
Assignee's articles of incorporation, by-laws and resolutions (B)
containing an incumbency certificate of Assignee including the
name(s), title(s) and specimen signature(s) of the person(s)
authorized on behalf of Assignee to execute the Assignment and
Assumption Agreement, (C) stating that no material adverse change has
occurred in the condition of the Assignee (financial or otherwise)
since the most recent financial statements of Assignee were delivered
to Secured Party that would impair the ability of Assignee to pay or
perform its obligations hereunder and (D) stating that no Default or
Event of Default shall have occurred and be continuing as of the date
hereof.
<PAGE> 6
ANNEX I
DESCRIPTION OF SECURITY AGREEMENT
Aircraft Loan and Security Agreement dated as of April 25, 1996 between
Steven Myers & Associates, Inc., as debtor, and NationsBanc Leasing Corporation
of North Carolina, as secured party, which was recorded by the Federal
Aviation Administration on May 1, 1996 and assigned Conveyance No. P06580.
<PAGE> 7
GUARANTEE
FOR VALUE RECEIVED and in consideration of any financial accommodations now or
hereafter made to Summit Aviation, Inc. (together with its successors and
assigns, "Obligor"), which accommodations will be to the direct interest and
advantage of the undersigned, by NationsBanc Leasing Corporation of North
Carolina ("NationsBanc"), and to induce NationsBanc from time to time to make
any such accommodations to Obligor and/or enter into any loan or lease
agreement with Obligor with regard to any such accommodations, the undersigned
and NationsBanc agree as follows:
I. CHARACTER OF OBLIGATION.
The undersigned hereby unconditionally guarantees the full payment and
performance by Obligor of all such financial accommodations, including all
interest and other charges with respect thereto, and including all obligations
of Obligor under any promissory note, loan agreement, lease, conditional sales
contract, security agreement, instrument of lien, security deed or other
security device in favor of NationsBanc, and all other obligations of Obligor
to NationsBanc, however and whenever incurred or evidenced, whether direct or
indirect, absolute or contingent, or due or to become due (hereafter the
"Obligations"). The obligation of the undersigned hereunder is primary and
unconditional and shall be enforceable before, concurrently or after any claim
or demand made or suit filed against Obligor or any other guarantor or surety,
and before, concurrently or after any proceeding by NationsBanc against any
security. The obligation of the undersigned shall be effective regardless of
(i) the solvency or insolvency of Obligor at any time, (ii) the extension or
modification of the Obligations by operation of law or (iii) any other change
in Obligor's composition, nature, personnel or location. The obligation
hereunder may be considered by NationsBanc either as a guaranty or an agreement
of surety. All sums owing hereunder shall be deemed to become immediately due
and payable if (a) Obligor defaults in any of the Obligations or under any
material agreement with NationsBanc; (b) Obligor or the undersigned becomes
insolvent or unable to pay debts as they mature or admits in writing to such
effect, makes a conveyance fraudulent as to creditors under any state or federal
law, makes an assignment for the benefit of creditors, or any proceeding is
instituted by or against Obligor or the undersigned alleging that Obligor or
the undersigned is insolvent or unable to pay debts as they mature, or a
petition under any provision of Title 11 of the United States Code as amended,
is brought by or against Obligor or the undersigned and, in the case of a
petition or proceeding which is brought by a third party, such petition or
proceeding is not removed within thirty (30) days; (c) a receiver is appointed
for any part of the property or assets of Obligor or the undersigned; (d) there
occurs the sale, transfer or exchange, either directly or indirectly, of a
controlling interest of the Obligor other than as permitted under the Guarantee
dated December __, 1996 by Steven Myers to NationsBanc for the benefit of
Obligor; or (e) any statement, representation or warranty at any time furnished
or made by Obligor or the undersigned to NationsBanc is untrue in any material
respect as of the date made or furnished. Payment of any sum or sums due to
NationsBanc hereunder will then be made by the undersigned immediately upon
demand by NationsBanc. To the extent that NationsBanc receives payment of the
Obligations, which payment is thereafter set aside or required to be repaid in
whole or in part, then, to the extent of any sum not finally retained by
NationsBanc, the obligation of the undersigned hereunder shall remain in full
force and effect (or be reinstated).
<PAGE> 8
The undersigned agrees to pay all costs of NationsBanc of collection of any sum
or sums due hereunder, and, if collected by or through an attorney, all
attorneys' fees together with all other legal and court expenses. The
undersigned hereby transfers and conveys to NationsBanc any and all of its
balances, credits, deposits, accounts, items and monies now or hereafter in
possession or control of, or otherwise with NationsBanc, and NationsBanc is
hereby given a security interest upon and in all property of the undersigned of
every kind and description now or hereafter in the possession or control of
NationsBanc for any reason, including all dividends and distributions or other
rights in connection therewith.
II. CONSENT AND WAIVER.
The undersigned waives notice of acceptance hereof, creation of any of the
Obligations, or nonpayment or default by Obligor under any of the Obligations or
any agreement now or hereafter existing between Obligor and NationsBanc,
presentment, demand, notice of dishonor, protest and any other notices whatever.
The undersigned, without affecting its liability hereunder, consents to and
waives notice of all changes of terms of the Obligations, the withdrawal or
extension of credit or time to pay, the release of the whole or any part of the
Obligations, renewal, indulgence, settlement, compromise or failure to exercise
due diligence in collection, the acceptance or release of security, extension of
the time to pay for any period or periods whether or not longer than the
original period, or any surrender, substitution or release of any other person
directly or indirectly liable for any of the Obligations or any collateral
security given by Obligor. The undersigned waives any provisions of North
Carolina law, including any and all rights under Section 26-7 through Section
26-9 of the North Carolina General Statutes (or any similar provisions of other
jurisdictions), relating to the undersigned's rights to discharge upon the
undersigned's giving notice to NationsBanc to proceed against Obligor for
collection after the Obligations are due and payable and the failure or refusal
of NationsBanc thereupon to commence an action or foreclose any collateral
within any specified time period or at any time. The undersigned also consents
to and waives notice of any arrangements of settlements made in or out of court
in the event of receivership, liquidation, readjustment, any proceeding under
Title 11 of the United States Code, as amended, or assignment for the benefit of
creditors of Obligor, and anything whatever whether or not herein specified
which may be done or waived by or between NationsBanc and Obligor, or Obligor
and any other person whose claim against Obligor has been or shall be assigned
or transferred to NationsBanc. The undersigned agrees that it shall have no
right of subrogation, reimbursement or indemnity, whatsoever and no right or
recourse to or with respect to any assets or property of Obligor or to any
collateral for the Obligations, even upon payment in full of the Obligations.
The undersigned agrees that if any notification of intended disposition of
collateral or of any other act by NationsBanc is required by law and a specific
time period is not stated therein, such notification, if mailed by first class
mail at least five (5) days before such disposition or act, postage prepaid,
addressed to the undersigned either at the address shown below or at any other
address of the undersigned appearing on the records of NationsBanc, shall be
deemed reasonably and properly given. NationsBanc may, without notice of any
kind, sell, assign or transfer any or all of the Obligations and the Guarantee
and in such event each and every immediate and successive assignee, transferee
or holder of any of the Obligations shall have the right to enforce this
Guarantee, by suit or otherwise for the benefit of such assignee, transferee or
holder, as fully as if such assignee, transferee or holder were herein, by name
specifically given such rights, powers and benfits; NationsBanc shall have an
unimpaired right prior and superior to
-2-
<PAGE> 9
that of any such assignee, transferee or holder to enforce this Guarantee for
the benefit of NationsBanc as to such of the Obligations as is not sold,
assigned or transferred.
III. CONSTRUCTION.
This Guarantee shall be governed by and constructed and enforced in accordance
with the laws of the State of North Carolina. Wherever possible, each provision
of this Guarantee shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Guarantee shall be
prohibited by or invalid under applicable law, said provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Guarantee. This Guarantee does not supersede any other guaranty, jointly
or severally, in favor of NationsBanc. If more than one party shall execute
this Guarantee, the term undersigned shall mean all and each of them, who shall
be jointly and severally liable hereunder.
IV. Benefit.
This Guarantee shall bind the undersigned, its successors and assigns, and the
rights and privileges of NationsBanc hereunder shall inure to the benefit of
its successors and assigns, and this Guarantee shall be effective with respect
to accommodations made by NationsBanc's successors and assigns to Obligor.
[Signatures appear on the following page.]
-3-
<PAGE> 10
Signed and sealed this _____ day of December, 1996.
/s/ PAULA K. MYERS
---------------------------
Paula Myers
Address: 5 Summit
Irvine CA 92612
Acceptance:
The foregoing Guarantee is accepted in Charlotte, North Carolina this
__________ day of December, 1996.
NATIONSBANC LEASING CORPORATION
OF NORTH CAROLINA
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
<PAGE> 11
GUARANTEE
FOR VALUE RECEIVED and in consideration of any financial accommodations now or
hereafter made to Summit Aviation, Inc. (together with its successors and
assigns, "Obligor"), which accommodations will be to the direct interest and
advantage of the undersigned, by NationsBanc Leasing Corporation of North
Carolina ("NationsBanc"), and to induce NationsBanc from time to time to make
any such accommodations to Obligor and/or enter into any loan or lease
agreement with Obligor with regard to any such accommodations, the undersigned
and NationsBanc agree as follows:
I. CHARACTER OF OBLIGATION.
The undersigned hereby unconditionally guarantees the full payment and
performance by Obligor of all such financial accommodations, including all
interest and other charges with respect thereto, and including all obligations
of Obligor under any promissory note, loan agreement, lease, conditional sales
contract, security agreement, instrument of lien, security deed or other
security device in favor of NationsBanc, and all other obligations of Obligor
to NationsBanc, however and whenever incurred or evidenced, whether direct or
indirect, absolute or contingent, or due or to become due (hereafter the
"Obligations"). The obligation of the undersigned hereunder is primary and
unconditional and shall be enforceable before, concurrently or after any claim
or demand made or suit filed against Obligor or any other guarantor or surety,
and before, concurrently or after any proceeding by NationsBanc against any
security. The obligation of the undersigned shall be effective regardless of
(i) the solvency or insolvency of Obligor at any time, (ii) the extension or
modification of the Obligations by operation of law or (iii) any other change
in Obligor's composition, nature, personnel or location. The obligation
hereunder may be considered by NationsBanc either as a guaranty or an agreement
of surety. All sums owing hereunder shall be deemed to become immediately due
and payable if (a) Obligor defaults in any of the Obligations or under any
material agreement with NationsBanc; (b) Obligor or the undersigned becomes
insolvent or unable to pay debts as they mature or admits in writing to such
effect, makes a conveyance fraudulent as to creditors under any state or
federal law, makes an assignment for the benefit of creditors, or any proceeding
is instituted by or against Obligor or the undersigned alleging that Obligor or
the undersigned is insolvent or unable to pay debts as they mature, or a
petition under any provision of Title 11 of the United States Code, as amended,
is brought by or against Obligor or the undersigned and, in the case of a
petition or proceeding which is brought by a third party, such petition or
proceeding is not removed within thirty (30) days; (c) a receiver is appointed
for any part of the property or assets of Obligor or the undersigned; (d) there
occurs the sale, transfer or exchange, either directly or indirectly, of a
controlling interest of the Obligor other than as permitted hereunder; or (e)
any statement, representation or warranty at any time furnished or made by
Obligor or the undersigned to NationsBanc is untrue in any material respect as
of the date made or furnished. Payment of any sum or sums due to NationsBank
hereunder will then be made by the undersigned immediately upon demand by
NationsBanc. To the extent that NationsBanc receives payment of the
Obligations, which payment is thereafter set aside or required to be repaid in
whole or in part, then, to the extent of any sum not finally retained by
NationsBanc, the obligation of the undersigned hereunder shall remain in full
force and effect (or be reinstated). The undersigned agrees to pay all costs
of NationsBanc of collection of any sum or sums due
<PAGE> 12
hereunder, and, if collected by or through an attorney, all attorneys' fees
together with all other legal and court expenses. The undersigned hereby
transfers and conveys to NationsBanc any and all of its balances, credits,
deposits, accounts, items and monies now or hereafter in possession or control
of, or otherwise with NationsBanc, and NationsBanc is hereby given a security
interest upon and in all property of the undersigned of every kind and
description now or hereafter in the possession or control of NationsBanc for any
reason, including all dividends and distributions or other rights in connection
therewith.
II. CONSENT AND WAIVER.
The undersigned waives notice of acceptance hereof, creation of any of the
Obligations, or nonpayment or default by Obligor under any of the Obligations
or any agreement now or hereafter existing between Obligor and NationsBanc,
presentment, demand, notice of dishonor, protest and any other notices
whatever. The undersigned, without affecting its liability hereunder, consents
to and waives notice of all changes of terms of the Obligations, the withdrawal
or extension of credit or time to pay, the release of the whole or any part of
the Obligations, renewal, indulgence, settlement, compromise or failure to
exercise due diligence in collection, the acceptance or release of security,
extension of the time to pay for any period or periods whether or not longer
than the original period, or any surrender, substitution or release of any
other person directly or indirectly liable for any of the Obligations or any
collateral security given by Obligor. The undersigned waives any provisions of
North Carolina law, including any and all rights under Section 26-7 through
Section 26-9 of the North Carolina General Statutes (or any similar provisions
of other jurisdictions), relating to the undersigned's rights to discharge upon
the undersigned's giving notice to NationsBanc to proceed against Obligor for
collection after the Obligations are due and payable and the failure or refusal
of NationsBanc thereupon to commence an action or foreclose any collateral
within any specified time period or at any time. The undersigned also consents
to and waives notice of any arrangements of settlements made in or out of court
in the event of receivership, liquidation, readjustment, any proceeding under
Title 11 of the United States Code, as amended, or assignment for the benefit
of creditors of Obligor, and anything whatever whether or not herein specified
which may be done or waived by or between NationsBanc and Obligor, or Obligor
and any other person whose claim against Obligor has been or shall be assigned
or transferred to NationsBanc. The undersigned agrees that it shall have no
right of subrogation, reimbursement or indemnity, whatsoever and no right or
recourse to or with respect to any assets or property of Obligor or to any
collateral for the Obligations, even upon payment in full of the Obligations.
The undersigned agrees that if any notification of intended disposition of
collateral or of any other act by NationsBanc is required by law and a specific
time period is not stated therein, such notification, if mailed by first class
mail at least five (5) days before such disposition or act, postage prepaid,
addressed to the undersigned either at the address shown below or at any other
address of the undesigned appearing on the records of NationsBanc, shall be
deemed reasonably and properly given. NationsBanc may, without notice of any
kind, sell, assign or transfer any or all of the Obligations and the Guarantee
and in such event each and every immediate and successive assignee, transferee
or holder of any of the Obligations shall have the right to enforce this
Guarantee, by suit or otherwise for the benefit of such assignee, transferee or
holder, as fully as if such assignee, transferee or holder were herein, by name
specifically given such rights, powers and benefits; NationsBanc shall have an
unimpaired right prior and superior to
-2-
<PAGE> 13
that of any such assignee, transferee or holder to enforce this Guarantee for
the benefit of NationsBanc as to such of the Obligations as is not sold,
assigned or transferred.
III. COVENANTS.
(a) The undersigned agrees to maintain the insurance subject to the Life
Insurance Assignment (as such term is defined in the Aircraft Loan and Security
Agreement dated as of April 25, 1996, as amended, by and between Steven Myers &
Associates, Inc. and NationsBanc, and assigned to Obligor) and to pay on a
timely basis all premiums relating to such insurance. Failure to maintain such
insurance and pay such premiums shall be a default under this Guarantee.
(b) The undesigned shall not sell, assign, convey, transfer or exchange,
either directly or indirectly, a controlling interest in Obligor to anyone
other than a family trust or other entity, in each case controlled by the
undersigned.
IV. CONSTRUCTION.
This Guarantee shall be governed by and constructed and enforced in accordance
with the laws of the State of North Carolina. Wherever possible, each
provision of this Guarantee shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of this
Guarantee shall be prohibited by or invalid under applicable law, said
provision shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Guarantee. This Guarantee does not supersede any
other guaranty or other agreement executed by the undersigned, or any of them,
or any other guaranty, jointly or severally, in favor of NationsBanc. If more
than one party shall execute this Guarantee, the term undersigned shall mean all
and each of them, who shall be jointly and severally liable hereunder.
V. BENEFIT.
This Guarantee shall bind the undersigned, its successors and assigns, and the
rights and privileges of NationsBanc hereunder shall inure to the benefit of
its successors and assigns, and this Guarantee shall be effective with respect
to accommodations made by NationsBanc's successors and assigns to Obligor.
[Signatures appear on the following page.]
-3-
<PAGE> 14
Signed and sealed this ____ day of December, 1996.
/s/ STEVEN S. MYERS
--------------------------------
Steven Myers
Address: 5 Summit
Irvine, CA 92612
Acceptance:
The foregoing Guarantee is accepted in Charlotte, North Carolina this ____ day
of December, 1996.
NATIONSBANC LEASING CORPORATION
OF NORTH CAROLINA
By:
-------------------------------
Name:
------------------------------
Title:
------------------------------
<PAGE> 15
<TABLE>
<S><C>
- -----------------------------------------------------------------
UNITED STATES OF AMERICA FORM APPROVED
U.S. DEPARTMENT OF TRANSPORTATION FEDERAL AVIATION ADMINISTRATION OMB NO. 2120-0042
AIRCRAFT BILL OF SALE
- -----------------------------------------------------------------
FOR AND IN CONSIDERATION OF $ THE
UNDERSIGNED OWNER(S) OF THE FULL LEGAL
AND BENEFICIAL TITLE OF THE AIRCRAFT DESCRIBED
AS FOLLOWS:
- -----------------------------------------------------------------
UNITED STATES
REGISTRATION NUMBER N 850SM
- -----------------------------------------------------------------
AIRCRAFT MANUFACTURER & MODEL
British Aerospace BAe12S Series 800A
- -----------------------------------------------------------------
AIRCRAFT SERIAL No.
258074
- ------------------------------------------------------------------
DOES THIS DAY OF DECEMBER 1996
HEREBY SELL, GRANT, TRANSFER AND
DELIVER ALL RIGHTS, TITLE, AND INTERESTS Do Not Write in This Block
IN AND TO SUCH AIRCRAFT UNTO: FOR FAA USE ONLY
- ----------------------------------------------------------------------------------------------
P NAME AND ADDRESS
U (IF INDIVIDUAL(S), GIVE LAST NAME, FIRST NAME, AND MIDDLE INITIAL)
R
C Summit Aviation
H 1301 Dove Street, Suite 720
A Newport Beach, California 92660
S
E
R ------------------------------------------------------------------------------------------
DEALER CERTIFICATE NUMBER
- ----------------------------------------------------------------------------------------------
AND TO its successors XXXXXXXXXXXXXXXXXX AND ASSIGNS TO HAVE AND TO HOLD
SINGULARLY THE SAID AIRCRAFT FOREVER, AND WARRANTS THE TITLE THEREOF.
- ----------------------------------------------------------------------------------------------
IN TESTIMONY WHEREOF I HAVE SET MY HAND AND SEAL THIS DAY OF Dec. 1997
- ----------------------------------------------------------------------------------------------
NAME(S) OF SELLER SIGNATURE(S) TITLE
(TYPED OR PRINTED) (IN INK) (IF EXECUTED (TYPED OR PRINTED)
FOR CO-OWNERSHIP, ALL
MUST SIGN)
---------------------------------------------------------------------------
S Steven Myers & /s/ STEVEN S. MYERS President
E Associates, Inc.
L ---------------------------------------------------------------------------
L
E
R ---------------------------------------------------------------------------
|
---------------------------------------------------------------------------
|
|
- --------------------------------------------------------------------------------
ACKNOWLEDGEMENT (NOT REQUIRED FOR PURPOSES OF FAA RECORDING; HOWEVER, MAY BE
REQUIRED BY LOCAL LAW FOR VALIDITY OF THE INSTRUMENT)
|
ORIGINAL: TO FAA |
- ----------------------------------------------------------------------------------------------
AC Form 8050-2 (9/92) (NSN 0052-00-629-000S) Supersedes Previous Edition
|
SIGN
HERE
</TABLE>
<PAGE> 1
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
THIS AGREEMENT (this "Agreement") is made as of November 21, 1997, by
and between STEVEN MYERS & ASSOCIATES, INC., a California corporation (the
"Corporation"), and STEVEN S. MYERS (the "Executive"), with reference to the
following facts:
R E C I T A L S:
A. The Corporation desires to employ Executive as its President and
Chief Executive Officer.
B. Executive desires to perform the duties connected with such position
on the terms and conditions hereinafter set forth.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing facts, the mutual
promises set forth below, and other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Term.
The term of this Agreement ("Employment Term") shall commence on
November 21, 1997, and shall continue for two (2) years, subject to earlier
termination only as set forth in Section 5.
2. Duties.
2.1 Office. Executive is hereby appointed to serve as President and
Chief Executive Officer of the Corporation. In the above capacity, Executive
shall report directly to the Board of Directors of the Corporation. Executive
shall exercise such responsibilities and authority relating to Corporation's
business and operations as are customarily performed by an executive holding the
offices of President and Chief Executive Officer, and such additional or
different duties and services as the Board of Directors may reasonably require
from time to time.
2.2 Performance of Services. During the Employment Term, Executive shall use
his best efforts and abilities to promote Corporation's interests. Executive
agrees that he will diligently endeavor to perform the services contemplated by
this Agreement in accordance with policies established by the Board of Directors
from time to time.
<PAGE> 2
3. Compensation.
3.1 Salary. As compensation for the services to be performed hereunder,
Corporation shall pay or cause to be paid to Executive a salary ("Salary") of
Nine Hundred Thousand Dollars ($900,000) per annum. The Salary shall be earned
and shall be payable to Executive at such intervals and otherwise in such manner
as is consistent with the normal payroll practices of Corporation for
remuneration of its executives.
3.2 Bonus Compensation. As additional compensation for the performance by
Executive of services hereunder and as a further incentive to Executive to
devote his best efforts to the business and affairs of Corporation, Executive
may be eligible to receive, at the sole and exclusive discretion of the
Corporation's Compensation Committee (the "Compensation Committee"), a bonus in
such amount as the Compensation Committee shall determine to be appropriate, not
to exceed $900,000.
3.3 Withholding. Corporation shall be entitled to withhold amounts from any
compensation or other form of remuneration or benefit payable by Corporation to
Executive that Corporation reasonably believes is required to be withheld under
any federal, state or local tax law to which Corporation is subject.
4. Benefits.
4.1 Vacation and Holidays. During the Employment Term, Executive shall be
entitled to holidays and vacation time in accordance with policies established
by the Corporation from time to time. No vacation time may be carried forward
and accumulated with the vacation time afforded Executive in any subsequent
year.
4.2 Expenses. Corporation shall, during the Employment Term, reimburse
Executive for all reasonable business expenses incurred and paid by Executive in
the course of the performance of his duties pursuant to this Agreement,
consistent with the Corporation's expense reimbursement policies and procedures
as in effect from time to time.
4.3 Other Benefits. Executive shall be entitled to participate in any
policies, programs and benefits which the Corporation may, in its discretion,
adopt for its Executive employees generally relating to sick leave, disability
insurance, life insurance, medical insurance, and bonus and incentive plans.
5. Termination.
The Employment Term shall terminate upon any of the following
occurrences:
-2-
<PAGE> 3
5.1 Termination for Cause. Corporation may terminate this Agreement at any
time for "good and valid cause," thereby canceling, effective immediately, all
rights and obligations of the parties hereunder. In the event that Executive's
employment by the Corporation is terminated for good and valid cause,
Corporation shall have no obligation to pay any severance pay to Executive, or
to otherwise pay Executive's salary, bonus or any other benefits due hereunder
(except for salary, bonus and other benefits accrued on the books of Employer
through the date of termination).
For purposes of this Agreement, "good and valid cause" shall mean: (i)
conviction by a court of competent jurisdiction of a felony or other crime
involving moral turpitude; (ii) Executive's refusal or failure to substantially
perform the primary duties of his employment hereunder after written
notification thereof by the Corporation, which notice shall specify the alleged
instances of failure or refusal to perform and shall provide Executive with
thirty (30) days in which to cure; (iii) the determination by the Board of
Directors that Executive has become unable as a result of alcohol or drug abuse
to carry out the responsibilities of his employment; (v) Executive's breach of a
material term of this Agreement after written notification thereof by the
Corporation, which notice shall specify the alleged material breach and shall
provide Executive with ten (10) days in which to cure; or (v) the death or
permanent disability of Executive, with the term "permanent disability" defined
as a physical or mental disability continuing for a period of not less than
ninety (90) consecutive days, which prevents Executive from substantially
discharging his duties and responsibilities as set forth herein.
5.2 Termination Without Cause. Corporation shall have the right, exercisable
upon two (2) weeks' written notice, to terminate Executive's employment under
this Agreement without good and valid cause at any time during the Employment
Term. If Executive's employment is terminated by Corporation without cause,
Executive shall be entitled to receive as severance pay, following termination,
an amount equal to two (2) times the annual salary paid to Executive by
Corporation as provided in Section 3.1. Such severance pay shall be paid at
Corporation's election either in a lump sum or in 12 equal monthly installments.
5.3 Termination By Reason of Executive's Voluntary Resignation. Executive
shall be entitled to voluntarily resign from employment with Corporation upon
four (4) weeks' advance written notice to Corporation. Upon such voluntary
resignation, the Employment Term shall terminate without further action by
either party hereto and all rights and obligations of the parties pursuant to
this Agreement shall cease. Corporation shall have no obligation to pay any
severance pay to Executive in the event that Executive voluntarily resigns, or
to otherwise pay Executive's salary, bonus or any other benefits due hereunder
(except for salary, bonus and other benefits accrued on the books of Employer
through the date of termination).
-3-
<PAGE> 4
6. Confidentiality.
Executive acknowledges that, by reason of his employment with Corporation,
he may learn trade secrets and obtain other confidential information concerning
the business and policies of Corporation. Executive agrees that, during and
after the end of the Employment Term, he will not voluntarily divulge or
otherwise disclose, directly or indirectly, any such trade secrets or other
confidential information concerning the business or policies of Corporation that
he may learn as a result of his employment during the Employment Term or may
have learned prior to the Employment Term, except to the extent such information
is lawfully obtainable from public sources or such use or disclosure is (i)
necessary to the performance of this Agreement and in furtherance of
Corporation's best interests, (ii) required by applicable laws, or (iii)
authorized by Corporation.
7. Miscellaneous.
7.1 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of Corporation and its respective successors and assigns and
shall be binding upon and inure to the benefit of Executive and his executors
and administrators. This Agreement, and Executive's rights and obligations
hereunder, may not be assigned by Executive.
7.2 Waiver of Breach. The waiver by Corporation or Executive of a breach of
any provision of this Agreement by the other party shall not be construed as a
waiver of any subsequent breach of the same provision or of any other provision
of this Agreement.
7.3 Notices. All notices, requests, demands and other communications
submitted hereunder shall be in writing and shall be deemed to have been duly
given if delivered or mailed, first class postage prepaid registered mail,
addressed as follows:
If to Executive: Steven S. Myers
--------------------------------------
--------------------------------------
If to Corporation: Steven Myers & Associates, Inc.
4695 MacArthur Court, 8th Floor
Newport Beach, CA 92660
7.4 Arbitration. If any dispute between the parties arises out of this
Agreement, such dispute shall be finally resolved by arbitration conducted in
Orange County, California, in accordance with the then existing Commercial
Arbitration Rules of the American Arbitration Association, and judgment upon the
award rendered by the arbitrators may be entered in any court having
jurisdiction thereof. The parties agree that there shall be no pre-arbitration
discovery and the arbitrator shall not award punitive damages to either of the
parties.
-4-
<PAGE> 5
7.5 Severability. If any provision of this Agreement shall be found invalid
by any court of competent jurisdiction, such findings shall not affect the
validity of the other provisions hereof and the invalid provisions shall be
deemed to have been severed herefrom.
7.6 Entire Agreement. This instrument contains the entire agreement of the
parties. It may not be changed orally but only by an agreement in writing signed
by the parties.
7.7 Applicable Law. This Agreement is entered into and executed in the State
of California and shall be governed by the laws of such State.
7.8 Counterparts. This Agreement may be executed simultaneously in any
number of counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same instrument.
7.9 Headings. The paragraph and subparagraph headings herein are for
convenience only and shall not affect the construction hereof.
7.10 Further Assurances. Each of the parties hereto shall, from time to
time, and without charge to the other parties, take such additional actions and
execute, deliver and file such additional instruments as may be reasonably
required to give effect to the transactions contemplated hereby.
7.11 Attorneys' Fees. In the event any party hereto commences arbitration or
legal action in connection with this Agreement, the prevailing party shall be
entitled to its attorneys' fees, costs and expenses incurred in such action.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
COMPANY: STEVEN MYERS & ASSOCIATES, INC.
a California corporation
By: /s/ KENNETH W. COLBAUGH
------------------------------
Kenneth W. Colbaugh,
Executive Vice President
and Chief Operating Officer
EXECUTIVE: /s/ STEVEN S. MYERS
----------------------------------
Steven S. Myers
-5-
<PAGE> 1
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
THIS AGREEMENT (this "Agreement") is made as of November 21, 1997, by
and between STEVEN MYERS & ASSOCIATES, INC., a California corporation (the
"Corporation"), and KENNETH W. COLBAUGH (the "Executive"), with reference to the
following facts:
R E C I T A L S:
A. The Corporation desires to employ Executive as its Executive Vice
President and Chief Operating Officer.
B. Executive desires to perform the duties connected with such position
on the terms and conditions hereinafter set forth.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing facts, the mutual
promises set forth below, and other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Term.
The term of this Agreement ("Employment Term") shall commence on
November 21, 1997, and shall continue for two (2) years, subject to earlier
termination only as set forth in Section 5.
2. Duties.
2.1 Office. Executive is hereby appointed to serve as Executive Vice
President and Chief Operating Officer of the Corporation. In the above capacity,
Executive shall report directly to the Chief Executive Officer and the Board of
Directors of the Corporation. Executive shall exercise such responsibilities and
authority relating to Corporation's business and operations as are customarily
performed by an executive holding the offices of Executive Vice President and
Chief Operating Officer, and such additional or different duties and services
as the Board of Directors may reasonably require from time to time.
2.2 Performance of Services. During the Employment Term, Executive shall use
his best efforts and abilities to promote Corporation's interests. Executive
agrees that he will diligently endeavor to perform the services contemplated by
this Agreement in accordance with policies established by the Board of Directors
from time to time.
<PAGE> 2
3. Compensation.
3.1 Salary. As compensation for the services to be performed hereunder,
Corporation shall pay or cause to be paid to Executive a salary ("Salary") of
Four Hundred Fifty Thousand Dollars ($450,000) per annum. The Salary shall be
earned and shall be payable to Executive at such intervals and otherwise in
such manner as is consistent with the normal payroll practices of Corporation
for remuneration of its executives.
3.2 Bonus Compensation. As additional compensation for the performance by
Executive of services hereunder and as a further incentive to Executive to
devote his best efforts to the business and affairs of Corporation, Executive
may be eligible to receive, at the sole and exclusive discretion of the
Corporation's Compensation Committee (the "Compensation Committee"), a bonus in
such amount as the Compensation Committee shall determine to be appropriate, not
to exceed $450,000.
3.3 Withholding. Corporation shall be entitled to withhold amounts from any
compensation or other form of remuneration or benefit payable by Corporation to
Executive that Corporation reasonably believes is required to be withheld under
any federal, state or local tax law to which Corporation is subject.
4. Benefits.
4.1 Vacation and Holidays. During the Employment Term, Executive shall be
entitled to holidays and vacation time in accordance with policies established
by the Corporation from time to time. Annual vacation shall be a maximum of six
(6) weeks. No vacation time may be carried forward and accumulated with the
vacation time afforded Executive in any subsequent year.
4.2 Expenses. Corporation shall, during the Employment Term, reimburse
Executive for all reasonable business expenses incurred and paid by Executive in
the course of the performance of his duties pursuant to this Agreement,
consistent with the Corporation's expense reimbursement policies and procedures
as in effect from time to time.
4.3 Other Benefits. Executive shall be entitled to participate in any
policies, programs and benefits which the Corporation may, in its discretion,
adopt for its Executive employees generally relating to sick leave, disability
insurance, life insurance, medical insurance, and bonus and incentive plans.
5. Termination.
The Employment Term shall terminate upon any of the following
occurrences:
-2-
<PAGE> 3
5.1 Termination for Cause. Corporation may terminate this Agreement at any
time for "good and valid cause," thereby canceling, effective immediately, all
rights and obligations of the parties hereunder. In the event that Executive's
employment by the Corporation is terminated for good and valid cause,
Corporation shall have no obligation to pay any severance pay to Executive, or
to otherwise pay Executive's salary, bonus or any other benefits due hereunder
(except for salary, bonus and other benefits accrued on the books of Employer
through the date of termination).
For purposes of this Agreement, "good and valid cause" shall mean: (i)
conviction by a court of competent jurisdiction of a felony or other crime
involving moral turpitude; (ii) Executive's refusal or failure to substantially
perform the primary duties of his employment hereunder after written
notification thereof by the Corporation, which notice shall specify the alleged
instances of failure or refusal to perform and shall provide Executive with
thirty (30) days in which to cure; (iii) the determination by the Board of
Directors that Executive has become unable as a result of alcohol or drug abuse
to carry out the responsibilities of his employment; (v) Executive's breach of a
material term of this Agreement after written notification thereof by the
Corporation, which notice shall specify the alleged material breach and shall
provide Executive with ten (10) days in which to cure; or (v) the death or
permanent disability of Executive, with the term "permanent disability" defined
as a physical or mental disability continuing for a period of not less than
ninety (90) consecutive days, which prevents Executive from substantially
discharging his duties and responsibilities as set forth herein.
5.2 Termination Without Cause. Corporation shall have the right, exercisable
upon two (2) weeks' written notice, to terminate Executive's employment under
this Agreement without good and valid cause at any time during the Employment
Term. If Executive's employment is terminated by Corporation without cause,
Executive shall be entitled to receive as severance pay, following termination,
an amount equal to two (2) times the annual salary paid to Executive by
Corporation as provided in Section 3.1. Such severance pay shall be paid at
Corporation's election either in a lump sum or in 12 equal monthly installments.
5.3 Termination By Reason of Executive's Voluntary Resignation. Executive
shall be entitled to voluntarily resign from employment with Corporation upon
four (4) weeks' advance written notice to Corporation. Upon such voluntary
resignation, the Employment Term shall terminate without further action by
either party hereto and all rights and obligations of the parties pursuant to
this Agreement shall cease. Corporation shall have no obligation to pay any
severance pay to Executive in the event that Executive voluntarily resigns, or
to otherwise pay Executive's salary, bonus or any other benefits due hereunder
(except for salary, bonus and other benefits accrued on the books of Employer
through the date of termination).
-3-
<PAGE> 4
6. Confidentiality.
Executive acknowledges that, by reason of his employment with Corporation,
he may learn trade secrets and obtain other confidential information concerning
the business and policies of Corporation. Executive agrees that, during and
after the end of the Employment Term, he will not voluntarily divulge or
otherwise disclose, directly or indirectly, any such trade secrets or other
confidential information concerning the business or policies of Corporation that
he may learn as a result of his employment during the Employment Term or may
have learned prior to the Employment Term, except to the extent such information
is lawfully obtainable from public sources or such use or disclosure is (i)
necessary to the performance of this Agreement and in furtherance of
Corporation's best interests, (ii) required by applicable laws, or (iii)
authorized by Corporation.
7. Miscellaneous.
7.1 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of Corporation and its respective successors and assigns and
shall be binding upon and inure to the benefit of Executive and his executors
and administrators. This Agreement, and Executive's rights and obligations
hereunder, may not be assigned by Executive.
7.2 Waiver of Breach. The waiver by Corporation or Executive of a breach of
any provision of this Agreement by the other party shall not be construed as a
waiver of any subsequent breach of the same provision or of any other provision
of this Agreement.
7.3 Notices. All notices, requests, demands and other communications
submitted hereunder shall be in writing and shall be deemed to have been duly
given if delivered or mailed, first class postage prepaid registered mail,
addressed as follows:
If to Executive: Kenneth W. Colbaugh
--------------------------------------
--------------------------------------
If to Corporation: Steven Myers & Associates, Inc.
4695 MacArthur Court, 8th Floor
Newport Beach, CA 92660
7.4 Arbitration. If any dispute between the parties arises out of this
Agreement, such dispute shall be finally resolved by arbitration conducted in
Orange County, California, in accordance with the then existing Commercial
Arbitration Rules of the American Arbitration Association, and judgment upon the
award rendered by the arbitrators may be entered in any court having
jurisdiction thereof. The parties agree that there shall be no pre-arbitration
discovery and the arbitrator shall not award punitive damages to either of the
parties.
-4-
<PAGE> 5
7.5 Severability. If any provision of this Agreement shall be found invalid
by any court of competent jurisdiction, such findings shall not affect the
validity of the other provisions hereof and the invalid provisions shall be
deemed to have been severed herefrom.
7.6 Entire Agreement. This instrument contains the entire agreement of the
parties. It may not be changed orally but only by an agreement in writing signed
by the parties.
7.7 Applicable Law. This Agreement is entered into and executed in the State
of California and shall be governed by the laws of such State.
7.8 Counterparts. This Agreement may be executed simultaneously in any
number of counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same instrument.
7.9 Headings. The paragraph and subparagraph headings herein are for
convenience only and shall not affect the construction hereof.
7.10 Further Assurances. Each of the parties hereto shall, from time to
time, and without charge to the other parties, take such additional actions and
execute, deliver and file such additional instruments as may be reasonably
required to give effect to the transactions contemplated hereby.
7.11 Attorneys' Fees. In the event any party hereto commences arbitration or
legal action in connection with this Agreement, the prevailing party shall be
entitled to its attorneys' fees, costs and expenses incurred in such action.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
COMPANY: STEVEN MYERS & ASSOCIATES, INC.
a California corporation
By: /s/ STEVEN S. MYERS
------------------------------
Steven S. Myers, President
and Chief Executive Officer
EXECUTIVE: /s/ KENNETH W. COLBAUGH
----------------------------------
Kenneth W. Colbaugh
-5-
<PAGE> 1
EXHIBIT 10.7
FIRST AMENDMENT TO SECURITY AND LOAN AGREEMENT
AND ADDENDUM, EXHIBIT "A," THERETO
This First Amendment ("Amendment") amends that certain Security and Loan
Agreement dated January 2, 1997, by and between Imperial Bank ("Bank") and
Steven Myers & Associates, Inc. ("Borrowers") and the Addendum, Exhibit "A,"
(the "Addendum") thereto, of even date (collectively herein the Security and
Loan Agreement and the Addendum are referred to as the "Agreement") as follows:
1. The figure "$3,000,000" is deleted from Paragraph 1 of the Security and
Loan Agreement and the figure "$4,000,000" is substituted therefor.
3. Paragraph 8.a of the Addendum is amended by deleting the figure
"$3,000,000" therefrom and substituting the figure "$4,000,000" therefor.
4. Except as provided above, the Agreement remains unchanged.
5. This Amendment is effective as of July 21, 1997, and the parties hereby
confirm that the Agreement as amended is in full force and effect.
STEVEN MYERS & ASSOCIATES, INC.
BY: /s/ STEVEN S. MYERS By: /s/ KENNETH COLBAUGH
------------------------------ ------------------------------
TITLE: President & CEO Title: EVP & COO
-------------------------- ------------------------------
IMPERIAL BANK
"BANK"
BY:
------------------------------
TITLE:
---------------------------
<PAGE> 2
[IMPERIAL BANK LOGO]
SECURITY AND LOAN AGREEMENT
(Accounts Receivable)
This Agreement is entered into between Steven Myers & Associates, Inc., a CA
corporation (herein called "Borrower") and IMPERIAL BANK (herein called "Bank").
1. Bank hereby commits, subject to all the terms and conditions of this
Agreement and prior to the termination of its commitment as hereinafter
provided, to make loans to Borrower from time to time in such amounts up
to, but not exceeding in the aggregate unpaid principal balance, the
following Borrowing Base: 80% of Eligible Accounts and in no event more
than $3,000,000
2. The amount of each loan made by Bank to Borrower hereunder shall be debited
to the loan ledger account of Borrower maintained by Bank (herein called
"Loan Account") and Bank shall credit the Loan Account with all loan
repayments made by Borrower. Borrower promises to pay Bank (a) the unpaid
balance of Borrower's Loan Account on the maturity date provided for in
Paragraph 1 of Exhibit A and (b) on or before the tenth day of each month,
interest on the average daily unpaid balance of the Loan Account during the
immediately preceding month at the rate of "&" percent ("&" %) per annum in
excess of the rate of interest which Bank has announced as its prime
lending rate ("Prime Rate") which shall vary concurrently with any change
in such Prime Rate. Interest shall be computed at the above rate on the
basis of the actual number of days during which the principal balance of
the loan account is outstanding divided by 360, which shall for interest
computation purposes be considered one year. Bank at its option may demand
payment of any or all of the amount due under the Loan Account including
accrued but unpaid interest at any time. Such notice may be given verbally
or in writing and should be effective upon receipt by Borrower. The amount
of interest payable each month by Borrower shall not be less than a minimum
monthly charge of $250.00. Bank is hereby authorized to charge Borrower's
deposit account(s) with Bank for all sums due Bank under this Agreement.
3. Requests for loans hereunder shall be in writing duly executed by Borrower
in a form satisfactory to Bank and shall contain a certification setting
forth the matters referred to in Section 1, which shall disclose that
Borrower is entitled to the amount of loan being requested.
4. As used in this Agreement, the following terms shall have the following
meanings:
A. "Accounts" means any right to payment for goods sold or leased, or to
be sold or to be leased, or for services rendered or to be rendered no
matter how evidenced, including accounts receivable, contract rights,
chattel paper, instruments, purchase orders, notes, drafts,
acceptances, general intangibles and other forms of obligations and
receivables.
B. "Collateral" means any and all personal property of Borrower which is
assigned or hereafter is assigned to Bank as security or in which Bank
now has or hereafter acquires a security interest.
C. "Eligible Accounts" means all of Borrower's Accounts excluding,
however, (1) all Accounts under which payment is not received within
60 days from any invoice date, (2) all Accounts against which the
account debtor or any other person obligated to make payment thereon
asserts any defense, offset, counterclaim or other right to avoid or
reduce the liability represented by the Account and (3) any Accounts
if the account debtor or any other person liable in connection
therewith is insolvent, subject to bankruptcy or receivership
proceedings or has made an assignment for the benefit of creditors or
whose credit standing is unacceptable to Bank and Bank has so notified
Borrower. Eligible Accounts shall only include such accounts as Bank
in its sole discretion shall determine are eligible from time to time.
5. Borrower hereby assigns to Bank all Borrower's present and future Accounts,
including all proceeds due thereunder, all guaranties and security
therefor, and hereby grants to Bank a continuing security interest in all
moneys in the Collateral Account referred to in Section 6 hereof as
security for any and all obligations of Borrower to Bank, whether now owing
or hereafter incurred and whether direct, indirect, absolute or contingent.
So long as Borrower is indebted to Bank or Bank is committed to extend
credit to Borrower, Borrower will execute and deliver to Bank such
assignments, including Bank's standard forms of Specific or General
Assignment covering individual Accounts, notices, financing statements, and
other documents and papers as Bank may require in order to affirm,
effectuate or further assure the assignment to Bank of the Collateral or to
give any third party, including the account debtors obligated on the
Accounts, notice of Bank's interest in the Collateral.
Until Bank exercises its rights to collect the Accounts pursuant to paragraph
10, Borrower will collect with diligence all Borrower's Accounts, provided that
no legal action shall be maintained thereon or in connection therewith without
Bank's prior written consent which will not be unreasonably withheld. Upon a
default hereunder, any collection of Accounts by Borrower, whether in the form
of cash, checks, notes, or other instruments for the payment of money (properly
endorsed or assigned where required to enable Bank to collect same), shall be in
trust for Bank, and Borrower shall keep all such collections separate and apart
from all other funds and property so as to be capable of identification as the
property of Bank and deliver said collections daily to Bank in the identical
form received. Upon a default hereunder, the proceeds of such collections when
received by Bank may be applied by Bank directly to the payment of Borrower's
Loan Account or any other obligation secured hereby. Any credit given by Bank
upon receipt of said
<PAGE> 3
proceeds shall be conditional credit subject to collection. Returned items
at Bank's option may be charged to Borrower's general account. Upon a
default hereunder, all collections of the Accounts shall be set forth on an
itemized schedule, showing the name of the account debtor, the amount of
each payment and such other information as Bank may request.
7. Until Bank exercises its rights to collect the Accounts pursuant to
paragraph 10, Borrower may continue its present policies with respect to
returned merchandise and adjustments. However, Borrower shall immediately
notify Bank of all cases involving returns, repossessions, and loss or
damage of or to merchandise represented by the Accounts in excess of
$100,000 in the aggregate and of any credits, adjustments or disputes
arising in connection with the goods or services represented by the
Accounts in excess of $100,000 and, in any of such events, Borrower will
immediately pay to Bank from its own funds (and not from the proceeds of
Accounts or inventory) for application to Borrower's Loan Account or any
other obligation secured hereby the amount of any credit for such returned
or repossessed merchandise and adjustments made to any of the Accounts.
8. Borrower represents and warrants to Bank: (i) If Borrower is a corporation,
that Borrower is duly organized and existing in the State of its
incorporation and the execution, delivery and performance hereof are within
Borrower's corporate powers, have been duly authorized and are not in
conflict with law or the terms of any charter, by-law or other
incorporation papers, or of any indenture, agreement or undertaking to
which Borrower is a party or by which Borrower is found or affected; (ii)
Borrower is, or at the time the collateral becomes subject to Bank's
security interest will be, the true and lawful owner of and has, or at the
time the Collateral becomes subject to Bank's security interest will have,
good and clear title to the Collateral, subject only to Bank's rights
therein; (iii) To best of Borrower's knowledge each Account is, or at the
time the Account comes into existence will be, a true and correct statement
of a bona fide indebtedness incurred by the debtor named therein in the
amount of the Account for either merchandise sold or delivered (or being
held subject to Borrower's delivery instructions) to, or services rendered,
performed and accepted by, the account debtor; (iv) That there are or will
be no defenses, counterclaims, or setoffs which may be asserted against the
Accounts; and (v) any and all financial information, including information
relating to the Collateral, submitted by Borrower to Bank, whether
previously or in the future, is or will be true and correct.
9. Borrower will: (i) Furnish Bank from time to time such financial statements
and information as Bank may reasonably request and inform Bank immediately
upon the occurrence of a material adverse change therein; (ii) Furnish Bank
periodically, in such form and detail and at such times as Bank may
require, statements showing aging and reconciliation of the Accounts and
collections thereon; (iii) Upon reasonable notice and during business
hours, permit representatives of Bank to inspect Borrower's books and
records relating to the Collateral and make extracts therefrom at any
reasonable time and to arrange for verification of the Accounts, under
reasonable procedures, acceptable to Bank, directly with the account
debtors or otherwise at Borrower's expense; (iv) Promptly notify Bank of
any attachment or other legal process levied against any of the Collateral
and any information received by Borrower relative to the Collateral,
including the Accounts, the account debtors or other persons obligated in
connection therewith, which may in any way materially affect the value of
the Collateral or the rights and remedies of Bank in respect thereto; (v)
Reimburse Bank upon demand for any and all reasonable legal costs,
including reasonable attorneys' fees, and other expense incurred in
collecting any sums payable by Borrower under Borrower's Loan Account or
any other obligation secured hereby, enforcing any term or provision of
this Security Agreement or otherwise or in the checking, handling and
collection of the Collateral and the preparation and enforcement of any
agrement relating thereto: (vi) Notify Bank of each location and of each
office of Borrower at which records of Borrower relating to the Accounts
are kept; (vii) Provide, maintain and deliver to Bank policies insuring the
Collateral (other than Accounts) against loss or damage by such risks and
in such amounts, forms and companies as Bank may require and with loss
payable solely to Bank, and, in the event Bank takes possession of the
Collateral, the insurance policy or policies and any unearned or returned
premium thereon shall at the option of Bank become the sole property of
Bank, such policies and the proceeds of any other insurance covering or in
any way relating to the Collateral, whether now in existence or hereafter
obtained, being hereby assigned to Bank; and (viii) In the event the unpaid
balance of Borrower's Loan Account shall exceed the maximum amount of
outstanding loans to which Borrower is entitled under Section 1 hereof,
Borrower shall immediately pay to Bank, from its own funds and not from the
proceeds of Collateral, for credit to Borrower's Loan Account the amount of
such excess.
10. Bank may at any time, upon a default hereunder, collect the Accounts and
may give notice of assignment to any and all account debtors, and Borrower
does hereby make, constitute and appoint Bank its irrevocable, true and
lawful attorney with power to receive, open and dispose of all mail
addressed to Borrower, to endorse the name of Borrower upon any checks or
other evidences of payment that may come into the possession of Bank upon
the Accounts; to endorse the name of the undersigned upon any document or
instrument relating to the Collateral; in its name or otherwise, to demand,
sue for, collect and give acquittances for any and all moneys due or to
become due upon the Accounts; to compromise, prosecute or defend any
action, claim or proceeding with respect thereto; and to do any and all
things necessary and proper to carry out the purpose herein contemplated.
11. Until Borrower's Loan Account and all other obligations secured hereby
shall have been repaid in full, Borrower shall not sell, dispose of or
grant a security interest in any of the Collateral other than to Bank, or
execute any financing statements covering the Collateral in favor of any
secured party or person other than Bank, except as permitted in the Credit
Terms and Conditions referenced below.
12. Should; (i) Default be made in the payment of any obligation, or breach be
made in any warranty, statement, promise, term or condition, contained
herein or hereby secured; (ii) Any material statement or representation
made for the purpose of obtaining credit hereunder prove false; (iii) Bank
reasonably deem the Collateral inadequate or unsafe or in danger of misuse;
(iv) Borrower become insolvent or make an assignment for the benefit of
creditors; or (v) Any proceeding be commended by or against Borrower under
any bankruptcy, reorganization, arrangement, readjustment of debt or
moratorium law or statute; then in any such event, Bank may, at its option
and without demand first made and without notice to Borrower, do any one or
more of the following: (a) Terminate its obligation to make loans to
Borrower as provided in Section 1 hereof; (b) Declare all sums secured
hereby immediately due and payable; (c) Immediately take possession of the
Collateral wherever it may be found, using all necessary force so to do, or
require Borrower to assemble the Collateral and make it available to Bank
at a place designated by Bank which is reasonably convenient to Borrower
and Bank, and Borrower waives all claims for damages due to or arising from
or connected with any such taking; (d) Proceed in the foreclosure of Bank's
security interest and sale of the Collateral in any manner permitted by
law, or provided for herein; (e) Sell, lease or otherwise dispose of the
Collateral at public or private sale, with or without having the Collateral
at the place of sale, and upon terms and in such manner as Bank may
determine, and Bank may purchase same at any such sale; (f) Retain the
Collateral in full satisfaction of the obligations secured thereby; (g)
Exercise any remedies of a secured party under the Uniform Commercial Code.
Prior to any such disposition, Bank may, at its option, cause any of the
Collateral to be repaired or reconditioned in such manner and to such
extent as Bank may deem advisable,and any sums expended therefor by Bank
shall be repaid by Borrower and secured hereby. Bank shall have the right
to enforce one or more remedies hereunder successively or concurrently, and
any such action shall not
<PAGE> 4
estop or prevent Bank from pursuing any further remedy which it may have
hereunder or by law. If a sufficient sum is not realized from any such
disposition of Collateral to pay all obligations secured by this Security
Agreement, Borrower hereby promises and agrees to pay Bank any deficiency.
13. If any writ of attachment, garnishment, execution or other legal process be
issued against any property of Borrower, or if any assessment for taxes
against Borrower, other than real property, is made by the Federal or State
government or any department thereof, provided the aggregate of all such
writs and other legal processes or taxes shall be greater to or equal to
$250,000 and not removed within sixty (60) days, the obligation of Bank to
make loans to Borrower as provided in Section 1 hereof shall immediately
terminate and the unpaid balance of the Loan Account, all other obligations
secured hereby and all other sums due hereunder shall immediately become
due and payable without demand, presentment or notice.
14. Borrower authorizes Bank to destroy all invoices, delivery receipts,
reports and other types of documents and records submitted to Bank in
connection with the transactions contemplated herein at any time subsequent
to four months from the time such items are delivered to Bank.
15. Nothing herein shall in any way limit the effect of the conditions set
forth in any other security or other agreement executed by Borrower, but
each and every condition hereof shall be in addition thereto.
16. Additional Provisions*:
*See Exhibit "A" Addendum to Security and Loan Agreement Attached
Executed this 2nd day of January 1997
STEVEN MYERS & ASSOCIATES, INC.
-------------------------------------
IMPERIAL BANK (Name of Borrower)
By: /s/ DENISE PARDUE By: /s/ STEVEN S. MYERS
---------------------------------- ----------------------------------
Denise Pardue, Vice President Steven Myers, President, CEO
(Authorized Signature and Title)
By: /s/ KENNETH COLBAUGH
----------------------------------
Kenneth Colbaugh, EVP, COO
(Authorized Signature and Title)
<PAGE> 5
"EXHIBIT A"
ADDENDUM TO SECURITY AND LOAN AGREEMENT
BETWEEN STEVEN MYERS & ASSOCIATES, INC. AND
IMPERIAL BANK
DATED JANUARY 2, 1997
This Addendum is made and entered into as of January 2, 1997, between STEVEN
MYERS & ASSOCIATES, INC. ("Borrower") and IMPERIAL BANK ("Bank"). This Addendum
amends and supplements the Security and Loan Agreement. In the event of any
inconsistency between the terms herein and the terms of the Security and Loan
Agreement, the terms herein shall in all cases govern and control. All
capitalized terms herein, unless otherwise defined herein, shall have the
meaning set forth in the Security and Loan Agreement.
1. Any commitment of Bank, pursuant to the terms of the Security and Loan
Agreement, to make advances against Eligible Accounts shall expire 36 months
after execution of this document, subject to Bank's right to renew said
commitment in its sole discretion. Any such renewal of the commitment shall not
be binding upon Bank unless it is in writing and signed by an officer of the
Bank.
2. Borrower represents and warrants that:
a. LITIGATION. There is no litigation or to the best of its knowledge
other proceeding pending or threatened against or affecting Borrower, and
Borrower is not in default with respect to any order, writ, injunction, decree
or demand of any court or other governmental or regulatory authority.
b. FINANCIAL CONDITION. The balance sheet of Borrower of September 30,
1996 and the related profit and loss statement on that date, a copy of which has
heretofore been delivered to Bank by Borrower, and all other statements and data
submitted in writing by Borrower to Bank in connection with this request for
credit fairly present the financial condition of Borrower, and said balance
sheet and profit and loss statement truly present the financial condition of
Borrower as of the date thereof and the results of the operations of Borrower
for the period covered thereby, and have been prepared in accordance with
generally accepted accounting principles on a basis consistently maintained.
Since such date, there have been no materially adverse changes. Borrower has no
knowledge of any liabilities, contingent or otherwise, at such date not
reflected in said balance sheet, and Borrower has not entered into any special
commitments or substantial contracts which are not reflected in said balance
sheet, other than in the ordinary and normal course of its business, which may
have a materially adverse effect upon its financial condition, operations or
business as now conducted.
c. TRADEMARKS, PATENTS. Borrower, as of the date hereof, to the best of
its knowledge, possesses all necessary trademarks, trade names, copyrights,
patents, patent rights, and licenses to conduct its business as now operated,
without any known conflict with valid trademarks, trade names, copyrights,
patents and license rights of others.
<PAGE> 6
EXHIBIT A
Page 2
d. TAX STATUS. Borrower has no liability for any delinquent state, local
or federal taxes, and, if Borrower has contracted with any governmental agency,
Borrower has no liability for renegotiation of profits.
3. Borrower agrees that so long as it is indebted to Bank, it WILL NOT,
without Bank's WRITTEN CONSENT:
a. TYPE OF BUSINESS. Make any material change in the character of its
business.
b. OUTSIDE INDEBTEDNESS. Create, incur, assume or permit to exist any
indebtedness for borrowed moneys in excess of $50,000 in the aggregate other
than loans from Bank and other than allowed operating and capital leases, except
obligations now existing and as shown in financial statement (excluding aircraft
loans) dated September 30, 1996; or sell or transfer, either with or without
recourse, any accounts or notes receivable or any moneys due to become due.
c. LIENS AND ENCUMBRANCES. Create, incur, assume any mortgage, pledge,
encumbrance, lien or charge of any kind (including the charge upon property at
any time purchased or acquired under conditional sale or other title retention
agreement) upon any asset now owned or hereafter acquired by it, other than:
(a) liens for allowed operating and capital leases;
(b) taxes not delinquent;
(c) liens in Bank's favor;
(d) liens arising under workman's compensation laws, unemployment
insurance laws and old age pensions or other social security benefits or
other similar laws;
(e) liens securing the performance of bids, tenders, leases, contracts
(other than for the repayment of any debt), statutory obligations, surety
and appeal bonds, and other obligations of like nature, incurred in the
ordinary course of business; and
(f) liens imposed by law, such as carriers', warehouseman's, mechanics',
materialmens' and vendors' liens, incurred in good faith in the ordinary
course of business with respect to obligations not then delinquent, or that
are being contested in good faith by appropriate proceedings for which
adequate reserves have been established.
d. LOANS, INVESTMENTS, SECONDARY LIABILITIES. Make any loans or advances
to any person or other entity other than in the ordinary and normal course of
its business as now conducted or make any investment in the securities of any
person or other entity other than the United States Government; or guarantee or
otherwise become liable upon the obligation of any person or other entity,
except by endorsement of negotiable instruments for deposit or collection in the
ordinary and normal course of its business.
e. ACQUISITION OR SALE OF BUSINESS; MERGER OR CONSOLIDATION. Purchase or
otherwise acquire the assets or business of any person or other entity (required
written
<PAGE> 7
EXHIBIT A
Page 3
consent of the Bank will not be unreasonably withheld); or liquidate, dissolve,
merge or consolidate, or commence any proceedings therefore; or sell any assets
except in the ordinary and normal course of its business or fixed assets, or
any property or other assets necessary for the continuance of its business as
now conducted, including without limitation the selling of any property or
other asset accompanied by the leasing back of the same.
f. DIVIDENDS, STOCK PAYMENTS. Declare or pay any dividend (other than
dividends payable in common stock of Borrower) or make any other distribution
on any of its capital stock now outstanding or hereafter issued, or purchase,
redeem or retire any of such stock, except for the stock repurchase as of this
date in conjunction with the recapitalization and cash dividends and
distributions as permitted within the parameters of the fixed charge coverage
ratio.
g. CAPITAL EXPENDITURES. Make or incur obligations for capital
expenditures in excess of $500,000 annually.
h. LEASE LIABILITY. Make or incur liability for payments under existing
operating and capital leases of real property in excess of $500,000 annually or
incur obligations for payment under new operating and capital lease obligations
in excess of $350,000 in any one fiscal year.
4. Should there be a default under the Security and Loan Agreement, any other
Loan Document described in Section 11.h herein or under the terms of any
material contract or instrument pursuant to which Borrower has incurred any
other liability to the Bank or to any other person, then all obligations, loans
and liabilities of Borrower to Bank, due or to become due, whether now existing
or hereafter arising, shall, at the option of Bank, (i) in the case of any
payment, default or voluntary or involuntary bankruptcy of Borrower become
immediately due and payable without notice or demand, and (ii) in the case of
any other breach after 10 days and written notice from the Bank will become due
payable, and Bank shall thereupon have the right to exercise all of its default
rights and remedies. The default rate of interest shall be five percent per year
in excess of the rate otherwise charged. The provisions of (i) and (ii) of this
Paragraph 4 shall govern and control any provision relating to a cure period
under any of the above documents.
5. In addition to the provisions in the Security and Loan Agreement, Eligible
Accounts shall only include such accounts as Bank in its sole discretion shall
determine are eligible from time to time. "Eligible Accounts" shall also NOT
include any of the following:
a. Accounts with respect to which the account debtor is an officer,
director, shareholder, employee, subsidiary or affiliate of Borrower.
b. Accounts with respect to which 25% or more of the account debtor's
total accounts or obligations outstanding to Borrower are more than 90 days
from invoice date.
c. Salesmen's accounts for promotional purposes.
<PAGE> 8
EXHIBIT A
Page 4
d. For accounts representing more than 50% of total accounts receivable,
the balance in excess of the 50%. Each account representing up to 50% of total
accounts receivable will be preapproved by Bank on a case by case basis.
e. Accounts with respect to international transactions, except for
Canadian accounts, unless insured by an insurance company acceptable to the
Bank or covered by letters of credit issued or confirmed by a bank acceptable
to the Bank.
f. Credit balance greater than 90 days from invoice date.
g. U.S. Government receivables, unless formally assigned to the Bank.
h. Accounts over 90 days from invoice date.
i. Accounts where the account debtor is a seller to Borrower, whereby a
potential offset exists.
j. Consignment or guaranteed sales.
k. Contract receivables; bill and hold accounts.
l. Equipment and rental offsets; collection accounts (aged up to 90 days
from invoice date).
6. All financial covenants and financial information referenced herein shall
be interpreted and prepared in accordance with generally accepted accounting
principles applied on a basis consistent with previous years. Compliance with
financial covenants shall be calculated and monitored on a quarterly basis
commencing March 31, 1997.
7. Borrower affirmatively covenants that so long as any loans, obligations or
liabilities remain outstanding or unpaid to Bank, it will:
a. Have and maintain a Minimum Tangible Net Worth (meaning the excess of
all assets, excluding any value for goodwill, trademarks, patents, copyrights,
organization expense and other similar intangible items, over its liabilities,
less subordinated debt) of not less than ($5,200,000) for the period ending
12/31/96, plus $750,000 for the twelve month period ending 12/31/97, plus
$750,000 annually thereafter on a cumulative basis.
b. Have and maintain a ratio of Funded Senior Debt to EBITDA of not more
than 2.25:1 to 1.0. Funded Senior Debt is defined as all indebtedness of the
Borrower to the Bank. EBITDA to be annualized for all quarterly calculations.
<PAGE> 9
EXHIBIT A
Page 5
c. Have and maintain a minimum Working Capital (meaning the Borrower's
Current Assets minus Current Liabilities) of not less than $250,000.
d. Have a minimum annual EBITDA of at least $4,000,000.
e. Have and maintain a Fixed Charge Coverage Ratio [EBITDA less CAPEX
less cash taxes less cash dividends and distributions, commencing with the
first fiscal quarter ending March 31, then on a cumulative quarterly basis for
each fiscal year period, to CPLTD (pro rated for the applicable quarterly
periods covered) plus interest expense of not less than 1.25 to 1.0.
EBITDA is defined as earnings before interest expense, provision for
taxes, depreciation and amortization. CAPEX is defined as amounts paid, or
indebtedness incurred by the Borrower, in connection with the purchase or lease
by the Borrower of fixed assets with useful lives of greater than one year. As
used in the Fixed Charge Coverage Ratio, CAPEX will exclude those purchases or
leases financed by outside creditors as permitted under this agreement. CPLTD
is defined as those current maturities of long term debt and capital leases
which are due within the succeeding 12 month period.
f. Maintain all significant bank deposit accounts and banking
relationship with Bank.
g. Within 15 days from each month-end, deliver to Bank an accounts
receivable aging reconciled to the general ledger of Borrower, a detailed
accounts payable aging reconciled to the Borrower's general ledger and setting
forth the amount of any book overdraft or the amount of checks issued but not
sent, and an inventory certification outlining both inventory composition and
activity for the month. All the foregoing will be in a form and with such
detail as Bank may request from time to time.
h. Within 30 days after each quarter's end, deliver to Bank a profit and
loss statement and a balance sheet, all certified by an officer of Borrower,
and within 30 days after each quarter's end, a quarterly covenant compliance
calculation and letter signed by the Vice President, Chief Financial Officer of
the Borrower certifying compliance with all loan covenants.
i. Within 120 days after the end of Borrower's fiscal year, deliver to
Bank the same financial statements as otherwise provided quarterly together
with Changes in Financial Position Statement, prepared on an audited basis by a
nationally recognized independent certified public accountant selected by
Borrower.
j. On a quarterly basis, provide Bank with an alphabetized list of
customers including addresses.
k. RIGHTS AND FACILITIES. Maintain and preserve all rights, franchises
and other authority adequate for the conduct of its business; maintain its
properties, equipment
<PAGE> 10
EXHIBIT A
Page 6
and facilities in good order and repair; conduct its business or partnership,
maintain and preserve its existence.
l. INSURANCE. Maintain public liability, property damage and workers
compensation insurance and insurance on all is insurable property against fire
and other hazards with responsible insurance carriers to the extent usually
maintained by similar businesses. Borrower shall provide evidence of property
insurance in amounts and types acceptable to the Bank and Bank shall be named as
Loss Payee in a Lender's Loss Payable Endorsement from 438BFU or equivalent.
m. TAXES AND OTHER LIABILITIES. Pay and discharge, before the same
become delinquent and before penalties accrue thereon, all taxes, assessments
and governmental charges upon or against it or any of its properties, and any of
its other liabilities at any time existing, except to the extent and so long as:
a. The same are being contested in good faith and by appropriate
proceedings in such manner as not to cause any materially adverse
effect upon its financial condition or the loss of any right of
redemption from any sale thereunder; and
b. It shall have set aside on its books reserves (segregated to the
extent required by generally accepted accounting practice) deemed
by it adequate with respect thereto.
n. RECORDS AND REPORTS. Maintain a standard and modern system of
accounting in accordance with generally accepted accounting principles on a
basis consistently maintained; permit Bank's representatives to have access
to, and to examine its properties, books and records at all reasonable times.
8. The extensions of credit under the Security and Loan Agreement shall be
available as follows:
a. Up to $3,000,000 in direct advances, with a sub-limit of up to
$2,000,000 to finance a portion of the stock repurchase.
9. The term loan shall be for the amount of $4,000,000, for a period of 60
months, expiring 60 months after loan documents are executed.
<PAGE> 11
EXHIBIT A
Page 7
10. FEES AND INTEREST:
a. The rate of interest applicable to the Line of Credit Loan Account
shall be 0.00% per year in excess of the rate of interest which Bank has
announced as its prime lending rate ("Prime Rate") which shall vary concurrently
with any change in such Prime Rate. A documentation fee of $250 shall be due
upon execution of documents. A commitment fee of $7,500 (.25% of the line
amount) will be due and payable at execution of this document, and annually
thereafter.
b. The interest rate applicable to the term loan will be the Bank's Prime
Rate, as described above OR 2.50% IN EXCESS OF THE LIBOR RATE AS DESCRIBED
ABOVE. LIBOR is defined as the London InterBank Offered Rate. A loan fee of
.30% on the initial loan balance outstanding will be due and payable at the
execution of documents, and annually thereafter.
Interest shall be computed at the above rate on the basis of the actual number
of days during which the principal balance of the loan account is outstanding
divided by 360, which shall for interest computation purposes be considered one
year. The default rate shall be five percent per year in excess of the rate
otherwise applicable.
If any installment payment, interest payment, principal payment or principal
balance payment due hereunder is delinquent ten or more days, Borrower agrees to
pay Bank a late charge in the amount of 5% of the payment so due and unpaid, in
addition to the payment; but nothing in this paragraph is to be construed as any
obligation on the part of Bank to accept payment of any payment past due or less
than the total unpaid principal balance after maturity. All payments shall be
applied first to any late owing, then to interest and the remainder, if any, to
principal.
11. MISCELLANEOUS PROVISIONS.
a. FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of
your Bank or any holder or Notes issued hereunder, in the exercise of any power,
right or privilege hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise thereof or of any other right, power or privilege.
All rights and remedies existing under this agreement or any not issued in
connection with a loan that your Bank may make hereunder, are cumulative to, and
not exclusive of, any rights or remedies otherwise available.
b. ADDITIONAL REMEDIES. The rights, powers and remedies given to Bank
hereunder shall be cumulative and not alternative and shall be in addition to
all rights, powers and remedies given to Bank by law against Borrower or any
other person, including but not limited to Bank's rights of setoff or banker's
lien.
c. INUREMENT. The benefits of this Agreement shall inure to the
successors and assigns of Bank and the permitted successors and assigns of
Borrower.
<PAGE> 12
EXHIBIT A
Page 8
d. APPLICABLE LAW. This Agreement and all other agreements and
instruments required by Bank in connection therewith shall be governed by and
construed according to the laws of the State of California, to the jurisdiction
of whose courts the parties hereby agree to submit.
e. OFFSET. In addition to and not in limitation of all rights of offset
that Bank or other holder of any note issued by Borrower in favor of Bank may
have under applicable law, Bank or other holder of such notes shall, upon the
occurrence of any Event of Default or any event which with the passage of time
or notice would constitute such an Event of Default, have the right to
appropriate and apply to the payment of the outstanding under any such note any
and all balances, credits, deposits, accounts or monies of Borrower then or
thereafter with Bank or other holder, within ten (10) days after the Event of
Default, and written notice of the occurrence of any Event of Default by Bank
to Borrower.
f. SEVERABILITY. Should any one or more provisions of the Agreement be
determined to be illegal or unenforceable, all other provisions nevertheless
shall be effective.
g. TIME OF THE ESSENCE. Time is hereby declared to be of the essence of
this Agreement and of every part hereof.
h. INTEGRATION CLAUSES. Except for a General Loan and Collateral
Agreement, any Note, Agreement to Provide Insurance and Disbursement
Instructions, each dated of even date hereof, or other documents and
instruments specifically referenced herein (together with this Agreement the
"Loan Documents"), the Agreement constitutes the entire agreement between Bank
and Borrower regarding the term loan and the line of credit, and all prior
communications verbal or written between Borrower and Bank shall be of no
further effect or evidentiary value. In the event of a conflict or
inconsistency among any other Loan Document or instrument and this Agrement,
the provisions of this Agreement shall prevail.
i. ACCOUNTING. All accounting terms shall have the meanings applied
under generally accepted principles unless otherwise specified.
j. MODIFICATION. This Agreement may be modified only by a writing signed
by both parties hereto.
<PAGE> 13
EXHIBIT A
Page 9
This addendum is executed by and on behalf of the parties as of the date
first above written.
STEVEN MYERS & ASSOCIATES, INC. "BORROWER"
BY: /s/ STEVEN S. MYERS BY: /s/ KENNETH COLBAUGH
-------------------------- --------------------------
its President & CEO its EVP & COO
-------------------------- --------------------------
Title Title
IMPERIAL BANK, "BANK"
BY: /s/ DENISE PARDUE
--------------------------
Vice President
--------------------------
Title
<PAGE> 14
[IMPERIAL BANK LOGO]
NOTE
$4,000,000.00 Costa Mesa, California, January 02, 1997
On January 01, 2002, and as hereinafter provided, for value received, the
undersigned promises to pay to IMPERIAL BANK ("Bank"), a California banking
corporation, or order, at its Orange County Regional office, the principal sum
of $4,000,000 or such sums up to the maximum if so stated, as the Bank may now
or hereafter advance to or for the benefit of the undersigned in accordance
with the terms hereof, together with interest from date of disbursement or N/A,
whichever is later, on the unpaid principal balance [ ] at the rate of____% per
year [X] at the rate of 0.000% per year in excess of the rate of interest which
Bank has announced as its prime lending rate (the "Prime Rate"), which shall
vary concurrently with any change in such Prime Rate, or $250.00, whichever is
greater. Interest shall be computed at the above rate on the basis of the
actual number of days during which the principal balance is outstanding,
divided by 360, which shall, for interest computation purposes, be considered
one year.
Interest shall be payable [X] monthly [ ] quarterly [ ] included with principal
[X] in addition to principal [ ] beginning February 01, 1997, and if not so
paid shall become a part of the principal. All payments shall be applied first
to any late charges owing, then to interest and the remainder, if any, to
principal, [X] (if checked), Principal shall be payable in installments of
$170,000.00 or more, each installment on the 1ST day of each QUARTER, beginning
April 01, 1997. Advances not to exceed any unpaid balance owing at any one time
equal to the maximum amount specified above, may be made at the option of Bank.
Any partial prepayment shall be applied to the installments, if any, in
inverse order of maturity. Should default be made in the payment of principal
or interest when due, or in the performance or observance, when due, of any
item, covenant or condition of any deed of trust, security agreement or other
agreement (including amendments or extensions thereof) securing or pertaining
to this note, at the option of the holder hereof and without notice or demand,
the entire balance of principal and accrued interest then remaining unpaid
shall (a) become immediately due and payable, and (b) thereafter bear interest,
until paid in full, at the increased rate of 5% per year in excess of the rate
provided for above, as it may vary from time to time.
Defaults shall include, but not be limited to, the failure of the maker(s)
to pay principal or interest when due; the filing as to each person obligated
hereon, whether as maker, co-maker, endorser or guarantor (individually or
collectively referred to as the "Obligor") of a voluntary or involuntary
petition under the provisions of the Federal Bankruptcy Act; the issuance of
any attachment or execution against any asset of any Obligor; the death of any
Obligor; or any deterioration of the financial condition of any Obligor which
results in the holder hereof considering itself, in good faith, insecure.
If any installment payment, interest payment, principal payment or
principal balance payment due hereunder is delinquent ten or more days, Obligor
agrees to pay Bank a late charge in the amount of 5% of the payment so due and
unpaid, in addition to the payment; but nothing in this paragraph is to be
construed as any obligation on the part of the holder of this note to accept
payment of any payment past due or less than the total unpaid principal balance
after maturity.
If this note is not paid when due, each Obligor promises to pay all costs
and expenses of collection and reasonable attorneys fees incurred by the holder
hereof on account of such collection, plus interest at the rate applicable to
principal, whether or not suit is filed herein. Each Obligor shall be jointly
and severally liable hereon and consents to renewals, replacements and
extensions of time for payment hereof, before, at, or after maturity; consents
to the acceptance, release or substitution of security for this note; and
waives demand and protest and the right to assert any statute of limitations.
Any married person who signs this note agrees that recourse may be had against
separate property for any obligations hereunder. The indebtedness evidenced
hereby shall be payable in lawful money of the United States. In any action
brought under or arising out of this note, each Obligor, including successor(s)
or assign(s) hereby consents to the application of California law, to the
jurisdiction of any competent court within the State of California, and to
service of process by any means authorized by California law.
No single or partial exercise of any power hereunder, or under any deed of
trust, security agreement or other agreement in connection herewith shall
preclude other or further exercises thereof or the exercise of any other such
power. The holder hereof shall at all times have the right to proceed against
any portion of the security for this note in such order and in such manner as
such holder may consider appropriate, without waiving any rights with respect
to any of the security. Any delay or omission on the part of the holder hereof
in exercising any right hereunder, or under any deed of trust, security
agreement or other agreement, shall not operate as a waiver of such right, or
of any other right, under this note or any deed of trust, security agreement or
other agreement in connection herewith. Prepayments allowed without penalty
(except for prepayments during LIBOR interest rate periods). *See Addendum
attached.
Steven Myers & Associates, Inc.
By /s/ STEVEN MYERS
- ------------------------------------- -------------------------------------
Steven Myers, President CEO
By /s/ KENNETH COLBAUGH
- ------------------------------------- -------------------------------------
Kenneth Colbaugh, EVP COO
<PAGE> 15
ADDENDUM TO NOTE dated January 2, 1997
Beginning April 1, 1998 principal shall be payable in quarterly installments of
$190,000.00. Beginning April 1, 1999 principal shall be payable in quarterly
installments of $210,000.00. Beginning April 1, 2000 principal shall be payable
in quarterly installments of $215,000.00.
STEVEN MYERS & ASSOCIATES, INC.
BY /s/ STEVEN S. MYERS
---------------------------
Steven Myers, President CEO
By /s/ KENNETH COLBAUGH
---------------------------
Kenneth Colbaugh, EVP/COO
<PAGE> 16
[LOGO] LIBOR ADDENDUM
IMPERIAL BANK TO NOTE
Member FDIC
This Libor Addendum ("Addendum") is dated as of January 02, 1997, and is by
and between Steven Myers & Associates, Inc. ("Borrower") and Imperial Bank
("Bank"). This Addendum amends and supplements the Note to which it is attached
(the "Note") and forms a part of and is incorporated into the Note.
In the event of any inconsistency between the terms herein and the terms of
the Note, the terms herein shall in all cases govern and control. All
capitalized terms herein, unless otherwise defined herein, shall have the
meanings set forth in the Note.
1. ADVANCES.
1.1 Prime Loans. Advances permitted pursuant to the terms of the Note or
this Addendum which bear interest in relation to Bank's Prime Rate shall be
referred to herein as "Prime Loans" and each such advance shall be a "Prime
Loan." Each Prime Loan shall bear interest at an annual rate equal to the sum of
0.000% plus the Bank's Prime Rate. "Prime Rate" shall mean the rate of interest
publicly announced by Bank from time to time in Inglewood, California, as its
prime rate for lending. The Prime Rate is not intended to be the lowest rate of
interest charged by Bank in connection with extensions of credit to borrowers.
1.2 Libor Loans. Advances permitted pursuant to the terms of the Note or
this Addendum which bear interest in relation to the Libor Rate shall be
referred to herein as "Libor Loans" and each such advance shall be a "Libor
Loan." Each Libor Loan shall bear interest at the Libor Rate, as defined below.
A Libor Loan shall be in the minimum amount of One Million Dollars ($1,000,000)
or such greater amount which is an integral multiple of Fifty Thousand Dollars
($50,000). No Libor Loan shall be made after the last Business Day that is at
least three (3) months prior to the Maturity Date described in the Note.
2. INTEREST ON LIBOR LOANS.
2.1 Rate of Interest. Each Libor Loan shall bear interest on the unpaid
principal amount thereof from the Loan Date through the date paid (whether by
acceleration or otherwise) at a rate equal to the sum of 2.500% per annum plus
the Libor Rate for the Interest Period.
(a) "Loan Date" shall mean the date on which a Libor Loan is made, a
Libor Loan is continued, or a Prime Loan is converted to a Libor Loan.
(b) "Interest Period" shall mean a period of 30 days, 60 days, three
(3), six (6) or nine (9) months, commencing on the applicable Loan Date, as
selected by Borrower pursuant to Section 2.2; provided, however, that Borrower
may not select an Interest Period that would otherwise extend beyond the
Maturity Date of the Loan. Borrower may also select a twelve (12) month Interest
Period if and when Bank notifies Borrower that such Interest Period is
available, as determined by Bank in its sole discretion.
(c) "Libor Rate" shall mean, for the applicable Interest Period for a
Libor Loan, a rate per annum (rounded upwards, if necessary, to the nearest 1/16
of 1%) equal to (i) the Libor Base Rate for such Interest Period divided by (ii)
1.00 minus the Reserve Requirement Rate (expressed as a decimal fraction) for
such Interest Period.
(d) "Libor Base Rate" shall mean with respect to any Interest Period,
the rate equal to the arithmetic mean (rounded upwards, if necessary, to the
nearest 1/16 of 1%) of:
(i) the offered rates per annum for deposits in U.S. Dollars for
a period equal to such Interest Period which appears at 11:00 a.m., London
time, on the Reuters Screen LIBOR Page on the Business Day that is two (2)
Business Days before the first day of such Interest Period, in each case if
at least four (4) such offered rates appear on such page, or
(ii) if clause (i) is inapplicable, (x) the offered rate per
annum for deposits in U.S. Dollars for a period equal to such Interest
Period which appears as of 11:00 a.m., London time on the Telerate Monitor
on Telerate Screen 3750 on the Business Day which is two (2) Business Days
before the first day of such Interest Period; or (y) if clause (x) above is
inapplicable, the arithmetic mean (rounded upwards, if necessary, to the
nearest 1/16 of 1%) of the interest rates per annum offered by at least
three (3) prime banks selected by Bank at approximately 11:00 a.m. London
time, on the Business Day which is two (2) Business Days before such date
for deposits in U.S. Dollars to prime banks in the London interbank market,
in each case for a period equal to such Interest Period in an amount equal
to the amount to which the Libor Rate applies.
Page 1 of 4
<PAGE> 17
(e) "Business Day" means any day on which Bank is open for business
in the State of California.
(f) "Reuters Screen LIBOR Page" means the display designated as page
LIBOR on the Reuters Monitor Money Rates Service or such other page as may
replace the LIBOR page on that service for the purpose of displaying London
interbank offered rates of major banks.
(g) "Reserve Requirement Rate" means, for any Interest Period, the
aggregate of the rates, effective as of the Business Day which is two (2)
Business Days before the first day of the Interest Period, at which:
(i) reserves (including any marginal, supplemental or emergency
reserves) are required to be maintained during such Interest Period
under Regulation D against "Eurocurrency liabilities" (as such term is
used in Regulation D) by member banks of the Federal Reserve System;
and
(ii) any additional reserves are required to be maintained by
Bank by reason of any Regulatory Change against (x) any category of
liabilities which includes deposits by reference to which the Libor
Rate is to be determined as provided in the definition of "Libor Base
Rate;" or (y) any category of extensions of credit or other assets
which include Libor Loans.
(h) "Regulatory Change" means, with respect to Bank, any change on or
after the date of the Note and this Addendum in any Governmental Regulation,
including the introduction of any new Governmental Regulation or the rescission
of any existing Governmental Regulation.
(i) "Governmental Regulation" means any (i) United States Federal,
state or foreign law or regulation (including without limitation Regulation D);
and (ii) the adoption or making of any interpretation, application, directive or
request applying to a class of lenders, including Bank, of or under any United
States Federal, state, or any foreign law or regulation (whether or not having
the force of law) by any court or by any governmental, central banking, monetary
or taxing authority charged with the interpretation or administration of such
law or regulation.
2.2 Determination of Interest Rates. Subject to the terms and conditions
of the Note and this Addendum, Borrower, at its option, may request an advance
in the form of a Libor Loan, a continuation of a Libor Loan, or a conversion of
a Prime Loan into a Libor Loan, only upon delivery to Bank of an irrevocable
written notice received by Bank at least three (3) Business Days prior to the
requested Loan Date, specifying (i) the principal amount of such Libor Loan,
(ii) the requested Loan Date, and (iii) the selected Interest Period. Upon
receiving such notice, Bank shall determine (which determination shall be in
accordance with Section 2.1 and shall, absent manifest error, be final,
conclusive and binding upon all parties hereto) the Libor Rate applicable to
such Libor Loan two (2) Business Days prior to the Loan Date, and shall
promptly give notice thereof (in writing or by telephone confirmed in writing)
to Borrower. If Borrower shall fail to notify Bank of its selected Interest
Period for a Libor Loan (including the continuation of an existing Libor Loan
or the conversion of a Prime Loan into a Libor Loan), the Borrower shall be
deemed to have selected an Interest Period of three (3) months.
2.3 Computation of Interest and Fees. All computations of interest and
fees payable pursuant to the Note shall be calculated on the basis of a three
hundred sixty (360) day year for the actual number of days elapsed (less the
date of repayment).
2.4 Recordation by Bank. Bank is hereby authorized to record the Loan
Date, the applicable Interest Period, the principal amount, and the interest
rate of each Libor Loan made (or continued or converted) by Bank, and the date
and amount of each payment or prepayment of principal thereof, in Bank's
records. Any such recordation shall constitute prima facie evidence of the
accuracy of the information recorded; provided that the failure to make any such
recordation shall not in any way affect the Borrower's obligations hereunder.
3. CONVERSION TO PRIME LOANS.
3.1 Election by Borrower. Subject to all the terms and conditions of
this Addendum, Borrower may elect from time to time to convert a Libor Loan to
a Prime Loan by giving Bank at least three (3) Business Days' prior irrevocable
notice of such election, and any such conversion of a Libor Loan shall be made
on the last day of the Interest Period with respect thereto.
3.2 Failure of Notice by Borrower. If Borrower otherwise fails to give
notice specifying its requests with respect to any Libor Loans that are
scheduled to become due, such failure shall be deemed, in the absence of any
notice from Borrower to the contrary, to be notice of a requested advance in the
form of a Prime Loan in a principal amount equal to the amount of said Libor
Loan.
4. PREPAYMENTS.
4.1 Voluntary Prepayment by Borrower. Subject to the terms and conditions
of the Note and this Addendum, Borrower may, upon at least three (3) Business
Days' irrevocable notice to Bank as provided herein, at any time and from time
to time on any Business Day prepay any Prime Loan or Libor Loan in whole or in
part, without penalty or premium, other than customary actual "Breakage Fees"
and "Prepayment Costs" as defined below, resulting from prepayment of any Libor
Loan prior to the expiration of the Interest Period relating thereto. The notice
of prepayment shall specify the date and amount of the prepayment, and the Loan
to which the
Page 2 of 4
<PAGE> 18
prepayment applies. Each partial prepayment of a Libor Loan shall be in an
amount not less than Fifty Thousand Dollars ($50,000) or such greater amount
which is an integral multiple of Fifty Thousand Dollars ($50,000); provided,
that unless a Libor Loan is prepaid in full, no prepayment shall be made if,
after giving effect to such prepayment, the aggregate principal amount of Libor
Loans having the same Interest Period shall be less than One Million Dollars
($1,000,000). Notice of prepayment having been delivered as aforesaid, the
principal amount of the prepayment specified in such notice shall become due
and payable on the prepayment date set forth in such notice. All payments of
principal under this Section 4 shall be accompanied by accrued but unpaid
interest on the amount being prepaid through the date of such prepayment.
4.2 Breakage Fees. If for any reason (including voluntary or mandatory
prepayment, voluntary or mandatory conversion of a Libor Loan into a Prime Loan,
or acceleration), Bank receives all or part of the principal amount of a Libor
Loan prior to the last day of the Interest Period for such Loan, Borrower shall
immediately notify Borrower's account officer at Bank and, on demand by Bank,
pay Bank the Breakage Fees, defined as the amount (if any) by which (i) the
additional interest which would have been payable on the amount so received had
it not been received until the last day of such Interest Period exceeds (ii) the
interest which would have been recoverable by Bank (without regard to whether
Bank actually so invests said funds) by placing the amount so received on
deposit in the certificate of deposit markets or the offshore currency interbank
markets or United States Treasury investment products, as the case may be, for a
period starting on the date on which it was so received and ending on the last
day of such Interest Period at the interest rate determined by Bank in its
reasonable discretion. Bank's determination as to such amount shall be
conclusive and final, absent manifest error.
4.3 Prepayment Costs. Borrower shall pay to Bank, upon the demand of
Bank, such other amount or amounts as shall be sufficient (in the sole good
faith opinion of Bank) to compensate it for any loss, costs or expense incurred
by it as a result of any prepayment by Borrower (including voluntary or
mandatory prepayment, voluntary or mandatory conversion of a Libor Loan into a
Prime Loan, or prepayment due to acceleration) of all or part of the principal
amount of a Libor Loan prior to the last day of the Interest Period for such
Loan (including without limitation any failure by Borrower to borrow a Libor
Loan on the Loan Date for such borrowing specified in the relevant notice of
borrowing hereunder). Such costs shall include, without limitation, any interest
or fees payable by Bank to lenders of funds obtained by it in order to make or
maintain its loans based on the London interbank eurodollar market. Bank's
determination as to such costs shall be conclusive and final, absent manifest
error.
5. Remedies Upon Events of Default.
5.1 Conversion to Prime Loans. If any Event of Default has occurred and is
continuing under the Note or this Addendum, then in addition to all other
remedies available to Bank under the Note, at the option of Bank and without
demand or notice, all Libor Loans then outstanding shall be automatically
converted to Prime Plans on the last day of each respective Interest Period for
each Libor Loan.
5.2 Indemnity. Borrower agrees to pay and indemnify Bank for, and to hold
Bank harmless from, any and all cost, loss or expense (including without
limitation any such cost, loss or expense arising from interest or fees payable
by Bank to lenders of funds obtained by it in order to maintain its Libor Loans
hereunder, or in its reemployment of funds obtained in connection with the
making or maintaining of Libor Loans) which Bank may sustain or incur as a
consequence of any default by Borrower in connection with or related to: (a)
payment of the principal amount of or interest on Libor Loans, (b) making a
borrowing or conversion of a Libor Loan after Borrower has given a notice hereof
in accordance with this Addendum, or (c) making a prepayment of a Libor Loan
after Borrower has given a notice thereof in accordance with this Addendum, or
any prepayment (whether optional or mandatory) of any Libor Loan prior to the
end of the applicable Interest Period for such Loan.
6. Additional Provisions Regarding Libor Loans.
6.1 Libor Rate Taxes. All payments of principal, interest, fees, costs,
expenses and all other amounts payable to Borrower pursuant to the Note and
this Addendum shall be made free and clear of and without reduction by reason
of all present and future income, stamp and other taxes or other charges
whatsoever imposed, assessed, levied or collected by any national government or
any political subdivision or taxing authority thereof or any organization of
which it is a member (excluding (i) any taxes imposed on or measured by the
overall net income or gross receipts of Bank by any such entity, and (ii) any
taxes which would have been imposed even if no provisions for Libor Loans had
appeared in this Addendum) (collectively, "Libor Taxes").
If any Libor Taxes are required to be withheld from any amounts
payable to Bank, Borrower shall pay such additional amounts as may be necessary
so as to yield to Bank a net amount equal to the total amount of the payments
provided for in this Addendum or under the Note which Bank would have received
if such amounts had not been subject to Libor Taxes.
If any Libor Taxes are payable directly by Borrower, they shall be paid by
Borrower prior to the date on which penalties attach for failure to timely pay
such Libor Taxes. Within forty five (45) days after the date on which payment of
any such Libor Taxes is due pursuant to applicable law, Borrower will furnish
Bank the original receipt for the full payment of such Libor Taxes or, if such
is not available, evidence of such payment satisfactory in form and substance to
Bank. Borrower shall indemnify and hold Bank harmless against, and will
reimburse to Bank, upon demand, any incremental taxes, interest or penalties
that may become payable by Bank as a result of any failure by Borrower to pay
any Libor Taxes when due.
<PAGE> 19
6.2 Inability to Determine Fair Interest Rate. If at any time Bank, in its
sole and absolute discretion, determines that: (i) the amount of the Libor Loans
for periods equal to the corresponding Interest Periods are not available to
Bank in the offshore currency interbank markets, (ii) the Libor Rate does not
accurately reflect the cost to Bank of lending the Libor Loan, or (iii) by
reason of any changes arising after the date of the Note affecting the London
Interbank eurodollar market, adequate and fair means do not exist for
ascertaining the applicable interest rate on the basis provided for in Sections
2.1 and 2.2 above, then Bank shall promptly give notice thereof to Borrower.
Upon the giving of such notice, Bank's obligation to make Libor Loans shall
terminate, unless Bank and the Borrower agree in writing to a different interest
rate applicable to Libor Loans, or until such time as Bank notifies Borrower
that the circumstances giving rise to Bank's notice no longer exist. While such
circumstances continue to exist, (x) any requested Libor Loan shall be treated
as a request for a Prime Loan, (y) any Prime Loan that was to have been
converted to a Libor Loan shall be continued as a Prime Loan, and (z) any
outstanding Libor Loan shall be converted retroactively, on the first day of the
then current Interest Period with respect thereto, to a Prime Loan.
6.3 Illegality or Impracticability. If (i) due to any Governmental
Regulation it shall become unlawful for Bank to continue to fund or maintain
any Libor Loans, or to perform its obligations hereunder, or (ii) due to any
contingency occurring after the date of the Note which has a material adverse
effect on the London interbank eurodollar market, it has become impracticable
for Bank to continue to fund or maintain any Libor Loans, or to perform its
obligations hereunder, then Bank shall promptly give notice thereof to
Borrower. Upon the giving of such notice, Bank's obligation to make Libor Loans
shall terminate, and in such event, (x) any requested Libor Loan shall be
treated as a request for a Prime Loan, (y) any Prime Loan that was to have been
converted to a Libor Loan shall be continued as a Prime Loan, and (z) any
outstanding Libor Loan shall be converted retroactively, on the first day of
the then current Interest Period with respect thereto, to a Prime Loan.
6.4 Governmental Regulations; Increased Costs. Borrower shall pay to
Bank, within 15 days after demand by Bank, from time to time such amounts as
Bank may determine to be necessary to compensate it for any increased costs
incurred by Bank that Bank determines are attributable to its making or
maintaining of any Libor Loans to Borrower (such increases in costs and
reductions in amounts receivable being herein called "Additional Costs"), in
each case resulting from any Regulatory Change which:
(a) imposes a new tax or changes the basis of taxation of any amounts
payable to Bank under the Note or this Addendum in respect of any Libor Loans
(other than changes which affect taxes measured by or imposed on the overall
net income of Bank by the jurisdiction in which such Bank has its principal
office); or
(b) imposes or modifies any reserve, special deposit or similar
requirements relating to any extensions of credit or other assets of, or any
deposits or other liabilities with or for the account of Bank (including any
Libor Loans or any deposits referred to in the definition of Libor Base Rate);
or
(c) imposes any other condition affecting the Note (or any of such
extensions of credit or liabilities); or
(d) imposes or modifies a Governmental Regulation regarding capital
adequacy which has or would have the effect of reducing the rate of return on
capital of Bank or any person or entity controlling Bank ("Parent") as a
consequence of its obligations hereunder to a level below that which Bank (or
its Parent) could have achieved but for such adoption, change or compliance
(taking into consideration its policies with respect to capital adequacy) by an
amount deemed by Bank to be material.
Bank will notify Borrower of any event occurring after the date of the
Note which will entitle Bank to Additional Costs pursuant to this Section 6.4
as promptly as practicable after it obtains knowledge thereof and determines to
request such compensation. Bank will furnish Borrower with a statement setting
forth the basis and amount of each request by Bank for Additional Costs under
this Section 6.4. Determinations and allocations by Bank for purposes of this
Section 6.4 of the effect of any Regulatory Change on its costs of maintaining
its obligations to make Libor Loans or of making or maintaining Libor Loans or
on amounts receivable by it in respect of Libor Loans, and of the additional
amounts required to compensate Bank in respect of any Additional Costs, shall
be conclusive and final, absent manifest error.
This Addendum is executed as of the date first written above.
BORROWER BANK
Steven Myers & Associates, Inc. , IMPERIAL BANK,
- ----------------------------------------- a California banking corporation
a By /s/ DENISE PARDUE
---------------------------------------- ---------------------------------
By /s/ STEVEN MYERS , Officer Name
--------------------------------------- Its OFFICER TITLE
Steven Myers, ------------------------------
Its President/CEO
--------------------------------------
By /s/ KENNETH COLBAUGH ,
---------------------------------------
Kenneth Colbaugh,
Its EVP/COO
--------------------------------------
Page 4 of 4
<PAGE> 20
[IMPERIAL BANK LOGO]
ITEMIZATION OF AMOUNT FINANCED
DISBURSEMENT INSTRUCTIONS
Name(s): Date: January 02, 1997
Steven Myers & Associates, Inc.
$ paid to you directly by Cashiers Check No.
$ 3,000,000.00 credited to deposit account No.
When advances are requested
$ paid on Loan(s) No.
$ amounts paid to Bank for:
Amounts paid to others on your behalf:
$ to Title Insurance Company
$ to Public Officials
$ to
$ to
$ to
$ to
$ 3,000,000.00 SUBTOTAL (NOTE AMOUNT)
LESS $ 0.00 Prepaid Finance Charge (Loan fee(s))
$ 3,000,000.00 TOTAL (AMOUNT FINANCED)
Upon consummation of this transaction, this document will also serve as the
authorization for Imperial Bank to disburse the loan proceeds as stated above.
Steven Myers & Associates, Inc.
By /s/ STEVEN MYERS By /s/ KENNETH COLBAUGH
--------------------------- -----------------------------
Signature Signature
Steven Myers President/CEO Kenneth Colbaugh EVP/COO
- ----------------------------- -------------------------------
Signature Signature
L531 E (REV 10/92)
<PAGE> 21
[IMPERIAL BANK LOGO]
ITEMIZATION OF AMOUNT FINANCED
DISBURSEMENT INSTRUCTIONS
Name(s): Date: January 02, 1997
Steven Myers & Associates, Inc.
$ paid to you directly by Cashiers Check No.
$ 4,000,000.00 credited to deposit account No.
$ paid on Loan(s) No.
$ amounts paid to Bank for:
Amounts paid to other on your behalf:
$ to Title Insurance Company
$ to Public Officials
$ to
$ to
$ to
$ to
$ 4,000,000.00 SUBTOTAL (NOTE AMOUNT)
LESS $ 0.00 Prepaid Finance Charge (Loan fee(s))
$ 4,000,000.00 TOTAL (AMOUNT FINANCED)
Upon consummation of this transaction, this document will also serve as the
authorization for Imperial Bank (to disburse the loan proceeds as stated above.
Steven Myers & Associates, Inc.
BY /s/ STEVEN MYERS BY /s/ [SIG]
- ---------------------------------- ---------------------------------
Signature Signature
Steven Myers, President/CEO Kenneth Colbaugh, EVP/COO
- ---------------------------------- ---------------------------------
Signature Signature
L531 E (Rev 10/92)
<PAGE> 1
EXHIBIT 10.8
NATIONSBANK, N.A. [COPY]
P.O. Box 17339 COMMERCIAL NOTE
Baltimore, Maryland 21203
$ 560,000.00 May 30, 1995
- ------------ ------------
For Value Received, the Undersigned (whether one or more than one)
promises (jointly and severally if more than one) to pay to the order of
NationsBank, N.A., ("the Bank") the sum of *************************************
********************************* FIVE HUNDRED SIXTY THOUSAND AND NO/100 Dollars
(the "Principal Sum") with interest on the unpaid balance thereof from the date
hereof until maturity at the per annum percentage rate as indicated by the box
checked below; provided that, if no box is checked, interest will be charged at
a per annum rate at all times equal to the Bank's Index Rate (as hereinafter
defined), plus 2% per annum.
[X] FIXED: 10.74 %
-------
[ ] VARIABLE: The "Index Rate" for this Note is the Prime Rate published in the
"Money Rates" section of the Wall Street Journal on the last
business day upon which such publication is made in each calendar
quarter. If a range of Prime Rates is published, the applicable
rate shall be the higher rate. A "Change Date" is the first
business day of each calendar quarter, except that the first such
day following the date of this Agreement will not be a Change
Date.
On each Change Date, Bank will change the interest rate charged on
this loan (hereinafter "the Rate") to the annual rate equal to the
Index Rate plus %, except that the Rate will never be lower
than %, nor higher than %.
If The Wall Street Journal for any reason ceases to publish the
Index Rate or the Bank for any reason is unable to use the Index
Rate for this purpose, Bank shall choose another rate beyond the
control of the Bank to use as the Index Rate. The choice of such
rate shall be entirely within the discretion of the Bank.
Undersigned shall pay to Bank the Principal Sum, plus interest at the
per annum rate indicated above, in 179 consecutive installments of $6,329.97
commencing on the 30 day of JULY, 1995 and on the same day of each succeeding
MONTH thereafter and a final installment of $6,329.97 due and payable on
06/30/10, 19 , on which date the unpaid balance of the Principal Sum plus
accrued and unpaid interest shall be payable in full. This payment schedule
assumes that the Undersigned will pay all amounts when due and that the
interest rate will not change. Because interest accrues each day on the
Principal Sum, the number of payments may decrease or increase if the
Undersigned pays early or late. The number of payments may also increase or
decrease if the interest rate increases or decreases. If the interest rate
increases or decreases, additional payments will be in the amount of the final
scheduled installment, as adjusted in amount in accordance with provisions of
the next paragraph hereof. The last payment, however, may be in any amount which
is not greater than 25% more than the amount of the final scheduled
installment, as adjusted.
If the number of payments originally scheduled is more than 60, the
amount of payments required hereon may change if the interest rate changes.
Whenever the interest rate is increased or decreased, in the aggregate, by a 1%
increment relative to the original interest rate on this Note, the Bank may make
a corresponding increase or decrease in the amount of the scheduled payments.
The amount of such increase or decrease in the payment amount will be equal to
3% of the originally scheduled payment for each 1% per annum increment in the
interest rate relative to the original interest rate on the Note.
Interest will be calculated on the basis of a 365-day year applied to
the actual number of days the Principal Sum, or any portion thereof, is
outstanding. If the Undersigned fails to pay any installment within 10 days
after the date on which it is due, the Undersigned agrees to pay a late charge
of 5% of the delinquent amount due. Holder may also charge the Undersigned
$15.00 for each check returned unpaid on the second presentment.
The obligations of the Undersigned evidenced by this Note are secured
by, guaranteed by, and are part of the obligations referred to in, any security
agreement, guaranty agreement, mortgage, deed of trust, pledge agreement, loan
agreement, hypothecation agreement, indemnity agreement, letter of credit
application, assignment or any other document previously, simultaneously or
hereafter executed and delivered by any of the Undersigned or by any other
party (collectively, the "Loan Documents") as security for, as a guaranty of,
or in connection with, obligations of any of the Undersigned to the Bank or to
any other Holder, whether or not this Note is specifically referred to therein.
If this Note is a renewal, extension or modification of the terms of an
obligation of the Undersigned to the Bank, Undersigned and Bank agree that this
Note is not intended to be a novation but is rather intended only to renew,
extend or modify the obligation to the extent applicable.
All payments of the principal of and interest on this Note shall be
paid in lawful money of the United States of America during regular business
hours of the Bank at the office of the Bank set forth above or at such other
place as the Holder may at any time or from time to time designate in writing
to the Undersigned.
Each Obligor (which term, as used herein, shall include the Undersigned
and each endorser, guarantor, accommodation party and surety of this Note)
hereby waives demand, presentment for payment, protest, notice of dishonor and
of protest and agrees that at any time and from time to time and with or
without consideration, the Holder may, without notice to or further consent of
any Obligor and without in any manner releasing, lessening or affecting the
obligations of any Obligor hereunder and under any of the Loan Documents: (a)
release, surrender, waive, add, substitute, settle, exchange, compromise,
modify, extend or grant indulgences with respect to, (i) this Note, (ii) any
of the Loan Documents, (iii) all or any part of any collateral or security for
this Note, and (iv) any Obligor; (b) complete any blank space in this Note
according to the terms upon which the loan evidenced hereby is made; and (c)
grant any extension or other postponements of the time of payment hereof. If
the Undersigned consists of two or more parties, the term "Undersigned" as used
herein means each of such parties, jointly and severally, and their obligations
hereunder are joint and several. The Holder may (without notice to or consent
of any of the Undersigned or any other Obligor, and with or without
consideration) release, compromise, settle with, or proceed against any one or
more of the Undersigned or any other Obligor without releasing, lessening or
affecting the obligations hereunder or under any of the Loan Documents of the
other or others of the Undersigned or any other Obligor. The term "Holder" as
used herein means the holder of this Note, including the Bank.
The occurrence of any one or more of the following events shall
constitute a default under this Note: (a) failure of the Undersigned to pay
when due any amount required to be paid by Undersigned hereunder; (b) the death
of any Obligor; (c) the failure of any Obligor to perform or comply with any of
the provisions hereof and/or of the Loan Documents; (d) the occurrence of a
default under any of the Loan Documents; (e) if any information contained in
any financial statement, application, schedule, report or any other document
given by the Undersigned or any other party in connection with the obligations
of the Undersigned evidenced by this Note or any of the Loan Documents is not
in all respects true and accurate or if the Undersigned or such other party
failed to state any material fact or any fact necessary to make such
information not misleading; (f) the filing of any petition under the Bankruptcy
Act or any similar Federal or State statute by or against any Obligor; (g) an
application for the appointment of a receiver for, the making of a general
assignment for the benefit of creditors by, or the insolvency of, any Obligor;
(h) the dissolution, merger, consolidation, or reorganization of any Obligor;
(i) the determination in good faith by the Bank that a material adverse change
has occurred in the financial condition of any Obligor from the condition set
forth in the most recent financial statement of such Obligor theretofore
furnished to the Bank, or from the financial condition of such Obligor as
theretofore most recently disclosed to the Bank in any other manner; or (j) the
determination in good faith by the Bank that the prospect of payment of this
Note is impaired for any reason. Whenever there is a default under this Note,
the Bank may, at its option, (a) declare the unpaid balance of the Principal
Sum, together with all unpaid and accrued interest thereon, to be immediately
due and payable, and (b) exercise any or all rights and remedies available to
it hereunder, under applicable laws and under any of the Loan Documents.
If this Note is placed in the hands of an attorney for collection after
maturity (whether by acceleration, declaration, extension or otherwise), the
Undersigned shall pay on demand all court costs and expenses of collection
including actual attorney's fees incurred by Bank, whether or not any lawsuit
is filed. As security for the payment of all obligations under this Note, each
Obligor hereby pledges and grants to the Holder a lien on and security interest
in, and authorizes the Holder to offset such obligations of such Obligor to the
Holder against, all property of such Obligor now or at any time hereafter in
the possession of, in transit to, under the control of, or on deposit with,
the Holder in any capacity whatsoever, including, without limitation, any
balance of any deposit account and any credits with the Holder.
If this Note is not paid at maturity (whether by acceleration,
declaration, extension or otherwise), each Obligor who signs this Note and/or
the Unconditional Guaranty of Payment set forth below, hereby authorizes and
empowers any attorney of any Court of Record within the United States to appear
for each such Obligor or any one or more of them in any Court in one or more
proceedings or before any clerk thereof, and confess judgment against each such
Obligor, without prior notice, or opportunity to prior hearing, in favor of the
Holder for the then unpaid balance of the Principal Sum, with interest accrued
thereon and the cost of suit and an attorney's fee of 15% of such unpaid
balance of the Principal Sum, hereby waiving and releasing, to the extent
permitted by law, all errors and rights of exemption, appeal, stay of
execution, inquisition and extension upon any levy on real estate or personal
property to which each such Obligor may otherwise be entitled under the laws of
the United States or of any state of possession of the United States now in
force or which may hereafter be passed.
In the event any one or more of the provisions of this Note shall for
any reason be held to be invalid, illegal or unenforceable, in whole or in part
or in any respect, or in the event that any one or more of the provisions of
this Note operate or would prospectively operate to invalidate this Note, then
and in either of those events, such provision or provisions only shall be
deemed null and void and shall not affect any other provision of this Note and
the remaining provisions of this Note shall remain operative and in full force
and effect and shall in no way be affected, prejudiced or disturbed thereby.
Each right, power and remedy of the Holder hereunder, under the Loan
Documents or under applicable laws shall be cumulative and concurrent, and the
exercise of any one or more of them shall not preclude the simultaneous or
later exercise by the Holder of any or all such other rights, powers or
remedies. No failure or delay by the Holder to insist upon the strict
performance of any one or more provisions of this Note or of the Loan Documents
or to exercise any right, power or remedy consequent upon a breach thereof or
default hereunder shall constitute a waiver thereof, or preclude the Holder
from exercising any such right, power or remedy. By accepting full or partial
payment after the due date of any amount of principal of or interest on this
Note, the Holder shall not be deemed to have waived the right either to require
payment when due and payable of all other amounts of principal of or interest
on this Note or to exercise any rights and remedies available to it in order to
collect all such other amounts due and payable under this Note. No
modification, change, waiver or amendment of this Note shall be deemed to be
made by the Holder unless in writing signed by the Holder, and each such
waiver, if any, shall apply only with respect to the specific instance
involved. This Note shall be deemed made in, and shall be governed by the laws
of, the State of Maryland.
The signature(s) and seal(s) of the Undersigned or of the duly
authorized officer(s) or representatives of the Undersigned is/are subscribed
to this Note the day and year written above.
<TABLE>
<S> <C>
Obligor Name: STEVEN MYERS & ASSOCIATES, INC. Obligor Name:
--------------------------------- -----------------------------------
By: /s/ STEVEN S. MYERS PRESIDENT (SEAL) By: (SEAL)
---------------------------------------- ---------------------------------------------
By: (SEAL) By: (SEAL)
---------------------------------------- ---------------------------------------------
</TABLE>
<PAGE> 2
AIRCRAFT SECURITY AGREEMENT COPY
- CHATTEL MORTGAGE
THIS MORTGAGE AND SECURITY AGREEMENT, made this THIRTIETH day of MAY 1995,
between STEVEN MYERS & ASSOCIATES, INC. whose address is 5 SUMMIT, IRVINE, CA
92715 (hereinafter called the "Debtor") and [X] NATIONSBANK, N.A. [ ]
NATIONSBANK OF VIRGINIA, N.A. a National Banking Association, whose address is
7178 COLUMBIA GATEWAY DRIVE, COLUMBIA, MD 21046 (hereinafter called the "Bank").
WITNESSETH: That the Debtor is indebted to the Bank in the principal sum of
***FIVE HUNDRED SIXTY THOUSAND AND NO/100 Dollars ($560,000.00) with interest
thereon at the rate of 10.74% per annum evidenced by a certain Installment Loan
Agreement and Truth in Lending Disclosure (hereinafter "Note") from Debtor to
the Bank, of even date and in the sum above set forth, and in order to secure
the payment of the same and for the other purposes herein set forth, and in
consideration of said indebtedness and for other good and valuable
considerations, Debtor does hereby grant unto Bank a Security Interest in and
does hereby bargain, sell and mortgage to Bank the Aircraft hereinafter
described and the engines, accessories, appliances, motors, appurtenances,
accessions, attachments, parts and equipment now and hereafter installed therein
or used in connection therewith or which may be substituted therefor or added
thereto (collectively described herein as the "Aircraft"), more particularly
described as follows:
- -------------------------------------------------------------------------------
Manufacturer Model Serial No. New/Used FAA No.
- -------------------------------------------------------------------------------
ROCKWELL COMMANDER 690B 11492 USED N42MS
- -------------------------------------------------------------------------------
Avionics: _____________________________________________________________________
_______________________________________________________________________________
- -------------------------------------------------------------------------------
Engine Mfr. Engine Serial No. Propeller Mfr. Propeller Serial No.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Said Aircraft will be permanently based at the following airfield _____________.
This Mortgage and Security Interest in said Aircraft is being granted in order
to secure the payment of (1) said note; (2) all costs and expenses incurred in
the collection of same and enforcement of Bank's rights hereunder; (3) all
future advances made by Bank for taxes, levies, insurance and repairs to or
maintenance of said Aircraft; (4) all money heretofore or hereafter advanced by
bank to or for the account of Debtor, and all present or future, direct or
contingent liabilities of Debtor to Bank of any nature whatsoever; and (5) such
interest as may be payable to bank.
Debtor shall be entitled to possession of the Aircraft and to use and
enjoy the same subject to the terms of this Agreement and the Note until
default hereunder. Upon performance by Debtor of all obligations of Debtor to
Bank, and payment of all sums owing by Debtor to Bank, then this conveyance
shall be void, otherwise to remain in full force and effect.
DEBTOR AGREES THAT THE ADDITIONAL TERMS ON THE REVERSE SIDE HEREOF ARE
HEREBY MADE A PART HEREOF AND ARE FULLY BINDING UPON DEBTOR.
The rights and privileges of Bank under this Agreement shall inure to the
benefit of its successors and assigns. The obligations and agreements of Debtor
contained in this Agreement are joint and several if Debtor is more than one,
and shall bind Debtor's personal representatives, heirs, successors and assigns.
As used herein the singular shall include the plural as the context may require.
DEBTOR UNDERSTANDS AND AGREES THAT IF HE FAILS TO MAKE PAYMENT OF ANY
INSTALLMENT OR OTHER SUM PAYABLE BY HIM, OR IF HE OTHERWISE DEFAULTS THAT BANK
MAY REPOSSESS AND TAKE BACK THE AIRCRAFT, WITH OR WITHOUT LEGAL PROCESS OR COURT
PROCEDURE.
WITNESS the signature and seal of the Debtor.
------> /s/ STEVEN S. MYERS
SIGN -------------------- (Seal)
HERE PRESIDENT
-------------------- (Seal)
BY: ---------------- (Seal)
94-05-2111NS
<PAGE> 3
AIRCRAFT SECURITY AGREEMENT
-CHATTEL MORTGAGE
-----------------
THIS MORTGAGE AND SECURITY AGREEMENT, made this THIRTIETH day of May 1995,
between STEVEN MYERS & ASSOCIATES, INC. whose address is 5 SUMMIT IRVINE, CA
92715, (hereinafter called the "Debtor"), and [XX] NATIONSBANK, N.A. [ ]
NATIONSBANK OF VIRGINIA, N.A. a National Banking Association, whose address
is 7178 COLUMBIA GATEWAY DRIVE COLUMBIA MD 21046 (hereinafter called the
"Bank").
WITNESSETH: That the Debtor is indebted to the Bank in the principal sum of
***FIVE HUNDRED SIXTY THOUSAND AND NO/100 Dollars ($560,000.00) with interest
thereon at the rate of 10.74% per annum evidenced by a certain Installment Loan
Agreement and Truth in Lending Disclosure (hereinafter "Note") from Debtor to
the Bank, of even date and in the sum above set forth, and in order to secure
the payment of the same and for the other purposes herein set forth, and in
consideration of said indebtedness and for other good and valuable
considerations, Debtor does hereby grant unto Bank a Security Interest in and
does hereby bargain, sell and mortgage to Bank the Aircraft hereinafter
described and the engines, accessories, appliances, motors, appurtenances,
accessions, attachments, parts and equipment now and hereafter installed therein
or used in connection therewith or which may be substituted therefor or added
thereto (collectively described herein as the "Aircraft"), more particularly
described as follows:
- -------------------------------------------------------------------------------
Manufacturer Model Serial No. New/Used FAA No.
Rockwell Commander 690B 11492 Used N42MS
- -------------------------------------------------------------------------------
Avionics:
----------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Engine Mfr. Engine Serial No. Propeller Mfr. Propeller Serial No.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Said Aircraft will be permanently based at the following airfield
--------------
This Mortgage and Security Interest in said Aircraft is being granted in order
to secure the payment of (1) said note; (2) all costs and expenses incurred in
the collection of same and enforcement of Bank's rights hereunder; (8) all
future advances made by Bank for taxes, levies, insurance and repairs to or
maintenance of said Aircraft; (4) all money heretofore or hereafter advanced by
bank to or for the account of Debtor, and all present or future, direct or
contingent liabilities of Debtor to Bank of any nature whatsoever; and (5) such
interest as may be payable to bank.
Debtor shall be entitled to possession of the Aircraft and to use and
enjoy the same subject to the terms of this Agreement and the Note until
default hereunder. Upon performance by Debtor of all obligations of Debtor to
Bank, and payment of all sums owing by Debtor to Bank, then this conveyance
shall be void, otherwise to remain in full force and effect.
DEBTOR AGREES THAT THE ADDITIONAL TERMS ON THE REVERSE SIDE HEREOF ARE
HEREBY MADE A PART HEREOF AND ARE FULLY BINDING UPON DEBTOR.
The rights and privileges of Bank under this Agreement shall inure to the
benefit of its successors and assigns. The obligations and agreements of Debtor
contained in this Agreement are joint and several if Debtor is more than one,
and shall bind Debtor's personal representatives, heirs, successors and
assigns. As used herein the singular shall include the plural as the context
may require.
DEBTOR UNDERSTANDS AND AGREES THAT IF HE FAILS TO MAKE PAYMENT OF ANY
INSTALLMENT OR OTHER SUM PAYABLE BY HIM, OR IF HE OTHERWISE DEFAULTS, THAT BANK
MAY REPOSSESS AND TAKE BACK THE AIRCRAFT, WITH OR WITHOUT LEGAL PROCESS
OR COURT PROCEDURE.
WITNESS the signature and seal of the Debtor.
STEVEN S. MYERS (Seal)
--------------------------
PRESIDENT
(Seal)
--------------------------
BY: (Seal)
-----------------------
<PAGE> 4
AUTHORITY TO DISBURSE FUNDS
I hereby authorize NationsBank, N.A. to disburse the partial proceeds of my
loan or revolving line of credit to the following:
<TABLE>
<CAPTION>
CLOSE SEND LETTER
PAYEE AMOUNT PAYOFF ACCOUNT TO CLOSE ACCOUNT
<S> <C> <C> <C> <C>
WIRE FUNDS TO: $525,000.00 XXX
- ---------------------- -------------- ------------- ---------------- -----------------
GECC $
- ---------------------- -------------- ------------- ---------------- -----------------
$
- ---------------------- -------------- ------------- ---------------- -----------------
REFERENCE TO CUSTOMER $ 35,000.00
- ---------------------- -------------- ------------- ---------------- -----------------
$
- ---------------------- -------------- ------------- ---------------- -----------------
$
- ---------------------- -------------- ------------- ---------------- -----------------
$
- ---------------------- -------------- ------------- ---------------- -----------------
$
- ---------------------- -------------- ------------- ---------------- -----------------
$
- ---------------------- -------------- ------------- ---------------- -----------------
$
- ---------------------- -------------- ------------- ---------------- -----------------
$
- ---------------------- -------------- ------------- ---------------- -----------------
$
- ---------------------- -------------- ------------- ---------------- -----------------
$
- ---------------------- -------------- ------------- ---------------- -----------------
$
- ---------------------- -------------- ------------- ---------------- -----------------
$
- ---------------------- -------------- ------------- ---------------- -----------------
TOTAL $560,000.00 5/30/95
-------------- --------------------------------------------------
DATE
STEVEN MYERS & ASSOCIATES, INC.
</TABLE>
<TABLE>
<S> <C>
/s/ STEVEN MYERS
- --------------------------------------------------------- ------------------------------------------------
WITNESS BORROWER
STEVEN MYERS, PRESIDENT
- --------------------------------------------------------- ------------------------------------------------
WITNESS BORROWER
- --------------------------------------------------------- ------------------------------------------------
WITNESS BORROWER
- --------------------------------------------------------- ------------------------------------------------
WITNESS BORROWER
MD Affinity
20-05-2116 NS (3/94)NEW
794-1 (11/88)OLD White--Bank Copy Canary--Banking Center Copy Pink--Customer Copy
</TABLE>
<PAGE> 5
NATIONSBANK UNCONDITIONAL GUARANTY
NationsBank, N.A. OF PAYMENT (UNLIMITED)
_____________________________________________________________________________
P.O. Box 17339
Baltimore, Maryland 21203
Date MAY 30, 1995
For the purpose of inducing NationsBank, N.A, (the "Bank") to make, extend, and
renew a loan or loans, other extensions of credit or financial accommodations
of any kind or nature whatsoever for the account of, each Obligor named below
(the "Obligor" whether one or more than one and however indicated), both alone
and jointly with any other person, and in consideration of such loan or loans,
other extensions of credit or financial accommodations of any kind or nature
whatsoever made, extended and renewed to or for the account of, the Obligor,
both alone and jointly with any other person, on the faith of receiving this
Guaranty, the undersigned (the "Guarantor" whether one or more than one) hereby
unconditionally, irrevocably and directly guarantees to the Bank the prompt,
punctual and full payment at maturity (whether by acceleration, declaration,
extension or otherwise) of all obligations, indebtedness and liabilities of the
Obligor to the Bank of every kind and nature whatsoever, including, without
limitation, such indebtedness, liabilities and obligations of the Obligor to
the Bank which are direct, indirect, contingent, primary, secondary, alone,
jointly with any other person, due, to become due, future advances, now
existing, hereafter created, principal, interest, expense payments, liquidation
costs, and attorney's fees and expenses (collectively, the "Obligor's
Liabilities"). Should the Obligor for any reason fail to pay all or any part
of the Obligor's Liabilities as and when due and payable (whether by
acceleration, declaration, extension or otherwise), the Guarantor promises to
immediately pay the same to the Bank at the above office of the Bank, without
offset, plus interest thereon from the date due until paid in full at the
highest rate of interest charged on any of the Obligor's Liabilities as of such
date.
The obligations of the Guarantor hereunder are secured by and are part of the
obligations referred to in, any security agreement, mortgage, deed of trust,
indemnity deed of trust, pledge agreement, loan agreement, hypothecation
agreement, indemnity agreement, letter of credit application, assignment and
any other document previously, simultaneously or hereafter executed and
delivered by the Guarantor, both alone and jointly with any other person
(collectively, the "Guarantor's Documents") as security for, or in connection
with, (a) the obligations of the Guarantor hereunder, and (b) any other
obligations, indebtedness and liabilities of the Guarantor to the Bank of any
kind and nature whatsoever both now existing and hereafter created, whether or
not this Guaranty is specifically referred to therein. Without the prior
written consent of the Bank, the Guarantor will not sell, lease or otherwise
dispose of any substantial part of the Guarantor's assets and property, whether
owned by Guarantor on the date hereof or acquired by the Guarantor after the
date hereof. The Guarantor will furnish to the Bank, at such time or times as
specified by the Bank, such financial statements and other information
concerning the financial condition of the Guarantor as the Bank may require
from time to time.
The Guarantor hereby consents that at any time and from time to time and with
or without consideration, the Bank may, without notice to and further consent
of the Guarantor and without in any manner affecting, impairing, lessening and
releasing the obligations of the Guarantor hereunder, (a) complete any blank
space in this Guaranty according to the terms upon which the guarantee(s)
evidenced hereby is/are made; or (b) renew, extend, change the manner, time,
place and terms of payment of, sell, exchange, release, surrender, realize
upon, modify, waive, grant indulgences with respect to and otherwise deal with
in any manner; (1) all or any part of the Obligor's Liabilities; (2) any note,
security agreement, pledge agreement, guaranty agreement, mortgage, deed of
trust, loan agreement, hypothecation agreement, subordination agreement,
indemnity agreement, letter of credit application, assignment and any
agreement, instrument or other document previously, simultaneously and
hereafter executed and delivered by the Obligor and/or any other person singly
or jointly with another person or persons evidencing, securing, guarantying or
in connection with any of the Obligor's Liabilities (collectively, the
"Obligor's Documents"); (3) all or any part of any property at any time
securing all or any part of the Obligor's Liabilities; and (4) any person other
than the Guarantor at any time primarily or secondarily liable for all or any
part of the Obligor's Liabilities and/or any collateral and security therefor.
The Guarantor hereby waives demand, presentment for payment, protest, notice of
dishonor and of protest, notice of acceptance of this Guaranty, notice of the
making of any of the Obligor's Liabilities and notice of default under any of
the Obligor's Document. The Guarantor also hereby waives any right to
indemnification which the Guarantor may now or hereafter have against the
Obligor (or any of them), as a consequence of any payment to the Bank by the
Guarantor, or of any other reduction of the Obligor's Liabilities, realized by
the Bank at the Guarantor's expense. If the Guarantor is more than one person,
(a) each Guarantor hereunder shall be jointly and severally liable for the
obligations of the Guarantor hereunder, (b) the term "Guarantor" whenever used
herein shall include each Guarantor, jointly and severally with all other
Guarantors, and (c) the Bank may (without notice to or consent of any other
Guarantor and with or without consideration) release, compromise, settle with,
and proceed against any Guarantor and any security and collateral given by such
Guarantor without affecting, impairing, lessening and releasing the obligations
of any other Guarantor hereunder and under any of the Guarantor's Documents. As
used herein, the singular number shall include the plural, the plural the
singular and the use of the masculine, feminine or neuter gender shall include
all genders, as the context may require, and the term "person" shall include an
individual, a corporation, an association, a partnership, a trust and an
organization.
The occurrence of any one or more of the following events shall constitute a
default under this Guaranty: (a) the failure of the Guarantor to perform,
observe or comply with any of the provisions of this Guaranty; (b) the
occurrence of a default under any of the Guarantor's Documents; (c) the
occurrence of a default under any of the Obligor's Documents; (d) if any
information contained in any financial statement, application, schedule, report
or any other document given by the Guarantor, by the Obligor or by any other
person in connection with this Guaranty, is not in all respects true and
accurate or if the Guarantor, the Obligor or such other person omitted to state
any material fact or any fact necessary to make such information not
misleading; (e) the filing of any petition under the Bankruptcy Code or any
similar Federal or State statute by or against the Guarantor; (f) an
application for the appointment of a receiver for, the making of a general
assignment for the benefit of creditors by, or the insolvency of, the
Guarantor; (g)the dissolution, merger, consolidation, or reorganization of the
Guarantor;(h) the death of the Guarantor, or (i) if the Guarantor should become
a "Disabled Person" as defined by the Estates and Trusts Article of the
Annotated Code of Maryland.
Whenever there is a default under this Guaranty, the Bank may, at its option,
declare an amount equal to the then unpaid balance of the Obligor's Liabilities
(whether then due or not) to be immediately due and payable by the Guarantor.
At any time thereafter, the Guarantor hereby authorizes and empowers any
attorney of any Court of Record within the United States to appear for the
Guarantor in any Court in one or more proceedings or before any clerk thereof,
and confess judgment against the Guarantor, without prior notice, or
opportunity for prior hearing, in favor of the Bank for an amount equal to the
then unpaid balance of the Obligor's Liabilities (whether then due or not),
plus interest due and payable by the Guarantor as set forth above, all other
amounts due and payable by the Guarantor hereunder, costs of suit and an
attorney's fee of 15% of such unpaid balance of the Obligor's Liabilities,
hereby waiving and releasing, to the extent permitted by law, all errors and
all rights of exemption, appeal, stay of execution, inquisition and extension
upon any levy on real estate or personal property to which the Guarantor may
otherwise be entitled under the laws of the United States or of any state or
possession of the United States now in force or which may hereafter be passed.
20-05-2108 (4/94) NEW NS
207/69 OLD
MD Affinity
<PAGE> 6
The guarantor agrees to reimburse and pay to the Bank on demand any and all
costs and expenses (including, without limitation, liquidation costs, expense
payments and attorney's fees and expenses) incurred by and on behalf of the Bank
in connection with (a) the collection of any of the Obligor's Liabilities and
the maintenance, sale and other disposition of any collateral therefor, and (b)
the collection of any of the obligations of the Guarantor hereunder and the
maintenance, sale and other disposition of any collateral therefor.
The Bank will have no duty to marshall security, to sue or otherwise attempt
collection from the Obligor or any other person, to proceed against any
collateral and security it may have or to take action of any sort prior to
enforcing payment against the Guarantor hereunder. After a default under this
Guaranty, the Bank, at its option and without notice, may apply to the payment
of the obligations of the Guarantor hereunder any moneys, credits and other
property of any nature whatsoever of the Guarantor now or at any time hereafter
in the possession of, in transit to or from, under the control or custody of, or
on deposit with, the Bank in any capacity whatsoever, including, without
limitation, any balance of any deposit account and any credits with the Bank.
Any payment received by the Bank from the Obligor, or from any other source
other than the Guarantor may be applied to the Obligor's Liabilities in whatever
order and manner the Bank elects.
The obligations of the Guarantor hereunder are continuing and shall remain in
effect until actual receipt by a vice president of the Bank of written notice of
the Guarantor's desire to terminate this Guaranty; provided that no such
termination shall in any way affect the obligations of the Guarantor hereunder
with respect to those of the Obligor's Liabilities created and/or contracted for
prior to the Bank's receipt of such notice. If the Guarantor is more than one
person, termination by any one Guarantor will not affect the existing and
continuing obligations hereunder of any other Guarantor.
If any of the Obligor's Liabilities should be assigned by the Bank, the Bank
shall have the right to assign all or any part of this Guaranty to the Bank's
assignee without notice to or consent of the Guarantor, and this Guaranty will
inure to the benefit of the Bank's assignee to the extent of such assignment,
provided that the Bank shall continue to have the unimpaired right to enforce
this Guaranty as to any of the Obligor's Liabilities not so assigned. The
Guarantor further agrees that any claim which the Guarantor may now or hereafter
have against the Bank, the Borrower or any other party for any reason whatsoever
shall not affect the Guarantor's obligations under this Guaranty and shall not
be used or asserted against the Bank as a defense to the performance of said
obligations or as a setoff, counterclaim, recoupment or deduction of any kind
against any sums now or hereafter due hereunder.
The obligations of the Guarantor hereunder are independent of any other guaranty
or guarantys at any time in effect with respect to all or any part of the
Obligor's Liabilities and the obligations of the Guarantor hereunder may be
enforced regardless of the existence of any such other guaranty or guarantys or
of the failure of any other party to guaranty the Obligor's Liabilities. The
Guarantor hereby subordinates the time and priority of payment of any
indebtedness both now and hereafter owed by the Obligor to the Guarantor to the
payment of the Obligor's Liabilities to the Bank. The obligations of the
Guarantor hereunder shall not be affected, impaired, released or lessened by the
invalidity, irregularity or unenforceability of all or any part of the Obligor's
Liabilities or of any of the Obligor's Documents or of any of the Guarantor's
Documents, or by the delay or failure of the Bank to exercise any of its rights
and remedies against the Obligor or against any collateral or security for the
Obligor's Liabilities or against any collateral or security for this Guaranty.
AGREEMENT WAIVING RIGHT TO TRIAL BY JURY: Each Guarantor hereunder hereby (i)
covenants and agrees not to elect a trial by jury of any issue triable of right
by a jury, and (ii) waives any right to trial by jury fully to the extent that
any such right shall now or hereafter exist. This waiver of right to trial by
jury is separately given, knowingly and voluntarily, by each Guarantor
hereunder, and this waiver is intended to encompass individually each instance
and each issue as to which the right to a jury trial would otherwise accrue. The
Bank is hereby authorized and requested to submit this Guaranty to any court
having jurisdiction over the subject matter and the parties hereto, so as to
serve as conclusive evidence of each Guarantor's herein contained waiver of the
right to a jury trial.
This Guaranty evidences a final, complete and exclusive statement of the terms
of the Guarantor's undertaking, and no course of prior dealing between the
parties, no usage of trade, and no parol or extrinsic evidence of any nature
shall be used to supplement or modify any term, nor are there any conditions to
the full effectiveness, of this Guaranty. No delay or failure on the part of the
Bank to exercise any of its options, powers, rights or remedies hereunder, under
the Guarantor's Documents or now or hereafter existing at law or in equity or by
statute or otherwise, or any partial or single exercise thereof, shall
constitute a waiver thereof. All such options, powers, rights and remedies are
cumulative and may be exercised singly or concurrently and the exercise of any
one or more of them will not be a waiver of any other. No waiver of any of its
rights hereunder, and no modification or amendment of this Guaranty, shall be
deemed to be made by the Bank unless the same shall be in writing, duly signed
on behalf of the Bank, and each such waiver, if any, shall apply only with
respect to the specific instance involved and shall in no way impair the rights
of the Bank or the obligations of the Guarantor hereunder in any other respect
at any other time. This Guaranty shall be binding upon the heirs, personal
representatives, successors and assigns of the Guarantor and shall inure to the
benefit of the successors and assigns of the Bank. This Guaranty shall be
governed and construed in accordance with the laws of the State of Maryland and
shall be deemed to be executed, delivered and accepted in the State of Maryland.
The signature(s) and seal(s) of the Guarantor(s) is/are subscribed to this
Guaranty as of the date first written above.
WITNESS:
/s/ STEVEN S. MYERS
- --------------------------------- ------------------------------ [SEAL]
Steven S. Myers
/S/ PAULA K. MYERS
- --------------------------------- ------------------------------ [SEAL]
Paula K. Myers
- --------------------------------- ------------------------------ [SEAL]
- --------------------------------- ------------------------------ [SEAL]
- --------------------------------- ------------------------------ [SEAL]
The name(s) of the Obligor(s) referred to in the foregoing Guaranty is/are:
STEVEN MYERS & ASSOCIATES, INC.
- --------------------------------------------------------------------------------
<PAGE> 7
NATIONSBANK(R) (COMMERCIAL PURPOSE)
SECURITY AGREEMENT
P.O. Box 17339
Baltimore, MD 21203 COPY
05/30/95
--------
Date
THIS SECURITY AGREEMENT is made in favor of NationsBank, N.A. (the "Bank")
by the undersigned (the "Grantor", whether one or more than one), witnesseth:
In order to secure (a) the prompt payment of all indebtedness and
obligations to the Bank of the Grantor and of the Obligor or Obligors named
below if any (the "Obligor" whether one or more than one), of any nature
whatsoever, including, without limitation, such indebtedness, liabilities and
obligations of the Grantor and of the Obligor, respectively, to the Bank which
are direct, indirect, contingent, primary, secondary, alone, jointly with
others, due, to become due, future advances, now existing, hereafter created,
principal, interest, expense payments, late charges, liquidation costs, and
attorney's fees and expenses (collectively, the "Obligations"), and (b) the
performance of all of the terms, conditions and provisions of this Security
Agreement and of any note, other security agreement, pledge agreement, guaranty
agreement, mortgage, deed of trust, loan agreement, hypothecation agreement,
subordination agreement, indemnity agreement, letter of credit application,
assignment, or any other document previously, simultaneously or hereafter
executed and delivered by the Obligor, by the Grantor and/or by any other
person, singly or jointly with another person or persons, evidencing, securing,
guarantying or in connection with any of the Obligations (collectively, the
"Loan Document"), the Grantor agrees (jointly and severally if more than one)
with the bank as follows:
1. COLLATERAL. The Grantor hereby grants to the Bank a security interest
in the following property of the Grantor:
[ ] A. INVENTORY. All of the Grantor's inventory both now owned and hereafter
acquired and as the same may now and hereafter from time to time be constituted,
together with all cash and non-cash proceeds and products thereof.
[ ] B. CONTRACT RIGHTS. All of the Grantor's contract rights, both now owned
and hereafter acquired, together with all cash and non-cash proceeds and
products thereof.
[ ] C. ACCOUNTS. All of the Grantor's accounts (including, without limitation,
all notes, notes receivable, drafts, acceptances and similar instruments and
documents) both now owned and hereafter acquired, together with (i) all cash and
non-cash proceeds thereof, and (ii) all returned, rejected or repossessed goods,
the sale or lease of which shall have given or shall give rise to an account and
all cash and non-cash proceeds and products of all such goods.
[ ] D. GENERAL INTANGIBLES. All of the Grantor's general intangibles (including,
without limitation, all things in action, contractual rights, goodwill, literary
rights, rights to performance, copyrights, trademarks and patents), both now
owned and hereafter acquired, together with all cash and non-cash proceeds and
products thereof.
[ ] E. CHATTEL PAPER. All of the Grantor's chattel paper, both now owned and
hereafter existing, acquired or created, together with (i) all moneys due and to
become due thereunder, (ii) all cash and non-cash proceeds thereof, and (iii)
all returned, rejected, or repossessed goods, the sale or lease of which shall
have given or shall give rise to chattel paper and all cash and non-cash
proceeds and products of all such goods. Additionally, the Grantor assigns and
grants to the Bank a security interest in all property and goods both now owned
and hereafter acquired by the Grantor which are sold, leased, secured, serve as
security for, are the subject of, or otherwise covered by, the Grantor's chattel
paper, together with all rights incident to such property and goods and all cash
and non-cash proceeds thereof.
[ ] F. ALL EQUIPMENT. All of the Grantor's equipment, both now owned and
hereafter acquired, together with (i) all additions, parts, fittings,
accessories, special tools, attachments and accessions now and hereafter affixed
thereto and/or used in connection therewith, (iii) all replacements thereof and
substitutions therefor, and (iii) all cash and non-cash proceeds and products
thereof.
[X] G. SPECIFIC EQUIPMENT. All of the Grantor's equipment described on Schedule
A attached hereto and made a part hereof by reference, together with (i) all
additions, parts, fittings, accessories, special tools, attachments and
accessions now and hereafter affixed thereto and/or used in connection
therewith, (ii) all replacements thereof and substitutions therefor, and (iii)
all cash and non-cash proceeds and products thereof.
[ ] H. MOTOR VEHICLES. Each of the Grantor's motor vehicles described on
Schedule A attached hereto and made a part hereof by reference, together with
(i) all additions, parts, fittings, accessories, special tools, attachments and
accessions now and hereafter affixed thereto and/or used in connection
therewith, and (ii) all cash and non-cash proceeds thereof.
[ ] I. OTHER. All of the Grantor's property (other than specific equipment and
motor vehicles) described on Schedule A attached hereto and made a part hereof
by reference, together with all cash and non-cash proceeds thereof.
The term "Collateral" as used herein means each and all of the items
of Collateral checked above and the term "proceeds" as used herein includes,
without limitation, the proceeds of all insurance policies covering all or any
part of such items of Collateral.
2. PAYMENT AND PERFORMANCE. The Grantor will pay the Obligations to be
paid by the Grantor as and when due and payable and will perform, comply with,
and observe the terms and conditions of the Loan Documents to be performed,
complied with and observed by the Grantor.
3. TITLE TO COLLATERAL. The Grantor represents and warrants that it is
the owner of the Collateral and has good and marketable title to the Collateral
free and clear of all liens, security interests and other encumbrances except
for those in favor of the Bank and those previously disclosed in writing to the
Bank.
4. FURTHER ASSURANCES. The Grantor will defend its title to the
Collateral against all persons and will, upon request of the Bank, (a) furnish
such further assurances of title as may be required by the Bank, and (b) deliver
and execute or cause to be delivered and executed, in form and content
satisfactory to the Bank, any financing, continuation, termination or security
interest filing statement, security agreement or other document as the Bank may
request in order to perfect, preserve, maintain or continue the perfection of
the Bank's security interest in the Collateral and/or its priority. The Grantor
will pay the costs of filing any financing, continuation, termination or
security interest filing statement as well as any recordation or transfer tax
required by law to be paid in connection with the filing or recording of any
such statement.
<PAGE> 8
5. Transfer and other Liens. The Grantor will not sell, lease, transfer,
exchange or otherwise dispose of the Collateral, or any part thereof, without
the prior written consent of the Bank, and will not permit any lien, security,
interest or other encumbrance to attach to the Collateral, or any part thereof,
other than those in favor of the Bank or those permitted by the Bank in writing,
except that the Grantor may, in the ordinary course of its business, and in the
absence of a default hereunder, collect its account and chattel paper and sell
its inventory.
6. Consents. Without notice to and further consent of the Grantor, without
in any way waiving any of the provisions of this Security Agreement and without
in any way releasing all or any part of the Obligations and/or of the
Collateral, the Grantor hereby consents (a) to any extension of time for
payment of any of the Obligations, (b) to any renewal, modification, waiver or
release of any of the Obligations and of any of the Loan Documents, (c) to the
addition to, or release of, the Obligor or of any other maker, accommodation
maker, endorser, guarantor, surety or indemnitor or any of the Obligations and
any of the Loan Documents, (d) to the addition to, or release of, all or any
part of the collateral and security for any of the Loan Documents and all or any
part of the Collateral hereunder, and (e) to any indulgence and/or waiver given
to the Obligor or to any other maker, accommodation maker, endorser, guarantor,
surety or indemnitor of any of the Obligations.
7. Financial Statements, Books and Records. The Grantor will, (a) at all
times maintain, in accordance with generally accepted accounting principles,
accurate and complete books and records pertaining to the operation, business
and financial condition of the Grantor and pertaining to the Collateral and any
contracts and collections relating to the Collateral, (b) furnish to the Bank
promptly upon request and in the form and content and at the intervals specified
by the Bank, such financial statements, reports, schedules and other information
with respect to the operation, business, affairs and financial condition of the
Grantor as the Bank may from time to time require, (c) at all reasonable times
and without hindrance and delay, permit the Bank or any person designated by the
Bank to enter any place of business of the Grantor or any other premises where
any books, records and other data concerning the Grantor and/or the Collateral
may be kept and to examine, audit, inspect and make extracts from, and
photocopies of, any such books, records and other data, (d) furnish to the Bank
promptly upon request and in the form and content specified by the Bank lists of
purchasers of inventory, aging of accounts, aggregate cost or wholesale market
value of inventory, schedules of equipment and other data concerning the
Collateral as the Bank may from time to time specify, and (e) mark its books and
records in a manner satisfactory to the Bank so that the Bank's rights in and to
the Collateral will be shown.
8. Place(s) of Business and Location of Collateral. The Grantor warrants
that the address of the Grantor's primary place of business and the address of
each other place of business of the Grantor are as specified below. Except for
mobile equipment and motor vehicles, the Collateral and all books and records
pertaining to the Collateral are and will be located at the Grantor's primary
place of business specified below or at any other address which may be specified
below. The Grantor will immediately advise the Bank in writing of the opening of
any new place of business or the closing of any of its existing places of
business, and of any change in the location of the places where the Collateral,
or any part thereof, or the books and records concerning the Collateral, or any
part thereof, are kept.
9. Care of Collateral. The Grantor will maintain the Collateral in good
condition and will not do or permit anything to be done to the Collateral that
may impair its value or that may violate the terms of any insurance covering the
Collateral or any part thereof. The Bank shall have no duty to, and the Grantor
hereby releases the Bank from all claims for loss or damage caused by the
failure to, collect or enforce any account, contract right or chattel paper or
to preserve rights against prior parties to the Collateral.
10. Insurance. The Grantor will insure such of the Collateral as specified
by the Bank against such casualties and risks in such form as may from time to
time be required by the Bank. The amount of insurance must be at least equal to
the lesser of the outstanding balance under the Loan Documents or the actual
value of the Collateral. All insurance proceeds shall be payable to the Bank and
all policies or certificates of insurance shall be furnished to the Bank. The
Grantor will pay all premiums due or to become due for such insurance and hereby
assigns to the Bank any returned or unearned premiums which may be due upon
cancellation of insurance coverage. The Bank is hereby irrevocably, (a)
appointed the Grantor's attorney-in-fact to endorse any draft or check which may
be payable to the Grantor in order to collect such returned or unearned premiums
or the proceeds of insurance, and (b) authorized to apply such insurance
proceeds in the same manner and order as the proceeds of sale or other
disposition of the Collateral are to be applied pursuant to paragraph 20 hereof,
but is under no obligation to, insure the Collateral at Grantor's expense. The
charge for insurance will be added to the debt secured hereby and will earn
interest at the same rate as the debt. The Bank has the option to either
reschedule the loan for the remaining term of the policy or for the remaining
term of the loan, thus increasing the monthly payment to incorporate the amount
of the insurance premium plus the finance charges on the premium, or require a
lump sum payment at the end of the loan term. Grantor agrees that the amount and
type of insurance purchased by Bank is within Bank's sole discretion.
11. Taxes. The Grantor will pay as and when due and payable all taxes,
levies, license fees, assessments and other impositions levied on the Collateral
or any part thereof or for its use and operation.
12. Equipment not Fixtures. The Grantor warrants that all equipment which
constitutes a part of the Collateral is personalty and is not and will not be
affixed to real estate in such manner as to become a fixture or part of such
real estate. If, in the opinion of the Bank, any such equipment is or may become
part of any real estate, the Grantor will furnish to the Bank a written waiver
by the record owner of such real estate of all interest in such equipment and a
written subordination to the Bank's security interest hereunder.
13. Specific Assignments. Promptly, upon request by the Bank, the Grantor
will execute and deliver to the Bank written assignments, endorsements and/or
schedules, in form and content satisfactory to the Bank, of specific contract
rights, chattel paper and accounts or groups of accounts, but the security
interest of the Bank hereunder shall not be limited in any way by such
assignments. Such accounts, chattel paper and contract rights are to secure
payment of the Obligations and performance of the Loan Documents and are not
sold to the Bank whether or not any assignment thereof, which is separate from
this Security Agreement, is in form absolute.
14. Delivery, etc. of Chattel Paper. The Grantor will promptly upon request
by the Bank, deliver, assign and endorse to the Bank all chattel paper and all
other documents held by the Grantor in connection therewith.
15. Government Contracts. If any account, chattel paper or contract rights
arises out of a contract or contracts with the United States of America or any
department, agency, or instrumentality thereof, the Grantor shall immediately
notify the Bank thereof in writing and execute any instruments or take any steps
required by the Bank in order that all moneys due or to become due under such
contract or contracts shall be assigned to the Bank and notice thereof given
under the Federal Assignment of Claims Act.
16. Collateral Account. If all or any part of the Collateral at any time
consists of contact rights, inventory, accounts or chattel paper, the Grantor
will, upon the request of the Bank at any time and from time to time, deposit or
cause to be deposited to a bank account designated by the Bank and from which
the Bank alone has power of access and withdrawal (the "Collateral Account") all
checks, drafts, cash and other remittances in payment or on account of payment
of such contract rights, inventory, accounts or chattel paper and the cash
proceeds of any returned goods, the sale or lease of which gave rise to an
account, contract right or chattel paper (all of the foregoing herein
collectively referred to as "items of payment"). The Grantor shall deposit such
items of payment for credit to the Collateral Account within two banking days of
the receipt thereof and in precisely the form received except for the
endorsement of the Grantor where necessary to permit the collection of such
items of payment, which endorsement the Grantor hereby agrees to make. Pending
such deposit, the Grantor will not commingle any such items of payment with any
of its other funds or property, but will hold them separate and apart. The Bank
will at least once a week apply the whole or any part of the collected funds
credited to the Collateral Account against the Obligations or credit such
collected funds to a banking account of the Grantor within the Bank, the order
and method of such application to be in the sole discretion of the Bank.
17. Rights of Bank and Duties of Grantor. If all or any part of the
Collateral at any time consists of contract rights, inventory, accounts or
chattel paper; (a) the Bank may at any time and from time to time, and the
Grantor hereby irrevocably appoints the Bank as its attorney-in-fact, with power
of substitution, in the name of the Bank or in the name of the Grantor or
otherwise, for the use and benefit of the Bank but at the cost and expense of
the Grantor and without notice to the Grantor, (i) notify the account debtors
obligated on any of the Collateral to make payments thereon directly to the
Bank, and to take control of the cash and non-cash proceeds of any such
Collateral, which right the Bank may exercise at any time whether or not the
Grantor is then in default hereunder or was theretofore making collections
thereon; (ii) charge to any banking account of the Grantor with the Bank any
item of payment credited to the Collateral Account which is dishonored by the
drawee or maker thereof; (iii) compromise, extend, or renew any of the
Collateral or deal with
<PAGE> 9
the same as it may deem advisable; (iv) release, make exchanges, substitutions,
or surrender, all or any part of the Collateral; (v) remove from the Grantor's
place of business all books, records, ledger sheets, correspondence, invoices
and documents, relating to or evidencing any of the Collateral or without cost
or expense to the Bank, make such use of the Grantor's place(s) of business as
may be reasonably necessary to administer, control and collect the collateral;
(vi) repair, alter or supply goods, if any, necessary to fulfill in whole or in
part the purchase order of any account debtor; (vii) demand, collect, receipt
for and give renewals, extensions, discharges and releases of any of the
Collateral; (viii) institute and prosecute legal and equitable proceedings to
enforce collection of, or realize upon, any of the Collateral; (ix) settle,
renew, extend, compromise, compound, exchange or adjust claims with respect to
any of the Collateral or any legal proceedings brought with respect thereto; (x)
endorse the name of the Grantor upon any items of payment relating to the
Collateral or upon any Proof of Claim in Bankruptcy against an account debtor;
and (xi) receive and open all mail addressed to the Grantor and, if a default
exists hereunder, notify the Post Office authorities to change the address for
the delivery of mail to the Grantor to such address as the Bank may designate;
and (b) the Grantor will (i) make no material change to the terms of the sale or
lease of inventory or of any contract right, account or chattel paper without
the prior written permission of the bank; (ii) on demand, make available in form
acceptable to the Bank shipping documents and delivery receipts evidencing the
shipment of goods which gave rise to the sale or lease of inventory, or of an
account, contract right or chattel paper, completion certificates or other proof
of the satisfactory performance of services which gave rise to the sale or lease
of inventory or of an account, contract right or chattel paper, copies of the
invoices arising out of the sale or lease of inventory or of a contract right or
for an account, and the Grantor's copy of any written contract or order from
which a sale or lease of inventory, an account, contract right or chattel paper
arose; and (iii) when requested, regularly advise the Bank whenever an account
debtor returns or refuses to retain any goods, the sale or lease of which gave
rise to an account or chattel paper, and of any delay in delivery or
performance, or claims made in regard to any sale or lease of inventory,
account, contract right or chattel paper, and will comply with any instructions
which the Bank may give regarding the sale or other disposition of such returns.
18. PERFORMANCE BY BANK. If the Grantor fails to perform, observe, or
comply with any of the conditions, terms or covenants contained in this Security
Agreement, the Bank, without notice to or demand upon the Grantor and without
waiving or releasing any of the Obligations or any default, may (but shall be
under no obligation to) at any time thereafter perform such conditions, terms or
covenants for the account and at the expense of the Grantor, and may enter upon
any premises of the Grantor for that purpose and take all such action thereon as
the Bank may consider necessary or appropriate for such purpose. All sums paid
or advanced by the Bank in connection with the foregoing and all costs and
expenses (including, without limitation, attorney's fees and expenses) incurred
in connection therewith (collectively, the "Expense Payments") together with
interest thereon at a per annum rate of interest which is equal to the then
highest rate of interest charged on the principal of any of the Obligations,
from the date of payment until repaid in full, shall be paid by the Grantor to
the Bank on demand and shall constitute and become a part of the Obligations
secured hereby.
19. DEFAULT. The occurrence of any one or more of the following events
shall constitute a default under this Security Agreement; (a) the failure of the
Grantor to perform, observe or comply with any of the provisions of this
Security Agreement; (b) the occurrence of a default under any of the Loan
Documents; (c) if any information contained in any financial statement,
application, schedule, report or any other document given by the Grantor, by the
Obligor, or by any other person in connection with the Obligations, with the
Collateral, or with any of the Loan Documents is not in all respects true and
accurate or if the Grantor, the Obligor or such other person omitted to state
any material fact or any fact necessary to make such information not misleading;
(d) the filing of any petition under the Bankruptcy Act or any similar Federal
or State statute by or against the Grantor; (e) an application for the
appointment of a receiver for, the making of a general assignment for the
benefit of creditors by, or the insolvency of, the Grantor; or (f) the
dissolution, merger, consolidation, or reorganization of the Grantor.
20. RIGHTS AND REMEDIES UPON DEFAULT. In the event of a default hereunder
(and in addition to all of its rights, powers and remedies under this Security
Agreement), the Bank shall have all of the rights and remedies of a secured
party under the Maryland Uniform Commercial Code and other applicable laws. The
Grantor, upon demand by the Bank, shall assemble the Collateral and make it
available to the Bank at a place designated by the Bank which is mutually
convenient to both parties. The Bank or its agents may enter upon the Grantor's
premises to take possession of the Collateral, to remove it, to render it
unusable or to sell or otherwise dispose of it.
Any written notice of the sale, disposition or other intended action by the
Bank with respect to the Collateral which is sent by regular mail, postage
prepaid, to the Grantor at the address of the Grantor's primary place of
business specified below, or such other address of the Grantor as may from time
to time be shown on the Bank's records, at least five (5) days prior to such
sale, disposition or other action, shall constitute reasonable notice to the
Grantor. The Grantor shall pay on demand all costs and expenses, including,
without limitation, attorney's fees and expenses, incurred by or on behalf of
the Bank (a) in enforcing the Obligations, and (b) in connection with the
taking, holding, preparing for sale or other disposition, selling, managing,
collecting or otherwise disposing of, the Collateral. All of such costs and
expenses (collectively, the "Liquidation Costs") together with interest thereon
at a per annum rate of interest which is equal to the then highest rate of
interest charged on the principal of any of the Obligations, from the date of
payment until repaid in full, shall be paid by the Grantor to the bank on demand
and shall constitute and become a part of the Obligations secured hereby. Any
proceeds of sale or other disposition of the Collateral will be applied by the
Bank to the payment of Liquidation Costs and Expense Payments, and any balance
of such proceeds (if any) will be applied by the Bank to the payment of the
remaining Obligations (whether then due or not), at such time or times and in
such order and manner of application as the Bank may from time to time in its
sole discretion determine.
21. REMEDIES CUMULATIVE. Each right, power and remedy of the Bank as
provided for in this Security Agreement or in the Loan Documents or now or
hereafter existing at law or in equity or by statute or otherwise shall be
cumulative and concurrent and shall be in addition to every other right, power
or remedy provided for in this Security Agreement or in the Loan Documents or
now or hereafter existing at law or in equity or by statute or otherwise, and
the exercise or beginning of the exercise by the Bank of any one or more of such
rights, powers or remedies shall not preclude the simultaneous or later exercise
by the Bank of any or all such other rights, powers or remedies.
22. WAIVER. No failure or delay by the Bank to insist upon the strict
performance of any term, condition, covenant or agreement of this Security
Agreement or of the Loan Documents, or to exercise any right, power or remedy
consequent upon a breach thereof, shall constitute a waiver of any such term,
condition, covenant or agreement or of any such breach, or preclude the Bank
from exercising any such right, power or remedy at any later time or times. By
accepting payment after the due date of any of the Obligations, the Bank shall
not be deemed to have waived the right either to require prompt payment when due
of all other Obligations, or to declare a default for failure to effect such
payment of any such other Obligations. The Grantor waives presentment, notice of
dishonor and notice of non-payment with respect to accounts, contract rights and
chattel paper.
23. MISCELLANEOUS. The paragraph headings of this Security Agreement are
for convenience only, and shall not limit or otherwise affect any of the terms
hereof. Neither this Security Agreement nor any term, condition, covenant or
agreement hereof may be changed, waived, discharged or terminated orally, but
only by an instrument in writing signed by the party against whom enforcement of
the change, waiver, discharge or termination is sought. In conjunction with the
sale, assignment or transfer of all or any part of the Obligations and of the
Loan Documents to any person or persons, the Bank may, without notice to or
consent of the Grantor, at any time and from time to time sell, assign and
transfer all or any part of this Security Agreement and the Collateral hereunder
and such purchaser, assignee and transferee shall have all of the rights,
remedies and benefits of the Bank hereunder, provided that the Bank shall
continue to have its rights, remedies and benefits hereunder as to so much of
the Obligations and Loan Documents that it has not sold, assigned or
transferred. This Security Agreement shall be governed by the laws of the State
of Maryland and shall be binding upon the personal representatives, successors
and assigns of the Grantor and shall inure to the benefit of the successors and
assigns of the Bank. As used herein, the singular number shall include the
plural, the plural the singular and the use of the masculine, feminine or neuter
gender shall include all genders, as the context may require, and the term
"person" shall include an individual, a corporation, an association, a
partnership, a trust and an organization. Unless varied by this Security
Agreement, all terms used herein which are defined by the Maryland Uniform
Commercial Code shall have the same meanings hereunder as assigned to them by
the Maryland Uniform Commercial Code. The term "Obligations" as used herein
shall not include any loan to a non-corporate person which is not a "commercial
loan" (as defined by Section 12.101(c) of the Commercial Law Article of the
Annotated Code of Maryland) in excess of (1) $75,000 if secured by "residential
real property" (as defined by Section 12.101(c) of The Commercial Law Article of
the Annotated Code of Maryland), or (2) $15,000 if not secured by residential
real property.
<PAGE> 10
The signature(s) and seal(s) of the Grantor(s) is/are subscribed to this
Security Agreement the day and year written above.
STEVEN MYERS & ASSOCIATES, INC.
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Grantor's name
By /s/ STEVEN S. MYERS (SEAL)
-------------------------
Signature and Title: President
By STEVEN S. MYERS (SEAL)
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Signature and Title: President
-------------------------------
Grantor's name
By (SEAL)
-------------------------
Signature and Title
By (SEAL)
-------------------------
Signature and Title
Address of Grantor's primary place
of business:
Steven Myers & Associates, Inc.
----------------------------------
1301 Dove Street, Suite 720
----------------------------------
Newport Beach, CA 92660
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Address(es) where Collateral is to Address(es) of other business
be located: locations of the Grantor:
(1) (1)
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- ------------------------------------- ----------------------------------
(2) (2)
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- ------------------------------------- ----------------------------------
(3) (3)
---------------------------------- -------------------------------
- ------------------------------------- ----------------------------------
If different from the Grantor, the Obligor(s) is/are:
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-----------------------------------------------------
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For MD use only.
20-05-2176 (4/94) NEW 837-19 (11/87) OLD
<PAGE> 1
EXHIBIT 10.9
PROMISSORY NOTE
DECEMBER 31, 1996
FOR VALUE RECEIVED, the undersigned Steven S. Myers, ("Debtor") HEREBY
PROMISES TO PAY to the order of SM&A ("Unsecured Party"), the principal sum of
Six Hundred Thirty Two Thousand Dollars and 00/100 ($632,000.00) including
interest as set forth below under the terms and conditions described herein.
1. INTEREST RATE: This Promissory Note will bear a simple interest rate of
7.3% per annum based on a 360-day calendar year, calculated monthly on the
unpaid principal balance. Interest is to accrue beginning December 31, 1996.
2. PAYMENT TERMS: Debtor shall pay the full principal balance and all
accrued interest no later than February 1, 1998.
3. PERIOD OF PROMISSORY NOTE: This Note is in effect and valid until all
accrued principal and interest has been paid to Unsecured Party.
4. PREPAYMENT OF PROMISSORY NOTE: This note may be paid in full or in part
at any time without any prepayment penalties incurred by the Debtor.
As attested by the signatures below, both parties agree to the terms and
conditions as set forth above.
SM&A, INC.
(DEBTOR) (UNSECURED PARTY)
By: By: SM&A
/s/ STEVEN S. MYERS /s/ RONALD A. HUNN
- ------------------------------- --------------------------------
Signature Signature
Name: Steven S. Myers Chief Financial Officer
------------------------- --------------------------------
Title
Date: 12/31/96 Date: 12/31/96
------------------------- --------------------------
<PAGE> 1
EXHIBIT 10.10
PROMISSORY NOTE
December 27, 1996
FOR VALUE RECEIVED, the undersigned Steven Myers & Associates, Inc.
(SM&A), a California corporation ("Debtor") HEREBY PROMISES TO PAY to the order
of Steven and Paula Myers ("Unsecured Party"), the principal sum of Six Hundred
Sixty Seven Thousand Dollars and 00/100 ($667,000.00) including interest as set
forth below under the terms and conditions described herein.
1. INTEREST RATE: This Promissory Note will bear a simple interest rate of
7.3% per annum based on a 360-day calendar year, calculated monthly on the
unpaid principal balance. Interest is to accrue beginning December 28, 1996.
2. PAYMENT TERMS: Debtor shall pay the full principal balance and all
accrued interest no later than January 31, 1998.
3. PERIOD OF PROMISSORY NOTE: This Note is in effect and valid until all
accrued principal and interest has been paid to Unsecured Party.
4. PREPAYMENT OF PROMISSORY NOTE: This note may be paid in full or in part
at any time without any prepayment penalties incurred by the Debtor.
As attested by the signatures below, both parties agree to the terms and
conditions as set forth above.
STEVEN MYERS & ASSOCIATES, INC.
(Debtor) (Unsecured Party)
By: By:
/s/ KENNETH W. COLBAUGH /s/ STEVEN MYERS
- ------------------------------- --------------------------------
Name: Kenneth W. Colbaugh Name: Steven Myers
Title: COO & Executive VP
Tax ID#: 33-0080929
Date: 12/27/96 /s/ PAULA K. MYERS
--------------------------------
Name: Paula K. Myers
Date: 12/27/96
<PAGE> 1
EXHIBIT 23.1
The Board of Directors
Steven Myers & Associates, Inc.:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
KPMG Peat Marwick LLP
Orange County, California
November 21, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 SEP-30-1997
<EXCHANGE-RATE> 1,000 1,000
<CASH> 1,927 478
<SECURITIES> 0 0
<RECEIVABLES> 3,664 6,606
<ALLOWANCES> 27 105
<INVENTORY> 0 0
<CURRENT-ASSETS> 5,795 7,375
<PP&E> 7,131 1,476
<DEPRECIATION> 1,262 1,068
<TOTAL-ASSETS> 11,820 7,923
<CURRENT-LIABILITIES> 6,074 8,495
<BONDS> 0 0
0 0
0 0
<COMMON> 5 5
<OTHER-SE> 750 (4,878)
<TOTAL-LIABILITY-AND-EQUITY> 11,820 7,923
<SALES> 0 0
<TOTAL-REVENUES> 25,699 26,639
<CGS> 0 0
<TOTAL-COSTS> 14,512 14,838
<OTHER-EXPENSES> 10,749 4,958
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (136) 149
<INCOME-PRETAX> 574 6,694
<INCOME-TAX> 9 100
<INCOME-CONTINUING> 565 6,594
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 565 6,594
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
