<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 12, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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BUTTERFIELD & BUTTERFIELD, AUCTIONEERS CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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CALIFORNIA 5999 94-1719097
(PRIOR TO REINCORPORATION) (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
DELAWARE CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
(FOLLOWING REINCORPORATION)
(STATE OR OTHER JURISDICTION OF
INCORPORATION
OR ORGANIZATION)
</TABLE>
220 SAN BRUNO AVENUE
SAN FRANCISCO, CA 94103
(415) 861-7500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
JOHN GALLO
PRESIDENT AND CHIEF EXECUTIVE OFFICER
BUTTERFIELD & BUTTERFIELD, AUCTIONEERS CORP.
220 SAN BRUNO AVENUE
SAN FRANCISCO, CA 94103
(415) 861-7500
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
COPIES TO:
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KARYN R. SMITH STEPHEN M. GRAHAM
ALEXIS RONDELL RHORER MICHAEL C. PIRAINO
ANGELIQUE C. TREMBLE NATHAN D. WEBB
COOLEY GODWARD LLP PERKINS COIE LLP
ONE MARITIME PLAZA, 20TH FLOOR 1201 THIRD AVENUE, 48TH FLOOR
SAN FRANCISCO, CALIFORNIA 94111-3580 SEATTLE, WASHINGTON 98101-3099
(415) 693-2000 (206) 583-8888
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] __________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] __________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration 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 PROPOSED MAXIMUM
TITLE OF SECURITIES AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED BE REGISTERED(1) PER SHARE(1) OFFERING PRICE(2) REGISTRATION FEE
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Common Stock, $.001 par value 1,725,000 shares $12.00 $20,700,000 $5,755
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(1) Includes 225,000 shares of common stock issuable upon exercise of the
Underwriters' over-allotment option.
(2) Estimated solely for the purpose of computing the amount of the registration
fee in accordance with Rule 457(a) under the Securities Act of 1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED FEBRUARY 12, 1999
1,500,000 SHARES
[BUTTERFIELD & BUTTERFIELD LOGO]
COMMON STOCK
Butterfield & Butterfield, Auctioneers Corp. is offering 1,500,000 shares.
This is our initial public offering and no public market currently exists for
our common stock. We estimate that the initial offering price to the public will
be between $10.00 and $12.00 per share.
We have applied to have our common stock listed on the Nasdaq National
Market under the symbol "BFLD."
INVESTING IN THE COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
------------------------------
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</TABLE>
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<CAPTION>
PER SHARE TOTAL
<S> <C> <C>
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Public offering price...................................... $ $
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Underwriting discount...................................... $ $
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Proceeds, before expenses, to Butterfields................. $ $
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY
BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
We have granted the underwriters the right to purchase up to 225,000
additional shares at the public offering price to cover over-allotments.
------------------------------
First Security Van Kasper expects to deliver the shares against payment in
San Francisco, California on , 1999.
FIRST SECURITY VAN KASPER
, 1999
<PAGE> 3
(INSIDE FRONT COVER)
Butterfield & Butterfield
Auctioneers and Appraisers since 1865
Bringing Buyers and Sellers Together
For Over 130 Years
right side of page:
American & California Paintings and Sculpture
American and European Prints
Antique Arms and Armor
Asian Works of Art
Autographs
Automobiles
Books, Manuscripts and Maps
Collectibles
Dolls, Toys and Trains
European and Old Master Paintings
Fine Musical Instruments
Furniture and Decorative Arts
Hollywood & Entertainment Memorabilia
Jewelry, Gemstones and Watches
Modern & Contemporary Paintings and Sculpture
Native American, Pre-Columbian and Tribal Art
Natural History
Photographs
Rugs and Carpets
Silver and Objects of Vertu
Sports Memorabilia
Stamps and Coins
Wine
left side of page:
Established in 1865, Butterfields began as a resource for Gold Rush-era
Californians. Today, Butterfields is the third largest auction company in the
United States, conducting more than 100 specialty auctions each year.
Butterfields is recognized both as an innovator and a leader in the auction
world. The company has conducted simultaneous auctions in multiple cities for
over ten years, and has been among the first of the traditional auction houses
to embrace emerging technologies. Butterfields' appraisal clinics can be viewed
throughout the nation on HGTV, and customers can access Butterfields'
catalogues and participate in auctions through the company's Web site at
www.butterfields.com. The firm is recognized internationally as the leader in
the arms and
<PAGE> 4
armor category, and was among the first to offer entertainment memorabilia and
natural history properties.
Across bottom of page:
Butterfield & Butterfield is our registered trademark and the Butterfield &
Butterfield logo is our trademark. All other trademarks or service marks
appearing in this prospectus are the property of their respective owners.
SAN FRANCISCO o LOS ANGELES o CHICAGO
Background graphic of one-quarter of an antique globe.
2
<PAGE> 5
[INSIDE COVER GATEFOLD]
Leadership
o Conducting more than 100 auctions annually
o Galleries in San Francisco, Los Angeles and the Chicago area. Representatives
in eight other U.S. cities, as well as London, Brussels and Munich
Innovation
o Simultaneous auctions in multiple cities providing broad exposure of property
to both buyers and sellers
o Co-founded the International Auctioneers Association (IAA), to form an
international database of buyers and sellers
o All catalogues fully illustrated online
o Completely digital in-house photography and catalogue department
o Extensive educational programs and appraisal clinics
Specialist Departments
o Professional expertise of more than 50 specialists
o Appraisers average 20 years in their fields
o Expertise in every major category of art and collectibles
Appraisals
o Complimentary walk-in fair market appraisal clinics
o Complimentary mail-in photo appraisals
o Complimentary private specialist appraisals
o Benefit appraisal clinics
o Insurance appraisals
Television
o Butterfields is the only auction house on Appraise It!, featured on the HGTV
Network
o Reaches nationwide audience of 50 million
Online Auctions
o Online absentee bidding
o Online auctions conducted through an agreement with Yahoo! Auctions
o Online live bidding available since February 1999
o Among the first auction companies to offer authenticated property warranties
for middle market items
Photograph of chest of drawers with following caption below:
Dorr Family Queen Anne japanned
flat-top highboy, Boston, circa 1730-50
Sold for $772,500 on November 4, 1997
Photograph of three rifles with following caption below:
3.
<PAGE> 6
Selection of Indian matchlock rifles
Sold on August 24, 1998 for
(left to right) $31,050, $12,650 and $167,500
Photograph of cup with following caption below:
Fine doucai enameled porcelain deep
cup, Kangxi mark and period
Sold for $37,375 on May 26, 1998
Photograph of painting with following caption below:
Guy Rose, On Point Lobos, oil on canvas, 24"x29"
Sold for $508,500, a new world record price for the artist,
on June 25, 1998
Photograph of earrings with following caption below:
Pair of sapphire, diamond,
platinum earrings
Sold for $14,950 on June 26, 1998
Screen shot of Butterfields' Yahoo! Auctions web page.
<PAGE> 7
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information and financial statements and notes thereto appearing elsewhere in
this prospectus. Except as otherwise specified, all information in this
prospectus reflects the Company's reincorporation in Delaware prior to the
completion of this offering and assumes no exercise of the underwriters'
over-allotment option.
This prospectus contains forward-looking statements. The outcome of the
events described in these forward-looking statements is subject to risks and
actual results could differ materially. The sections entitled "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business" contain a discussion of some of the factors that
could contribute to those differences.
BUTTERFIELDS
OUR BUSINESS
Established in 1865, we are the third largest auctioneer of fine and
decorative art and collectibles in the United States. We are recognized
throughout the industry for our ability to appraise and auction items ranging in
value from several hundred dollars to over $1 million in every major category of
art and collectibles, including paintings, furniture, jewelry, arms and armor,
rare books, fine wine and entertainment memorabilia. We conduct over 100
specialty and estate auctions annually, serving a network of over 300,000
domestic and international fine art dealers, galleries, museums, foundations and
private collectors.
We compete in the high end and middle market for fine and decorative art
and collectibles. Over the years, we have held auctions in which record prices
were established in various auction categories, including antique arms and armor
and furniture. Our reputation, broad geographic reach and full service
capabilities provide us with a significant competitive advantage in the auction
market for middle market properties. We are also able to provide our customers
with a full range of services, including the expertise provided by our more than
50 specialists, who are able to appraise and market every major category of art
and collectibles. Unlike most auction companies, including Christie's
International plc and Sotheby's Holdings, Inc., our two largest competitors, we
are able to process the entire contents of an estate, rather than only select
items.
We have introduced a number of innovations designed to broaden our customer
base and increase the bidding activity at our auctions. Since 1988, we have
regularly used video conferencing to conduct simultaneous auctions in multiple
cities across the United States. In 1993, we co-founded the International
Association of Auctioneers, a consortium of six leading regional auction houses
in Europe, Australia and the United States that provides member firms with
access to a database of over 300,000 international buyers. We recently entered
into arrangements with eBay Inc., Yahoo! Inc. and Zing Network, Inc. to increase
our ability to conduct auctions, deliver services and execute marketing
campaigns on the Internet. We began conducting cyber auctions in January 1999
and we intend to offer real-time access to our live auctions over the Internet
in February 1999.
OUR OPPORTUNITY
We believe that our reputation, broad geographic reach and full service
capabilities will allow us to take advantage of growth opportunities within the
auction market for middle market properties, items generally ranging in value
from $300 to $10,000. Although numerous regional auction companies focus on
middle market properties, most specialize in a single or limited number of
auction categories and many lack the access to outside capital required to
significantly grow their operations. We believe that our established name and
long-standing reputation will enable us to have an immediate presence as we
enter new geographic markets. Toward this end, in June 1998, we acquired
Dunnings, a prominent regional auction company founded in 1896 in the Chicago
area.
We believe that auctioning middle market properties over the Internet
represents a significant growth opportunity for us. With the dramatic growth of
the Internet, many online auction companies have emerged, several of which have
announced intentions to expand into sales of middle market fine and decorative
art and collectibles. We believe that our ability to authenticate and evaluate
every major category of art and collectibles, as well as our ability to provide
warranties to buyers, will give us a significant competitive advantage in
auctioning higher priced and middle market properties over the Internet. We
further believe that our established name and long-standing reputation will
enable us to quickly establish an online presence and that our existing dealer
network will provide us with high quality properties for our online auctions.
3
<PAGE> 8
OUR STRATEGY
Our objective is to leverage our reputation, broad geographic reach and
full service capabilities to become recognized as the leading auctioneer of
middle market properties. To achieve this objective, we intend to further expand
geographically, increase our online auction presence, further integrate the
Internet into our existing operations and increase our auction property
categories.
THE OFFERING
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Common Stock offered......................... 1,500,000 shares
Common Stock to be outstanding after this 6,252,364 shares(1)
offering...................................
Use of proceeds.............................. To fund S corporation distributions to
stockholders, and for ongoing expansion,
working capital and general corporate
purposes
Proposed Nasdaq National Market Symbol....... BFLD
</TABLE>
------------------------
Our company was incorporated in California in July 1970 and intends to
reincorporate in Delaware prior to the completion of this offering. Prior to
1970, we operated as a family-owned business. References in the prospectus to
"Butterfields," "we," "our," "us" and the "Company" refer to Butterfield &
Butterfield, Auctioneers Corp., a California corporation, and its subsidiary.
Our executive offices are located at 220 San Bruno Avenue, San Francisco,
California 94103 and our telephone number is (415) 861-7500. Our Web site is
located at www.butterfields.com. Information contained on our Web site does not
constitute part of this prospectus.
4
<PAGE> 9
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
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1996 1997 1997 1998
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CONSOLIDATED STATEMENTS OF INCOME DATA(2):
Revenues............................................ $17,068 $20,271 $13,555 $13,382
Expenses............................................ 14,627 16,378 11,349 12,562
------- ------- ------- -------
Income from operations.............................. 2,441 3,893 2,206 820
Other income, net................................... 192 328 247 224
------- ------- ------- -------
Income before income taxes.......................... 2,633 4,221 2,453 1,044
Pro forma provision for income taxes(3)............. (1,053) (1,689) (981) (418)
------- ------- ------- -------
Pro forma net income(3)............................. $ 1,580 $ 2,532 $ 1,472 $ 626
======= ======= ======= =======
Pro forma net income per share(3)(4)................ $ 0.49 $ 0.12
======= =======
Weighted average shares used in computing pro forma
net income per share(4)........................... 5,123 5,123
======= =======
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<CAPTION>
AS OF SEPTEMBER 30, 1998
----------------------------
PRO FORMA AS
ACTUAL ADJUSTED(5)
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CONSOLIDATED BALANCE SHEET DATA(2):
Working capital............................................. $ 1,336 $12,891
Total assets................................................ 14,529 26,202
Long-term debt, net of current portion...................... 820 820
Total stockholders' equity.................................. 4,840 16,513
</TABLE>
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(1) Excludes 914,841 shares of common stock reserved for issuance pursuant to
our 1999 Equity Incentive Plan.
(2) The financial statements of our company and our subsidiary, Butterfield's
Credit Corporation, Inc. ("BCCI"), were previously presented on a combined
basis. Immediately prior to the completion of this offering, the
shareholders of BCCI will contribute their shares of BCCI stock to us. The
previously issued combined results are presented as consolidated.
(3) Assuming a combined federal and state tax rate of 40%, which we believe
approximates the statutory tax rates that would have applied if we had been
taxed as a C corporation during those periods. In connection with this
offering, our S corporation status will be terminated and we will become
subject to federal and state income taxes.
(4) Reflects the sale of 370,593 shares of stock, as of January 1, 1997,
required to fund $3.6 million of S corporation distributions through
September 30, 1998. See Note 1 of Notes to Consolidated Financial Statements
for an explanation of the method employed to determine the number of shares
used to compute per share amounts.
(5) Gives effect to (i) $1.2 million of S corporation distributions made
subsequent to September 30, 1998 and (ii) $2.4 million of previously
undistributed accumulated S corporation earnings to be distributed prior to
the completion of the offering, as if the distributions had occurred on
September 30, 1998. Total distributions subsequent to September 30, 1998 are
expected to be approximately $6.3 million. Reflects application of the
estimated net proceeds from the sale of the 1,500,000 shares of common stock
offered in this offering, after deducting the estimated underwriting
discount and estimated offering expenses. See "Use of Proceeds."
5
<PAGE> 10
RISK FACTORS
This offering involves a high degree of risk. You should carefully consider
the risks described below in addition to the other information in this
prospectus before deciding to invest in shares of our common stock.
OUR SUCCESS WILL DEPEND ON OUR ABILITY TO GROW.
To capitalize on the opportunities that exist in the business of auctioning
fine and decorative art and collectibles, we must continue to grow. We intend to
grow by increasing our customer base and increasing the number and size of our
auctions. In order to accomplish these objectives, we will have to do one or
more of the following:
- expand into geographic regions unserved or underserved by us by growing
internally or acquiring auction companies, with an initial focus on the
midwestern United States;
- conduct auctions and deliver services on the Internet;
- expand our marketing programs by, among other things, using the Internet;
- expand and enhance our existing services; and
- acquire auction companies that auction property in categories that we
have not traditionally auctioned.
We may be unable to complete any of the above activities successfully.
OUR GROWTH WILL DEPEND ON OUR ABILITY TO CONDUCT BUSINESS ON THE INTERNET.
Our strategy for growth includes conducting auctions and delivering
services on the Internet. The auction of goods on the Internet, particularly
fine and decorative art, is a new and unproven market. Until recently, we
exclusively operated on a business model that attracted sellers and buyers
through traditional means of commerce. To achieve growth through the Internet,
we must successfully integrate this new medium into our current operations and
then convince existing and potential buyers and sellers to accept the Internet
as a medium through which they can participate in the auction of fine and
decorative art and collectibles. Rapid growth in the use of and interest in the
Internet is a recent development, and this use and interest may not continue to
develop. Even if it does, we may face increased competition from other companies
currently using the Internet to facilitate the sale of property or companies
that decide to use it in that manner in the future. Our ability to grow will be
limited if we are unable to successfully conduct auctions and deliver services
on the Internet.
THERE ARE MANY RISKS ASSOCIATED WITH OUR RECENT AND POTENTIAL ACQUISITIONS.
As part of our growth strategy, in June 1998, we acquired Dunnings Auction
Service, Inc. ("Dunnings"), a prominent auction company located in the Chicago
area. The acquisition of Dunnings allowed us to establish a presence in the
midwestern United States, a region in which we previously conducted minimal
activity. If we are presented with the opportunity, we may in the future acquire
other companies with businesses complementary to ours.
Acquisitions involve many risks and challenges that we might not
successfully overcome. These risks include the following:
- diversion of management's attention from other business concerns;
- increased fixed costs, which could cause profits to decrease;
- disruption of our ongoing business and operations, which could, among
other things, impair our reputation and our relationships with customers
and employees and potentially cause the loss of our own key employees or
those of an acquired company;
- integration of an acquired company's personnel and operations with our
personnel and operations;
- maintenance of our standards, controls, procedures and policies; and
- entry into new geographic markets or auction property categories in which
we have limited experience.
6
<PAGE> 11
We have only made two acquisitions in the last seven years and we therefore
have limited experience with completing and integrating acquisitions. In
addition, we incurred substantial costs when we acquired Dunnings, and we would
expect to incur substantial costs in connection with any future acquisitions. We
may be unable to successfully integrate any business or personnel that we might
acquire in the future. Future acquisitions also could result in the following:
- negative impact on earnings;
- issuances of equity securities that may dilute your interest in our
company;
- our taking on additional debt;
- our becoming responsible for significant liabilities of companies we
acquire; or
- large one-time write-offs and amortization expenses related to goodwill
and other intangible assets.
We currently do not have any agreements, nor are we conducting
negotiations, with respect to any acquisition. Nonetheless, we continually
evaluate acquisition opportunities. We may be unable to successfully identify
suitable acquisition candidates or successfully negotiate or finance any future
acquisition transactions.
WE MAY EXPERIENCE LOSSES IN THE FUTURE.
Although historically we have operated our business at a profit, our past
performance may not be indicative of our future results. Our future operating
results will depend on many factors, including the following:
- general economic conditions;
- the availability of auction properties;
- the costs associated with and the success of any current or future
acquisitions;
- the costs associated with and the success of our efforts to conduct
auctions and deliver services on the Internet;
- consumer spending habits;
- changes in competitive conditions; and
- conditions in the market for fine and decorative art and collectibles.
Any one of these factors could cause our operating results to vary
significantly in the future. We plan our operating expenditures based on
anticipated revenues. As a result of the uncertainties associated with the
factors listed above, we may be unable to accurately forecast our revenues.
Because we have many fixed operating expenses, if revenues in a particular
period do not meet expectations, our operating results may be adversely
affected.
WE MAY BE UNABLE TO MANAGE OUR GROWTH.
As we add marketing, sales and other personnel, expand our capability to
conduct auctions and deliver services on the Internet, establish additional
offices, and expand and enhance our services, we expect to undergo significant
growth in all areas of operation. To the extent our future growth is significant
it may strain our management, operational, financial and other resources. To
manage our expected growth we must do the following:
- upgrade or replace existing management, operational and financial
systems;
- train, manage and motivate a growing employee base;
- hire additional finance, administrative and operations personnel; and
- hire additional fine art and other specialists and appraisers.
7
<PAGE> 12
We may not complete in a timely manner the improvements to our systems,
procedures and controls necessary to support our future operations. In addition,
we may be unable to attract or retain required personnel, and our management may
be unable to develop the additional expertise required to, among other things,
conduct auctions, deliver services and execute marketing campaigns on the
Internet.
OUR SALES ARE DEPENDENT ON DISCRETIONARY CONSUMER SPENDING AND OTHER MARKET
CONDITIONS.
Sales of fine and decorative art and collectibles are dependent on
discretionary consumer spending and will be affected by general market
conditions. Many factors affect discretionary consumer spending, including
employment levels, business conditions, interest rates, inflation and tax rates.
Spending on the types of luxury items that we typically auction are impacted by
these factors more than sales of consumer products in general. A decline in
consumer spending could adversely affect our business.
Market conditions impact the dollar volume spent on the types of luxury
items we auction. Some of the market conditions that could cause the dollar
volume spent in our auctions to decrease include the following:
- fewer works of art offered for sale at auction;
- decline in the prices buyers are willing to pay; and
- shifts in consumer trends.
As buyers' tastes change and economic conditions fluctuate, the supply,
demand and dollar volume of fine and decorative art and collectibles available
to be sold at auction could decrease.
OUR BUSINESS IS SEASONAL AND OUR QUARTERLY OPERATING RESULTS ARE LIKELY TO
FLUCTUATE.
Our operating results have varied from quarter to quarter in the past. One
of the reasons for this variation is the seasonality that results from
traditional fall and spring auction seasons. Typically, we incur losses in the
first and third quarters and experience peaks in our auction revenues and
operating income in the second and fourth quarters of each year. We expect the
fluctuations in our quarterly results to continue in the future as a result of
seasonality and the other factors discussed above that could affect our ability
to sustain profitability. See "Risk Factors--We May Experience Losses in the
Future" and "--Our Sales Are Dependent on Discretionary Consumer Spending and
Other Market Conditions." The following factors also will affect our quarterly
results:
- the timing of our auctions in comparison to our competitors' auctions;
- the popularity and availability of certain categories of art and
collectibles; and
- the unpredictability of our ability to attract large collections and
estates.
Quarterly fluctuations and seasonality make it difficult to forecast our
revenues and operating results. We expect that our quarterly revenues, expenses
and operating results will vary significantly in the future. We believe that
period-to-period comparisons of our results are not necessarily indicative of
future performance. It is likely that in some future quarters or years our
operating results will fall below the expectations of securities analysts or
investors, which could adversely affect the trading price of our common stock.
WE MAY BE UNABLE TO ACQUIRE HIGH QUALITY AUCTION PROPERTY ON A CONSISTENT BASIS.
Our future success will depend in large part on our ability to maintain an
adequate inventory of high quality auction property, particularly fine and
decorative art and collectibles. The number of pieces available for auction is
limited, and we compete intensely with other auction companies and art dealers
for the acquisition of high quality auction properties. We rely on our highly
trained staff to establish and maintain relationships with the primary sources
of auction property, including fine art dealers, fiduciaries of estates, museums
and private collectors. Our ability to maintain a sufficient inventory of high
quality auction properties also will depend on the ongoing satisfaction of both
sellers and buyers with our services.
8
<PAGE> 13
CAPACITY CONSTRAINTS COULD ADVERSELY AFFECT OUR INTERNET BUSINESS.
We may generate a high volume of traffic and transactions on our Web site
if we successfully implement our Internet strategy. We currently are expanding
and upgrading our systems in anticipation of increased traffic on our Web site
and increased numbers of participants in our Internet auctions. Any substantial
increase above the expected traffic volume and participant numbers will require
us to further expand and upgrade our technology, transaction processing systems
and network infrastructure. We may be unable to accurately project the rate or
timing of any increases or to expand and upgrade our systems and infrastructure
to accommodate any increases in a timely manner. The satisfactory performance,
reliability and availability of our Web site, processing systems and network
infrastructure will be critical to our ability to attract and serve the large
numbers of buyers and sellers that we expect will participate in our auctions
and utilize our services on the Internet.
We depend on third parties to provide us with Internet capacity and other
services. One or more of our third-party providers may fail to provide us with
the capacity or other services we require. The failure of any of these
third-party systems or any interruption of the services that these third parties
provide to us could result in the interruption of our Internet auctions or other
online services. Any disruption that results in the unavailability of our
services or reduced customer access to our Web site would diminish the
attractiveness of our Internet auctions or other online services.
ONLINE COMMERCE INVOLVES MANY RISKS.
Our future success will depend in part on the maintenance of the Internet
infrastructure, such as a reliable network backbone that provides adequate
speed, data capacity and security. Our success also will depend on the timely
development of products such as high speed modems that enable reliable Internet
access and services. If the Internet continues to experience significant growth
in the number of users, frequency of use and amount of data transmitted, the
Internet infrastructure may be unable to support the demands placed on it and
the performance or reliability of the Internet may be adversely affected. In
addition, the Internet could lose its commercial viability as a form of media
due to delays in the development or adoption of new standards, security measures
and ways to process increased levels of Internet activity. The infrastructure or
complementary products and services necessary to establish and maintain the
Internet as a viable commercial medium may not be developed. Even if they are
developed, the Internet may not become a viable commercial medium for us or our
buyers and sellers.
Concerns over the security of transactions conducted on the Internet and
other online services and the privacy of users also may inhibit the growth of
the Internet and other online services as a means of conducting commercial
transactions. As we expand our electronic commerce services, we will rely on
encryption and authentication technology licensed from third parties in an
effort to secure transmission of confidential information, such as customer
credit card numbers. Advances in computer capabilities, new discoveries in the
field of cryptography or other events or developments may result in a compromise
of the methods we use to protect customer transaction data. We may need to spend
significant funds or other resources to protect against the threat of security
breaches or to address problems caused by breaches. Although we intend to
implement industry-standard security measures, these measures may not be
effective. If our activities or those of our business partners involve the
storage and transmission of proprietary information, such as credit card
numbers, security breaches could damage our reputation and expose us to a risk
of loss or litigation.
Despite the implementation of security measures, our networks and those of
our business partners may be vulnerable to unauthorized access, computer viruses
and other disruptions. Anyone who is able to avoid our security measures or
those of our business partners could misappropriate our proprietary information
or cause interruptions in our Internet operations. Internet and online service
providers have in the past experienced, and may in the future experience,
interruptions in service as a result of the accidental or intentional actions of
Internet users, current and former employees or others.
9
<PAGE> 14
OUR BUSINESS IS SUBJECT TO RISKS ASSOCIATED WITH PRICE GUARANTEES, ADVANCES AND
WARRANTIES.
We generally offer our services to sellers on a straight commission basis.
In special circumstances, we may guarantee a seller a minimum price for the sale
of items or may advance funds to a seller. For all items purchased at auction,
we warrant free and clear title, as well as the provenance (or origin) and
authenticity of the property.
Price Guarantees. From time to time we give price guarantees to sellers. In
these instances, a seller receives the guaranteed amount from us following the
auction, regardless of the actual proceeds we receive from the auction. If the
auction proceeds are less than the amount guaranteed, we will incur a loss. In
1996, we lost a total of $190,000 due to guarantees, and in 1997, we lost a
total of $90,000 due to guarantees. We did not experience a loss due to
guarantees in the nine months ended September 30, 1998. A significant increase
in our losses from guaranteeing prices for properties we auction could have an
adverse effect on our business.
Cash Advances. In certain situations we will advance funds to a seller
based on the estimated value of the property consigned. We secure advances with
the property to be auctioned. We advance funds only after we have taken physical
possession of the property to be auctioned. If we do not receive sufficient
proceeds from the auction to cover the amount of the advance, plus accrued
interest, the seller is required to repay the difference. If we are unable to
recover this difference, we incur a loss. We did not experience any losses from
advances in 1996. Total losses from advances were $41,000 in 1997 and were
$10,000 in the nine months ended September 30, 1998. Total advances outstanding
as of September 30, 1998 were $2.4 million. A significant increase in our losses
from advancing funds to sellers could adversely affect our business.
Warranties. We warrant the title, provenance and authenticity of each item
sold at auction. If the original buyer notifies us in writing within six months
of the date of sale of any property that any of these characteristics is in
doubt, we require that the buyer substantiate his or her claim in writing with
written opinions from two experts. If we cannot substantiate the questioned
characteristics, the buyer may rescind his or her purchase and we will refund
the price paid at auction to the buyer. When a purchase is rescinded, the seller
is required to refund the hammer less sellers' commissions and other sellers'
fees. Although rescissions of sales have not had an adverse effect on our net
income in the past, a significant increase in rescissions in the future could
adversely affect our operating results.
OUR BUSINESS IS INTENSELY COMPETITIVE.
We compete directly with international and regional auction companies and
indirectly with dealers. Our competitors include the two largest international
auction companies, Sotheby's Holdings, Inc. and Christie's International plc, as
well as many regional auction companies. Sotheby's and Christie's have
significantly greater name recognition and financial and marketing resources
than we do and each had total auction sales (hammer plus buyers' premiums) of
approximately $2 billion in 1997. To the extent either of these auction
companies increases its focus on middle market properties, our business could be
adversely affected. In addition, any of the hundreds of regional competitors, as
well as competitors of which we currently are not aware, could expand into
geographic markets or the Internet auction market before we are able to
successfully execute our strategies in these areas.
Many factors influence a seller's or buyer's decision to work with a
particular auction company or dealer. These factors include the following:
- prior relationships;
- reputation and historic level of achievement in attaining high sale
prices in an item's specialized category;
- the level of expertise in general with respect to a specialized product
category;
- commission levels offered and buyers' premiums charged;
10
<PAGE> 15
- ability to satisfy the expectations of the sellers;
- availability and breadth of related services offered, such as appraisal
services and short-term financing; and
- style and extent of pre-sale marketing.
We may be unable to compete successfully with our current and future
competitors' property and service offerings.
As part of our growth strategy, we intend to expand our operations into
underserved geographic markets, however existing or new competitors may enter
these markets and establish successful operations before we do. Moreover, as we
expand our Internet operations, we will face new and often unfamiliar
competitors, as well as traditional auction companies. For example, Sotheby's
recently announced that it will begin conducting auctions online to sell art,
jewelry and collectibles. Few barriers to entry exist for conducting auctions
online and other traditional auction companies could easily and quickly do the
same.
WE ARE DEPENDENT ON OUR MANAGEMENT AND KEY PERSONNEL.
Due to the specialized nature of our business, we need to continue to
attract, retain, manage and motivate skilled employees, particularly specialists
and senior management. There is significant competition for employees with the
skills required to perform the services we offer. In particular, qualified
specialists are in great demand by other auction companies. Factors that will
affect our ability to attract and retain qualified employees include the
continued supply of high quality properties, compensation and other incentives
and the level of internal support we provide. If we do not continue to attract
and retain these employees, we may be unable to acquire auction property or
attract buyers in sufficient numbers in the future.
Our success also will depend to a significant degree on sellers'
willingness to consign property for sale at our auctions. A seller's willingness
to consign property often depends in large part on the relationships that the
seller has established with certain of our employees, particularly our
specialists. We may have to allocate significant staff resources to redevelop
relationships if any specialist leaves our company, and despite such efforts, we
may be unsuccessful in redeveloping those relationships. In addition, the
departure of one of our specialists to work for one of our competitors could
result in sellers consigning property with that competitor.
Our future performance and development also will continue to depend largely
on the efforts and abilities of our senior management team. We typically do not
enter into employment or non-competition agreements with our employees. The loss
of the services of a group of these individuals, especially to any existing or
future competitors, would have an adverse effect on our business.
CHANGES IN GOVERNMENT REGULATION COULD ADVERSELY IMPACT OUR BUSINESS.
Due to the increasing popularity and use of the Internet and online
services, laws and regulations may be adopted with respect to the Internet or
online services covering issues such as user privacy, pricing, taxation,
distribution and the characteristics and quality of products and services.
Regulations like these could limit growth in use of the Internet generally and
decrease the acceptance of the Internet as a commercial medium. Our Internet
operations also may be subject to other federal, state, local or foreign laws,
regulations and policies, either now existing or that may be adopted in the
future. These laws or regulations could subject us to significant liability,
significantly limit growth in Internet usage, prevent us from offering certain
Internet products or services or otherwise have an adverse effect on our
business.
Regulation of the auction business in general varies from jurisdiction to
jurisdiction. Numerous states, including the state of California (in which our
headquarters are located), have regulations regarding the manner in which
auctions may be conducted and the liability of auctioneers for how they conduct
auctions. In addition, we are required to obtain a license in various
jurisdictions with respect to some of the properties we sell at auction.
Historically, neither these regulations nor the licensure requirements have
adversely affected our business or operations, however, changes in the
regulations or licensure requirements could increase the complexity and costs of
conducting auctions and thereby decrease our ability to attract sellers and
buyers.
11
<PAGE> 16
OUR BUSINESS COULD BE ADVERSELY IMPACTED BY YEAR 2000 COMPLIANCE RISKS.
The Year 2000 issue is the result of computer programs written using two
digits rather than four to define the applicable year. Computer programs that
have this date-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices or engage
in similar normal business activities.
We are heavily dependent upon the proper functioning of our own computer
and data-dependent systems. This includes, but is not limited to, our systems in
information, business, finance, operations, administration and service. Any
failure or malfunctioning on the part of these or other systems could adversely
affect our business in ways that we currently do not know and cannot discern,
quantify or otherwise anticipate.
We have begun to implement a Year 2000 compliance project consisting of
three phases. In the first phase, we tested all computer applications that are
critical to our business cycle. The second phase involves testing non-critical
computer applications and hardware. During the third phase, we will attempt to
identify our vendors whose services may be impacted by the Year 2000 issue. We
are conducting each phase in parallel.
We may be unable to implement the upgrades necessary to resolve any
significant problems we discover in our testing efforts. Even if we do make
these upgrades, they may not be effective in addressing the problems identified.
If required upgrades are not completed in a timely manner or are not successful,
our business could be adversely affected.
We currently have only limited information on Year 2000 compliance by our
key vendors. Our key vendors' operations could be adversely affected if they do
not successfully and timely achieve Year 2000 compliance. If our key vendors
experience Year 2000 compliance issues, then our business could be adversely
affected.
We cannot guarantee that our plan will adequately address the Year 2000
issue in a timely manner or that we will be able to upgrade any or all of our
major systems in accordance with our plan. In addition, we cannot assure that
any upgrades will effectively address the Year 2000 issue. If we do not complete
required upgrades on time, or if they are not successful, we may be unable to
conduct our business, which would have an adverse effect on our business.
Furthermore, we cannot guarantee that other companies will make necessary,
timely and successful conversions to their systems on which our systems depend.
Although we intend to, we have not yet established a contingency plan detailing
actions that will be taken in the event that the execution of our Year 2000 plan
is not successfully completed on a timely basis.
WE ARE CONTROLLED BY CERTAIN STOCKHOLDERS AND MANAGEMENT.
Following the closing of this offering, three stockholders, all of whom are
Board members and two of whom are officers of the Company, will beneficially own
a total of approximately 76.0% of our outstanding common stock (73.4% if the
underwriters' over-allotment option is exercised in full). As a result, these
stockholders, acting together, will be able to control all matters requiring
approval of our stockholders and thereby control our management and affairs.
Matters that typically require stockholder approval include the following:
- election and removal of directors;
- merger or consolidation of our company; and
- sale of all or substantially all of our assets.
This concentration of ownership could delay, defer or prevent acts that
would result in a change of control, which in turn could reduce the market price
of our common stock.
12
<PAGE> 17
OUR PRIOR S CORPORATION STATUS COULD RESULT IN FUTURE TAX LIABILITY.
Since November 1989, we have been an S corporation for federal income tax
purposes. Unlike a C corporation, an S corporation generally is not subject to
income tax at the corporate level. We intend to terminate our status as an S
corporation and become a C corporation as of a date shortly before completion of
this offering. If S corporation status were denied for any period prior to this
termination by reason of a failure to satisfy the S corporation requirements of
the Internal Revenue Code of 1986, as amended, we would be subject to income tax
as a C corporation for those periods.
MANAGEMENT WILL HAVE BROAD DISCRETION OVER THE ALLOCATION OF PROCEEDS FROM THIS
OFFERING.
We plan to use the net proceeds of this offering for continued expansion
activities and general corporate purposes. As part of our expansion efforts, we
intend to use approximately $800,000 to remodel a gallery that we recently
purchased in Chicago, Illinois. In addition, we intend to use some of the
proceeds from this offering to make distributions in a total amount of $5.1
million to the Company's existing stockholders. These distributions will be
distributions of previously undistributed accumulated S corporation retained
earnings. Management will have broad discretion in using the remaining proceeds.
Pending any specific needs, we expect to invest the net proceeds in short-term,
investment-grade obligations for an indefinite period of time. We cannot
guarantee that any invested proceeds will yield a significant return.
THERE HAS NEVER BEEN A PUBLIC MARKET FOR OUR COMMON STOCK AND OUR STOCK PRICE
MAY BE VOLATILE.
Prior to this offering, there has not been a public market for our common
stock. We cannot predict the extent to which a trading market will develop or
how liquid that market might become. The initial public offering price of our
common stock will be determined through negotiations between us and the
representative of the underwriters, and may not be indicative of prices that
will prevail in the trading market. You should read the "Underwriting" section
for a more complete discussion of the factors to be considered in determining
the initial public offering price of our common stock.
You may be unable to resell your shares at or above the initial public
offering price due to a number of factors, including:
- actual or anticipated fluctuations in our operating results;
- changes in earnings or other estimates made by securities analysts;
- our ability to successfully implement our strategy; and
- changes in business conditions affecting us, our customers and our
competitors.
In addition, the stock market in general has experienced extreme volatility
that has often been unrelated to the operating performance of particular
companies. These broad market fluctuations may adversely affect the trading
price of our common stock. Periods of volatility in the market price of a
company's securities often generate securities class action claims by
stockholders. Any such litigation against us could result in substantial costs
and loss of resources.
YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION IN THE NET TANGIBLE BOOK
VALUE OF THE STOCK YOU PURCHASE.
The assumed initial offering price is substantially higher than the net
tangible book value of $2.11 per share that our outstanding common stock will
have immediately after this offering. Accordingly, if you purchase shares, you
will incur immediate and substantial dilution of approximately $8.89 in the net
tangible book value per share from the price you paid.
A SIGNIFICANT NUMBER OF SHARES ARE ELIGIBLE FOR SALE AND THEIR SALE COULD
DEPRESS OUR STOCK PRICE.
After this offering, we will have outstanding 6,252,364 shares of common
stock. The federal securities laws impose certain restrictions on the ability of
stockholders to resell their shares. In addition, our existing
13
<PAGE> 18
stockholders have agreed not to sell their shares for a period of 180 days after
the date of this prospectus, without the prior written consent of First Security
Van Kasper. Upon expiration of the 180 day lock-up period, all of the 4,752,364
shares of our common stock held by existing stockholders will become available
for sale in the public market (subject to certain volume restrictions imposed by
the federal securities laws).
SOME ANTI-TAKEOVER PROVISIONS OF OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY
AFFECT THE PRICE OF OUR COMMON STOCK.
Certain provisions of our charter documents and Delaware law may make it
more difficult for a third party to acquire control of us, even if a change of
control would be beneficial to stockholders. Our Board can issue up to 5,000,000
shares of preferred stock without stockholder approval. The issuance of
preferred stock could make it more difficult for a third party to acquire our
company. These provisions could diminish the opportunities for a stockholder to
participate in tender offers, including tender offers at a price above the then-
current market value of our common stock.
14
<PAGE> 19
PRIOR S CORPORATION STATUS
Since November 1989, the Company has been treated for federal income tax
purposes as a corporation subject to taxation under Subchapter S of the Internal
Revenue Code of 1986, as amended, and comparable state tax laws. As a result,
the Company's earnings through the day preceding the date of termination of S
corporation status (the "Termination Date") have been or will be, as the case
may be, taxed, with certain exceptions, for federal and certain state income tax
purposes directly to the Company's current stockholders. The Termination Date
will occur immediately prior to the completion of this offering.
The Company has previously made distributions to its stockholders to
provide the stockholders with funds to assist in paying federal and state income
taxes on the undistributed earnings of the Company. Prior to the Termination
Date, the Company will make an additional S corporation distribution of $5.1
million to the Company's current stockholders, which approximately equals the
estimated earned and previously undistributed taxable S corporation income of
the Company through the day preceding the Termination Date. See "Use of
Proceeds" and Note 1 of Notes to Consolidated Financial Statements. As of the
Termination Date, the Company will no longer be treated as an S corporation and
will be fully taxable pursuant to federal and state income tax laws. The Company
and its current stockholders will enter into an agreement (the "Tax
Indemnification Agreement") providing that the Company will be indemnified by
the Company's current stockholders with respect to any federal, state or local
corporate income taxes the Company is required to pay as a result of the
Company's failure to qualify as an S corporation with respect to tax returns in
which the Company reported its income as an S corporation. The Tax
Indemnification Agreement also will provide that the Company will indemnify the
Company's current stockholders on an after-tax basis with respect to any
federal, state or local income taxes (plus interest and penalties) paid or
required to be paid by such stockholders, and such stockholders will pay to the
Company any refunds of federal, state or local income taxes (including interest
received thereon) received by (or credited to) such stockholders, as a result of
a subsequent adjustment in income of the Company with respect to any tax return
in which the Company reported its income as an S corporation.
15
<PAGE> 20
USE OF PROCEEDS
The Company is offering a total of 1,500,000 shares in this offering. The
net proceeds to the Company from the sale of the 1,500,000 shares of common
stock, at an assumed public offering price of $11.00 per share, will be
approximately $14.6 million ($16.9 million if the Underwriters fully exercise
their over-allotment option), after deducting the estimated underwriting
discount and estimated offering expenses payable by the Company.
The Company will use approximately $5.1 million of the net proceeds from
this offering to fund the payment of previously undistributed accumulated S
corporation retained earnings to the Company's existing stockholders. See "Prior
S Corporation Status." In addition, approximately $800,000 of net proceeds will
be used to remodel a gallery that the Company recently purchased in Chicago. The
balance of the net proceeds will be used for working capital, further expansion
in the midwestern United States, further development of its online capabilities
and general corporate purposes, including possible acquisitions. The Company is
not negotiating any such acquisitions as of the date of this prospectus, nor has
the Company allocated any portion of the net proceeds for any specific
acquisition.
The Company believes that its available cash, cash equivalents and
short-term investments, together with the net proceeds of this offering, will be
sufficient to meet its capital requirements for the foreseeable future. Pending
application of the net proceeds as described above, the Company intends to
invest the net proceeds in short-term, investment-grade securities.
DIVIDEND POLICY
Historically, the Company made certain distributions to its stockholders as
a result of its status as an S corporation. See "Prior S Corporation Status" and
Note 1 to Consolidated Financial Statements. Upon completion of this offering,
the Company intends to retain any future earnings to support operations and to
finance the growth and development of its business. The Company does not
anticipate paying any cash dividends for the foreseeable future.
16
<PAGE> 21
DILUTION
The actual net tangible book value of the Company as of September 30, 1998
was $4.2 million, or $0.88 per share. Net tangible book value per share
represents the amount of total tangible assets less total liabilities, divided
by the number of shares of common stock outstanding. After giving effect to the
total $6.3 million distribution to be made to the Company's existing
stockholders of undistributed taxable S corporation earnings and to the increase
in deferred tax assets related to the termination of subchapter S status, the
pro forma net tangible book deficit of the Company at September 30, 1998 would
have been $1.4 million, or $0.29 per share. After giving effect to the sale of
the shares of common stock offered hereby at an assumed initial public offering
price of $11.00 per share, and after deduction of the estimated underwriting
discount and estimated offering expenses, the pro forma net tangible book value
of the Company at September 30, 1998 would have been $13.2 million, or $2.11 per
share. This represents an immediate increase in such net tangible book value of
$1.23 per share to the existing stockholders and an immediate dilution of $8.89
per share to new investors purchasing shares in this offering. The following
table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $11.00
Net tangible book value as of September 30, 1998.......... $0.88
Increase per share attributable to new investors.......... 1.23
-----
Pro forma net tangible book value per share after this
offering.................................................. $2.11
Dilution per share to new investors......................... $ 8.89
======
</TABLE>
The following table summarizes, on a pro forma basis as of September 30,
1998, the difference between the existing stockholders and the new investors
purchasing shares in this offering with respect to the number of shares of
common stock purchased from the Company, the total consideration paid and the
average price paid per share (based upon deducting the $3.6 million distribution
of earnings accumulated through September 30, 1998, the increase in deferred tax
assets resulting from the termination of S corporation status, an assumed
initial public offering price of $11.00 per share and before deducting the
estimated underwriting discount and estimated offering expenses payable by the
Company):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE PRICE
-------------------- ----------------------- PER
NUMBER PERCENT AMOUNT PERCENT SHARE
--------- ------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............... 4,752,364 76.0% $ 1,943,000 10.5% $ 0.41
New investors....................... 1,500,000 24.0 16,500,000 89.5 11.00
--------- ----- ----------- --------
Total..................... 6,252,364 100.0% $18,443,000 100.0%
========= ===== =========== ========
</TABLE>
17
<PAGE> 22
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1998, (1) on an actual basis, (2) on a pro forma basis to reflect
$6.3 million of S corporation distributions made subsequent to September 30,
1998 and to be distributed to the existing stockholders in payment of previously
undistributed accumulated S corporation earnings and the increase in deferred
tax assets resulting from the termination of S corporation status (3) on a pro
forma as adjusted basis to reflect the sale of the 1,500,000 shares of common
stock offered hereby at an assumed initial public offering price of $11.00 per
share (after deducting the estimated underwriting discount and estimated
offering expenses payable by the Company and the application of estimated
proceeds from this offering). See "Prior S Corporation Status," "Use of
Proceeds" and Note 1 of Notes to Consolidated Financial Statements.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
--------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------ --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Short-term borrowings, including current portion of long
term debt................................................. $1,171 $1,171 $ 1,171
====== ====== =======
Long-term debt, net of current portion...................... $ 820 $ 820 $ 820
Stockholders' equity:
Preferred Stock, $.001 par value; no shares authorized
actual and pro forma; 5,000,000 shares authorized pro
forma as adjusted; no shares issued and outstanding.... -- -- --
Common Stock, $.001 par value; 15,000,000 shares
authorized, 4,752,364 shares issued and outstanding
actual and pro forma; 6,252,364 shares issued and
outstanding pro forma as adjusted(1)................... 48 48 63
Additional paid-in capital................................ 1,170 (756) 13,800
Retained earnings......................................... 3,622 -- --
------ ------ -------
Total stockholders' equity............................. 4,840 (708) 13,863
------ ------ -------
Total capitalization.............................. $5,660 $ 112 $14,683
====== ====== =======
</TABLE>
- - ------------------------------
(1) Excludes 914,841 shares of common stock reserved for issuance pursuant to
the Company's 1999 Equity Incentive Plan.
18
<PAGE> 23
SELECTED CONSOLIDATED FINANCIAL DATA
The consolidated statements of income data for the years ended December 31,
1996 and 1997 and the consolidated balance sheet data as of December 31, 1996
and 1997 have been derived from the Company's audited consolidated financial
statements included elsewhere in this prospectus that have been audited by BDO
Seidman, LLP, independent auditors. The consolidated statement of income data
for the nine-month periods ended September 30, 1997 and 1998 and the
consolidated balance sheet data as of September 30, 1998 are derived from
unaudited financial statements included elsewhere in this prospectus. The
unaudited consolidated financial statements have been prepared by the Company on
a basis consistent with the Company's audited consolidated financial statements,
and in the opinion of the Company, include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the
information. Results for the nine-month period ended September 30, 1998 may not
necessarily be indicative of results for the full year ended December 31, 1998.
The data set forth below should be read in conjunction with the Company's
consolidated 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,
------------------------ ------------------
1996 1997 1997 1998
--------- --------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF INCOME DATA(1):
Revenues.......................................... $17,068 $20,271 $13,555 $13,382
Expenses
Salaries and related costs...................... 8,389 9,590 6,486 7,227
General and administrative costs................ 4,161 4,391 3,253 3,397
Auction and sale operating expenses............. 1,541 1,906 1,240 1,491
Depreciation and amortization................... 536 491 370 447
------- ------- ------- -------
Total expenses.......................... 14,627 16,378 11,349 12,562
------- ------- ------- -------
Income from operations............................ 2,441 3,893 2,206 820
Other income, net................................. 192 328 247 224
------- ------- ------- -------
Income before income taxes........................ 2,633 4,221 2,453 1,044
Pro forma provision for income taxes(2)........... (1,053) (1,689) (981) (418)
------- ------- ------- -------
Pro forma net income(2)........................... $ 1,580 $ 2,532 $ 1,472 $ 626
======= ======= ======= =======
Pro forma net income per share(2)(3).............. $ 0.49 $ 0.12
======= =======
Weighted average shares used in computing pro
forma net income per share(3)................... 5,123 5,123
======= =======
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------ AT SEPTEMBER 30,
1996 1997 1998
------- ------- ----------------
(IN THOUSANDS)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA(1):
Working capital.......................................... $ 1,136 $ 1,859 $ 1,336
Total assets............................................. 15,861 20,353 14,529
Long-term debt, net of current portion................... -- 614 820
Total stockholders' equity............................... 4,229 4,911 4,840
</TABLE>
- - ------------------------------
(1) The financial statements of the Company and its subsidiary, BCCI, were
previously presented on a combined basis. Immediately prior to the
completion of this offering, the shareholders of BCCI will contribute their
shares of BCCI stock to the Company. The previously issued combined results
are presented as consolidated.
(2) Assuming a combined federal and state tax rate of 40%, which the Company
believes approximates the statutory tax rates that would have applied to it
if it had been taxed as a C corporation during all periods indicated. In
connection with this offering, the Company's S corporation status will be
terminated and it will become subject to federal and state income taxes.
(3) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of the method employed to determine the number of shares used to compute per
share amounts.
19
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Data" and the Company's Consolidated Financial
Statements and Notes included elsewhere in this prospectus. The following
discussion contains forward-looking statements that involve risks and
uncertainties, including, without limitation, statements of the Company's plans,
objectives, expectations and intention. The cautionary statements made in this
prospectus should be read as being applicable to all related forward-looking
statements wherever they may appear in this prospectus. The Company's actual
results could differ materially from those anticipated or implied by the
forward-looking statements discussed here. Factors that could cause or
contribute to such differences include those discussed in "Risk Factors" as well
as those discussed elsewhere herein.
OVERVIEW
Established in 1865, Butterfields is the third largest auctioneer of fine
and decorative art and collectibles in the United States. The Company is
recognized throughout the industry for its ability to appraise and auction items
ranging in value from several hundred dollars to over $1 million in every major
category of art and collectibles, including paintings, furniture, jewelry, arms
and armor, rare books, fine wine and entertainment memorabilia. The Company
conducts over 100 specialty and estate auctions annually, serving a network of
over 300,000 domestic and international fine art dealers, galleries, museums,
foundations and private collectors. Butterfields currently has three regional
galleries and a network of 12 business development representatives located in
the United States, Munich, London and Brussels.
The Company's revenues from live auctions are primarily generated by
commissions and fees from the sale of property through auction. The variation of
revenues from year to year is largely a function of property availability and
market demand and conditions. Sellers of property generally make their own
determinations as to when to make their property available for auction. Auctions
are held at the Company's galleries in San Francisco, Los Angeles and the
Chicago area. In addition to conducting simultaneous auctions by video
conference at multiple locations, the Company also has the ability to conduct
several auctions at the same time at a single location. "Hammer" represents the
price for which an item sells at auction. A buyer's premium of 15% of the first
$50,000 of hammer and 10% of any excess above $50,000 per lot is charged to all
buyers. In addition to a seller's commission, which typically ranges from 10% to
25% of hammer, sellers are charged various fees depending on the auction format
and marketing activities that are used for the property. These fees include fees
for photography, insurance, reserve and cartage. The Company has only recently
begun conducting cyber auctions, and the terms and conditions related to cyber
auctions may vary as the Company gains experience with this new auction format.
Additional revenues are derived from appraisals of fine art and collectibles and
sales of the Company's catalogues.
The unaudited table below sets forth total auction sales (hammer plus
buyer's premium) for 1996, 1997, the nine months ended September 30, 1997 and
the nine months ended September 30, 1998 for each property category.
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------ ------------------
PROPERTY CATEGORIES 1996 1997 1997 1998
------------------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Furniture and decorative art................ $24,265 $29,337 $19,562 $15,927
Fine art.................................... 10,140 15,310 7,482 9,458
Collectibles................................ 23,481 23,123 17,063 14,617
Estate and others........................... 11,058 15,570 11,321 12,570
------- ------- ------- -------
$68,944 $83,340 $55,428 $52,572
======= ======= ======= =======
</TABLE>
For financial reporting purposes, the Company deducts hammer from its total
auction sales. Reported revenues consist of buyers' premiums, sellers'
commissions and other sellers' fees. In addition to sellers' commissions and
buyers' premiums received from the sale of property consigned for auction, the
Company
20
<PAGE> 25
also generates revenues from the sale of inventory it has purchased and loans to
sellers. Material purchases made over the past two years have included jewelry,
furniture, paintings and wine. Loans typically are made for 30% to 40% of the
low estimate of the value of the consigned property. Estimates of property value
are prepared by the Company's specialists. Competition and demand for consigned
property may result in the Company making loans for more than 40% of the
consigned property's value. Interest typically is charged on all loans and the
property consigned is used as collateral. Below are tables reflecting the
consignor advance portfolio and owned inventory balances at December 31, 1996
and 1997 and September 30, 1998.
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------- AT SEPTEMBER 30,
1996 1997 1998
------ ------ ----------------
(IN THOUSANDS)
<S> <C> <C> <C>
Consignor advance portfolio.......................... $3,805 $1,358 $2,460
Inventory owned...................................... 437 1,851 1,558
</TABLE>
Most buyers of auctioned property are required to make payment in cash or
check prior to release of the property. Typically payment is received and the
property is shipped to the buyer within 15 days of the sale. Some buyers are
given credit terms and are permitted to take possession of the property before
payment is made. Credit is granted to buyers who have an acceptable credit
history and a significant spending history with the Company, normally exceeding
$100,000 annually. Credit terms generally require payment 30 days after the date
of the auction. Accounts receivable balances outstanding after 30 days typically
are charged interest.
The business cycle begins with a seller contracting with the Company to
sell property at auction. Typically these contracts are signed from 12 to 24
weeks in advance of the scheduled auction date. A seller who wishes to take a
loan typically will do so at this time. Upon completion of an auction, the
Company incurs a liability to the seller in the amount of the hammer price, less
applicable seller's commission and other seller's fees, and receives the cash
proceeds of the sale, which include the hammer price, buyer's premium and any
applicable sales taxes. The Company recognizes revenues from auction commissions
and the buyer's premium on the date of the related sale. During this phase of
the business cycle, the Company has significant cash balances and short-term
liabilities. The Company "settles" a sale and pays the liability to the seller,
less any outstanding loan balances, on the 35th day following the sale, commonly
known as the settlement date. Upon payment to the seller, the Company's cash
balance drops significantly, as do its short-term liabilities. The seasonal
aspects of the fine art auction industry typically result in higher cash
receipts in the second and fourth quarters and higher payments to sellers in the
latter portions of the second and fourth quarters and the early portion of the
first and third quarters.
On occasion, the sale of a particular lot may be canceled due to
nonpayment, questioned authenticity or provenance (the origin of a property).
The Company typically does not pay a seller until payment is received from the
buyer, substantially reducing the Company's risk of loss. If a buyer with credit
terms purchases an item at auction and fails to pay, any loss is charged to bad
debt expense rather than pursuing the seller for any sale proceeds disbursed.
The Company did not have any bad debt expense in 1996. Bad debt expense in 1997
was $351,000 and was related to a default on a loan made by the Company to a
former joint venture partner and buyers' failure to pay. In the nine months
ended September 30, 1998, bad debt expense was $26,000 and was related to
buyers' failure to pay. When a cancellation occurs due to provenance or
authenticity, the Company will refund the buyer's payment and seek refund from
the seller under the terms of the consignment agreement. Historically, sale
cancellations have not had a material impact on the Company's net income.
The Company has been taxed as an S corporation since November 1984. As a
result, taxable income has been reported on the Company's stockholders'
individual income tax returns and no federal tax has been imposed. The Company's
S corporation status will terminate upon completion of this offering, and the
Company will be subject to state and federal income taxes as a C corporation.
The pro forma adjustments reflect federal and state income taxes as if the
Company had been taxed as a C corporation during all periods shown.
21
<PAGE> 26
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
financial data for the Company expressed as a percentage of revenues (unless
otherwise noted).
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
---------------- ------------------
1996 1997 1997 1998
----- ----- ------ ------
<S> <C> <C> <C> <C>
Revenues:
Auction commissions and fees........................ 97.7% 98.6% 98.2% 99.2%
Financial services revenues......................... 2.3 1.4 1.8 0.8
----- ----- ----- -----
Total revenues.............................. 100.0 100.0 100.0 100.0
----- ----- ----- -----
Expenses:
Salaries and related costs.......................... 49.1 47.3 47.9 54.0
General and administrative costs.................... 24.4 21.7 24.0 25.4
Auction and sale operating expenses................. 9.0 9.4 9.1 11.1
Depreciation and amortization....................... 3.1 2.4 2.7 3.3
----- ----- ----- -----
Total expenses.............................. 85.6 80.8 83.7 93.8
----- ----- ----- -----
Income from operations................................ 14.4 19.2 16.3 6.2
Other income, net..................................... 1.1 1.6 1.8 1.7
----- ----- ----- -----
Income before taxes................................... 15.5 20.8 18.1 7.9
Pro forma provision for income taxes.................. (6.2) (8.3) (7.2) (3.1)
----- ----- ----- -----
Pro forma net income................................ 9.3% 12.5% 10.9% 4.8%
===== ===== ===== =====
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
Revenues. Revenues consist of buyers' premiums, sellers' commissions,
sellers' fees, catalogue subscriptions, appraisal fees and revenues generated by
financial services provided to auction buyers and sellers. These amounts are
adjusted for gains and losses from the sale of inventory. Revenues decreased
slightly from $13.6 million in the nine months ended September 30, 1997 to $13.4
million in the nine months ended September 30, 1998.
Salaries and related costs. Salaries and related costs consist of payroll
and personnel expenses. Salaries and related costs increased 11.4% from $6.5
million in the nine months ended September 30, 1997 to $7.2 million in the nine
months ended September 30, 1998. This increase resulted from salary increases
that were effective January 1, 1998 and salaries and related costs for
additional management personnel. Salaries and related costs as a percentage of
revenues increased from 47.9% in the nine months ended September 30, 1997 to
54.0% in the nine months ended September 30, 1998, primarily as a result of
costs related to the Dunnings operations with no offsetting revenues from
Dunnings and, to a lesser extent, lower sales in the third quarter of 1998 than
occurred in the third quarter of 1997.
General and administrative expenses. General and administrative expenses
consist of rent, supplies, travel and utilities expenses. General and
administrative expenses increased 4.4% from $3.3 million in the nine months
ended September 30, 1997 to $3.4 million in the nine months ended September 30,
1998.
Auction and sale operating expenses. Auction and sale operating expenses
consist of marketing and advertising expenses. Auction and sale operating
expenses increased 20.2% from $1.2 million in the nine months ended September
30, 1997 to $1.5 million in the nine months ended September 30, 1998, and
increased as a percentage of revenues from 9.1% in the nine months ended
September 30, 1997 to 11.1% in the nine month ended September 30, 1998. These
increases were due to costs associated with increased solicitation advertising
for consignments of property.
Other income, net. Other income, net consists of non-recurring items such
as gains on sales of fixed assets and legal settlements and interest on the
Company's short-term investments, cash and cash equivalents, less interest
expense associated with the Company's line of credit and long-term debt. Other
income, net decreased
22
<PAGE> 27
9.3% from $248,000 in the nine months ended September 30, 1997 to $225,000 in
the nine months ended September 30, 1998, primarily due to the gain realized
from the sale of a fixed asset in 1997.
YEARS ENDED DECEMBER 31, 1996 AND 1997
Revenues. Revenues increased 18.8% from $17.1 million in 1996 to $20.3
million in 1997, primarily due to more robust market conditions in 1997 as
compared to 1996, including the auction of two single-owner estates and a museum
deaccession auction in 1997.
Salaries and related costs. Salaries and related costs increased 14.3% from
$8.4 million in 1996 to $9.6 million in 1997 due to the implementation of a new
incentive bonus system, salary increases and additional salaries for new
personnel.
General and administrative expenses. General and administrative expenses
increased 5.5% from $4.2 million in 1996 to $4.4 million in 1997 due to
increased rents, maintenance and repairs to the Company's facilities and
computer hardware and software purchases.
Auction and sale operating expenses. Auction and sale operating expenses
increased 23.7% from $1.5 million in 1996 to $1.9 million in 1997, primarily due
to an increase in bad debt expense related to a default on a loan made by the
Company to a former joint venture partner.
Other income, net. Other income, net increased 71.5% from $191,000 in 1996
to $328,000 in 1997, primarily due to increased interest income on higher cash
balances in 1997 and the sale of an encumbered fixed asset in 1997.
QUARTERLY OPERATING RESULTS AND FLUCTUATIONS
The following table presents certain unaudited actual and pro forma
financial data for each of the three-month periods in the seven quarters ended
September 30, 1998. This information has been derived from the Company's
unaudited consolidated financial statements and has been prepared on the same
basis as the audited consolidated financial statements contained in this
prospectus, and, in the opinion of management, include all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the information for the periods presented. This data should be read in
conjunction with the Consolidated Financial Statements and Notes thereto
included elsewhere in this prospectus. The operating results for any period are
not necessarily indicative of results to be expected for any subsequent period.
The pro forma adjustments reflect federal and state income taxes as if the
Company had not elected S corporation status for income tax purposes and instead
had been taxed at C corporation rates for all periods presented. See "S
Corporation Distributions" and Notes 1 and 6 of Notes to Consolidated Financial
Statements.
<TABLE>
<CAPTION>
QUARTERS ENDED
------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
1997 1997 1997 1997 1998 1998 1998
--------- -------- --------- -------- --------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues..................... $3,866 $6,282 $3,407 $6,716 $4,005 $6,228 $ 3,149
Income (loss) from
operations................. 225 2,253 (272) 1,687 247 2,005 (1,432)
Income (loss) before income
taxes...................... 398 2,257 (230) 1,796 338 2,021 (1,315)
Pro forma benefit (provision)
for income taxes........... (159) (903) 92 (719) (135) (809) 526
Pro forma net income
(loss)..................... 239 1,354 (138) 1,077 203 1,212 (789)
</TABLE>
The worldwide art auction market is most active in the spring and fall.
Accordingly, sales activity during the first and third quarters tends to be
lower than in the second and fourth quarters. The Company typically operates at
a loss until well into the spring auction season, which occurs in the second
quarter. At times the Company has been successful in reducing the effects of
seasonality, as it did in 1997 and 1998 when the Company conducted additional
specialty auctions. The Company expects that it will operate at a loss into the
spring auction season in future years.
23
<PAGE> 28
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its cash requirements to date primarily through cash
generated from operations, bank borrowings and borrowings from affiliated
individuals. The Company's operating activities provided cash of $8.1 million
and $8.7 million in 1996 and 1997, respectively, and used cash of $5.2 million
in the nine months ended September 30, 1998. Investing activities, consisting of
the purchase and sale of property and equipment, used cash of $1.1 million in
1996, provided cash of $137,000 in 1997 and used cash of $561,000 in the nine
months ended September 30, 1998.
Financing activities consist of proceeds from and payments on borrowings
and contributions from and distributions to stockholders. Financing activities
used cash of $5.8 million, $3.9 million and $371,000 in 1996, 1997 and the nine
months ended September 30, 1998, respectively. The Company historically has paid
distributions to its stockholders as a result of its S corporation status. The
Company did not make any S corporation distributions to stockholders in 1996 and
made S corporation distributions totaling $3.7 million in 1997 and $1.3 million
in the nine months ended September 30, 1998. Subsequent to September 30, 1998,
the Company made additional distributions totaling $1.2 million. The Company
expects to make an S corporation distribution in the amount of $5.1 million to
its existing stockholders, which will be paid from the proceeds from this
offering. See "Prior S Corporation Status."
The Company had $1.3 million in working capital at September 30, 1998,
compared to $1.9 million in working capital at December 31, 1997. The Company's
working capital requirements relate primarily to cash needed to fund operations
as a result of lower revenues in the first and third quarters. At September 30,
1998, the Company had approximately $1.1 million in cash and cash equivalents
and $5.1 million available under two revolving lines of credit. Due to the
seasonal nature of the fine art auction industry, the Company's cash balances
and short-term liabilities can change substantially from one date to another.
The Company believes that the net proceeds from this offering, together
with its existing cash and cash equivalents and funds generated from operations,
will be sufficient to meet its cash requirements for the foreseeable future. The
Company intends to use approximately $800,000 of the net proceeds to remodel a
gallery that it recently purchased in Chicago. The Company also will use some of
the proceeds to further develop its online capabilities and may utilize some of
the proceeds to acquire or invest in complementary businesses. The Company does
not currently have any plans, proposals, arrangements or understandings with
respect to any future acquisitions. The Company may sell additional equity or
debt securities or obtain additional credit facilities. The sale of additional
equity securities could result in more dilution to the Company's stockholders
and the incurrence of additional debt could result in more interest expense.
YEAR 2000
The Year 2000 issue is the result of computer programs written using two
digits rather than four to define the applicable year. Computer programs that
have this date-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices or engage
in similar normal business activities.
Butterfields owns and uses software that may be impacted by the Year 2000
issue. The Company also relies upon vendors of equipment and services whose
products and services may be impacted by the Year 2000 issue. The Company's
specific Year 2000 compliance issues include:
- the computer hardware and software it uses in the performance of services
for its customers (auction processing system);
- the computer hardware and software it uses to process business
transactions and prepare financial reports (financial systems);
- the computer hardware and software it uses for corporate administration;
and
- external services such as telecommunications, Internet and financial
services.
24
<PAGE> 29
The Company's Year 2000 compliance project consists of three phases. In the
first phase, the Company tested all computer applications that are critical to
its business cycle. The second phase involves testing non-critical computer
applications and hardware. During the third phase the Company will attempt to
identify vendors whose services may be impacted by the Year 2000 issue. Each
phase is being done in parallel. It is the Company's intention to complete the
Year 2000 testing process by June 30, 1999 and to monitor all future activities
for continued compliance.
The Company has begun the first phase of its Year 2000 compliance project.
All computer applications critical to the business cycle have been tested
through February 15, 2000. The test will be completed when all critical
applications have been tested through February 15, 2001. During the testing to
date, the Company has determined that the general ledger, trade accounts payable
and seller accounts payable applications are not Year 2000 compliant. These
applications will need minor modifications of the programming that ages
transactions. The invoicing, accounts receivable and auction systems all proved
to be Year 2000 compliant through February 15, 2000.
The Company currently is testing applications that are not critical to the
business cycle during the second phase of its Year 2000 compliance project. This
second phase focuses on testing personal computers and software purchased for
administrative purposes, including human resources systems, spreadsheets and
word processing. As part of the review of such software, the Company determined
that its fixed asset tracking and human resources systems were not Year 2000
compliant. The fixed asset system was upgraded at a minimal cost and the Company
is reviewing options for replacing its human resources system.
The third phase of the Company's Year 2000 compliance project will involve
identifying all vendors whose services may be impacted by Year 2000 compliance
issues. Upon identification, the Company will contact these vendors and
determine whether their products and services are Year 2000 compliant, and if
not, whether they have plans in place to make them Year 2000 compliant. The
Company currently has only limited information on the Year 2000 compliance of
its key vendors. The operations of the Company's key vendors could be adversely
affected in the event they do not successfully and timely achieve Year 2000
compliance. The Company's business and results of operations could experience
material adverse effects if its key vendors were to experience Year 2000 issues.
The Company's staff will conduct all testing and programming modifications.
Based upon the testing and work completed to date, the Company anticipates that
it will have a complete and timely resolution for the Year 2000 issue. Although
the total cost of compliance has not yet been determined, the Company does not
believe that such costs will be material. The Company anticipates that costs
associated with Year 2000 compliance will be funded through normal operations
and that no other major computer-related projects will be deferred due to the
Year 2000 related programming tasks.
The Company's plan may not adequately address the Year 2000 issue in a
timely manner or the Company may be unable to upgrade any or all of its major
systems in accordance with its plan. In addition, any upgrades may not
effectively address the Year 2000 issue. If required upgrades are not completed
timely or are not successful, the Company may be unable to conduct its business,
which would have a material impact on the operations of the Company.
Furthermore, there can be no guarantee that the systems of other companies on
which the Company's systems rely will be timely converted. A failure to convert
by another company, or a conversion that is incompatible with the Company's
systems, could have a material adverse effect on the Company. The Company
intends to, but has not yet established a contingency plan detailing actions
that will be taken in the event that the execution of the Company's Year 2000
plan is not successfully completed on a timely basis.
25
<PAGE> 30
RECENT FINANCIAL ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS No. 133 requires companies
to recognize all derivatives contracts as either assets or liabilities in the
balance sheet and to measure them at fair value. If certain conditions are met,
a derivative may be specifically designated as a hedge, the objective of which
is to match the timing of gain or loss recognition on the hedging derivative
with the recognition of (1) the changes in the fair value of the hedged asset or
liability that are attributable to the hedged risk or (2) the earnings effect of
the hedged forecasted transaction. For a derivative not designated as a hedging
instrument, the gain or loss is recognized in income in the period of change.
SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. Historically, the Company has not entered into derivatives
contracts either to hedge existing risks or for speculative purposes.
26
<PAGE> 31
BUSINESS
OVERVIEW
Established in 1865, Butterfields is the third largest auctioneer of fine
and decorative art and collectibles in the United States. The Company is
recognized throughout the industry for its ability to appraise and auction items
ranging in value from several hundred dollars to over $1 million in every major
category of art and collectibles, including paintings, furniture, jewelry, arms
and armor, rare books, fine wine and entertainment memorabilia. The Company
conducts over 100 specialty and estate auctions annually, serving a network of
over 300,000 domestic and international fine art dealers, galleries, museums,
foundations and private collectors. Butterfields currently has three regional
galleries and a network of 12 business development representatives located in
the United States, Munich, London and Brussels.
The Company was incorporated in California in July 1970 and intends to
reincorporate in Delaware prior to the completion of this offering. Prior to
1970, the Company operated as a family-owned business.
THE AUCTION INDUSTRY
Buyers and sellers of fine and decorative art and collectibles rely
extensively on auctions as a means to effect their transactions. Traditionally,
auctions of property have been conducted by auction companies before live
audiences, although the Internet has emerged recently as a new medium for
auctions.
The auction of fine and decorative art and collectibles is dominated by
Christie's and Sotheby's, which had combined worldwide auction sales of
approximately $3.9 billion in 1997. The Company believes that this amount
represented approximately 80% of the total value of fine and decorative art and
collectibles sold through auction in 1997. In addition to Christie's and
Sotheby's, the Company and numerous other mid-sized auction companies conduct
auctions of fine and decorative art and collectibles in the United States. The
auction market for middle market and lower valued properties is highly
fragmented and made up of hundreds of smaller and typically less sophisticated
auction companies than Butterfields. These auction companies are predominantly
family owned, operate in a limited regional or local market, tend to specialize
in limited auction categories and typically lack the access to the capital
required to significantly grow their operations. The Company is the third
largest auction company in the United States, after Christie's and Sotheby's.
The Company concentrates on middle market auction properties, namely items
ranging in value from approximately $300 to $10,000. Although items sold at
auction by the Company range in price from several hundred dollars to over $1
million, the average price of the more than 67,000 items sold by the Company in
1998 was approximately $1,100. The Company believes that a majority of all fine
and decorative art and collectibles sold at auction are sold for $5,000 or less,
placing most of the properties sold at auction squarely within the market on
which the Company focuses.
With the growth of the Internet, many online auction companies have emerged
recently, several of which have announced intentions to expand into the middle
market sales of fine and decorative art and collectibles. While the Internet
represents a potentially large market for fine and decorative art and
collectibles, the Internet format limits a buyer's ability to inspect and
evaluate properties. Consequently, buyer confidence in the authenticity of the
property and the settlement of sales presents a significant challenge to online
auction companies, particularly when properties are unique or of relatively high
value. In January 1999, Sotheby's announced its intention to begin auctioning
property on the Internet, further supporting the Company's belief that the
Internet presents a significant expansion opportunity for the auction of fine
and decorative art and collectibles by nationally recognized auction companies.
27
<PAGE> 32
BUTTERFIELDS' PRINCIPAL STRENGTHS
The Company believes that its combination of principal strengths gives it a
significant competitive advantage and allows it to provide comprehensive
services to a broad base of sellers and buyers of fine and decorative art and
collectibles. These strengths include:
Established, Industry-Wide Reputation. In the more than 130 years since its
founding, Butterfields has established a reputation throughout the industry for
integrity, accuracy and excellent customer service. The Company believes that it
is one of the few mid-sized auction companies with worldwide name recognition.
The Company's established name and long-standing reputation provide a solid
platform from which to launch expansion initiatives focused on new geographic
markets and new auction mediums, such as the Internet, with an immediate market
presence. In addition, the Company's reputation enhances its ability to attract
fresh, high valued auction properties as well as sophisticated buyers of fine
and decorative art and collectibles.
Broad Expertise and Comprehensive Auction Services. Butterfields is the
third largest fine and decorative art auction company in the United States,
employing more than 50 specialists who are able to appraise and market every
major category of art and collectibles, including, paintings, furniture,
jewelry, arms and armor, rare books, fine wine and entertainment memorabilia.
The Company also has conducted auctions with a wide variety of themes, including
a natural history auction in 1997 at which the Company auctioned fossils,
prehistoric animal skeletons and meteorites. The Company's broad expertise and
experience in both specialty and general estate sales enables it to process the
contents of an entire estate, from high end fine art and antiques to household
goods and furnishings. The ability to auction all of the contents of an estate
distinguishes the Company from many other auction companies, which typically
auction only select items.
Extensive Geographic Reach. With galleries in San Francisco, Los Angeles
and the Chicago area, Butterfields is one of the few mid-sized auction companies
to operate galleries in multiple regions, giving the Company exposure to a broad
base of buyers and sellers. The Company further extends its geographic reach by
periodically conducting simultaneous auctions via video conferencing, which
enables buyers to participate in selected auctions on a real-time basis from
multiple locations. In 1990, Butterfields co-founded the International
Association of Auctioneers (the "IAA"), an international consortium of
auctioneers of fine and decorative art that provides its members with access to
an international database of over 300,000 active bidders. The Company also is
capitalizing on the opportunities presented by the Internet. Customers can now
view the Company's fine sale catalogues and leave absentee bids online. In
January 1999, the Company began conducting cyber auctions, which are conducted
entirely online and are accessible through www.butterfields.com.
Access to Properties. Through its long-standing relationships with a wide
variety of fine art dealers, fiduciaries of estates, museums and private
collectors, the Company has established significant access to the primary
sources of auction properties. In addition, Butterfields' specialists play a
critical role in attracting fresh, high valued properties through appraisal
services and antique clinics, and Butterfields' network of sales representatives
has enabled it to develop relationships with key sources of property in many
geographic regions.
Simultaneous Auctions. The Company was one of the first fine art
auctioneers to provide access to auctions through video conferencing, enabling
geographically dispersed buyers to participate in auctions simultaneously. Since
1988, Butterfields has regularly linked auctions being conducted at one of its
galleries with one or more of its other galleries. In addition, the Company has
periodically linked other cities to its auctions, including Anchorage, Boston,
Las Vegas, Napa and Santa Fe. During the weeks prior to a simultaneous auction,
selected items are shipped for exhibition to the cities to be linked. To enhance
buyer interest, the Company's specialists are available at these exhibitions to
answer questions. Butterfields believes that its simultaneous auctions increase
bidding activity, broaden its exposure in new regions and provide increased
convenience to customers in close proximity to the linked locations. As
Butterfields opens new galleries, it believes that the value and effectiveness
of these simultaneous auctions will continue to increase.
Tradition of Innovation. Butterfields has consistently conducted its
business in an innovative manner. The Company was one of the first to provide
simultaneous auctions and began using digital photography to
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<PAGE> 33
produce its catalogues in 1994, reducing costs and lead times and enabling the
Company to take advantage of the emergence of the Internet. The Company also
recently began accepting absentee bids via e-mail and conducting direct
marketing through database mining. In January 1999, the Company began conducting
cyber auctions and it intends to offer real-time access to its live auctions on
the Internet in February 1999. The Company believes its history of innovation
and adoption of new technologies will allow it to more easily identify and
capitalize on future opportunities.
Full Service Capabilities. The Company provides its customers with a full
range of services, including (1) product evaluations and estimates of sales
proceeds; (2) flexible commission alternatives; (3) financial services, such as
advance payments and guarantees of minimum gross sale proceeds; (4) compilation
of full color catalogues for specialty auctions; (5) direct mail, print and
electronic advertising; (6) previews of selected auction properties in each of
the Company's three primary galleries prior to sale; and (7) ancillary services
such as shipping and handling, insurance and expert restoration. The Company
believes that these services allow it to attract a wider range of customers.
STRATEGY
Butterfields' objective is to leverage its reputation, broad geographic
reach and full service capabilities to become recognized as the leading
auctioneer of middle market properties. To achieve this objective, the Company
has developed a strategy with the following key elements:
Expand Geographically. The Company's industry is highly fragmented.
Butterfields believes that opportunities exist to expand geographically through
either new gallery openings or acquisitions of regional auctioneers and through
increasing its network of sales representatives. In June 1998, the Company
acquired Dunnings, a prominent regional auction company founded in the Chicago
area in 1896. Initially, Butterfields will focus on further developing its
network of sales representatives in the midwestern United States to increase the
volume of consigned properties for auction at the Chicago area gallery.
Establish Online Auction Presence. Butterfields believes that the Internet
represents a significant new market for its services. Although the Internet
provides access to a potentially large market for fine and decorative art, the
Internet format presents limitations related to buyers' inability to adequately
evaluate both properties and a seller's identity and credibility. The Company
believes that its reputation and experience in the traditional auction industry
will enable it to overcome these limitations, as it can appraise, authenticate
and warrant the provenance of properties to be auctioned. The Company believes
that its ability to provide these services will become a critical factor for
success when higher valued properties are auctioned over the Internet. The
Company began conducting cyber auctions, which occur entirely on the Internet,
at the end of January 1999 and will begin providing real-time access to its live
auctions in February 1999. Both the cyber auctions and the live auctions are
accessible through www.butterfields.com.
Further Integrate the Internet into Existing Operations. Butterfields
intends to increase its use of the Internet to gain greater access to buyers and
sellers, to improve its services and to increase operating efficiencies.
Customers may now view the entire contents of the Company's fine sale catalogues
online at www.butterfields.com, as well as leave absentee bids. Butterfields
believes that the Internet provides an opportunity to better serve the existing
fine art community as well as to increase the population of that community
through the use of chat rooms, direct marketing through e-mail and the creative
use of other Web-based tools that allow the targeted dissemination of
information over the Internet. In addition, the Company believes that the
Internet will provide the Company with increased access to a more focused group
of customers at greatly reduced costs compared to direct mail marketing. In
addition to its internal Internet marketing activities, the Company has
agreements with eBay, Yahoo! and Zing, which the Company believes will generate
more traffic on the Company's Internet site and provide exposure to a wider
audience of potential customers.
Increase Auction Property Categories. The Company's broad expertise enables
it to identify unserved and underserved property categories, while its
flexibility and full range of marketing capabilities and services gives it the
ability to capitalize on these categories. After the Company decides to pursue a
new property category, it is able to quickly produce high quality catalogues,
launch extensive marketing campaigns and
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<PAGE> 34
conduct auctions that attract large numbers of sellers and buyers. As an
example, Butterfields developed the category of arms and armor in the auction
industry and is now considered to be a leading authority on such properties.
ACQUISITION AND SALE OF AUCTION PROPERTIES
Acquisition of Auction Properties
Butterfields believes that its ability to attract valuable and fresh
properties provides it with a significant competitive advantage. The Company
sources properties sold in its auctions from domestic and international fine and
decorative art and antiques dealers, fiduciaries of estates, museums and private
collectors. In addition, the Company's appraisal services and clinics further
enhance the Company's ability to attract collections and individual items for
sale.
A seller's decision to consign property with a dealer or auction company is
influenced by many factors. These factors include: (1) the amount of cash
offered by a dealer to purchase the property outright, compared with estimates
given by auction companies; (2) the time required to adequately execute a sale
and distribute proceeds to the seller; (3) the desirability of an auction
environment to maximize sale proceeds; (4) the commission proposed by dealers or
auction companies to sell a property on consignment; (5) the structure of
financing alternatives offered by the dealer or auction company, such as
guaranteed minimum sale proceeds and advances; (6) the reputation and experience
of a dealer or auction company in generating the highest sale prices in the
product categories being sold; (7) the level of expertise of the dealer or
auction company in a particular product category; (8) the ability of an auction
company or dealer to process an entire collection or estate; (9) the personal
interaction between the seller and a dealer's or auction company's staff; and
(10) the extent of related services such as appraisals and financing. The
Company believes that its ability to meet the needs of sellers with respect to
these factors allows it to compete successfully with dealers and other auction
companies for the acquisition of available property.
Types of Auctions
Butterfields sells single properties and complete estates, conducting
auctions for the sale of items ranging from paintings by Renoir to the contents
of Liberace's estate. The Company auctions a wide range of property, including
paintings, furniture, jewelry, arms and armor, rare books, fine wine and
entertainment memorabilia. The Company believes it is the leading auctioneer of
arms and armor in the world.
The unaudited table below sets forth an approximate breakdown by property
category of the Company's total auction sales (hammer plus buyer's premium) for
the nine months ended September 30, 1998:
<TABLE>
<CAPTION>
TOTAL % OF TOTAL
AUCTION SALES AUCTION SALES
---------------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Furniture and decorative art......................... $15,927 30.3%
Fine art............................................. 9,458 18.0
Collectibles......................................... 14,617 27.8
Estate and others.................................... 12,570 23.9
------- -----
$52,572 100.0%
======= =====
</TABLE>
Depending on the type of property to be auctioned and its source,
Butterfields currently uses three auction formats: specialty auctions, monthly
estate sales and single-owner estate auctions. The Company believes that
choosing the auction format best suited to a particular property or collection
of properties optimizes the selling environment and maximizes the price for
which properties sell. In addition to its traditional types of auctions, in
January 1999, the Company began conducting cyber auctions, which are accessible
through www.butterfields.com.
Specialty Auctions. Specialty auctions are held periodically and usually on
a recurring basis. These auctions include highly valued, distinctive lots
typically focused on a specific property category such as American and
California paintings and sculpture, fine photographs, Oriental rugs and carpets,
arts and crafts
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<PAGE> 35
furniture and decorative art, arms and armor or carousel horses. Many of the
Company's specialty auctions are broadcast simultaneously via a video
conferencing system to each of its primary galleries in San Francisco, Los
Angeles and the Chicago area. Certain of these specialty auctions also are
conducted simultaneously in other selected cities throughout the United States.
The Company conducted 46 specialty auctions in the nine months ended September
30, 1998, representing approximately 80.2% of the Company's total auction sales
for that period.
Monthly "Estate" Auctions. The Company conducts monthly estate auctions at
each of its regional locations. These auctions feature moderately valued fine
and decorative art, furnishings, books, jewelry and household goods, as well as
lower valued items. The range of properties and prices typically offered at
these auctions attracts a broad base of buyers and sellers. These auctions
historically have not been subject to the seasonality that typically affects
specialty auctions. Butterfields conducted 29 estate auctions in the nine months
ended September 30, 1998, representing approximately 19.8% of the Company's
total auction sales for that period.
Single-Owner Estate Auctions. Butterfields periodically conducts auctions
of a single individual's estate. Individuals whose estates the Company has
auctioned include Liberace, Bing Crosby, Sammy Davis, Jr. and William Randolph
Hearst. Select single-owner estate auctions are conducted simultaneously via a
videoconferencing system. The Company generally conducts between one and four
single-owner estate auctions each year, although it did not conduct any in the
nine months ended September 30, 1998.
Cyber Auctions. In January 1999, the Company began conducting auctions
entirely online, with no actual auction room or floor bidding. Quality
properties for cyber auctions are supplied by sellers with whom the Company has
an established and successful history. These sellers enter into contractual
agreements with the Company to consign properties for these auctions. As with
its practice for live auctions, the Company will also warrant title, provenance
and authenticity of properties sold at cyber auctions. Cyber auctions are
accessible through www.butterfields.com.
The Auction Process
Prior to each auction, the Company holds a preview to provide customers an
opportunity to inspect each lot coming up for auction and to consult
departmental specialists. The Company publishes an illustrated color catalogue
for each specialty auction that describes each lot and provides a sales
estimate. Following the appraisal and prior to each live auction, a seller may
specify a minimum bid price or reserve price, below which its lot may not be
sold.
Buyers present at live auctions submit bids using numbered cards held up in
view of the auctioneer. Buyers may participate in auctions from remote locations
on a real-time basis over the telephone or by simultaneous video conferencing,
depending on the auction. In February 1999, the Company intends to allow buyers
to participate on a real-time basis via the Internet. Buyers also may
participate in auctions by leaving absentee bids. Bidding normally begins at
approximately one-third to one-half of the estimated price of an item, however,
the final bid price may be more or less than the estimated price. Bidding occurs
in varying increments, depending upon the value of the lot being sold. In the
event the final bid is less than the reserve price, lots will be withdrawn and
either reoffered in a subsequent auction or returned to the seller.
The Company's cyber auctions are currently ten days in length. Buyers view
the property with its descriptive information, estimated price range and bidding
information entirely online. Buyers then submit an electronic bid at any time
during the ten-day open bidding period. At the close of the cyber auction, the
winning bidders are notified, payment is made and the property is shipped to
them.
Buyer Services
Butterfields provides buyers with an array of services intended to make the
bidding process convenient and enjoyable. The Company offers absentee bidding
services, whereby Butterfields personnel will seek to purchase lots at the
lowest possible bid on behalf of a customer. Buyers may also purchase lots
through an agent or leave absentee bids via telephone and on the Internet.
Butterfields warrants the title, the provenance
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<PAGE> 36
and authenticity of each property to buyers. In some instances, the Company also
provides credit terms to certain pre-approved bidders. Following the purchase of
an item, Butterfields will assist a buyer in arranging both international and
domestic transportation of properties, if necessary.
Seller Services
The Company sometimes provides other financial services to sellers. In
special circumstances, and after thorough evaluation of a property's auction
potential, the Company may guarantee a seller a minimum amount for properties to
be auctioned, regardless of outcome. The Company also may advance funds to a
seller. Advances are secured by the property consigned and are subject to an
interest charge. Total advances at September 30, 1998 were $2.5 million.
Fees and Commissions
The Company receives payments from both sellers and buyers of items sold
through its live auctions. Sellers typically pay a commission fee ranging from
10% to 25% of the gross sales price of each lot sold, depending on the auction
value of the property and the particular auction at which the property is sold.
Sellers also are required to purchase risk insurance on all property placed in
auction and may be required to pay additional fees such as packing,
transportation and handling fees, as well as photography fees if an item is
included in an auction preview catalogue. All buyers pay a fee, known as a
buyer's premium, equal to 15% of the first $50,000 of hammer and 10% of amounts
greater than $50,000. Terms and conditions related to cyber auctions may vary as
the Company gains experience with this new auction format. Revenues from
sellers' commissions and buyers' premiums represented 43% and 52% of the
Company's total revenues, respectively, in the nine months ended September 30,
1998.
SALES AND MARKETING
Butterfields provides a full range of marketing services to its customers.
The Company tailors individualized marketing strategies for each specialty
department and conducts customized marketing campaigns for each specialty
auction and single-owner estate auction. Marketing activities include direct
mail, print and electronic advertising, illustrated catalogues, public
relations, special events and personal attention to individual collectors. The
Company's in-house art and advertising department produces a full color
catalogue for specialty and single-owner estate auctions, with detailed
descriptions, provenance, condition information and estimated prices for each
lot. Catalogues may be viewed on the Internet at www.butterfields.com or
purchased by annual subscription or on an individual basis.
The Company is a founding member of the International Association of
Auctioneers, or IAA, one of the auction industry's largest collective base of
buyers and sellers. IAA is comprised of six leading regional fine art auction
companies in Europe, Australia and the United States, including Butterfields,
Etude Tajan in Paris, Swann in New York City, Lawsons in Sydney, Kohler in
Zurich and Dorotheum in Vienna. IAA members have access to over 300,000 buyers
worldwide and share the benefits of certain collective marketing and auction
activities with other IAA members. IAA members participate in joint previews,
reciprocal advertising in catalogues and an internationally circulated
newsletter, which provides extensive exposure for the Company's auctions.
Butterfields believes that its membership in IAA has extended the scope of its
business and reputation and increased its effectiveness in marketing and selling
consigned properties.
The Company currently has 12 representatives located in the United States,
Munich, London and Brussels. The Company's business development professionals
and representatives play an important role in sourcing auction properties and in
establishing relationships with buyers and sellers, including local art dealers
and private collectors.
The Company participates in "Appraise It!," a weekly program on HGTV, the
Homes and Garden television station, on which invited individuals bring their
property to one of the Company's galleries to have it appraised. The program
reportedly reaches a nationwide audience of 50 million viewers and only
Butterfields' specialists perform appraisals for "Appraise It!" The Company runs
one advertisement during each program and is the only auction company featured
on HGTV. The program was recently extended for a
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<PAGE> 37
second season and is expected to be moved from a mid-day time slot to a "prime
time" time slot in March 1999.
Butterfields has updated its Web site in anticipation of conducting more
business electronically. Customers can view the entire contents of the Company's
fine sale catalogues online and can leave absentee bids online. Entertainment
and educational material related to the Company's auctions also are available
online. The Company intends to significantly increase its marketing activities
through its agreements with online service and entertainment providers, such as
eBay, Yahoo! and Zing. The Company has begun the transfer of its customer
contact activities to e-mail and Web-based vehicles, from the direct mail
vehicles that the Company has used traditionally. The Company's Web site is
located at www.butterfields.com.
APPRAISAL SERVICES
Butterfields provides both fair market value and insurance appraisal
services. The Company employs over 50 specialists with expertise in a wide range
of fine art and collectibles categories. The specialists' depth and breadth of
knowledge enable Butterfields to appraise and market property in every major
category of art and collectibles.
The Company periodically offers complimentary appraisals in its San
Francisco, Los Angeles and Chicago area galleries. The Company's specialists
also appraise properties for a fee based on photographs or during private
appointments at the Company's galleries. For large collections, Butterfields'
specialists will travel to the seller's site to conduct an appraisal. In
addition to appraisal services, the Company conducts periodic clinics in cities
nationwide, where specialists assess properties free of charge for individual
collectors. After appraisal, a seller may include its property in the next
appropriate auction. The Company's staff assists sellers in each step of the
auction process, including arranging transportation of items, providing accurate
and detailed inventory of consigned properties and reporting prices realized for
each lot. Items are kept in the Company's warehouses prior to sale and are fully
insured throughout the auction process.
Butterfields' specialists also provide appraisal services for insurance
purposes to property owners for a wide range of properties. In addition to
generating additional revenues, the Company believes that providing insurance
appraisals increases its visibility to sellers of properties and strengthens its
relationship with insurers, which represent an important source of auction
properties.
COMPETITION
Competition in the fine and decorative art market is intense. A fundamental
challenge facing all auction companies and dealers in this market is to obtain
high quality and valuable property for sale. The Company competes with a number
of domestic and international auction companies, several of which have greater
resources than the Company, including Christie's and Sotheby's, the two largest
auction companies in the world, each of which has significantly greater
financial and marketing resources than the Company. Christie's and Sotheby's
each had total auction sales of approximately $2 billion in 1997. Sotheby's
recently announced that it will begin conducting auctions online for art,
jewelry and collectibles.
GOVERNMENT REGULATION
Regulation of the auction business varies from jurisdiction to
jurisdiction. Numerous states, including the state of California (the location
of the Company's headquarters), have regulations regarding the manner in which
auctions may be conducted and the liability of auctioneers in conducting such
auctions. In addition, the Company is subject to licensure requirements in
various jurisdictions with respect to some of the properties it sells at
auction. For example, the Company must maintain a current license to deal in
firearms in order to conduct auctions of arms and armor. Such regulations and
licensure requirements have not imposed a material impediment to the Company's
business to date, but do affect the market generally, and changes in such
regulations could have a material adverse effect on the Company's business. In
addition, in the event that the Company begins to conduct auctions
internationally, it would be subject to laws and regulations that are not
directed solely toward the auction business, including, but not limited to,
import and export regulations and value added sales taxes. As the Company begins
to conduct business over the Internet, it will be subject to
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<PAGE> 38
regulations relating to Internet or other online services. The failure to comply
with any current or future laws and regulations could subject the Company to
civil and/or criminal penalties.
FACILITIES
The Company's corporate headquarters are located in San Francisco,
California and the Company has galleries and offices in Los Angeles, California
and the Chicago area. The Company leases its property in San Francisco and Los
Angeles from two groups controlled by the Company's stockholders. The Company's
leases expire beginning in June 1999 through 2005. The Company has the right to
extend the lease that is expiring in June 1999 for two additional years on
similar terms as the existing lease. The Company recently purchased a gallery in
Chicago, Illinois, which the Company plans to remodel prior to occupying. The
Company believes its primary facilities are in good operating condition and
adequately serve the Company's current business operations.
EMPLOYEES
At December 31, 1998, the Company had 245 full-time employees.
Approximately 100 additional persons were employed on a temporary basis during
1998. The Company is not subject to any collective bargaining agreements and
believes that its relationships with its employees are good.
LEGAL PROCEEDINGS
From time to time the Company has been, and expects to continue to be,
subject to legal proceedings and claims in the ordinary course of business. Such
claims, even if lacking merit, could result in the expenditure of significant
financial and managerial resources. The Company is not aware of any legal
proceedings or claims that it believes will have in the aggregate a material
adverse effect on the Company or on its financial condition or results of
operations.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning the Company's
directors and executive officers as of February 1, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Bernard A. Osher(1).................... 71 Director and Chairman of the Board of
Directors
John D. Gallo.......................... 51 President, Chief Executive Officer and
Director
John C. Fallini........................ 49 Chief Operating Officer
Kenneth G. Stupi....................... 38 Chief Financial Officer
John R. DiMatteo(1)(2)................. 67 Director
Irving Rabin........................... 68 Director
Will K. Weinstein(1)(2)................ 58 Director
</TABLE>
- - ------------------------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Bernard A. Osher has served as Chairman of the Board of Directors since
July 1970 and served as the Company's President from the time the Company was
purchased from the Butterfield family in 1970 until 1990. Prior to 1970, Mr.
Osher was a co-founder of Golden West Financial Corporation, a publicly traded
financial services company headquartered in California, and he currently serves
as a director. Mr. Osher serves as an Honorary Trustee of the Fine Arts Museums
of San Francisco and Vice Chairman of the Jewish Museum. Mr. Osher attended
Bowdoin College.
John D. Gallo has served as the Company's President and Chief Executive
Officer since May 1990 and has served as a director of the Company since
December 1994. Mr. Gallo joined the Company as a general appraiser in 1969 and
has held various positions since then, including General Manager from 1974 to
1979 and Executive Vice President from 1979 to 1990. In addition to his
responsibilities with the Company, Mr. Gallo has served as Chairman of the
Oakland Museum, Chairman of the Board of the St. Francis Hospital Foundation and
Vice Chairman of the Board of Trustees of the St. Francis Hospital. Mr. Gallo
attended San Francisco State University. Mr. Gallo's continuing education has
included studies at the Asian Art Museum, the de Young Museum and the University
Art Museum of Berkeley, as well as involvement in an M.B.A. degree program at
the University of London. Mr. Gallo has taught courses on fine and decorative
art and has lectured extensively on various art topics, including "Art as an
Investment" and "The Economic Factors of Auctions".
John C. Fallini has served as the Company's Chief Operating Officer since
September 1998. Prior to joining the Company, Mr. Fallini served as the Vice
President and Chief Financial Officer of Pacific Bell Network Integration, a
data networking services provider and a subsidiary of Pacific Bell, from May
1995 to September 1998. From August 1976 to May 1995, Mr. Fallini held various
positions with Pacific Bell, a regional telephone and telecommunications
provider, including Executive Director of Financial Management from August 1989
to May 1995. Mr. Fallini is a certified management accountant and holds a B.S.
degree in engineering and applied sciences from the University of California,
Los Angeles and a M.B.A. degree from Oklahoma City University.
Kenneth G. Stupi has served as the Company's Chief Financial Officer since
June 1994. Prior to joining the Company, Mr. Stupi was Corporate Controller at
Bay Alarm Company, the nation's largest privately held security company, from
October 1991 to June 1994. Prior to that, Mr. Stupi was a Manager in the Audit
and Business Advisory Division of Arthur Andersen & Co. Mr. Stupi is a certified
public accountant and holds B.S. degrees in accounting and business information
systems and an M.S. degree in taxation from San Francisco State University.
John R. DiMatteo has served as a director of the Company since January 1999
and as a management consultant to the Company since January 1992. Mr. DiMatteo
served as President of Gannett Publishing
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Company from 1978 to 1991 and was an executive there from 1971 to 1978. Prior to
that, he was a partner of the accounting firm of Jordan & Jordan. Mr. DiMatteo
attended Babson College.
Irving Rabin has been a director of the Company since July 1970. Mr. Rabin
is the chairman of Rabin Brothers Worldwide, an international auction firm, and
has more than 40 years of experience in the commercial and industrial auction
industry. Mr. Rabin attended the University of California, Berkeley and served
in the U.S. Air Force during the Korean War. Mr. Rabin serves on the boards of
directors of numerous local and national philanthropic organizations.
Will K. Weinstein has served as a director of the Company since January
1999. Mr. Weinstein has been the Executive Managing Member of Jackson Square
Partners, L.P., a private investment partnership, since 1998. Prior to that, Mr.
Weinstein served as the Chairman and Chief Executive Officer of Genesis Merchant
Group Securities, an investment banking firm, which he founded in 1989 and of
which he currently serves as a director. From 1982 to 1986, he was the Managing
Partner and Chairman of the Investment Policy Committee of Montgomery
Securities, an investment banking firm. Prior to that, Mr. Weinstein managed the
trading department and was a member of the Executive Committee of Oppenheimer &
Company, an investment banking firm, which Mr. Weinstein joined in 1962. He is a
former Governor of the American Stock Exchange and the Midwest Stock Exchange
and has served on the board of directors of DHL Incorporated and Beverly
Enterprises. Mr. Weinstein received a B.A. degree in psychology from Hobart
College and an M.A. degree in psychology from Ohio State University.
The Company's Board of Directors currently consists of five directors.
Directors are elected by the stockholders at each annual meeting of stockholders
to serve until the next annual meeting of stockholders or until their successors
are duly elected and qualified. The Company's Certificate of Incorporation
provides that, effective upon the closing of this offering, the Board will be
divided into three classes: Class I, Class II and Class III, with each class
serving three-year terms. The Class I directors, initial Messrs. Gallo and
Weinstein, will stand for reelection or election at the 2000 annual meeting of
stockholders. The Class II directors, initially Messrs. DiMatteo and Rabin, will
stand for reelection or election at the 2001 annual meeting of stockholders. The
Class III directors, initially Mr. Osher, will stand for reelection or election
at the 2002 annual meeting of stockholders.
BOARD COMMITTEES
The Board of Directors has an Audit Committee and a Compensation Committee.
The Audit Committee, currently comprised of Messrs. DiMatteo and Weinstein,
reviews the internal accounting procedures of the Company and consults with and
reviews the services provided by the Company's independent auditors. The
Compensation Committee, currently comprised of Messrs. DiMatteo, Osher and
Weinstein, reviews and recommends to the Board the compensation and benefits
offered by the Company. The Compensation Committee also administers the issuance
of stock options and other awards under the Incentive Plan.
DIRECTOR COMPENSATION
Directors do not receive any cash compensation for their services as
members of the Board of Directors, although they are reimbursed for certain
expenses incurred in connection with attendance at Board and Committee meetings.
From time to time, directors may receive grants of options to purchase shares of
the Company's common stock.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Before February 1999, the Company did not have a Compensation Committee,
and the entire Board participated in all compensation decisions. In February
1999, the Board formed the Company's Compensation Committee to review and
recommend to the Board the compensation and benefits for the Company's executive
officers and administer the Company's stock purchase and stock option plans. The
Company's directors will hold an aggregate of 76.0% of the Company's outstanding
stock after this offering. See "Principal Stockholders."
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<PAGE> 41
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid to the Company's
President and its two other most highly compensated officers whose annual salary
and bonus exceeded $100,000 in fiscal year ended December 31, 1998 (the "Named
Executive Officers"):
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------
NAME AND PRINCIPAL POSITION SALARY($) BONUS($)
--------------------------- --------- --------
<S> <C> <C>
Bernard Osher............................................... $240,242 --
Chairman
John Gallo.................................................. 150,242 $35,000
President and Chief Executive Officer
George Noceti............................................... 115,637 4,000
Senior Vice President
</TABLE>
- - ------------------------------
(1) In accordance with the rules of the Securities and Exchange Commission (the
"Commission"), the compensation described in this table does not include
medical, group life insurance or other benefits received by the Named
Executive Officers which are available generally to all salaried employees
of the Company and certain perquisites and other personal benefits received
by the Named Executive Officers, which do not exceed the lesser of $50,000
or 10% of any such officer's salary and bonus disclosed in this table.
OPTION GRANTS IN LAST FISCAL YEAR
There were no stock options granted to any Named Executive Officer during
the fiscal year ended December 31, 1998.
AGGREGATE OPTION EXERCISES IN FISCAL 1998 AND DECEMBER 31, 1998 OPTION VALUES
There were no exercises of options by any Named Executive Officer in the
fiscal year ended December 31, 1998.
1999 EQUITY INCENTIVE PLAN
The Company's 1999 Equity Incentive Plan (the "Incentive Plan") was
approved by the Board of Directors and the stockholders of the Company in
February 1999. An aggregate of 914,841 shares of common stock currently are
reserved for issuance under the Incentive Plan.
The Incentive Plan provides for the grant of incentive stock options, as
defined by Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), to employees (including officers and employee directors) and for the
grant of nonstatutory stock options, restricted stock purchase awards and stock
bonuses to employees (including officers and employee-directors), directors and
consultants of the Company and its affiliates. The Incentive Plan will be
administered by the Board of Directors or a committee of the Board of Directors
(as applicable, the "Administrator"). The Administrator has the power to
determine the recipients and types of awards to be granted, including the
exercise price, number of shares subject to the award and the exercisability
thereof, and the form of consideration payable on such exercise. In addition,
the Administrator has the authority to amend, suspend or terminate the Incentive
Plan, provided that no such action may affect any share of common stock
previously issued and sold or any option, share of restricted stock or stock
bonus previously granted under the Incentive Plan.
The exercise price for an incentive stock option cannot be less than 100%
of the fair market value of the common stock on the date of the option grant.
While nonstatutory stock options are not subject to the same limitations as
incentive stock options, with respect to those nonstatutory stock options
intended to qualify as "performance-based compensation" within the meaning of
Section 162(m) of the Code, the exercise price must be at least equal to the
fair market value of the common stock on the date of grant. No incentive stock
option (and prior to the Company's stock being publicly traded, no nonstatutory
stock option or restricted
37
<PAGE> 42
stock award) may be granted to any person who, at the time of the grant, owns
(or is deemed to own) stock possessing more than 10% of the total combined
voting power of the Company or any affiliate of the Company, unless the option
exercise price is at least 110% of the fair market value of the stock subject to
the option on the date of grant and the term of the option does not exceed five
years from the date of grant.
Options granted under the Incentive Plan vest at the rate specified in the
option agreement. Generally, the optionee may not transfer a stock option other
than by will or the laws of descent or distribution unless the optionee holds a
nonstatutory stock option that provides otherwise. However, an optionee may
designate a beneficiary who may exercise the option following the optionee's
death. An optionee whose service relationship with the Company or any affiliate
ceases for any reason may exercise vested options for the term provided in the
option agreement.
The terms of all other incentive stock options (and prior to the Company's
stock being publicly traded, the terms of nonstatutory stock options) granted
under the Incentive Plan may not exceed 10 years from the date of grant.
The aggregate fair market value, determined at the time of grant, of the
shares of common stock with respect to which incentive stock options are
exercisable for the first time by an optionee during any calendar year (under
the Incentive Plan and all other stock plans of the Company and its affiliates)
may not exceed $100,000. In addition, when the Company becomes subject to
Section 162(m) of the Code (which denies a deduction to publicly held
corporations for certain compensation paid to the Company's Chief Executive
Officer and its four other most highly-compensated executive officers in a
taxable year to the extent that the compensation exceeds $1,000,000), no person
may be granted options under the Incentive Plan covering more than 100,556
shares of common stock in any calendar year.
Shares subject to stock awards that have expired or otherwise terminated
without having been exercised in full again become available for the grant of
awards under the Incentive Plan. Under its general authority to grant options,
the Administrator has the implicit authority to reprice outstanding options or
to offer optionees the opportunity to replace outstanding options with new
options for the same or a different number of shares. Both the original and new
options will count toward the Code Section 162(m) limitation set forth above.
Restricted stock purchase awards granted under the Incentive Plan may be
granted pursuant to a repurchase option in favor of the Company in accordance
with a vesting schedule and at a price determined by the Administrator. Stock
bonuses may be awarded in consideration of past services without a purchase
payment. Rights under a stock bonus or restricted stock bonus agreement
generally may not be transferred other than by will or the laws of descent and
distribution, during such period as the stock awarded pursuant to such an
agreement remains subject to the agreement.
If there is any sale of substantially all of the Company's assets, any
merger or any consolidation in which the Company is not the surviving
corporation, all outstanding options, awards and bonuses under the Incentive
Plan either will be assumed or substituted for by any surviving entity. If the
surviving entity determines not to assume or substitute for such awards, the
time during which awards held by persons still serving the Company or an
affiliate may be exercised will be accelerated and the awards terminated if not
exercised prior to the sale of assets, merger or consolidation.
In addition, after the Company's stock is publicly traded, if there is an
acquisition by certain persons, entities or groups of fifty percent (50%) or
more of the Company's stock, then the time during which awards held by persons
still serving the Company or an affiliate may be exercised will be accelerated.
No options, stock bonuses or restricted stock have been granted under the
Incentive Plan. The Incentive Plan will terminate in February 2009 unless sooner
terminated by the Board.
401(K) PLAN
On December 20, 1990, the Company adopted a tax-qualified employee savings
and retirement plan (the "401(k) Plan") covering all of the Company's employees.
Pursuant to the 401(k) Plan, employees may elect to reduce their current
compensation by up to the lesser of 15% of eligible compensation or the
statutorily
38
<PAGE> 43
prescribed annual limit ($10,000 in 1999) and have the amount of such reduction
contributed to the 401(k) Plan. The trustee under the 401(k) Plan, at the
direction of each participant, invests the assets of the 401(k) Plan in any of
ten investment options. The 401(k) Plan is intended to qualify under Section 401
of the Internal Revenue Code so that contributions by employees to the 401(k)
Plan, and income earned on plan contributions, are not taxable to employees
until withdrawn, and so that the contributions by employees will be deductible
by the Company when made. The Company may make matching or additional
contributions to the 401(k) Plan, in amounts to be determined annually by the
Board of Directors.
LIMITATION OF DIRECTORS' AND OFFICERS' LIABILITY
As permitted by Section 145 of the Delaware General Corporation Law, the
Bylaws of the Company provide that (1) the Company is required to indemnify its
directors and executive officers to the fullest extent permitted by the Delaware
General Corporation Law, (2) the Company may, in its discretion, indemnity other
officers, employees and agents as set forth in the Delaware General Corporation
Law, (3) to the fullest extent permitted by the Delaware General Corporation
Law, the Company is required to advance all expenses incurred by its directors
and executive officers in connection with a legal proceeding (subject to certain
exceptions), (4) the rights conferred in the Bylaws are not exclusive and (5)
the Company may not retroactively amend the Bylaws provisions relating to
indemnity.
In February 1999, the Board authorized the Company to enter into indemnity
agreements with each of the Company's directors and executive officers. The form
of indemnity agreement provides that the Company will indemnify against any and
all expenses of the director or executive officer who incurred such expenses
because of his or her status as a director or executive officer, to the fullest
extent permitted by the Company's Bylaws and Delaware law. A copy of the form of
indemnity agreement has been filed as an exhibit to the Registration Statement.
There is no pending litigation or proceeding involving a director or
officer of the Company as to which indemnification is being sought, nor is the
Company aware of any pending or threatened litigation that may result in claims
for indemnification by any director or officer.
39
<PAGE> 44
CERTAIN TRANSACTIONS
A number of the transactions described in this section involve inherent
conflicts of interest because they were with an officer, director, significant
stockholder, promoter or other person with a material business or professional
relationship with Butterfields. The Company believes that the transactions set
forth below were made on terms no less favorable to the Company than could have
been obtained from unaffiliated third parties. All future transactions,
including loans, between Butterfields and its officers, directors, principal
stockholders and their affiliates will be approved by a majority of the Board of
Directors, including a majority of the independent and disinterested directors,
and will be on terms no less favorable to the Company than could be obtained
from unaffiliated third parties.
The Company leases office and warehouse space from HBJ Partners, LLC.
Pursuant to these leases, the Company made aggregate rent payments in the amount
of $720,000 during fiscal 1997 and $515,000 for the nine months ended September
30, 1998. In January 1997, the Company sold real property to HBJ Partners, LLC
for $652,000 and the Company gave HBJ Partners a non-interest bearing note not
to exceed $279,000, for the total amount it will cost to pay for toxic clean-up
work required to be done on the property. The amount due on this note is reduced
each time the Company pays for costs associated with toxic clean-up work and the
note will mature when Los Angeles County declares that the property is no longer
contaminated. Messrs. Osher and Rabin are members of HBJ Partners, LLC. Mr.
Osher is Chairman of the Board of the Company and Mr. Rabin is a director of the
Company. In addition, each beneficially holds more than 5% of the outstanding
equity of the Company.
The Company leases office and warehouse space from 111 Potrero Partners,
LLC. In 1996, the Company financed the expansion of this space by loaning 111
Portrero $1.4 million plus interest at 8.25%, the floating prime rate as
reported by Wells Fargo, N.A. during the term that the loan was outstanding. The
loan balance was absorbed by offsetting the Company's periodic rental payments
due to 111 Potrero Partners. Accordingly, the Company reduced the outstanding
balance on the loan by $542,000 in 1996 and $1.0 million in 1997. The total
amount paid under the leases during the nine months ended September 30, 1998 was
$897,000. Bernard Osher and several trusts, of which Irving Rabin serves as
trustee, are members of 111 Potrero Partners, LLC, Mr. Osher is Chairman of the
Board of the Company and Mr. Rabin is a director of the Company. In addition,
each beneficially holds more than 5% of the outstanding equity of the Company.
In January 1999, the Company purchased a building in Chicago from HBJ
Partners, LLC, a limited liability company of which Messrs. Rabin and Osher are
members. The total purchase price for the building was $3.0 million. Mr. Osher
is Chairman of the Board of the Company and Mr. Rabin is a director of the
Company. In addition, Messrs. Osher and Rabin each beneficially holds more than
5% of the outstanding equity of the Company.
In 1997, the Company paid S corporation distributions of $2.1 million, $1.5
million and $91,000 to Bernard Osher, Irving Rabin and John Gallo, respectively.
In 1998, the Company paid S corporation distributions of $805,000, $560,000 and
$35,000 to Bernard A. Osher, Irving Rabin and John Gallo, respectively. In
January 1999, the Company paid S corporation distributions of $575,000, $400,000
and $25,000 to Bernard A. Osher, Irving Rabin and John Gallo, respectively. Mr.
Osher is Chairman of the Board of the Company and Messrs. Gallo and Rabin are
directors of the Company. Mr. Gallo also is the President and Chief Executive
Officer of the Company. In addition, Messrs. Osher and Rabin each beneficially
holds more than 5% of the outstanding equity of the Company.
The Company intends to enter into indemnity agreements with its directors
and executive officers for the indemnification of and advancement of expenses to
such persons to the full extent permitted by law. The Company also intends to
execute such agreements with its future directors and executive officers. See
"Management--Limitation on Directors' and Officers' Liability."
40
<PAGE> 45
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's common stock as of February 1, 1999 and as
adjusted to reflect the sale of the common stock being offered hereby (assuming
no exercise of the Underwriters' over-allotment option) by (1) each person (or
group of affiliated persons) who is known by the Company to own beneficially
more than 5% of the common stock, (2) the Named Executive Officers, (3) each of
the Company's directors and (4) all directors and executive officers of the
Company as a group:
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES BENEFICIALLY
OWNED
SHARES --------------------
BENEFICIALLY PRIOR TO AFTER
NAME AND ADDRESS OF BENEFICIAL OWNERS OWNED(1) OFFERING OFFERING
------------------------------------- ------------ -------- --------
<S> <C> <C> <C>
Bernard A. Osher(2)......................................... 2,732,500 57.5% 43.7%
220 San Bruno Avenue
San Francisco, CA 94103
Irving Rabin(3)............................................. 1,900,727 40.0 30.4
3825 Paradise Drive
Tiburon, CA 94920
John Gallo.................................................. 119,137 2.5 1.9
George Noceti............................................... -- -- --
John R. DiMatteo............................................ -- -- --
Will K. Weinstein........................................... -- -- --
All directors and executive officers as a group (7 4,752,364 100.0% 76.0%
persons)..................................................
</TABLE>
- - ------------------------------
* Less than one percent.
(1) The number and percentage of shares beneficially owned are based on
4,752,364 shares of common stock outstanding on February 1, 1999. Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission and generally includes shares over which the holder has
voting or investment power, subject to community property laws.
(2) All of these shares are held by the Bernard A. Osher Revocable Trust Dated
March 8, 1998 (the "Osher Trust"). As trustee of the Osher Trust, Mr. Osher
has sole voting and investment power with respect to these shares.
(3) All of these shares are held by the Irving Rabin and Varda Rabin, Trustees
U/T/A DBA 6/18/94 Trust (the "Rabin Trust"). As co-trustee of the Rabin
Trust, Mr. Rabin shares voting and investment power with his wife, Varda
Rabin.
41
<PAGE> 46
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 15,000,000 shares
of common stock, $.001 par value, and 5,000,000 shares of preferred stock, $.001
par value.
COMMON STOCK
As of February 1, 1999, there were 4,752,364 shares of common stock
outstanding held by three holders of record. The holders of common stock are
entitled to one vote for each share held of record on all matters submitted to a
vote of the stockholders. Unless there are fewer than 800 stockholders, the
holders of common stock will not be entitled to cumulative voting rights with
respect to the election of directors, and as a consequence, minority
stockholders may not be able to elect directors on the basis of their votes
alone. Subject to preferences that may be applicable to any shares of preferred
stock issued in the future, holders of common stock are entitled to receive
ratably such dividends as may be declared by the Board of Directors out of funds
legally available therefor. See "Dividend Policy." In the event of a
liquidation, dissolution or winding up of the Company, holders of the common
stock are entitled to share ratably in all assets remaining after payment of
liabilities and the liquidation preference of any then outstanding preferred
stock. Holders of common stock have no preemptive rights and no right to convert
their common stock into any other securities. There are no redemption or sinking
fund provisions applicable to the common stock. All outstanding shares of common
stock are, and all shares of common stock to be outstanding upon completion of
this offering will be, fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors has the authority, without further action by the
stockholders, to issue up to 5,000,000 shares of preferred stock in one or more
series and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences, sinking fund terms and the number of shares
constituting any series or the designation of such series, without any further
vote or action by stockholders. The issuance of preferred stock could adversely
affect the voting power of holders of common stock and the likelihood that such
holders will receive dividend payments and payments upon liquidation and could
have the effect of delaying, deferring or preventing a change in control of the
Company. The Company has no present plans to issue any shares of preferred
stock.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law (the "Delaware Law"), an anti-takeover law. In general,
the statute prohibits a publicly held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
For purposes of Section 203, a "business combination" includes a merger, asset
sale or other transaction resulting in a financial benefit to the interested
stockholder, and an "interested stockholder" is a person who, together with
affiliates and associates, owns (or within three years prior, did own) 15% or
more of the corporation's voting stock.
The Company's Certificate of Incorporation and Bylaws include a number of
provisions that may have the effect of deterring hostile takeovers or delaying
or preventing changes in control or management of the Company when the Company
has more than 800 stockholders and is exempt from California foreign corporation
laws. First, the Certificate provides that all stockholder action must be
effected at a duly called meeting of holders and not by a consent in writing.
Second, the Bylaws provide that unless there are fewer than 800 stockholders,
special meetings of the holders may be called only by (1) the Chairman of the
Board of Directors, (2) the Chief Executive Officer or (3) the Board of
Directors pursuant to a resolution adopted by the Board of Directors. Third, the
Certificate and the Bylaws provide for a classified Board of Directors. Finally,
the Bylaws establish procedures, including advance notice procedures with regard
to the nomination of candidates for election as directors and stockholder
proposals. These provisions of the Certificate and Bylaws could discourage
potential acquisition proposals and could delay or prevent a change in the
management of the
42
<PAGE> 47
Company. However, these protective provisions may only be effective if the
Company is exempt from the California foreign corporation laws as described
above. See "Risk Factors--Some Anti-Takeover Provisions of Our Charter Documents
and Delaware Law May Affect the Price of Our Common Stock."
TRANSFER AGENT AND REGISTRAR
Norwest Bank Minnesota, N.A. has been appointed as the transfer agent and
registrar for the Company's common stock.
43
<PAGE> 48
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this 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 will continue after this offering or that the
market price of the common stock will not decline below the initial public
offering price. Future sales of substantial amounts of common stock in the
public market could adversely affect market prices prevailing from time to time.
As described below, no shares currently outstanding will be available for sale
immediately after this offering because of certain contractual restrictions on
resale. Sales of substantial amounts of common stock of the Company in the
public market after the restrictions lapse could adversely affect the prevailing
market price and the ability of the Company to raise equity capital in the
future.
Upon the completion of this offering, the Company will have outstanding
6,252,364 shares of common stock, assuming no exercise of the Underwriters'
over-allotment option. Of these shares, all the shares sold in this offering
will be freely tradable without restrictions or further registration under the
Securities Act (except for any shares purchased by an "affiliate" of the Company
as such term is defined under Rule 144 of the Securities Act). The remaining
4,752,364 shares of common stock held by existing stockholders are "Restricted
Shares" as that term is defined in Rule 144. Restricted Shares may be sold in
the public market only if registered or if they qualify for an exemption from
registration under Rule 144. All of the holders of the Restricted Shares have
entered into lock-up agreements with the representatives of the Underwriters
pursuant to which they have agreed not to sell or otherwise dispose of any of
their shares, with certain limited exceptions, for a period of 180 days after
the date of this prospectus without the prior written consent of First Security
Van Kasper. See "Underwriting." First Security Van Kasper may in its sole
discretion, and at any time without notice, release all or any portion of the
securities subject to such lock-up agreements. All of the Restricted Shares will
become available for sale in the public market immediately following the
expiration of the 180-day lock-up period, subject to the volume and other resale
limitations of Rule 144.
In general, under Rule 144 as currently in effect, any holder of Restricted
Shares as to which at least one year has elapsed since the later of the date of
the holder's acquisition of such shares from the Company or from an affiliate,
would be entitled within any three-month period to sell a number of shares that
does not exceed the greater of (1) 1% of the then outstanding shares of common
stock (approximately 62,524 shares immediately after the closing of this
offering assuming no exercise of the Underwriters' over-allotment option), or
(2) the average weekly trading volume of the common stock on the Nasdaq National
Market during the four calendar weeks preceding the date on which notice of the
sale is filed with the Commission. Sales under Rule 144 are subject to certain
requirements relating to manner of sale, notice and availability of current
public information about the Company. However, a person (or persons whose shares
are aggregated) who is not deemed to have been an affiliate of the Company at
any time during the 90 days immediately preceding the sale and who beneficially
owns Restricted Shares is entitled to sell such shares under Rule 144(k) without
regard to the limitations described above, provided that at least two years have
elapsed since the later of the date the shares were acquired from the Company or
from an affiliate of the Company. The foregoing is a summary of Rule 144 and is
not intended to be a complete description of that rule.
The Company intends to file a registration statement on Form S-8 under the
Securities Act covering shares of common stock reserved for issuance under the
1999 Equity Incentive Plan. Such registration statement is expected to be filed
and become effective as soon as practicable after the effective date of this
offering. Accordingly, shares registered under such registration statement will,
subject to rule 144 volume limitations applicable to affiliates of the Company,
be available for sale in the open market, unless such shares are subject to
vesting restrictions with the Company or the lock-up agreements described above.
See "Management--Executive Compensation" and "--1999 Equity Incentive Plan."
44
<PAGE> 49
UNDERWRITING
The Underwriters named below (the "Underwriters"), represented by First
Security Van Kasper (the "Representative"), have severally agreed, subject to
the terms and conditions in the underwriting agreement (the "Underwriting
Agreement"), by and between the Company and the Underwriters, to purchase from
the Company the number of shares of common stock indicated below opposite its
name, at the public offering price less the underwriting discount set forth on
the cover page of this prospectus. The Underwriting Agreement provides that the
obligations of the Underwriters are subject to certain conditions precedent and
that the Underwriters are committed to purchase all of the shares of common
stock, if they purchase any.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
------------ ---------
<S> <C>
First Security Van Kasper
---------
Total............................................. 1,500,000
=========
</TABLE>
The Representatives have advised the Company that the Underwriters propose
initially to offer the shares of common stock to the public on the terms set
forth on the cover page of this prospectus. The Underwriters may allow selected
dealers a concession of not more than $ per share; and the Underwriters may
allow, and such dealers may reallow, a concession of not more than $ per
share to certain other dealers. After the initial public offering, this offering
price and other selling terms may be changed by the Representatives. The common
stock is offered subject to receipt and acceptance by the Underwriters and to
certain other conditions, including the right to reject orders in whole or in
part.
The Company has granted to the Underwriters an over-allotment option,
exercisable for 45 days from the date of this prospectus, to purchase up to a
maximum of 225,000 additional shares of common stock to cover over-allotments,
if any, at the same price per share as the initial shares to be purchased by the
Underwriters. To the extent the Underwriters exercise such over-allotment
option, each of the Underwriters will be committed, subject to certain
conditions, to purchase such additional shares in approximately the same
proportion as set forth in the above table. The Underwriters may exercise this
over-allotment option only to cover over-allotments made in connection with this
offering.
The following table summarizes the compensation to be paid to the
Underwriters by the Company.
<TABLE>
<CAPTION>
TOTAL
-------------------------------
WITHOUT WITH
PER SHARE OVER-ALLOTMENT OVER-ALLOTMENT
--------- -------------- --------------
<S> <C> <C> <C>
Underwriting discounts and commissions paid by the
Company......................................... $ $ $
</TABLE>
The Underwriting Agreement provides that the Company will indemnify the
Underwriters against certain liabilities, including civil liabilities under the
Securities Act, or will contribute to payments the Underwriters may be required
to make in respect thereof.
The Company's officers and directors and all of the stockholders of the
Company prior to this offering have agreed that for a period of 180 days after
the date of this prospectus they will not, subject to certain exceptions, offer,
sell, contract to sell, solicit an offer to buy, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase or pledge, assign, create a security interest in or lien
upon, encumber or otherwise transfer or dispose of, directly or indirectly, any
common stock or securities exchangeable or exercisable for or convertible into
shares of common stock, without the prior written consent of First Security Van
Kasper. The Company has also agreed not to issue, offer, sell, grant options to
purchase or otherwise dispose of any of the Company's equity securities for a
period of 180 days after the effective date of this offering without the prior
written consent of First Security Van Kasper except for securities issued by the
Company in connection with acquisitions and for grants and exercises of stock
options, subject in each case to any remaining portion of the 180-day period
applying to shares issued or
45
<PAGE> 50
transferred. In evaluating any request for a waiver of the 180-day lock-up
period, First Security Van Kasper will consider, in accordance with their
customary practice, all relevant facts and circumstances at the time of the
request, including, without limitation, the recent trading market for the common
stock, the size of the request and, with respect to a request by the Company to
issue additional equity securities, the purpose of such an issuance.
In connection with this offering, certain Underwriters and selling group
members and their respective affiliates engage in transactions that stabilize,
maintain or otherwise affect the market price of the common stock. Such
transactions may include stabilization transactions effected in accordance with
Rule 104 of Regulation M under the Securities and Exchange Act of 1934, as
amended, pursuant to which such persons may bid for or purchase common stock for
the purpose of stabilizing its market price. The Underwriters also may create a
short position for the account of the Underwriters by selling more common stock
in connection with this offering than they are committed to purchase from the
Company and, in such case, may purchase common stock in the open market
following completion of this offering to cover all or a portion of such short
position. The Underwriters may also cover all or a portion of such short
position by exercising the Underwriters' over-allotment option referred to
above. In addition, First Security Van Kasper on behalf of the Underwriters, may
impose "penalty bids" under contractual arrangements with the Underwriters,
whereby it may reclaim from an Underwriter (or dealer participating in this
offering) for the account of the other underwriters, the selling concession with
respect to common stock that is distributed in this offering but subsequently
purchased for the account of the Underwriters in the open market. Any of the
transactions described in this paragraph may result in the maintenance of the
price of the common stock at a level above that which might otherwise prevail in
the open market. None of the transactions described in this paragraph is
required, and, if they are undertaken, they may be discontinued at any time.
The Representative has informed the Company that the Underwriters do not
intend to confirm sales of common stock offered by this prospectus to accounts
over which they exercise discretionary authority in excess of 5% of the number
of shares of common stock offered hereby.
Prior to this offering, there has been no public trading market for the
common stock. The initial public offering price will be determined by
negotiations between the Company and the Representative. Among the factors to be
considered in such negotiations are the history of and prospects for the Company
and the industries in which it operates, an assessment of the Company's
management, its past and present earnings and the trend of such earnings, the
prospects for future earnings of the Company, the present state of the Company's
development, the general condition of securities markets at the time of this
offering and the market price of publicly traded stock of comparable companies
in recent periods.
The Company estimates that the total expenses of the offering, excluding
underwriting discounts and commissions, will be approximately $650,000.
46
<PAGE> 51
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for the Company by Cooley Godward LLP, San Francisco, California. Certain
legal matters will be passed upon for the Underwriters by Perkins Coie LLP,
Seattle, Washington.
EXPERTS
The Company's consolidated financial statements at December 31, 1996 and
1997 and for each of the two years in the period ended December 31, 1997
contained in this prospectus and Registration Statement have been audited by BDO
Seidman, LLP, independent certified public accountants, as set forth in their
report, which is included in this prospectus and are included in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
A Registration Statement on Form SB-2, including amendments thereto,
relating to the common stock offered hereby has been filed by the Company with
the Securities and Exchange Commission, Washington, D.C. This prospectus 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 copy of such
contract or other document 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, exhibits and
schedules. A copy of the Registration Statement may be inspected by anyone
without charge at the Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and copies of all or any part thereof may be obtained
from the Commission upon the payment of certain fees prescribed by the
Commission. Additional information may also be obtained by calling the
Commission at 1-800-SEC-0330 and online at the Commission's Web site at
www.sec.gov.
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by an independent public accounting firm
and quarterly reports containing unaudited financial information for the first
three quarters of each fiscal year.
47
<PAGE> 52
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----------
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants........ F-2
Consolidated Balance Sheets............................... F-3
Consolidated Statements of Income......................... F-4
Consolidated Statements of Stockholders' Equity........... F-5
Consolidated Statements of Cash Flows..................... F-6
Summary of Accounting Policies............................ F-7
Notes to Consolidated Financial Statements................ F-10
</TABLE>
F-1
<PAGE> 53
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
(The following is the form of the opinion BDO Seidman, LLP will be in
position to issue upon completion of the reorganization and recapitalization
described in Note 1.)
The Board of Directors
Butterfield & Butterfield, Auctioneers Corp.
San Francisco, California
We have audited the accompanying consolidated balance sheets of Butterfield
& Butterfield, Auctioneers Corp. and subsidiary as of December 31, 1996 and
1997, and the related consolidated statements of income, stockholders' equity,
and cash flows for each of the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial
statements. 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 Butterfield & Butterfield,
Auctioneers Corp. and subsidiary at December 31, 1996 and 1997, and the results
of their operations and their cash flows for each of the years then ended, in
conformity with generally accepted accounting principles.
BDO SEIDMAN, LLP
San Francisco, California
April 10, 1998, except for the
reorganization and recapitalization
described in Note 1, as to which its
date is , 1999
F-2
<PAGE> 54
BUTTERFIELD & BUTTERFIELD,
AUCTIONEERS CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
SEPTEMBER 30, 1998
DECEMBER 31, DECEMBER 31, 1998 PRO FORMA
1996 1997 ACTUAL (NOTE 1)
------------ ------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current
Cash and cash equivalents.............................. $ 2,325,581 $ 7,232,763 $ 1,058,075 $ 1,058,075
Receivables, less allowances for doubtful accounts of
$426,140, $456,012 and $462,310 (Note 2)............. 8,321,406 6,530,927 6,497,639 6,497,639
Receivable from related parties (Note 8)............... 1,422,755 622,790 538,037 538,037
Inventories (Note 5)................................... 436,350 1,851,467 1,558,467 1,558,467
Prepaid expenses and other assets...................... 245,692 427,302 529,960 529,960
Deferred income tax assets -- current portion (Notes 1
and 6)............................................... 15,750 21,750 21,750 606,000
----------- ----------- ----------- -----------
Total Current Assets..................................... 12,767,534 16,686,999 10,203,928 10,788,178
----------- ----------- ----------- -----------
Property and Equipment (Notes 6, 9 and 8)
Land................................................... 269,703 -- -- --
Buildings and building improvements.................... 822,770 -- -- --
Furniture, fixtures and equipment...................... 2,002,762 2,041,889 2,296,929 2,296,929
Leasehold improvements................................. 2,066,251 2,153,941 2,180,105 2,180,105
Automobiles............................................ 206,839 244,598 366,362 366,362
----------- ----------- ----------- -----------
5,368,325 4,440,428 4,843,396 4,843,396
Less accumulated depreciation............................ 2,301,242 2,157,382 2,585,258 2,585,258
----------- ----------- ----------- -----------
Net Property and Equipment............................... 3,067,083 2,283,046 2,258,138 2,258,138
----------- ----------- ----------- -----------
Other Assets
Asset held for sale (Note 5)........................... -- 1,359,736 1,359,736 1,359,736
Deferred income tax assets, less current portion (Notes
1 and 6)............................................. 5,250 7,250 7,250 125,000
Deposits............................................... 19,200 15,700 24,000 24,000
Goodwill and covenant not-to-compete, net of
accumulated amortization of $18,000, $20,000 and
$34,372 (Note 9)..................................... 2,000 -- 675,637 675,637
----------- ----------- ----------- -----------
26,450 1,382,686 2,066,623 2,184,373
----------- ----------- ----------- -----------
$15,861,067 $20,352,731 $14,528,689 $15,230,689
=========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current
Line of credit (Note 3)................................ $ -- $ -- $ 868,765 $ 868,765
Accounts payable....................................... 329,692 484,689 1,099,260 1,099,260
Notes payable (Note 4)................................. 500,000 100,000 -- --
Payable to consignors.................................. 9,015,592 11,570,850 4,973,650 4,973,650
Accrued expenses (Note 8).............................. 1,108,442 1,329,524 930,905 930,905
Payroll, employee benefits and payroll taxes payable... 678,256 1,294,218 693,543 693,543
Current maturities of long-term debt (Note 5).......... -- 48,496 302,000 302,000
Distribution payable (Note 1).......................... -- -- -- 3,600,000
----------- ----------- ----------- -----------
Total Current Liabilities................................ 11,631,982 14,827,777 8,868,123 12,468,123
Long-Term Debt, less current portion (Note 5)............ -- 614,098 820,479 820,479
----------- ----------- ----------- -----------
Total Liabilities........................................ 11,631,982 15,441,875 9,688,602 13,288,602
----------- ----------- ----------- -----------
Commitments and Contingency (Notes 3, 7 and 8)
Stockholders' Equity (Note 1)
Common stock -- par value $.01, authorized 15,000,000
shares, issued and outstanding 4,752,364 shares...... 47,523 47,523 47,523 47,523
Additional paid-in capital............................. 870,957 1,020,957 1,170,957 1,894,564
Retained earnings...................................... 3,310,605 3,842,376 3,621,607 --
----------- ----------- ----------- -----------
Total Stockholders' Equity............................... 4,229,085 4,910,856 4,840,087 1,942,087
----------- ----------- ----------- -----------
$15,861,067 $20,352,731 $14,528,689 $15,230,689
=========== =========== =========== ===========
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-3
<PAGE> 55
BUTTERFIELD & BUTTERFIELD,
AUCTIONEERS CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------------- --------------------------
1996 1997 1997 1998
----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Net auction commissions, inventory
sales and fees................... $16,670,374 $19,981,751 $13,309,228 $13,269,913
Financial services revenues......... 398,122 289,277 245,723 112,118
----------- ----------- ----------- -----------
17,068,496 20,271,028 13,554,951 13,382,031
----------- ----------- ----------- -----------
Expenses:
Salaries and related costs (Note
7)............................... 8,388,620 9,589,560 6,486,241 7,227,234
General and administrative costs
(Note 8)......................... 4,160,969 4,391,437 3,252,719 3,397,329
Auction and sale operating
expenses......................... 1,541,344 1,905,989 1,239,732 1,491,010
Depreciation and amortization....... 535,658 490,624 370,421 446,846
----------- ----------- ----------- -----------
14,626,591 16,377,610 11,349,113 12,562,419
----------- ----------- ----------- -----------
Income from Operations................ 2,441,905 3,893,418 2,205,838 819,612
----------- ----------- ----------- -----------
Other Income (Expense)
Interest income (Note 8)............ 161,854 164,094 103,925 147,858
Interest expense (Notes 3, 4 and
5)............................... (348,054) (57,542) (52,533) (67,414)
Miscellaneous income, net (Note
8)............................... 377,554 221,682 196,124 144,161
----------- ----------- ----------- -----------
191,354 328,234 247,516 224,605
----------- ----------- ----------- -----------
Income before Income Taxes............ 2,633,259 4,221,652 2,453,354 1,044,217
Income Tax Benefit (Expense) (Notes 1
and 6).............................. (42,644) (39,881) (23,051) (14,986)
----------- ----------- ----------- -----------
Net Income (Note 10).................. $ 2,590,615 $ 4,181,771 $ 2,430,303 $ 1,029,231
=========== =========== =========== ===========
Pro Forma Information (Unaudited)
(Notes 1, 6 and 10) Historical
income before income taxes.......... $ 2,633,259 $ 4,221,652 $ 2,453,354 $ 1,044,217
Pro forma income taxes.............. 1,053,000 1,689,000 981,000 418,000
----------- ----------- ----------- -----------
Pro forma net income (Unaudited).... $ 1,580,259 $ 2,532,652 $ 1,472,354 $ 626,217
=========== =========== =========== ===========
Pro forma basic earnings per
share............................ $ 0.49 $ 0.12
----------- -----------
Weighted average shares
outstanding...................... 5,122,957 5,122,957
=========== ===========
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-4
<PAGE> 56
BUTTERFIELD & BUTTERFIELD,
AUCTIONEERS CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(SEE NOTE 1)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
--------- ------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1996.............. 4,752,364 $47,523 $ 870,957 $ 719,990 $ 1,638,470
Net income............................ -- -- -- 2,590,615 2,590,615
--------- ------- ---------- ----------- -----------
Balance, December 31, 1996............ 4,752,364 47,523 870,957 3,310,605 4,229,085
Capital contributions from BCCI
stockholders........................ -- -- 150,000 -- 150,000
Distributions to stockholders......... -- -- -- (3,650,000) (3,650,000)
Net income............................ -- -- -- 4,181,771 4,181,771
--------- ------- ---------- ----------- -----------
Balance, December 31, 1997............ 4,752,364 47,523 1,020,957 3,842,376 4,910,856
Capital contributions from BCCI
stockholders (unaudited)............ -- -- 150,000 -- 150,000
Distributions to stockholders
(unaudited)......................... -- -- -- (1,250,000) (1,250,000)
Net income (unaudited)................ -- -- -- 1,029,231 1,029,231
--------- ------- ---------- ----------- -----------
Balance, September 30, 1998
(unaudited)......................... 4,752,364 $47,523 $1,170,957 $ 3,621,607 $ 4,840,087
========= ======= ========== =========== ===========
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-5
<PAGE> 57
BUTTERFIELD & BUTTERFIELD,
AUCTIONEERS CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------- -------------------------
1996 1997 1997 1998
------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net income........................................ $ 2,590,615 $ 4,181,771 $ 2,430,303 $ 1,029,231
------------ ------------ ----------- -----------
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization................... 535,658 490,624 370,421 446,846
Allowance for doubtful accounts................. -- 29,872 54,529 6,298
Gain on sale of property and equipment.......... (142,781) (25,728) (24,641) --
Deferred income taxes........................... 3,000 (8,000) 10,000 --
Interest income added to related party
receivable.................................... (62,781) (30,597) (30,597) --
Rent & interest expense paid by reduction of
receivables................................... 542,196 1,018,536 1,018,536 --
Changes in assets and liabilities:
Receivables................................... 3,743,041 975,974 72,883 75,082
Inventories................................... 45,575 (1,265,117) (1,306,548) 293,000
Prepaid expenses and other assets............. 107,691 (212,455) (325,451) (110,958)
Accounts payable.............................. (352,909) 127,811 47,334 614,571
Payable to consignors......................... 1,038,325 2,555,258 (2,044,214) (6,597,200)
Accrued expenses.............................. (81,358) 221,082 99,253 (398,619)
Payroll, employee benefits and payroll taxes
payable.................................... 112,625 615,962 62,097 (600,675)
------------ ------------ ----------- -----------
Total adjustments.......................... 5,488,282 4,493,222 (1,996,398) (6,271,655)
------------ ------------ ----------- -----------
Net Cash Provided (Used) by Operating Activities.... 8,078,897 8,674,993 433,905 (5,242,424)
------------ ------------ ----------- -----------
Cash Flows from Investing Activities
Purchase of property and equipment................ (520,335) (478,326) (299,242) (347,575)
Acquisition of business assets.................... -- -- -- (250,000)
Proceeds from sale of property and equipment...... 809,427 655,751 619,180 --
Advance to or on behalf of related parties........ (1,369,215) (88,139) (88,139) --
Payments from related parties..................... -- 48,061 17,069 36,661
------------ ------------ ----------- -----------
Net Cash Provided (Used) by Investing Activities.... (1,080,123) 137,347 248,868 (560,914)
------------ ------------ ----------- -----------
Cash Flows from Financing Activities
Proceeds from line of credit...................... 35,564,687 12,766,472 290,602 1,412,514
Payments on line of credit........................ (37,939,687) (12,766,472) -- (543,749)
Proceeds from notes payable....................... 800,000 -- -- --
Payments on notes payable......................... (4,250,000) (405,158) (400,000) (140,115)
Contributions from stockholders................... -- 150,000 150,000 150,000
Distributions to stockholders..................... -- (3,650,000) (1,650,000) (1,250,000)
------------ ------------ ----------- -----------
Net Cash Used in Financing Activities............... (5,825,000) (3,905,158) (1,609,398) (371,350)
------------ ------------ ----------- -----------
Net Increase (Decrease) in Cash and Cash
Equivalents....................................... $ 1,173,774 $ 4,907,182 $ (926,625) $(6,174,688)
Cash and Cash Equivalents, beginning of period...... 1,151,807 2,325,581 2,325,581 7,232,763
------------ ------------ ----------- -----------
Cash and Cash Equivalents, end of period............ $ 2,325,581 $ 7,232,763 $ 1,398,956 $ 1,058,075
============ ============ =========== ===========
Supplemental Disclosures
Cash paid:
Interest paid..................................... $ 338,781 $ 98,226 $ 67,414 $ 38,813
Income taxes paid................................. $ 2,000 $ 70,100 $ 31,469 $ 30,045
Non-cash transactions:
Receivable from related party obtained in
connection with sale of building................ $ -- $ 178,062 $ 178,062 $ --
Unamortized lease commissions written off in
connection with sale of building................ $ -- $ 34,345 $ 34,345 $ --
Building and inventory obtained in connection with
foreclosure..................................... $ -- $ 1,509,737 $ -- $ --
Notes and accounts payable assumed in connection
with foreclosure................................ $ -- $ 694,939 $ -- $ --
Receivables canceled in connection with
foreclosure..................................... $ -- $ 814,798 $ -- $ --
Acquisition of business assets financed through
note payable.................................... $ -- $ -- $ -- $ 500,000
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-6
<PAGE> 58
BUTTERFIELD & BUTTERFIELD,
AUCTIONEERS CORP. AND SUBSIDIARY
SUMMARY OF ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Butterfield & Butterfield, Auctioneers Corp. ("B&B") and subsidiary (see
Note 1) (collectively, the "Company") conduct auctions and perform appraisal
services of fine art, jewelry, antiques and wine. Auction activities occur
primarily in San Francisco, Los Angeles and the Chicago area. B&B's wholly-owned
subsidiary, Butterfield's Credit Corporation, Inc. ("BCCI"), operates as a
financing company for the Company's clients.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of B&B and BCCI
for the years ended December 31, 1996 and 1997 (previously presented as combined
financial statements, as discussed in Note 1), and the nine-month periods ended
September 30, 1997 and 1998. All material intercompany transactions have been
eliminated.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with an
initial maturity of three months or less to be cash equivalents.
REVENUE RECOGNITION
Auction commission income, inventory sales, and auction-related fees are
generally recognized at the date of the related sale. Income from financial,
appraisal, and other services is recognized as services are rendered.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is computed by the
straight-line and accelerated methods over the estimated useful lives of the
related assets, ranging from three years for computer equipment to 31.5 years
for buildings. Leasehold improvements are amortized over the shorter of
estimated useful life or term of the related lease, generally nine years or
less.
GOODWILL
Goodwill, resulting from purchase acquisitions, is amortized over its
estimated useful life, generally five to fifteen years.
INVENTORY
Inventory generally consists of objects obtained as a result of the auction
process (returned or unsold items, etc.) or of goods purchased specifically for
resale. Inventory is valued at the lower of cost (specific identification) or
estimated net realizable value.
TAXES ON INCOME
Taxes on income are calculated using the liability method specified by
Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for
Income Taxes.
F-7
<PAGE> 59
ADVERTISING COSTS
The Company incurs advertising expense primarily relating to the
distribution of catalogs and the broadcasting of radio and television
commercials. Advertising costs are expensed as incurred. Advertising expense was
$925,687 and $867,563 during the years ended December 31, 1996 and 1997,
respectively.
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.
LONG-LIVED ASSETS
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable or whenever management has committed to a plan to dispose of the
assets. Such assets are carried at the lower of book value or fair value as
estimated by management based on appraisals, current market value, and
comparable sales value, as appropriate. Assets to be held and used affected by
such impairment loss are depreciated or amortized at their new carrying amount
over the remaining estimated life; assets to be sold or otherwise disposed of
are not subject to further depreciation or amortization. In determining whether
impairment exists, the Company compares estimated undiscounted future cash flows
to the carrying value of the asset.
EARNINGS PER SHARE
Basic earnings per share includes no dilution and is calculated by dividing
income available to common stockholders by the average number of shares actually
outstanding during the period. Diluted earnings per share reflect the potential
dilution of securities (such as stock options, warrants and securities
convertible into common stock) that could share in the earnings of an entity. No
dilutive securities were issued prior to 1999.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1998, the Company adopted the provisions of SFAS No.
131, Disclosures about Segments of an Enterprise and Related Information. The
Company believes that it operates in only one reportable business segment,
dealing and auctioning fine arts and other collectible items, and thus is
subject only to the disclosure requirements applicable to all companies.
SFAS No. 131 does not address issues of recognition or measurement of
segment revenues and expenses and, accordingly, had no impact on the financial
condition or results of operations of the Company upon adoption.
Effective January 1, 1998, the Company adopted the provisions of SFAS No.
130, Reporting Comprehensive Income. SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components in an entity's
financial statements. The objective of SFAS No. 130 is to report a measure of
all changes in the equity of an enterprise that result from transactions and
other economic events of the period. Comprehensive income is the total of net
income and all other non-owner changes in equity. SFAS No. 130 does not address
issues of recognition or measurement for comprehensive income and its
components, and therefore, it had no an impact on the financial condition or
results of operation of the Company upon adoption. Currently, there are no
transactions that would give rise to reporting or disclosure differences between
reported income and comprehensive income.
Effective January 1, 1998, the Company also adopted the provision of SFAS
No. 132, Employers' Disclosures about Pensions and Other Postretirement
Benefits. SFAS No. 132 standardizes the disclosure requirements for pensions and
other postretirement benefits to the extent practicable, requires additional
information on changes in the benefit obligations and fair values of plan assets
that will facilitate financial
F-8
<PAGE> 60
analysis, and eliminates certain disclosures which are no longer as useful as
they were when previous related accounting standards were issued.
SFAS No. 132 does not address issues of measurement or recognition for
previous and other postretirement benefits and, accordingly, had no impact on
the financial condition or results of operations of the Company upon adoption.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 requires companies to recognize
all derivative contracts as wither assets or liabilities in the balance sheet
and to measure them at fair value. If certain conditions are met, a derivative
may be specifically designated as a hedge, the objective of which is to match
the timing of gain or loss recognition on the hedging derivative with the
recognition of (i) the changes in the fair value of the hedged asset or
liability that are attributable to the hedged risk, or (ii) the earnings effect
of the hedged forecasted transaction. For a derivative not designated as a
hedging instrument, the gain or loss is recognized in income in the period of
change. SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. Historically, the Company has not entered into
derivative contracts either to hedge existing risks or for speculative purposes.
OPERATING LEASES
Total contractual rental payments are recognized ratably over the life of
the leases. Any related deferred rent is included in accrued expenses in the
accompanying balance sheets.
FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash, accounts receivable
and debt. The carrying value of cash and accounts receivable approximate fair
value based upon the liquidity and short-term nature of the assets. The carrying
value of short-term and long-term debt approximates the fair value based upon
short-term and long-term borrowings at market rate interest.
Cash and cash equivalents are held principally at three high-quality
financial institutions. At times, such balances may be in excess of the FDIC
insurance limit. As of December 31, 1996 and 1997, this amount approximated $1.5
million and $6.4 million.
INTERIM FINANCIAL INFORMATION
The accompanying consolidated balance sheet as of September 30, 1998, and
the consolidated statements of income and cash flows for the nine-month periods
ended September 30, 1997 and 1998 have not been audited. However, in the opinion
of management, they include all adjustments necessary for a fair presentation of
the financial position and the results of operations for the periods presented.
The results of operations for the nine months ended September 30, 1998, are not
necessarily indicative of results to be expected for any future period.
F-9
<PAGE> 61
BUTTERFIELD & BUTTERFIELD,
AUCTIONEERS CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)
1. BASIS OF PRESENTATION, REORGANIZATION AND UNAUDITED PRO FORMA INFORMATION
The Company intends to file a Registration Statement for an Initial Public
Offering (IPO) on Form SB-2 with the Securities & Exchange Commission in the
first quarter of 1999. In connection with the IPO, B&B and BCCI have initiated
or will initiate certain events (the "Reorganization"). BCCI will contribute its
stock to B&B and become a wholly-owned subsidiary of B&B. Simultaneously, B&B
will declare and give effect to a 1,093 for one stock split. Accordingly, the
historical financial statements for all periods presented have been prepared to
give effect to the combination and stock split, as if they had occurred on
January 1, 1996, the first day of the earliest period presented. Under this
presentation, the previously issued "combined" results are now presented as
consolidated results, and the total number of outstanding shares reflects the
stock split. There was no change to results of operations as a result of these
capital structure changes.
Components of stockholders' equity prepared on a historical basis of
accounting at September 30, 1998, are as follows:
<TABLE>
<S> <C> <C>
Common Stock:
B&B -- par value $10, authorized 5,000 shares, issued
and outstanding 4,348 shares....................... $43,480
BCCI -- par value $25, authorized, issued and
outstanding 1,000 shares........................... 25,000 $ 68,480
-------
Additional Paid-in Capital.............................. 1,150,000
Retained Earnings....................................... 3,621,607
----------
Total......................................... $4,840,087
==========
</TABLE>
Concurrently with the Reorganization, B&B and BCCI will terminate their
Subchapter S corporation status and will become subject to federal and state
income taxes. The accompanying consolidated statements of income reflect a pro
forma provision for income taxes for all periods presented, based upon pretax
income, as if the consolidated group discussed above had been subject to C
corporation federal and state income taxes (see Note 5).
Pro forma earnings per share in the historical columns of the accompanying
statements of income are based on pro forma net income after this estimated
provision for income taxes and the weighted average number of shares of common
stock outstanding adjusted for the effects of the BCCI contribution of its
shares to B&B and the stock split also referred to above. Also included in
weighted average shares is the number of shares (370,593) required to be sold to
fund distributions to existing shareholders in the amount of $3,600,000 (see
below).
The termination of the Company's S Corporation status will result in a
one-time credit to income tax expense resulting from the increase in deferred
tax assets at C Corporation rates from those deferred tax assets previously
recorded at S Corporation rates. The results of this increase are reflected in
the Pro Forma September 30, 1998 column of the accompanying balance sheets as if
the termination of S Corporation status had occurred on that date.
Additionally, in connection with the Reorganization, the Company will
declare and pay a dividend to the existing stockholders representing a portion
of the earned, but undistributed, Subchapter S earnings through the closing date
of the Reorganization. The payments to the existing stockholders are currently
estimated to total approximately $6,250,000 based on undistributed accumulated S
Corporation earnings through September 30, 1998 plus an estimate of earnings
through the date of Reorganization. Subsequent to September 30,
F-10
<PAGE> 62
BUTTERFIELD & BUTTERFIELD,
AUCTIONEERS CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)
1998, $150,000 and $1,000,000 in distributions were paid to existing
stockholders in 1998 and 1999 out of cash from operations. The remaining
payments are expected to be made from proceeds of this offering. The portion of
this distribution which approximates the amount of earnings accumulated for
financial statement purposes through September 30, 1998, or $3,600,000, is
reflected in the Pro Forma September 30, 1998 column of the accompanying balance
sheets as if it had been declared on that date. The entire amount is presented
as a distribution payable on September 30, 1998, since the existing cash
balances are needed to fund current operations. Any remaining S Corporation
retained earnings not distributed will be treated as additional paid-in-capital
beginning on the date of Reorganization.
2. RECEIVABLES
Receivables consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1997
---------- ----------
<S> <C> <C>
Auction receivables................................. $4,941,334 $5,486,313
Consignor advance loans............................. 3,805,212 1,358,096
Other............................................... 1,000 142,530
Allowance for doubtful accounts -- consignor
loans............................................. (190,998) (187,715)
Allowance for doubtful accounts -- all other
receivables....................................... (235,142) (268,297)
---------- ----------
Total..................................... $8,321,406 $6,530,927
========== ==========
</TABLE>
3. BANK LINE OF CREDIT
B&B and BCCI each have a $3,000,000 bank line of credit which expire on
July 31, 1999 and are each guaranteed by the other party. There were no
outstanding balances at December 31, 1996 and 1997. Amounts due at September 30,
1998 totaled $868,765. The lines of credit require compliance with certain
financial covenants and annual profitability. The Companies were in compliance
with these covenants at December 31, 1997.
Interest is generally charged at the Bank's prime rate (8.0% at September
30, 1998) less .25%. However, the Company has the option to select from
variations of the London Interbank Offered Rate (LIBOR) (5.3125% to 5.375% at
September 30, 1998) plus 2% for all or a portion of the outstanding balance for
a predetermined loan term of 30 days to a year.
4. NOTES PAYABLE
Notes payable consist of two demand notes totaling $500,000 and one demand
note payable to an individual totaling $100,000 at December 31, 1996 and 1997,
respectively. One demand note totaling $400,000 at December 31, 1996 was paid in
full during 1997. The $100,000 remaining demand note was repaid during 1998.
5. LONG-TERM DEBT
During 1997, the Company foreclosed on secured receivables totaling
$814,798, and assumed a related note payable for $667,753, plus unpaid property
taxes of $27,186. The property received in the foreclosure
F-11
<PAGE> 63
BUTTERFIELD & BUTTERFIELD,
AUCTIONEERS CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)
consisted of inventory with estimated value of $150,000, and real property
recorded at the remaining value of consideration given of $1,359,737, which
approximates its fair value. The real property has been classified as asset held
for sale on the balance sheet, because the Company has not used the property in
its business operations and has actively listed the property for sale since the
foreclosure date. The related loan bears interest at a fixed rate of 10.5% and
is due in monthly principal and interest installments of $9,330. As of December
31, 1997, future maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
------------------------ --------
<S> <C>
1998...................................................... $ 48,496
1999...................................................... 50,394
2000...................................................... 45,820
2001...................................................... 33,534
2002...................................................... 37,177
Thereafter................................................ 447,173
--------
$662,594
========
</TABLE>
In connection with the purchase of Dunnings Auction Services, Inc.,
(Dunnings) (see Note 9), the Company became liable for a note payable to the
prior owners in the original amount of $500,000. The note carries interest at
8.5%, and is due in two approximately equal installments on June 30, 1999 and
2000. The balance payable at September 30, 1998, after reductions for payments
of certain items, on behalf of Dunnings Auction Services, Inc., and increases
for accrued interest, is $492,929.
6. TAXES ON INCOME
The Company has elected to be taxed as an "S" corporation and therefore,
its taxable income is reported on the stockholders' individual income tax
returns. As a result, no federal income tax is imposed on the Company. State
income taxes are calculated at the greater of the $800 per company minimum tax
or 1.5% of taxable income.
Deferred income taxes arise due to temporary differences resulting
primarily from accumulated depreciation and allowances for doubtful accounts.
The deferred income tax assets consist of the cumulative tax effect of these
temporary differences, and, in the opinion of management, will be realized as an
offset to future taxable income.
As discussed in the Summary of Accounting Policies, in connection with the
Company's IPO of common stock (see Note 1), B&B and BCCI will terminate their
Subchapter S corporation status and will become subject to federal and state
income taxes applicable to C corporations. The accompanying consolidated
statements of income reflect a pro forma provision for all periods for federal
and state taxes (as if the combined group had been subject to C corporation
rates) at a combined effective tax rate of 40%. The difference between the
estimated rate and the 34% statutory federal rate is primarily attributable to
state income and franchise taxes.
Upon termination of Subchapter S status, and based upon management's
determination that it is more likely than not that deferred tax assets will be
realized, the Company will record an increase in net deferred tax assets and an
accompanying one-time tax benefit to reflect the differences between the
financial statement and income tax basis of the assets and liabilities at C
corporation rates. If the Subchapter S status had been
F-12
<PAGE> 64
BUTTERFIELD & BUTTERFIELD,
AUCTIONEERS CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)
terminated on September 30, 1998, net deferred tax assets for each temporary
difference would have been increased to the following amounts:
<TABLE>
<S> <C>
Accrued vacation.......................................... $134,000
Deferred rents............................................ 207,000
Accumulated depreciation and amortization................. 125,000
Reserves against receivables.............................. 185,000
State income taxes........................................ 71,000
Other..................................................... 9,000
--------
$731,000
========
</TABLE>
7. EMPLOYEE BENEFIT PLANS
The Company has a defined savings contribution plan that covers employees
after one year of service. Under the Plan, participants may elect to contribute
up to 15% of their compensation, up to a maximum amount allowable under IRS
regulations on a pre-tax basis. In addition, the Company may contribute to the
plan up to 25% of the first 2% of each participant's compensation in an amount
determined annually by the Board of Directors. The Company's contributions
amounted to $14,080 and $11,498 for the years ended December 31, 1996 and 1997.
In February 1999, the Company's Board of Directors approved the 1999 Equity
Incentive Plan, which provides for the grant of incentive stock options to
employees, and for the grant of nonstatutory stock options, restricted stock
purchase awards, and stock bonuses to employees, directors, and consultants of
the Company. The exercise price of an incentive stock option cannot be less than
100% of the fair market value of the common stock on the data of the grant. The
Plan will be administered by the Board of Directors or a Committee of the Board
of Directors, who will have the authority to determine the recipients and types
of awards to be granted. No options, restricted stock purchase awards, or stock
bonuses have been granted under the Plan. A total of 914,841 shares of the
Company's common stock will be reserved for issuance under the Plan in
connection with the Reorganization described in Note 1.
8. RELATED PARTY TRANSACTIONS
The Company leases certain of its San Francisco and Los Angeles office and
warehouse spaces from partnerships controlled by stockholders. These leases are
non-cancelable operating leases, expiring through June 30, 2005. In addition,
the Company currently leases office and warehouse space in Elgin, Illinois, from
the former owners of Dunnings (see Note 9), at $8,300 monthly, expiring June 30,
1999.
F-13
<PAGE> 65
BUTTERFIELD & BUTTERFIELD,
AUCTIONEERS CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)
Future minimum annual lease payments for non-cancelable operating leases as
of December 31, 1997 (not including the Dunnings lease) are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, TOTAL
------------------------ -----
<S> <C>
1998.................................................... $ 1,883,000
1999.................................................... 1,939,000
2000.................................................... 1,997,000
2001.................................................... 2,057,000
2002.................................................... 2,119,000
Thereafter.............................................. 6,746,000
-----------
$16,741,000
===========
</TABLE>
Total rent expense for office and warehouse space was $1,842,600 and
$2,012,507 in 1996 and 1997.
In connection with the Dunnings purchase (see Note 9), the Company entered
into an employment agreement with a former owner of Dunnings. Under the
agreement, the Company shall continue base salary payments of $175,000 annually
through the November 2001 expiration date in the event of the employee's death
or termination with without cause. Payments shall cease upon resignation or
termination with cause.
On January 3, 1997, the Company sold a building with a net book value of
$770,754 to a Limited Liability Company (LLC) controlled by shareholders.
Proceeds from the sale amounted to $652,000 in cash plus $178,062 in estimated
reimbursements of Company expenditures for clean-up of land contamination, less
$11,246 expenses of sale. The LLC's total contractual liability for such
clean-up expenses is limited to $279,000. The net gain of $24,641 is included in
miscellaneous income and expense in the accompanying statements of income. Costs
reimbursed for clean-up amounted to $48,062 in 1997; remaining amounts
receivable from the LLC at December 31, 1997 are $130,000, the expected amount
of future environmental cleanup costs.
During 1996, the Company advanced a total of $1,369,215 in construction
remodeling costs on behalf of its landlord and accrued related interest income
of $62,781. These amounts, which carried interest at 8.25%, were absorbed in
1996 and 1997 by offsetting the Company's periodic rental payments due to 111
Potrero Partners, LLC, an entity owned in part by two of the Company's principal
shareholders. In 1997, an additional $88,139 was advanced and $30,597 accrued in
interest income. During 1996 and 1997, $542,196 and $1,018,536 were offset to
rent expense. The balance due from 111 Potrero Partners, LLP, was $899,800 at
December 31, 1996; the entire balance plus new activity was absorbed during
1997.
Included in amounts receivable from related parties are notes and accounts
receivable from employees of $522,955 and $492,790 at December 31, 1996 and
1997, respectively. Of these amounts, $215,957 and $209,436 carried interest at
10% at December 31, 1997 and 1998; the remaining balances are non interest-
bearing.
Subsequent to September 30, 1998, the Company purchased a building located
in Chicago from the LLC for approximately $3,000,000.
9. ACQUISITION
Effective June 30, 1998, the Company purchased the assets of Dunnings
Auction Services, Inc., an auction house located in Elgin, Illinois, for a total
purchase price of $750,000 consisting of $250,000 in cash and $500,000 in debt
(see Note 5). The approximately $574,000 excess of purchase price over a
$100,000 five-
F-14
<PAGE> 66
BUTTERFIELD & BUTTERFIELD,
AUCTIONEERS CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1998 IS UNAUDITED)
and-a-half year covenant-not-to-compete and other identifiable assets has been
charged to goodwill, and is being amortized over the estimated useful life of 15
years. The transaction has been recorded as a purchase, and, accordingly,
results of operations are included in the consolidated financial statements from
July 1, 1998 forward. Results of operations as if the acquisition had occurred
January 1, 1996, beginning of the earliest period presented, would have been
substantially the same.
10. EARNINGS PER SHARE
During 1998, the Securities and Exchange Commission modified its rules to
require non-public companies to include historical earnings per share when
filing an IPO. The calculation has reflected the change in the capital structure
as discussed in Note 1. The following information is not deemed reflective of
expected future earnings per share due to the change in legal status from an S
Corporation to a C Corporation.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1996 1997 1997 1998
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Basic earnings per share................ $ .55 $ .88 $ .51 $ .22
Weighted average shares outstanding..... 4,752,364 4,752,364 4,752,364 4,752,364
</TABLE>
11. RESTATEMENT
The Companies previously issued financial statements have been restated to
account for rent expense on a straight-line basis instead of an accrual basis.
The effect of this change in accounting principle was to reduce previously
reported income for 1996 by approximately $231,000 and increase 1997 income by
approximately $231,000. As of December 31, 1996, retained earnings was reduced
by approximately $231,000 and accrued expenses increased by approximately
$231,000 to account for this change.
F-15
<PAGE> 67
[INSIDE BACK COVER]
Butterfield & Butterfield
Around the Corner, Around the World
Since 1865
Background Graphic: Three
identical images of an antique
map of the world
5.
<PAGE> 68
- - ------------------------------------------------------
- - ------------------------------------------------------
YOU MAY RELY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE INFORMATION DIFFERENT FROM THAT CONTAINED IN THIS
PROSPECTUS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR SALE OF COMMON STOCK
MEANS THAT INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT AFTER THE DATE OF
THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL OR SOLICITATION OF AN
OFFER TO BUY THESE SHARES OF THE COMMON STOCK IN ANY CIRCUMSTANCES UNDER WHICH
THE OFFER OR SOLICITATION IS UNLAWFUL.
------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
Prior S Corporation Status............ 15
Use of Proceeds....................... 16
Dividend Policy....................... 16
Dilution.............................. 17
Capitalization........................ 18
Selected Consolidated Financial
Data................................ 19
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 20
Business.............................. 27
Management............................ 35
Certain Transactions.................. 40
Principal Stockholders................ 41
Description of Capital Stock.......... 42
Shares Eligible for Future Sale....... 44
Underwriting.......................... 45
Legal Matters......................... 46
Experts............................... 46
Additional Information................ 47
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
- - ------------------------------------------------------
- - ------------------------------------------------------
- - ------------------------------------------------------
- - ------------------------------------------------------
1,500,000 SHARES
BUTTERFIELD & BUTTERFIELD LOGO
COMMON STOCK
------------------------------
PROSPECTUS
------------------------------
FIRST SECURITY VAN KASPER
, 1999
- - ------------------------------------------------------
- - ------------------------------------------------------
<PAGE> 69
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Under Section 145 of the Delaware General Corporation Law, the Registrant
has broad powers to indemnify its directors and officers against liabilities
they may incur in such capacities, including liabilities under the Securities
Act of 1933, as amended (the "Securities Act"). The Registrant's Bylaws also
provide that the Registrant will indemnify its directors and executive officers
and may indemnify its other officers, employees and other agents to the fullest
extent not prohibited by Delaware law.
The Registrant's Certificate of Incorporation provides for the elimination
of liability for monetary damages for breach of the directors' fiduciary duty of
care to the Registrant and its stockholders. These provisions do not eliminate
the directors' duty of care and, in appropriate circumstances, equitable
remedies such an injunctive or other forms of non-monetary relief will remain
available under Delaware law. In addition, each director will continue to be
subject to liability for breach of the director's duty of loyalty to the
Registrant, for acts or omissions not in good faith or involving intentional
misconduct, for knowing violations of law, for any transaction from which the
director derived an improper personal benefit, and for payment of dividends or
approval of stock repurchases or redemptions that are unlawful under Delaware
law. The provision does not affect a director's responsibilities under any other
laws, such as the federal securities laws or state or federal environmental
laws.
The Registrant has entered into agreements with its directors and executive
officers that require the Registrant to indemnify such persons against expenses,
judgments, fines, settlements and other amounts actually and reasonably incurred
(including expenses of a derivative action) in connection with any proceeding,
whether actual or threatened, to which any such person may be made a party by
reason of the fact that such person is or was a director or officer of the
Registrant or any of its affiliated enterprises, provided such person acted in
good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the Registrant and, with respect to any
criminal proceeding, had no reasonable cause to believe his or her conduct was
unlawful. The indemnification agreements also set forth certain procedures that
will apply in the event of a claim for indemnification thereunder.
The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the Underwriters of the Registrant and
its officers and directors for certain liabilities arising under the Securities
Act or otherwise.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses, other than the underwriting
discounts and commissions, payable by the Registrant in connection with the sale
of the common stock being registered. All the amounts shown are estimates except
for the registration fee, the NASD filing fee and the Nasdaq application fee.
<TABLE>
<S> <C>
Registration fee............................................ $ 5,755
NASD filing fee............................................. 2,570
Nasdaq application fee...................................... 38,750
Blue sky qualification fees and expenses.................... 5,000
Printing expenses........................................... 125,000
Legal fees and expenses..................................... 300,000
Accounting fees and expenses................................ 135,000
Transfer agent and registrar fees........................... 10,000
Miscellaneous............................................... 27,925
--------
Total............................................. $650,000
========
</TABLE>
II-1
<PAGE> 70
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Not applicable.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Restated Articles of Incorporation.
3.2 Bylaws, as amended.
3.3 Form of Certificate of Incorporation.
3.4 Form of Bylaws.
4.1 Reference is made to Exhibits 3.1 through 3.4.
4.2* Specimen stock certificate.
5.1* Opinion of Cooley Godward LLP.
10.1 Form of Indemnity Agreement between the Company and each of
its directors and executive officers.
10.2 1999 Equity Incentive Plan (the "Incentive Plan").
10.3 Form of Grant Notice and Stock Option Agreement under the
Incentive Plan.
10.4 Form of Grant Notice and Stock Option Agreement to be
effective upon the closing of this offering.
10.5 Standard Industrial Lease dated April 10, 1996 between the
Company and HBJ Partners, LLC.
10.6 Standard Industrial Lease dated January 1, 1996 between the
Company and HBJ Partners, LLC.
10.7 Standard Industrial Lease dated January 1, 1996 between the
Company and 111 Potrero Partners, LLC.
10.8 Standard Industrial Lease dated January 1, 1996 between the
Company and 111 Potrero Partners, LLC.
10.9 Revolving Line of Credit Note dated September 30, 1998
between the Company and Wells Fargo Bank, National
Association.
10.10 Revolving Line of Credit Note dated September 30, 1998
between BCCI and Wells Fargo Bank, National Association.
23.1 Consent of BDO Seidman, LLP.
</TABLE>
II-2
<PAGE> 71
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
23.2* Consent of Cooley Godward LLP. Reference is made to Exhibit
5.1.
24.1 Power of Attorney. Reference is made to page II-4.
27.1 Financial Data Schedule.
</TABLE>
- - ------------------------------
* To be filed by amendment.
(b) No financial statement schedules are required to be filed.
ITEM 28. 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.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the provisions described in Item 14 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, therefor, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant undertakes that: (1) for purposes of determining
any liability under the Securities Act of 1933, the information omitted from the
form of prospectus as filed as part of the 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 the registration statement as of the time it was declared
effective, and (2) for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 72
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Francisco, County of
San Francisco, State of California, on the 11th day of February, 1999.
BUTTERFIELD & BUTTERFIELD,
AUCTIONEERS CORP.
By /s/ JOHN D. GALLO
------------------------------------
John D. Gallo
President and Chief Executive
Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints John
Gallo and Kenneth Stupi his true and lawful attorney-in-fact and agent, each
acting alone, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign any or all
amendments (including post-effective amendments) to the Registration Statement
on Form SB-2, and to sign any registration statement filed under Rule 462 under
the Securities Act of 1933 including post-effective amendments thereto, and to
file the same, with all exhibits thereto, and all documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, each acting alone, or his or her substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JOHN D. GALLO President, Chief Executive February 11, 1999
- - -------------------------------------------------------- Officer and Director
John D. Gallo (Principal Executive
Officer)
/s/ KENNETH G. STUPI Chief Financial Officer February 11, 1999
- - -------------------------------------------------------- (Principal Financial and
Kenneth G. Stupi Accounting Officer)
/s/ BERNARD A. OSHER Chairman of the Board February 11, 1999
- - --------------------------------------------------------
Bernard A. Osher
Director February 11, 1999
- - --------------------------------------------------------
John R. DiMatteo
/s/ IRVING RABIN Director February 11, 1999
- - --------------------------------------------------------
Irving Rabin
/s/ WILL K. WEINSTEIN Director February 11, 1999
- - --------------------------------------------------------
Will K. Weinstein
</TABLE>
II-4
<PAGE> 73
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- - ------- -----------------------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Restated Articles of Incorporation.
3.2 Bylaws, as amended.
3.3 Form of Certificate of Incorporation.
3.4 Form of Bylaws.
4.1 Reference is made to Exhibits 3.1 through 3.4.
4.2* Specimen stock certificate.
5.1* Opinion of Cooley Godward LLP.
10.1 Form of Indemnity Agreement between the Company and each of
its directors and executive officers.
10.2 1999 Equity Incentive Plan (the "Incentive Plan").
10.3 Form of Grant Notice and Stock Option Agreement under the
Incentive Plan.
10.4 Form of Grant Notice and Stock Option Agreement to be
effective upon the closing of this offering.
10.5 Standard Industrial Lease dated April 10, 1996 between the
Company and HBJ Partners, LLC.
10.6 Standard Industrial Lease dated January 1, 1996 between the
Company and HBJ Partners, LLC.
10.7 Standard Industrial Lease dated January 1, 1996 between the
Company and 111 Potrero Partners, LLC.
10.8 Standard Industrial Lease dated January 1, 1996 between the
Company and 111 Potrero Partners, LLC.
10.9 Revolving Line of Credit Note dated September 30, 1998
between the Company and Wells Fargo Bank, National
Association.
10.10 Revolving Line of Credit Note dated September 30, 1998
between BCCI and Wells Fargo Bank, National Association.
23.1 Consent of BDO Seidman, LLP.
23.2* Consent of Cooley Godward LLP. Reference is made to Exhibit
5.1.
24.1 Power of Attorney. Reference is made to page II-4.
27.1 Financial Data Schedule.
</TABLE>
- - ------------------------------
* To be filed by amendment.
<PAGE> 1
Exhibit 3.1
RESTATED ARTICLES
OF INCORPORATION OF
BUTTERFIELD & BUTTERFIELD, AUCTIONEERS
BERNARD A. OSHER and BERTHA KELLER certify that:
1. They are the President and Secretary, respectively, of Butterfield &
Butterfield, Auctioneers, a California Corporation.
2. The Articles of Incorporation of said corporation have been restated and
amended to read in their entirety as follows:
"FIRST: The name of this corporation is:
BUTTERFIELD & BUTTERFIELD, AUCTIONEERS CORP.
SECOND: All of the corporation's issued shares of capital stock
of all classes shall be held of record by not more than ten (10)
persons. The corporation is a close corporation.
THIRD: The purpose of the corporation is to engage in any lawful
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. The corporation elects to be governed by the
provisions of the General Corporation Law of California in effect
on and after January 1, 1977.
FOURTH: The corporation is authorized to issue 5,000 shares of
capital stock, all of one class."
1.
<PAGE> 2
3. The amendment to the Articles of Incorporation was approved by the Board of
Directors of the corporation.
4. The amendment was approved by the required vote of shareholders in accordance
with Section 902 of the Corporations Code. The total number of outstanding
shares entitled to vote with respect to the amendment was 3,000, the favorable
vote of all such shares was required to approve the amendment, and all such
shares were voted in favor of the amendment.
/s/ Bernard A. Osher
------------------------------------
Bernard A. Osher,
President
/s/ Bertha Keller
------------------------------------
Bertha Keller,
Secretary
The undersigned, BERNARD A. OSHER and BERTHA KELLER, the President and
Secretary, respectively, of Butterfield & Butterfield, Auctioneers, each
declares under penalty of perjury that the matters set forth in the foregoing
Certificate are true of his or her own knowledge.
Executed at San Francisco, California on March 25, 1977.
/s/ Bernard A. Osher
------------------------------------
Bernard A. Osher,
/s/ Bertha Keller
------------------------------------
Bertha Keller
2.
<PAGE> 1
EXHIBIT 3.2
BUTTERFIELD & BUTTERFIELD, AUCTIONEERS CORP.
* * * * * *
BY-LAWS
* * * * * *
ARTICLE I
OFFICES
SECTION 1. The principal office shall be located in San Francisco,
California.
SECTION 2. The corporation may also have offices at such other places
both within and without the State of California as the board of directors may
from time to time determine or the business of the corporation may require.
ARTICLE II
ANNUAL MEETING OF SHAREHOLDERS
SECTION 1. All meetings of shareholders for the election of directors
shall be held in San Francisco, State of California, at such place as may be
fixed from time to time by the board of directors.
SECTION 2. The annual meeting of shareholders shall be held on a date
and at a time designated by the Board of Directors, provided that the date so
designated shall be not more than fifteen months after the preceding annual
meeting. At each annual meeting there shall be elected a board of directors, and
such other business as may properly be brought before the meeting shall be
transacted.
1.
<PAGE> 2
SECTION 3. Written notice of the annual meeting stating the place, day
and hour of the meeting shall be given to each shareholder entitled to vote
thereat not less than ten nor more than sixty days before the date of the
meeting. Such notice shall specify any matters which the board of directors
intends to present for shareholder action, and the names of management's
nominees for election as directors.
ARTICLE III
SPECIAL MEETINGS OF SHAREHOLDERS
SECTION 1. Special meetings of the shareholders, for any purpose or
purposes, unless otherwise provided by statute or by the articles of
incorporation, may be called at any time by the chairman of the board, the board
of directors, or the holders of not less than ten percent of all the shares
entitled to vote at the meeting. Special meetings of shareholders may be held
within or without the state of California.
SECTION 2. Written notice of a special meeting of shareholders, stating
the place, date, and hour, and the general nature of the business to be
transacted, shall be given to each shareholder entitled to vote thereat, not
less than ten nor more than sixty days before the date fixed for the meeting.
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SECTION 3. The business transacted at any special meeting of
shareholders shall be limited to the business stated in the notice.
ARTICLE IV
QUORUM AND VOTING OF STOCK
SECTION 1. The holders of a majority of the shares of stock issued and
outstanding and entitled to vote, represented in person or by proxy, shall
constitute a quorum at all meetings of the shareholders for the transaction of
business except as otherwise provided by statute or by the articles of
incorporation. If, however, such quorum shall not be present or represented at
any meeting of the shareholders, the shareholders present in person or
represented by proxy shall have power to adjourn the meeting to another time or
place, not more than forty-five days distant, without notice other than
announcement at the meetings, until a quorum be present or represented. At
such adjourned meeting at which a quorum shall be present or represented any
business may be transacted which might have been transacted at the meeting as
originally noticed.
SECTION 2. If a quorum is present, the affirmative vote of a majority
of the shares of stock represented at the meeting shall be the act of the
shareholders (except on the election of
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directors) unless the vote of a greater number of shares of stock or voting by
classes is required by law or the articles of incorporation.
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 leave less than a quorum, if any action
taken, other than adjournment, is approved by the holders of at least a majority
of the shares, present in person or represented by proxy, required to constitute
a quorum.
SECTION 3. Each outstanding share of stock, having voting power, shall
be entitled to one vote on each matter (other than the election of directors)
submitted to a vote at a meeting of shareholders. A shareholder may vote either
in person or by proxy executed in writing by the shareholder or by his duly
authorized attorney-in-fact, and filed with the secretary of the corporation.
The shareholders' vote may be by voice vote or by ballot; provided, however,
that any election for directors must be by ballot if demanded by any shareholder
before the voting has begun.
SECTION 4. At a shareholders' meeting at which directors are to be
elected, no shareholder shall be entitled to cumulate votes unless the
candidates' names have been placed in nomination prior to commencement of the
voting and a shareholder has given notice prior to commencement of the voting of
the shareholder's intention to cumulate votes. If any shareholder
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has given such a notice, then every shareholder entitled to vote may cumulate
votes for candidates in nomination 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 that shareholder's shares are entitled or distribute the shareholder's
votes on the same principle among any or all of the candidates, as the
shareholder thinks fit. The candidates receiving the highest number of votes, up
to the number of directors to be elected, shall be elected.
SECTION 5. Any action which 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, is signed by the
holders of outstanding shares having not less than the minimum number of votes
that would be necessary to authorize or take that action at a meeting. In the
case of election of directors, (except where filling a vacancy on the board
which has not been filled by the directors) such a consent shall be effective
only if signed by the holders of all outstanding shares entitled to vote for the
election of directors.
ARTICLE V
DIRECTORS
SECTION 1. The number of directors shall be two. The directors, other
than the first board of directors, shall be elected at the annual meeting of the
shareholders, and each director
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elected shall serve until the next succeeding annual meeting and until his
successor shall have been elected and qualified. The first board of directors
shall- hold office until the first annual meeting of shareholders.
SECTION 2. Vacancies (including those caused by removal of a director)
and newly created directorships resulting from any increase in the number of
directors may be filled by a majority of the directors then in office, though
less than a quorum, or by a sole remaining director and the directors so chosen
shall hold office until the next annual election and until their successors are
duly elected and qualified.
SECTION 3. The business and affairs of the corporation shall be managed
and all corporate powers shall be exercised by or under the direction of the
board of directors except as by the articles of incorporation or by these
by-laws required to be approved by the shareholders, or otherwise limited by
statute.
SECTION 4. The directors may keep the books of the corporation, except
such as are required by law to be kept within the state, outside of the State of
California, at such place or places as they may from time to time determine.
SECTION 5. The board of directors, by the affirmative vote of a
majority of the directors then in office, and irrespective of any personal
interest of any of its members, shall have authority to establish reasonable
compensation of all directors for services to the corporation as directors,
officers or otherwise.
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ARTICLE VI
MEETINGS OF THE BOARD OF DIRECTORS
SECTION 1. Meetings of the board of directors, regular or special, may
be held either within or without the State of California.
SECTION 2. The first meeting of each newly elected board of directors
shall be held immediately following the annual meeting of the shareholders, and
no notice of such meeting shall be necessary to the newly elected directors in
order legally to constitute the meeting, provided a quorum shall be present, or
it may convene at such place and time as shall be fixed by the consent in
writing of all the directors.
SECTION 3. Regular meetings of the board of directors may be held at
such time and at such place as shall from time to time be fixed by the board.
Such regular meetings may be held without notice.
SECTION 4. Special meetings of the board of directors may be called by
the president or the chairman of the board or any vice president or the
secretary or any two directors, by giving four days' notice by mail or 48 hours'
notice by telephone or telegraph or in person.
SECTION 5. Attendance of a director at any meeting shall constitute a
waiver of notice of such meeting, except where a director attends for the
express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened. Neither the
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business to be transacted at, nor the purpose of, any regular or special meeting
of the board of directors need be specified in the notice or waiver of notice of
such meeting.
SECTION 6. Two of the directors shall constitute a quorum for the
transaction of business unless a greater number is required by law or by the
articles of incorporation. The act of a majority of the directors present at any
meeting at which a quorum is present shall be the act of the board of directors,
unless the act of a greater number is required by statute or by the articles of
incorporation. If quorum shall hot be present at any meeting of directors,
majority of the directors present thereat may adjourn the meeting from time to
time, up to 24 hours, without notice other than announcement at the meeting,
until a quorum shall be present.
SECTION 7. Members of the board may participate, and shall be deemed to
be present in person, in a meeting through use of conference telephone or
similar communications equipment so long as all members participating can hear
one another.
SECTION 8. Any action required or permitted to be taken at a meeting of
the directors may be taken without a meeting if a consent in writing, setting
forth the action so taken, shall be signed individually or collectively by all
of the directors entitled to vote with respect to the subject matter thereof .
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ARTICLE VII
EXECUTIVE COMMITTEE
SECTION 1. The board of directors, by resolution adopted by a majority
of the number of directors fixed by the by-laws or otherwise, may designate two
or more directors to constitute an executive committee, which committee, to the
extent provided in such resolution, shall have and exercise all of the authority
of the board of directors in the management of the corporation, except as
otherwise provided by law. Vacancies in the membership of the committee shall be
filled by the board of directors at a regular or special meeting of the board
of directors. The executive committee shall keep regular minutes of its
proceedings and report the same to the board when required.
ARTICLE VIII
NOTICES
SECTION 1. Whenever, under the provisions of the statutes or of the
articles of incorporation or of these by-laws, notice is required to be given to
any director or shareholder, such notice may be given personally or in writing,
by mail or other means of written communication with postage thereon prepaid,
addressed to such director at his known office or home address, or to a
shareholder, at his address as it appears on the records of the corporation,
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and such notice shall be deemed to be given at the time when mailed notice shall
be deposited in the United States mail, or as otherwise provided by statute.
SECTION 2. Whenever any notice whatever is required to be given under
the provisions of the statutes or under the provisions of the articles of
incorporation or these by-laws, a waiver thereof in writing signed by the person
or persons entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to the giving of such notice.
ARTICLE IX
OFFICERS
SECTION 1. The officers of the corporation shall be chosen by the board
of directors and shall be a president, a vice-president, a secretary and a
treasurer. The board of directors may also choose additional vice-presidents,
and one or more assistant secretaries and assistant treasurers.
SECTION 2. The board of directors at its first meeting after each
annual meeting of shareholders shall choose a president, one or more
vice-presidents, a secretary and a treasurer, none of whom need be a member of
the board.
SECTION 3. The board of directors may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers
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and perform such duties as shall be determined from time to time by the board of
directors.
SECTION 4. The salaries of all officers and agents of the corporation
shall be fixed by the board of directors.
SECTION 5. The officers of the corporation shall hold office until
their successors are chosen and qualify. Any officer elected or appointed by the
board of directors may be removed at any time by the affirmative vote of a
majority of the board of directors. Any vacancy occurring in any office of the
corporation shall be filled by the board of directors.
THE PRESIDENT
SECTION 6. The president shall be the chief executive officer and
general manager of the corporation, shall preside at all meetings of the
shareholders and the board of directors, shall have general and active
management of the business of the corporation and shall see that all orders and
resolutions of the board of directors are carried in effect.
The President may sign and execute in the name of the corporation
deeds, bonds, mortgages, notes and other instruments authorized by the board of
directors and, in general, shall perform all duties as are incident to the
office of President or as are prescribed by the board of directors.
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THE VICE-PRESIDENTS
SECTION 7. The vice-president, or if there shall be more than one, the
vice-presidents in the order determined by the board of directors, shall, in the
absence or disability of the president, perform the duties and exercise the
powers of the president and shall perform such other duties and have such other
powers as the board of directors may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARIES
SECTION 8. The secretary shall attend all meetings of the board
of directors and all meetings of the shareholders and record all the
proceedings of the meetings of the corporation and of the board of directors in
a book to be kept for that purpose and shall perform like duties for the
standing committees when required. He shall give, or cause to be given, notice
of all meetings of the shareholders and special meetings of the board of
directors, and shall perform such other duties as may be prescribed by the board
of directors or president, under whose supervision he shall be. He shall have
custody of the corporate seal of the corporation and he, or an assistant
secretary, shall have authority to affix the same to any instrument requiring it
and when so affixed, it may be attested by his signature or by the signature of
such assistant secretary. The board of directors may give general authority to
any other officer to affix the seal of the corporation and to attest the
affixing by his signature.
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SECTION 9. The assistant secretary, or if there be more than one, the
assistant secretaries in the order determined by the board of directors, shall,
in the absence or disability of the secretary, perform the duties and exercise
the powers of the secretary and shall perform such other duties and have such
other powers as the board of directors may from time to time prescribe.
THE TREASURER AND ASSISTANT TREASURERS
SECTION 10. The treasurer shall have the custody of the corporate funds
and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the board of directors. The treasurer
shall be the chief financial officer of the corporation.
SECTION 11. He shall disburse the funds of the corporation as may be
ordered by the board of directors, taking proper vouchers for such
disbursements, and shall render to the president and the board of directors, at
its regular meetings, or when the board of directors so requires, an account of
all his transactions as treasurer and of the financial condition of the
corporation.
SECTION 12. If required by the board of directors, he shall give the
corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the board of directors for
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the faithful performance of the duties of his office and for the restoration to
the corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the corporation.
SECTION 13. The assistant treasurer, or, if there shall be more than
one, the assistant treasurers in the order determined by the board of directors,
shall, in the absence or disability of the treasurer, perform the duties and
exercise the powers of the treasurer and shall perform such other duties and
have such other powers as the board of directors may from time to time
prescribe.
ARTICLE X
INDEMNIFICATION
SECTION 1. The Corporation shall, to the maximum extent permitted by
the California General Corporation Law, indemnify each of its agents against
expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred in connection with any proceeding arising by reason of the
fact any such person is or was an agent of the Corporation for purposes of this
Section, an "agent" of the Corporation includes 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 corporation, partnership,
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joint venture, trust, or other enterprise, or was a director, officer, employee,
or agent of a corporation which was a predecessor corporation of the Corporation
or of another enterprise at the request of such predecessor corporation. The
Corporation may purchase and maintain insurance on behalf of any such agent
against any liability asserted against or incurred by such person in such
capacity arising out of such person's status as an agent of the Corporation
whether or not the Corporation has the power to indemnify the person against
such liability under applicable law.
CERTIFICATES FOR SHARES
SECTION 2. The shares of the corporation shall be represented by
certificates signed by the president or a vice-president and the secretary or an
assistant secretary of the corporation, and may be sealed with the seal of the
corporation or a facsimile thereof.
When the corporation is authorized to issue shares of more than one
class or series there shall be set forth upon the face of the certificate or to
the back of the certificate with a clear reference thereto on the face, a
statement of the rights, preferences, privileges and restrictions granted to or
imposed upon each class or series of shares authorized to be issued and upon the
holders thereof, or a summary of such rights, preferences, privileges and
restrictions with reference to the provisions of the articles and any
certificates of determination establishing the
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same, or a statement setting forth the office of the corporation from which
shareholders may obtain, upon request and without charge, a statement of the
rights, preferences, privileges and restrictions, as aforesaid.
SECTION 3. The signatures of the officers of the corporation upon a
certificate may be facsimiles. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon such
certificate shall have ceased to be such officer before such certificate is
issued, it may be issued by the corporation with the same effect as if he were
such officer at the date of its issue.
LOST CERTIFICATES
SECTION 4. The board of directors may direct a new certificate to be
issued in place of any certificate theretofore issued by the corporation alleged
to have been lost or destroyed. When authorizing such issue of a new
certificate, the board of directors, in its discretion and as a condition
precedent to the issuance thereof, may prescribe such terms and conditions as
it deems expedient, and may require such indemnities as it deems adequate, to
protect the corporation from any claim that may be made against it with respect
to any such certificate alleged to have been lost or destroyed.
TRANSFERS OF SHARES
SECTION 5. Upon surrender to the corporation or the transfer agent of
the corporation
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of a certificate representing shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, a new certificate
shall be issued to the person entitled thereto, and the old certificate
cancelled and the transaction recorded upon the books of the corporation.
CLOSING OF TRANSFER BOOKS
SECTION 5. For the purpose of determining shareholders entitled to
notice of or to vote at any meeting of shareholders, or any adjournment thereof
or entitled to receive payment of any dividend, or in order to make a
determination of shareholders for any other proper purpose, the board of
directors may provide that the stock transfer books shall be closed for a stated
period but not to exceed, in any case, sixty days. If the stock transfer books
shall be closed for the purpose of determining shareholders entitled to notice
of or to vote at a meeting of shareholders, such books shall be closed for at
least ten days immediately preceding such meeting. In lieu of closing the stock
transfer books, the board of directors may fix in advance a date as the record
date for any such determination of shareholders, such date in any case to be not
more than sixty days and, in case of a meeting of shareholders, not less than
ten days prior to the date on which the particular action, requiring such
determination of shareholders, is to be
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taken. If the stock transfer books are not closed and no record date is fixed
for the determination of shareholders entitled to notice of or to vote at a
meeting of shareholders, or shareholders entitled to receive payment of a
dividend, the close of the business day next preceding the date on which notice
of the meeting is mailed or the date on which the resolution of the board of
directors declaring such dividend is adopted (or sixty days before payment of
the dividend, whichever is later), as the case may be, shall be the record date
for such determination of shareholders. When a determination of shareholders
entitled to vote at any meeting of shareholders has been made as provided in
this section, such determination shall apply to any adjournment thereof.
REGISTERED SHAREHOLDERS
SECTION 6. The corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
California.
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ARTICLE XI
GENERAL PROVISIONS
DIVIDENDS
SECTION 1. Subject to the provisions of the articles of incorporation
relating thereto, if any, dividends may be declared by the board of directors at
any regular or special meeting, pursuant to law. Dividends may be paid in cash,
in property or in shares of the capital stock, subject to any provisions of the
articles of incorporation.
SECTION 2. Before payment of any dividend, there may be set aside out
of any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve fund to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purpose as the directors shall think conducive to the interest of the
corporations, and the directors may modify or abolish any such reserve in the
manner in which it was created.
CHECKS
SECTION 3. All checks or demands for money and notes of the corporation
shall be signed by such officer or officers or such other person or persons as
the board of directors may from time to time designate.
FISCAL YEAR
SECTION 4. The fiscal year of the corporation shall be fixed by
resolution of the board of directors.
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SEAL
SECTION 5. The corporate seal shall have inscribed thereon the name of
the corporation, the date of its incorporation and the words "Corporate Seal,
California".
ARTICLE XII
AMENDMENTS
SECTION 1. These by-laws may be altered, amended or repealed or new
by-laws may be adopted (a) at any regular or special meeting of shareholders at
which a quorum is present or represented, by the affirmative vote of a majority
of the stock entitled to vote, provided notice of the proposed alteration,
amendment or repeal was contained in the notice of such meeting, or (b) by the
affirmative vote of a majority of the board of directors at any regular or
special meeting of the board.
The board of directors shall not make or alter any by-law fixing their
number.
ARTICLE XIII
DIRECTORS' ANNUAL REPORT
SECTION 1. To the extent permitted by law, the Directors are discharged
from any obligation they may have to make or present annual reports to the
shareholders of the corporation, but nothing herein shall prohibit the board
from making such annual or periodic reports as they consider appropriate.
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BUTTERFIELD & BUTTERFIELD, AUCTIONEERS
AMENDMENT TO BY-LAWS
Section 1 of Article V of the By-laws of this corporation is hereby
amended to read in its entirety as follows:
Section 1. The authorized number of directors shall not be
less than three nor more than five. The directors, other than the first
board of directors, shall be elected at the annual meeting of the
shareholders, and each director elected shall serve until the next
succeeding annual meeting and until his successor shall have been
elected and qualified. The first board of directors shall hold office
until the first annual meeting of shareholders.
Section 1 of Article IX of the By-laws of this corporation is hereby
amended to read in its entirety as follows:
Section 1. The officers of the corporation shall be chosen by
the board of directors and shall be a chairman of the board or a
president, or
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both, a vice-president, a secretary and a treasurer. The board of
directors may also choose additional vice-presidents, and one or
more assistant secretaries and assistant treasurers.
Article IX of the By-laws is hereby amended by the addition of a new
Section 5a, which reads in its entirety as follows:
Section 5a. The chairman of the board, if there be such
officer, shall, if present, preside at all meetings of the board of
directors and exercise and perform such other powers and duties as may
be from time to time assigned to him by the board of directors or
prescribed by the By-laws.
Section 6 of Article IX of the By-laws of this corporation is hereby
amended to read in its entirety as follows:
Section 6. The president shall be the chief executive officer
and general manager of the corporation, 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 of directors. He
shall have general and active management of the business of the
corporation and shall see
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that all orders and resolution of the board of directors are carried in
effect.
The president may sign and execute in the name of the
corporation deeds, bonds, mortgages, notes and other instruments
authorized by the board of directors and, in general, shall perform all
duties as are incident to the office of president or as are prescribed
by the board of directors.
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EXHIBIT 3.3
CERTIFICATE OF INCORPORATION
OF
BUTTERFIELD & BUTTERFIELD DELAWARE CORPORATION
The undersigned, a natural person (the "Sole Incorporator"), for the purpose of
organizing a corporation to conduct the business and promote the purposes
hereinafter stated, under the provisions and subject to the requirements of the
laws of the State of Delaware hereby certifies that:
I.
The name of this corporation is Butterfield & Butterfield Delaware Corporation.
II.
The address of the registered office of the corporation in the State of Delaware
is 15 East North Street, Dover, DE 19901, City of Dover, County of Kent, and the
name of the registered agent of the corporation in the State of Delaware at such
address is Amerisearch Corporate Services, Inc.
III.
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 the
State of Delaware.
IV.
A. This corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total number
of shares which the corporation is authorized to issue is Twenty Million
(20,000,000) shares. FIFTEEN MILLION (15,000,000) shares shall be Common Stock,
each having a par value of one-tenth of one cent ($.001). FIVE MILLION
(5,000,000) shares shall be Preferred Stock, each having a par value of
one-tenth of one cent ($.001).
B. The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, by filing a certificate (a
"Preferred Stock Designation") pursuant to the Delaware General Corporation Law,
to fix or alter from time to time the designation, powers, preferences and
rights of the shares of each such series and the qualifications, limitations or
restrictions of any wholly unissued series of Preferred Stock, and to establish
from time to time the number of shares constituting any such series or any of
them; and
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to increase or decrease the number of shares of any series subsequent to the
issuance of shares of that series, but not below the number of shares of such
series then outstanding. In case the number of shares of any series shall be
decreased in accordance with the foregoing sentence, the shares constituting
such decrease shall resume the status that they had prior to the adoption of the
resolution originally fixing the number of shares of such series.
V.
A. For the management of the business and for the conduct of the
affairs of the corporation, and in further definition, limitation and regulation
of the powers of the corporation, of its directors and of its stockholders or
any class thereof, as the case may be, it is further provided that:
1. The management of the business and the conduct of the affairs of
the corporation shall be vested in its Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall be fixed
exclusively by one or more resolutions adopted by the Board of Directors.
2. BOARD OF DIRECTORS
a. Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances, and
to any restrictions or limitations of applicable law, following the closing of
the initial public offering pursuant to an effective registration statement
under the Securities Act of 1933, as amended (the "Act"), covering the offer and
sale of Common Stock to the public (the "Initial Public Offering") and during
such time or times that the corporation is not subject to Section 2115(b) of the
California General Corporation Law (the "CGCL"), the directors shall be divided
into three classes designated as Class I, Class II and Class III, respectively.
Directors shall be assigned to each class in accordance with a resolution or
resolutions adopted by the Board of Directors. At the first annual meeting of
stockholders following the closing of the Initial Public Offering (assuming the
corporation is not subject to Section 2115(b) of the CGCL), the term of office
of the Class I directors shall expire and Class I directors shall be elected for
a full term of three years. At the second annual meeting of stockholders
following the Initial Public Offering (assuming the corporation is not subject
to Section 2115(b) of the CGCL), the term of office of the Class II directors
shall expire and Class II directors shall be elected for a full term of three
years. At the third annual meeting of stockholders following the Initial Public
Offering (assuming the corporation is not subject to Section 2115(b) of the
CGCL), the term of office of the Class III directors shall expire and Class III
directors shall be elected for a full term of three years. At each succeeding
annual meeting of stockholders (assuming the corporation is not subject to
Section 2115(b) of the CGCL), directors shall be elected for a full term of
three years to succeed the directors of the class whose terms expire at such
annual meeting.
b. In the event that the corporation is subject to Section
2115(b) of the CGCL at any time, or from time to time, Section A.2.a. of this
Article V shall not apply and
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all directors shall be shall be elected at each annual meeting of
stockholders to hold office until the next annual meeting.
c. No person entitled to vote at an election for directors may
cumulate votes to which such person is entitled, unless, at the time of such
election, the corporation is subject to Section 2115(b) of the CGCL. During such
time or times that the corporation is subject to Section 2115(b) of the CGCL,
every stockholder entitled to vote at an election for directors may cumulate
such stockholder'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
such stockholder's shares are otherwise entitled, or distribute the
stockholder's votes on the same principle among as many candidates as such
stockholder thinks fit. No stockholder, however, shall be entitled to so
cumulate such stockholder's votes unless (i) the names of such candidate or
candidates have been placed in nomination prior to the voting and (ii) the
stockholder has given notice at the meeting, prior to the voting, of such
stockholder' intention to cumulate such stockholder's votes. If any stockholder
has given proper notice to cumulate votes, all stockholders may cumulate their
votes for any candidates who have been properly placed in nomination. Under
cumulative voting, the candidates receiving the highest number of votes, up to
the number of directors to be elected, are elected.
Notwithstanding the foregoing provisions of this section, each director shall
serve until his successor is duly elected and qualified or until his death,
resignation or removal. No decrease in the number of directors constituting the
Board of Directors shall shorten the term of any incumbent director.
3. REMOVAL OF DIRECTORS
a. During such time or times that the corporation is subject to
Section 2115(b) of the CGCL, the Board of Directors or any individual director
may be removed from office at any time without cause by the affirmative vote of
the holders of at least a majority of the outstanding shares entitled to vote on
such removal; provided, however, that unless the entire Board is removed, no
individual director may be removed when the votes cast against such director's
removal, or not consenting in writing to such removal, would be sufficient to
elect that director if voted cumulatively at an election which the same total
number of votes were cast (or, if such action is taken by written consent, all
shares entitled to vote were voted) and the entire number of directors
authorized at the time of such director's most recent election were then being
elected.
b. At any time or times that the corporation is not subject to
Section 2115(b) of the CGCL and subject to any limitations imposed by law,
Section A.3.a. above shall no longer apply and removal shall be as provided in
Section 141(k) of the Delaware General Corporation Law.
4. VACANCIES
a. Subject to the rights of the holders of any series of
Preferred Stock, any vacancies on the Board of Directors resulting from death,
resignation, disqualification,
3.
<PAGE> 4
removal or other causes and any newly created directorships resulting from any
increase in the number of directors, shall, unless the Board of Directors
determines by resolution that any such vacancies or newly created directorships
shall be filled by the stockholders, except as otherwise provided by law, be
filled only by the affirmative vote of a majority of the directors then in
office, even though less than a quorum of the Board of Directors, and not by the
stockholders. Any director elected in accordance with the preceding sentence
shall hold office for the remainder of the full term of the director for which
the vacancy was created or occurred and until such director's successor shall
have been elected and qualified.
b. If at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the whole board (as constituted immediately prior to any such increase), the
Delaware Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten percent (10%) of the total number of the
shares at the time outstanding having the right to vote for such directors,
summarily order an election to be held to fill any such vacancies or newly
created directorships, or to replace the directors chosen by the directors then
in offices as aforesaid, which election shall be governed by Section 211 of the
Delaware General Corporation Law.
c. At any time or times that the corporation is subject to
Section 2115(b) of the CGCL, if, after the filling of any vacancy by the
directors then in office who have been elected by stockholders shall constitute
less than a majority of the directors then in office, then
(i) Any holder or holders of an aggregate of five percent (5%)
or more of the total number of shares at the time outstanding having the right
to vote for those directors may call a special meeting of stockholders; or
(ii) The Superior Court of the proper county shall, upon
application of such stockholder or stockholders, summarily order a special
meeting of stockholders, to be held to elect the entire board, all in accordance
with Section 305(c) of the CGCL. The term of office of any director shall
terminate upon that election of a successor.
B. BYLAW AMENDMENTS
1. Subject to paragraph (h) of Section 43 of the Bylaws, the Bylaws
may be altered or amended or new Bylaws adopted by the affirmative vote of at
least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of
the then-outstanding shares of the voting stock of the corporation entitled to
vote. The Board of Directors shall also have the power to adopt, amend or repeal
Bylaws.
2. The directors of the corporation need not be elected by written
ballot unless the Bylaws so provide.
3. No action shall be taken by the stockholders of the corporation
except at an annual or special meeting of stockholders called in accordance with
the Bylaws or by written consent of stockholders in accordance with the Bylaws
prior to the closing of the Initial Public
4.
<PAGE> 5
Offering and following the closing of the Initial Public Offering no action
shall be taken by the stockholders by written consent.
4. At any time or times that the corporation is subject to Section
2115(b) of the CGCL, stockholders holding more than five percent (5%) of the
outstanding shares of the corporation shall have the right to call a special
meeting of stockholders as set forth in Article V, Section A.4.c. herein.
5. Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting of
the stockholders of the corporation shall be given in the manner provided in the
Bylaws of the corporation.
VI.
A. A director of the Corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for any breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit. If the Delaware General Corporation Law is amended after
approval by the stockholders of this Article to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director shall be eliminated or limited to the fullest extent
permitted by the Delaware General Corporation Law, as so amended.
B. Any repeal or modification of this Article VI shall be prospective
and shall not affect the rights under this Article VI in effect at the time of
the alleged occurrence of any act or omission to act giving rise to liability or
indemnification.
VII.
A. The corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, except as provided in paragraph B. of this
Article VII, and all rights conferred upon the stockholders herein are granted
subject to this reservation.
B. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, this Certificate
of Incorporation or any Preferred Stock Designation, the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting
power of all of the then-outstanding shares of the voting stock, voting together
as a single class, shall be required to alter, amend or repeal Articles V, VI
and VII.
5.
<PAGE> 6
VIII.
The name and the mailing address of the Sole Incorporator is as
follows:
NAME MAILING ADDRESS
Alexis Rondell Rhorer Cooley Godward LLP
One Maritime Plaza, 20th Fl.
San Francisco, CA 94111
IN WITNESS WHEREOF, this Certificate has been subscribed this 8th day of
February, 1999 by the undersigned who affirms that the statements made herein
are true and correct.
/s/ Alexis Rondell Rhorer
-------------------------------
ALEXIS RONDELL RHORER
Sole Incorporator
6.
<PAGE> 1
EXHIBIT 3.4
BYLAWS
OF
BUTTERFIELD & BUTTERFIELD DELAWARE CORPORATION
(A DELAWARE CORPORATION)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE I OFFICES................................................................1
Section 1. Registered Office......................................................1
Section 2. Other Offices..........................................................1
ARTICLE II CORPORATE SEAL.........................................................1
Section 3. Corporate Seal.........................................................1
ARTICLE III STOCKHOLDERS' MEETINGS.................................................1
Section 4. Place Of Meetings......................................................1
Section 5. Annual Meetings........................................................1
Section 6. Special Meetings.......................................................4
Section 7. Notice Of Meetings.....................................................5
Section 8. Quorum.................................................................5
Section 9. Adjournment And Notice Of Adjourned Meetings...........................5
Section 10. Voting Rights..........................................................6
Section 11. Joint Owners Of Stock..................................................6
Section 12. List Of Stockholders...................................................6
Section 13. Action Without Meeting.................................................7
Section 14. Organization...........................................................7
ARTICLE IV DIRECTORS..............................................................8
Section 15. Number And Term Of Office..............................................8
Section 16. Powers.................................................................8
Section 17. Classes of Directors...................................................8
Section 18. Vacancies..............................................................9
Section 19. Resignation...........................................................10
Section 20. Removal...............................................................10
Section 21. Meetings..............................................................11
Section 22. Quorum And Voting.....................................................12
Section 23. Action Without Meeting................................................12
Section 24. Fees And Compensation.................................................12
Section 25. Committees............................................................12
</TABLE>
i.
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
Section 26. Organization..........................................................14
ARTICLE V OFFICERS..............................................................14
Section 27. Officers Designated...................................................14
Section 28. Tenure And Duties Of Officers.........................................14
Section 29. Delegation Of Authority...............................................15
Section 30. Resignations..........................................................15
Section 31. Removal...............................................................16
ARTICLE VI EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES
OWNED BY THE CORPORATION..............................................16
Section 32. Execution Of Corporate Instruments....................................16
Section 33. Voting Of Securities Owned By The Corporation.........................16
ARTICLE VII SHARES OF STOCK.......................................................16
Section 34. Form And Execution Of Certificates....................................16
Section 35. Lost Certificates.....................................................17
Section 36. Transfers.............................................................17
Section 37. Fixing Record Dates...................................................18
Section 38. Registered Stockholders...............................................19
ARTICLE VIII OTHER SECURITIES OF THE CORPORATION...................................19
Section 39. Execution Of Other Securities.........................................19
ARTICLE IX DIVIDENDS.............................................................19
Section 40. Declaration Of Dividends..............................................19
Section 41. Dividend Reserve......................................................20
ARTICLE X FISCAL YEAR...........................................................20
Section 42. Fiscal Year...........................................................20
ARTICLE XI INDEMNIFICATION.......................................................20
Section 43. Indemnification Of Directors, Executive Officers, Other
Officers, Employees And Other Agents..................................20
ARTICLE XII NOTICES...............................................................23
Section 44. Notices...............................................................23
</TABLE>
ii.
<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE XIII AMENDMENTS............................................................25
Section 45. Amendments............................................................25
ARTICLE XIV LOANS TO OFFICERS.....................................................25
Section 46. Loans To Officers.....................................................25
</TABLE>
iii.
<PAGE> 5
BYLAWS
OF
BUTTERFIELD & BUTTERFIELD DELAWARE CORPORATION
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the corporation
in the State of Delaware shall be in the City of Dover, County of Kent.
SECTION 2. OTHER OFFICES. The corporation shall also have and maintain
an office or principal place of business at such place as may be fixed by the
Board of Directors, and may also have offices at such other places, both within
and without the State of Delaware as the Board of Directors may from time to
time determine or the business of the corporation may require.
ARTICLE II
CORPORATE SEAL
SECTION 3. CORPORATE SEAL. The corporate seal shall consist of a die
bearing the name of the corporation and the inscription, "Corporate
Seal-Delaware." Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE III
STOCKHOLDERS' MEETINGS
SECTION 4. PLACE OF MEETINGS. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 2 hereof.
SECTION 5. ANNUAL MEETINGS.
(a) The annual meeting of the stockholders of the corporation, for
the purpose of election of directors and for such other business as may lawfully
come before it, shall be held on such date and at such time as may be designated
from time to time by the Board of Directors. Nominations of persons for election
to the Board of Directors of the corporation and the proposal of business to be
considered by the stockholders may be made at an annual meeting of
1.
<PAGE> 6
stockholders: (i) pursuant to the corporation's notice of meeting of
stockholders; (ii) by or at the direction of the Board of Directors; or (iii) by
any stockholder of the corporation who was a stockholder of record at the time
of giving of notice provided for in the following paragraph, who is entitled to
vote at the meeting and who complied with the notice procedures set forth in
Section 5.
(b) At an annual meeting of the stockholders, only such business
shall be conducted as shall have been properly brought before the meeting. For
nominations or other business to be properly brought before an annual meeting by
a stockholder pursuant to clause (c) of Section 5(a) of these Bylaws, (i) the
stockholder must have given timely notice thereof in writing to the Secretary of
the corporation, (ii) such other business must be a proper matter for
stockholder action under the General Corporation Law of Delaware, (iii) if the
stockholder, or the beneficial owner on whose behalf any such proposal or
nomination is made, has provided the corporation with a Solicitation Notice (as
defined in this Section 5(b)), such stockholder or beneficial owner must, in the
case of a proposal, have delivered a proxy statement and form of proxy to
holders of at least the percentage of the corporation's voting shares required
under applicable law to carry any such proposal, or, in the case of a nomination
or nominations, have delivered a proxy statement and form of proxy to holders of
a percentage of the corporation's voting shares reasonably believed by such
stockholder or beneficial owner to be sufficient to elect the nominee or
nominees proposed to be nominated by such stockholder, and must, in either case,
have included in such materials the Solicitation Notice, and (iv) if no
Solicitation Notice relating thereto has been timely provided pursuant to this
section, the stockholder or beneficial owner proposing such business or
nomination must not have solicited a number of proxies sufficient to have
required the delivery of such a Solicitation Notice under this Section 5. To be
timely, a stockholder's notice shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close of
business on the ninetieth (90th) day nor earlier than the close of business on
the one hundred twentieth (120th) day prior to the first anniversary of the
preceding year's annual meeting; provided, however, that in the event that the
date of the annual meeting is advanced more than thirty (30) days prior to or
delayed by more than thirty (30) days after the anniversary of the preceding
year's annual meeting, notice by the stockholder to be timely must be so
delivered not earlier than the close of business on the one hundred twentieth
(120th) day prior to such annual meeting and not later than the close of
business on the later of the ninetieth (90th) day prior to such annual meeting
or the tenth (10th) day following the day on which public announcement of the
date of such meeting is first made. In no event shall the public announcement of
an adjournment of an annual meeting commence a new time period for the giving of
a stockholder's notice as described above. Such stockholder's notice shall set
forth: (A) as to each person whom the stockholder proposed to nominate for
election or reelection as a director all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors in an election contest, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "1934 Act") and Rule 14a-11 thereunder (including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected); (B) as to any other business that the stockholder proposes
to bring before the meeting, a brief description of the business desired to be
brought before the meeting, the reasons for conducting such business at the
meeting
2.
<PAGE> 7
and any material interest in such business of such stockholder and the
beneficial owner, if any, on whose behalf the proposal is made; and (C) as to
the stockholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made (i) the name and address of such
stockholder, as they appear on the corporation's books, and of such beneficial
owner, (ii) the class and number of shares of the corporation which are owned
beneficially and of record by such stockholder and such beneficial owner, and
(iii) whether either such stockholder or beneficial owner intends to deliver a
proxy statement and form of proxy to holders of, in the case of the proposal, at
least the percentage of the corporation's voting shares required under
applicable law to carry the proposal or, in the case of a nomination or
nominations, a sufficient number of holders of the corporation's voting shares
to elect such nominee or nominees (an affirmative statement of such intent, a
"Solicitation Notice").
(c) Notwithstanding anything in the second sentence of Section 5(b)
of these Bylaws to the contrary, in the event that the number of directors to be
elected to the Board of Directors of the Corporation is increased and there is
no public announcement naming all of the nominees for director or specifying the
size of the increased Board of Directors made by the corporation at least one
hundred (100) days prior to the first anniversary of the preceding year's annual
meeting, a stockholder's notice required by this Section 5 shall also be
considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary at the
principal executive offices of the corporation not later than the close of
business on the tenth (10th) day following the day on which such public
announcement is first made by the corporation.
(d) Only such persons who are nominated in accordance with the
procedures set forth in this Section 5 shall be eligible to serve as directors
and only such business shall be conducted at a meeting of stockholders as shall
have been brought before the meeting in accordance with the procedures set forth
in this Section 5. Except as otherwise provided by law, the Chairman of the
meeting shall have the power and duty to determine whether a nomination or any
business proposed to be brought before the meeting was made, or proposed, as the
case may be, in accordance with the procedures set forth in these Bylaws and, if
any proposed nomination or business is not in compliance with these Bylaws, to
declare that such defective proposal or nomination shall not be presented for
stockholder action at the meeting and shall be disregarded.
(e) Notwithstanding the foregoing provisions of this Section 5, in
order to include information with respect to a stockholder proposal in the proxy
statement and form of proxy for a stockholder's meeting, stockholders must
provide notice as required by the regulations promulgated under the 1934 Act.
Nothing in these Bylaws shall be deemed to affect any rights of stockholders to
request inclusion of proposals in the corporation proxy statement pursuant to
Rule 14a-8 under the 1934 Act.
(f) For purposes of this Section 5, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the 1934 Act.
3.
<PAGE> 8
SECTION 6. SPECIAL MEETINGS.
(a) Special meetings of the stockholders of the corporation may be
called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer, (iii) the Board of Directors
pursuant to a resolution adopted by a majority of the total number of authorized
directors (whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board of
Directors for adoption) or (iv) for so long as Section 2115(a) of the California
General Corporations Code (the "CGCL") is applicable to the corporation, by the
holders of shares entitled to cast not less than fifty percent (50%) of the
votes at the meeting, and shall be held at such place, on such date, and at such
time as the Board of Directors, shall fix. At any time or times that the
corporation is subject to Section 2115(b) of the CGCL, stockholders holding five
percent (5%) or more of the outstanding shares shall also have the right to call
a special meeting of stockholders as set forth in Section 18(c) herein.
(b) If a special meeting is properly called by any person or persons
other than the Board of Directors, the request shall be in writing, specifying
the general nature of the business proposed to be transacted, and shall be
delivered personally or sent by registered mail or by telegraphic or other
facsimile transmission to the Chairman of the Board of Directors, the Chief
Executive Officer or the Secretary of the corporation. No business may be
transacted at such special meeting otherwise than specified in such notice. The
Board of Directors shall determine the time and place of such special meeting,
which shall be held not less than thirty-five (35) nor more than one hundred
twenty (120) days after the date of the receipt of the request. Upon
determination of the time and place of the meeting, the officer receiving the
request shall cause notice to be given to the stockholders entitled to vote, in
accordance with the provisions of Section 7 of these Bylaws. If the notice is
not given within sixty (60) days after the receipt of the request, the person or
persons properly requesting the meeting may set the time and place of the
meeting and give the notice. Nothing contained in this paragraph (b) shall be
construed as limiting, fixing, or affecting the time when a meeting of
stockholders called by action of the Board of Directors may be held.
(c) Nominations of persons for election to the Board of Directors
may be made at a special meeting of stockholders at which directors are to be
elected pursuant to the corporation's notice of meeting (i) by or at the
direction of the Board of Directors or (ii) by any stockholder of the
corporation who is a stockholder of record at the time of giving notice provided
for in these Bylaws who shall be entitled to vote at the meeting and who
complies with the notice procedures set forth in this Section 6(c). In the event
the corporation calls a special meeting of stockholders for the purpose of
electing one or more directors to the Board of Directors, any such stockholder
may nominate a person or persons (as the case may be), for election to such
position(s) as specified in the corporation's notice of meeting, if the
stockholder's notice required by Section 5(b) of these Bylaws shall be delivered
to the Secretary at the principal executive offices of the corporation not
earlier than the close of business on the one hundred twentieth (120th) day
prior to such special meeting and not later than the close of business on the
later of the ninetieth (90th) day prior to such meeting or the tenth (10th) day
4.
<PAGE> 9
following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting. In no event shall the public announcement of an
adjournment of a special meeting commence a new time period for the giving of a
stockholder's notice as described above.
SECTION 7. NOTICE OF MEETINGS. Except as otherwise provided by law or
the Certificate of Incorporation, written notice of each meeting of stockholders
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder entitled to vote at such meeting, such
notice to specify the place, date and hour and purpose or purposes of the
meeting. Notice of the time, place and purpose of any meeting of stockholders
may be waived in writing, signed by the person entitled to notice thereof,
either before or after such meeting, and will be waived by any stockholder by
his attendance thereat in person or by proxy, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Any stockholder so waiving notice of such meeting shall be
bound by the proceedings of any such meeting in all respects as if due notice
thereof had been given.
SECTION 8. QUORUM. At all meetings of stockholders, except where
otherwise provided by statute or by the Certificate of Incorporation, or by
these Bylaws, the presence, in person or by proxy duly authorized, of the
holders of a majority of the outstanding shares of stock entitled to vote shall
constitute a quorum for the transaction of business. In the absence of a quorum,
any meeting of stockholders may be adjourned, from time to time, either by the
chairman of the meeting or by vote of the holders of a majority of the shares
represented thereat, but no other business shall be transacted at such meeting.
The stockholders present at a duly called or convened meeting, at which a quorum
is present, may continue to transact business until adjournment, notwithstanding
the withdrawal of enough stockholders to leave less than a quorum. Except as
otherwise provided by statute, the Certificate of Incorporation or these Bylaws,
in all matters other than the election of directors, the affirmative vote of the
majority of shares present in person or represented by proxy at the meeting and
entitled to vote on the subject matter shall be the act of the stockholders.
Except as otherwise provided by statute, the Certificate of Incorporation or
these Bylaws, directors shall be elected by a plurality of the votes of the
shares present in person or represented by proxy at the meeting and entitled to
vote on the election of directors. Where a separate vote by a class or classes
or series is required, except where otherwise provided by the statute or by the
Certificate of Incorporation or these Bylaws, a majority of the outstanding
shares of such class or classes or series, present in person or represented by
proxy, shall constitute a quorum entitled to take action with respect to that
vote on that matter and, except where otherwise provided by the statute or by
the Certificate of Incorporation or these Bylaws, the affirmative vote of the
majority (plurality, in the case of the election of directors) of the votes cast
by the holders of shares of such class or classes or series shall be the act of
such class or classes or series.
SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting of
stockholders, whether annual or special, may be adjourned from time to time
either by the
5.
<PAGE> 10
chairman of the meeting or by the vote of a majority of the shares casting
votes. When a meeting is adjourned to another time or place, notice need not be
given of the adjourned meeting if the time and place thereof are announced at
the meeting at which the adjournment is taken. At the adjourned meeting, the
corporation may transact any business which might have been transacted at the
original meeting. If the adjournment is for more than thirty (30) days or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting.
SECTION 10. VOTING RIGHTS. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the stock
records of the corporation on the record date, as provided in Section 12 of
these Bylaws, shall be entitled to vote at any meeting of stockholders. Every
person entitled to vote shall have the right to do so either in person or by an
agent or agents authorized by a proxy granted in accordance with Delaware law.
An agent so appointed need not be a stockholder. No proxy shall be voted after
three (3) years from its date of creation unless the proxy provides for a longer
period.
SECTION 11. JOINT OWNERS OF STOCK. If shares or other securities having
voting power stand of record in the names of two (2) or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common, tenants
by the entirety, or otherwise, or if two (2) or more persons have the same
fiduciary relationship respecting the same shares, unless the Secretary is given
written notice to the contrary and is furnished with a copy of the instrument or
order appointing them or creating the relationship wherein it is so provided,
their acts with respect to voting shall have the following effect: (a) if only
one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the
majority so voting binds all; (c) if more than one (1) votes, but the vote is
evenly split on any particular matter, each faction may vote the securities in
question proportionally, or may apply to the Delaware Court of Chancery for
relief as provided in the Delaware General Corporation Law, Section 217(b). If
the instrument filed with the Secretary shows that any such tenancy is held in
unequal interests, a majority or even-split for the purpose of subsection (c)
shall be a majority or even-split in interest.
SECTION 12. LIST OF STOCKHOLDERS. The Secretary shall prepare and make,
at least ten (10) days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at said meeting, arranged in alphabetical
order, showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not
specified, at the place where the meeting is to be held. The list shall be
produced and kept at the time and place of meeting during the whole time thereof
and may be inspected by any stockholder who is present.
6.
<PAGE> 11
SECTION 13. ACTION WITHOUT MEETING.
(a) Unless otherwise provided in the Certificate of Incorporation,
any action required by statute to be taken at any annual or special meeting of
the stockholders, or any action which may be taken at any annual or special
meeting of the stockholders, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted.
(b) Every written consent shall bear the date of signature of each
stockholder who signs the consent, and no written consent shall be effective to
take the corporate action referred to therein unless, within sixty (60) days of
the earliest dated consent delivered to the corporation in the manner herein
required, written consents signed by a sufficient number of stockholders to take
action are delivered to the corporation by delivery to its registered office in
the State of Delaware, its principal place of business or an officer or agent of
the corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to a corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
(c) Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing. If the action which is consented
to is such as would have required the filing of a certificate under any section
of the Delaware General Corporation Law if such action had been voted on by
stockholders at a meeting thereof, then the certificate filed under such section
shall state, in lieu of any statement required by such section concerning any
vote of stockholders, that written consent has been given in accordance with
Section 228 of the Delaware General Corporation Law.
(d) Notwithstanding the foregoing, no such action by written consent
may be taken following the closing of the initial public offering pursuant to an
effective registration statement under the Securities Act of 1933, as amended
(the "1933 Act"), covering the offer and sale of Common Stock of the corporation
(the "Initial Public Offering").
SECTION 14. ORGANIZATION.
(a) At every meeting of stockholders, the Chairman of the Board of
Directors, or, if a Chairman has not been appointed or is absent, the President,
or, if the President is absent, a chairman of the meeting chosen by a majority
in interest of the stockholders entitled to vote, present in person or by proxy,
shall act as chairman. The Secretary, or, in his absence, an Assistant Secretary
directed to do so by the President, shall act as secretary of the meeting.
(b) The Board of Directors of the corporation shall be entitled to
make such rules or regulations for the conduct of meetings of stockholders as it
shall deem necessary, appropriate or convenient. Subject to such rules and
regulations of the Board of Directors, if
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any, the chairman of the meeting shall have the right and authority to prescribe
such rules, regulations and procedures and to do all such acts as, in the
judgment of such chairman, are necessary, appropriate or convenient for the
proper conduct of the meeting, including, without limitation, establishing an
agenda or order of business for the meeting, rules and procedures for
maintaining order at the meeting and the safety of those present, limitations on
participation in such meeting to stockholders of record of the corporation and
their duly authorized and constituted proxies and such other persons as the
chairman shall permit, restrictions on entry to the meeting after the time fixed
for the commencement thereof, limitations on the time allotted to questions or
comments by participants and regulation of the opening and closing of the polls
for balloting on matters which are to be voted on by ballot. Unless and to the
extent determined by the Board of Directors or the chairman of the meeting,
meetings of stockholders shall not be required to be held in accordance with
rules of parliamentary procedure.
ARTICLE IV
DIRECTORS
SECTION 15. NUMBER AND TERM OF OFFICE. The authorized number of
directors of the corporation shall be fixed in accordance with the Certificate
of Incorporation. Directors need not be stockholders unless so required by the
Certificate of Incorporation. If for any cause, the directors shall not have
been elected at an annual meeting, they may be elected as soon thereafter as
convenient at a special meeting of the stockholders called for that purpose in
the manner provided in these Bylaws.
SECTION 16. POWERS. The powers of the corporation shall be exercised,
its business conducted and its property controlled by the Board of Directors,
except as may be otherwise provided by statute or by the Certificate of
Incorporation.
SECTION 17. CLASSES OF DIRECTORS.
(a) Subject to the rights of the holders of any series of Preferred
Stock to elect additional directors under specified circumstances, following the
closing of the Initial Public Offering and during such time or times that the
corporation is not subject to Section 2115(b) of the CGCL, the directors shall
be divided into three classes designated as Class I, Class II and Class III,
respectively. Directors shall be assigned to each class in accordance with a
resolution or resolutions adopted by the Board of Directors. At the first annual
meeting of stockholders following the closing of the Initial Public Offering
(assuming the corporation is not subject to Section 2115(b) of the CGCL), the
term of office of the Class I directors shall expire and Class I directors shall
be elected for a full term of three years. At the second annual meeting of
stockholders following the Initial Public Offering (assuming the corporation is
not subject to Section 2115(b) of the CGCL), the term of office of the Class II
directors shall expire and Class II directors shall be elected for a full term
of three years. At the third annual meeting of stockholders following the
Initial Public Offering (assuming the corporation is not subject to Section
2115(b) of the CGCL), the term of office of the Class III directors shall expire
and Class III directors shall be elected for a full term of three years. At each
succeeding annual meeting of
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stockholders (assuming the corporation is not subject to Section 2115(b) of the
CGCL), directors shall be elected for A full term of three years to succeed the
directors of the class whose terms expire at such annual meeting.
(b) In the event that the corporation is subject to Section 2115(b)
of the CGCL at any time, OR from time to time, Section 17(a) of these Bylaws
shall not apply and all directors shall be elected at each annual meeting of
stockholders to hold office until the next annual meeting.
(c) No person entitled to vote at an election for directors may
cumulate votes to which such person is entitled, unless, at the time of such
election, the corporation is subject to Section 2115(b) of the CGCL. During such
time or times that the corporation is subject to Section 2115(b) of the CGCL,
every stockholder entitled to vote at an election for directors may cumulate
such stockholder'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
such stockholder's shares are otherwise entitled, or distribute the
stockholder's votes on the same principle among as many candidates as such
stockholder thinks fit. No stockholder, however, shall be entitled to so
cumulate such stockholder's votes unless (i) the names of such candidate or
candidates have been placed in nomination prior to the voting and (ii) the
stockholder has given notice at the meeting, prior to the voting, of such
stockholder's intention to cumulate such stockholder's votes. If any stockholder
has given proper notice to cumulate votes, all stockholders may cumulate their
votes for any candidates who have been properly placed in nomination. Under
cumulative voting, the candidates receiving the highest number of votes, up to
the number of directors to be elected, are elected.
Notwithstanding the foregoing provisions of this section, each director shall
serve until his successor is duly elected and qualified or until his death,
resignation or removal. No decrease in the number of directors constituting the
Board of Directors shall shorten the term of any incumbent director.
SECTION 18. VACANCIES.
(a) Unless otherwise provided in the Certificate of Incorporation,
any vacancies on the Board of Directors resulting from death, resignation,
disqualification, removal or other causes and any newly created directorships
resulting from any increase in the number of directors shall, unless the Board
of Directors determines by resolution that any such vacancies or newly created
directorships shall be filled by stockholders, be filled only by the affirmative
vote of a majority of the directors then in office, even though less than a
quorum of the Board of Directors. Any director elected in accordance with the
preceding sentence shall hold office for the remainder of the full term of the
director for which the vacancy was created or occurred and until such director's
successor shall have been elected and qualified. A vacancy in the Board of
Directors shall be deemed to exist under this Bylaw in the case of the death,
removal or resignation of any director.
(b) If at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the whole board (as constituted
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immediately prior to any such increase), the Delaware Court of Chancery may,
upon application of any stockholder or stockholders holding at least ten percent
(10%) of the total number of the shares at the time outstanding having the right
to vote for such directors, summarily order an election to be held to fill any
such vacancies or newly created directorships, or to replace the directors
chosen by the directors then in offices as aforesaid, which election shall be
governed by Section 211 of the Delaware General Corporation Law.
(c) At any time or times that the corporation is subject to Section
2115(b) of the CGCL, if, after the filling of any vacancy, the directors then in
office who have been elected by stockholders shall constitute less than a
majority of the directors then in office, then
(1) Any holder or holders of an aggregate of five percent (5%) or
more of the total number of shares at the time outstanding having the right to
vote for those directors may call a special meeting of stockholders; or
(2) The Superior Court of the proper county shall, upon
application of such stockholder or stockholders, summarily order a special
meeting of stockholders, to be held to elect the entire board, all in accordance
with Section 305(c) of the CGCL. The term of office of any director shall
terminate upon that election of a successor.
SECTION 19. RESIGNATION. Any director may resign at any time by
delivering his written resignation to the Secretary, such resignation to specify
whether it will be effective at a particular time, upon receipt by the Secretary
or at the pleasure of the Board of Directors. If no such specification is made,
it shall be deemed effective at the pleasure of the Board of Directors. When one
or more directors shall resign from the Board of Directors, effective at a
future date, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each Director so chosen shall hold office for the unexpired
portion of the term of the Director whose place shall be vacated and until his
successor shall have been duly elected and qualified.
SECTION 20. REMOVAL.
(a) During such time or times that the corporation is subject to
Section 2115(b) of the CGCL, the Board of Directors or any individual director
may be removed from office at any time without cause by the affirmative vote of
the holders of at least a majority of the outstanding shares entitled to vote on
such removal; provided, however, that unless the entire Board is removed, no
individual director may be removed when the votes cast against such director's
removal, or not consenting in writing to such removal, would be sufficient to
elect that director if voted cumulatively at an election which the same total
number of votes were cast (or, if such action is taken by written consent, all
shares entitled to vote were voted) and the entire number of directors
authorized at the time of such director's most recent election were then being
elected.
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(b) Following any date on which the corporation is no longer subject
to Section 2115(b) of the CGCL and subject to any limitations imposed by law,
Section 20(a) above shall no longer apply and removal shall be as provided in
Section 141(k) of the Delaware General Corporation Law.
SECTION 21. MEETINGS.
(a) ANNUAL MEETINGS. The annual meeting of the Board of Directors
shall be held immediately before or after the annual meeting of stockholders and
at the place where such meeting is held. No notice of an annual meeting of the
Board of Directors shall be necessary and such meeting shall be held for the
purpose of electing officers and transacting such other business as may lawfully
come before it.
(b) REGULAR MEETINGS. Unless otherwise restricted by the Certificate
of Incorporation, regular meetings of the Board of Directors may be held at any
time or date and at any place within or without the State of Delaware which has
been designated by the Board of Directors and publicized among all directors. No
formal notice shall be required for regular meetings of the Board of Directors.
(c) SPECIAL MEETINGS. Unless otherwise restricted by the Certificate
of Incorporation, special meetings of the Board of Directors may be held at any
time and place within or without the State of Delaware whenever called by the
Chairman of the Board, the President or any two of the directors.
(d) TELEPHONE MEETINGS. Any member of the Board of Directors, or of
any committee thereof, may participate in a meeting by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
by such means shall constitute presence in person at such meeting.
(e) NOTICE OF MEETINGS. Notice of the time and place of all special
meetings of the Board of Directors shall be orally or in writing, by telephone,
including a voice messaging system or other system or technology designed to
record and communicate messages, facsimile, telegraph or telex, or by electronic
mail or other electronic means, during normal business hours, at least
twenty-four (24) hours before the date and time of the meeting, or sent in
writing to each director by first class mail, charges prepaid, at least three
(3) days before the date of the meeting. Notice of any meeting may be waived in
writing at any time before or after the meeting and will be waived by any
director by attendance thereat, except when the director attends the meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
(f) WAIVER OF NOTICE. The transaction of all business at any meeting
of the Board of Directors, or any committee thereof, however called or noticed,
or wherever held, shall be as valid as though had at a meeting duly held after
regular call and notice, if a quorum be present and if, either before or after
the meeting, each of the directors not present shall sign a
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written waiver of notice. All such waivers shall be filed with the corporate
records or made a part of the minutes of the meeting.
SECTION 22. QUORUM AND VOTING.
(a) Unless the Certificate of Incorporation requires a greater
number and except with respect to indemnification questions arising under
Section 43 hereof, for which a quorum shall be one-third of the exact number of
directors fixed from time to time in accordance with the Certificate of
Incorporation, a quorum of the Board of Directors shall consist of a majority of
the exact number of directors fixed from time to time by the Board of Directors
in accordance with the Certificate of Incorporation; provided, however, at any
meeting whether a quorum be present or otherwise, a majority of the directors
present may adjourn from time to time until the time fixed for the next regular
meeting of the Board of Directors, without notice other than by announcement at
the meeting.
(b) At each meeting of the Board of Directors at which a quorum is
present, all questions and business shall be determined by the affirmative vote
of a majority of the directors present, unless a different vote be required by
law, the Certificate of Incorporation or these Bylaws.
SECTION 23. ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and such writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
SECTION 24. FEES AND COMPENSATION. Directors shall be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so approved, by resolution of the Board of Directors, a fixed sum
and expenses of attendance, if any, for attendance at each regular or special
meeting of the Board of Directors and at any meeting of a committee of the Board
of Directors. Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise and receiving compensation therefor.
SECTION 25. COMMITTEES.
(a) EXECUTIVE COMMITTEE. The Board of Directors may appoint an
Executive Committee to consist of one (1) or more members of the Board of
Directors. The Executive Committee, to the extent permitted by law and provided
in the resolution of the Board of Directors shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the corporation, and may authorize the seal of the corporation to
be affixed to all papers which may require it; but no such committee shall have
the power or authority in reference to (i) approving or adopting, or
recommending to the stockholders, any action or matter expressly required by the
Delaware General Corporation Law
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to be submitted to stockholders for approval, or (ii) adopting, amending or
repealing any bylaw of the corporation.
(b) OTHER COMMITTEES. The Board of Directors may, from time to time,
appoint such other committees as may be permitted by law. Such other committees
appointed by the Board of Directors shall consist of one (1) or more members of
the Board of Directors and shall have such powers and perform such duties as may
be prescribed by the resolution or resolutions creating such committees, but in
no event shall any such committee have the powers denied to the Executive
Committee in these Bylaws.
(c) TERM. Each member of a committee of the Board of Directors shall
serve a term on the committee coexistent with such member's term on the Board of
Directors. The Board of Directors, subject to any requirements of any
outstanding series of preferred Stock and the provisions of subsections (a) or
(b) of this Bylaw, may at any time increase or decrease the number of members of
a committee or terminate the existence of a committee. The membership of a
committee member shall terminate on the date of his death or voluntary
resignation from the committee or from the Board of Directors. The Board of
Directors may at any time for any reason remove any individual committee member
and the Board of Directors may fill any committee vacancy created by death,
resignation, removal or increase in the number of members of the committee. The
Board of Directors may designate one or more directors as alternate members of
any committee, who may replace any absent or disqualified member at any meeting
of the committee, and, in addition, in the absence or disqualification of any
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member.
(d) MEETINGS. Unless the Board of Directors shall otherwise provide,
regular meetings of the Executive Committee or any other committee appointed
pursuant to this Section 25 shall be held at such times and places as are
determined by the Board of Directors, or by any such committee, and when notice
thereof has been given to each member of such committee, no further notice of
such regular meetings need be given thereafter. Special meetings of any such
committee may be held at any place which has been determined from time to time
by such committee, and may be called by any director who is a member of such
committee, upon written notice to the members of such committee of the time and
place of such special meeting given in the manner provided for the giving of
written notice to members of the Board of Directors of the time and place of
special meetings of the Board of Directors. Notice of any special meeting of any
committee may be waived in writing at any time before or after the meeting and
will be waived by any director by attendance thereat, except when the director
attends such special meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. A majority of the authorized number of
members of any such committee shall constitute a quorum for the transaction of
business, and the act of a majority of those present at any meeting at which a
quorum is present shall be the act of such committee.
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SECTION 26. ORGANIZATION. At every meeting of the directors, the
Chairman of the Board of Directors, or, if a Chairman has not been appointed or
is absent, the President (if a director), or if the President is absent, the
most senior Vice President (if a director), or, in the absence of any such
person, a chairman of the meeting chosen by a majority of the directors present,
shall preside over the meeting. The Secretary, or in his absence, any Assistant
Secretary directed to do so by the President, shall act as secretary of the
meeting.
ARTICLE V
OFFICERS
SECTION 27. OFFICERS DESIGNATED. The officers of the corporation shall
include, if and when designated by the Board of Directors, the Chairman of the
Board of Directors, the Chief Executive Officer, the President, one or more Vice
Presidents, the Secretary, the Chief Financial Officer, the Treasurer and the
Controller, all of whom shall be elected at the annual organizational meeting of
the Board of Directors. The Board of Directors may also appoint one or more
Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such
other officers and agents with such powers and duties as it shall deem
necessary. The Board of Directors may assign such additional titles to one or
more of the officers as it shall deem appropriate. Any one person may hold any
number of offices of the corporation at any one time unless specifically
prohibited therefrom by law. The salaries and other compensation of the officers
of the corporation shall be fixed by or in the manner designated by the Board of
Directors.
SECTION 28. TENURE AND DUTIES OF OFFICERS.
(a) GENERAL. All officers shall hold office at the pleasure of the
Board of Directors and until their successors shall have been duly elected and
qualified, unless sooner removed. Any officer elected or appointed by the Board
of Directors may be removed at any time by the Board of Directors. If the office
of any officer becomes vacant for any reason, the vacancy may be filled by the
Board of Directors.
(b) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of
the Board of Directors, when present, shall preside at all meetings of the
stockholders and the Board of Directors. The Chairman of the Board of Directors
shall perform other duties commonly incident to his office and shall also
perform such other duties and have such other powers, as the Board of Directors
shall designate from time to time. If there is no President, then the Chairman
of the Board of Directors shall also serve as the Chief Executive Officer of the
corporation and shall have the powers and duties prescribed in paragraph (c) of
this Section 28.
(c) DUTIES OF PRESIDENT. The President shall preside at all meetings
of the stockholders and at all meetings of the Board of Directors, unless the
Chairman of the Board of Directors has been appointed and is present. Unless
some other officer has been elected Chief Executive Officer of the corporation,
the President shall be the chief executive officer of the corporation and shall,
subject to the control of the Board of Directors, have general supervision,
direction and control of the business and officers of the corporation. The
President shall perform
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other duties commonly incident to his office and shall also perform such other
duties and have such other powers, as the Board of Directors shall designate
from time to time.
(d) DUTIES OF VICE PRESIDENTS. The Vice Presidents may assume and
perform the duties of the President in the absence or disability of the
President or whenever the office of President is vacant. The Vice Presidents
shall perform other duties commonly incident to their office and shall also
perform such other duties and have such other powers as the Board of Directors
or the President shall designate from time to time.
(e) DUTIES OF SECRETARY. The Secretary shall attend all meetings of
the stockholders and of the Board of Directors and shall record all acts and
proceedings thereof in the minute book of the corporation. The Secretary shall
give notice in conformity with these Bylaws of all meetings of the stockholders
and of all meetings of the Board of Directors and any committee thereof
requiring notice. The Secretary shall perform all other duties given him in
these Bylaws and other duties commonly incident to his office and shall also
perform such other duties and have such other powers, as the Board of Directors
shall designate from time to time. The President may direct any Assistant
Secretary to assume and perform the duties of the Secretary in the absence or
disability of the Secretary, and each Assistant Secretary shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors or the President shall
designate from time to time.
(f) DUTIES OF CHIEF FINANCIAL OFFICER. The Chief Financial Officer
shall keep or cause to be kept the books of account of the corporation in a
thorough and proper manner and shall render statements of the financial affairs
of the corporation in such form and as often as required by the Board of
Directors or the President. The Chief Financial Officer, subject to the order of
the Board of Directors, shall have the custody of all funds and securities of
the corporation. The Chief Financial Officer shall perform other duties commonly
incident to his office and shall also perform such other duties and have such
other powers as the Board of Directors or the President shall designate from
time to time. The President may direct the Treasurer or any Assistant Treasurer,
or the Controller or any Assistant Controller to assume and perform the duties
of the Chief Financial Officer in the absence or disability of the Chief
Financial Officer, and each Treasurer and Assistant Treasurer and each
Controller and Assistant Controller shall perform other duties commonly incident
to his office and shall also perform such other duties and have such other
powers as the Board of Directors or the President shall designate from time to
time.
SECTION 29. DELEGATION OF AUTHORITY. The Board of Directors may from
time to time delegate the powers or duties of any officer to any other officer
or agent, notwithstanding any provision hereof.
SECTION 30. RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be
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necessary to make it effective. Any resignation shall be without prejudice to
the rights, if any, of the corporation under any contract with the resigning
officer.
SECTION 31. REMOVAL. Any officer may be removed from office at any
time, either with or without cause, by the affirmative vote of a majority of the
directors in office at the time, or by the unanimous written consent of the
directors in office at the time, or by any committee or superior officers upon
whom such power of removal may have been conferred by the Board of Directors.
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND
VOTING OF SECURITIES OWNED BY THE CORPORATION
SECTION 32. EXECUTION OF CORPORATE INSTRUMENTS. The Board of Directors
may, in its discretion, determine the method and designate the signatory officer
or officers, or other person or persons, to execute on behalf of the corporation
any corporate instrument or document, or to sign on behalf of the corporation
the corporate name without limitation, or to enter into contracts on behalf of
the corporation, except where otherwise provided by law or these Bylaws, and
such execution or signature shall be binding upon the corporation.
All checks and drafts drawn on banks or other depositaries on funds to
the credit of the corporation or in special accounts of the corporation shall be
signed by such person or persons as the Board of Directors shall authorize so to
do.
Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any power
or authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or for any amount.
SECTION 33. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock
and other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman of the Board of Directors, the Chief Executive Officer, the
President, or any Vice President.
ARTICLE VII
SHARES OF STOCK
SECTION 34. FORM AND EXECUTION OF CERTIFICATES. Certificates for the
shares of stock of the corporation shall be in such form as is consistent with
the Certificate of Incorporation and applicable law. Every holder of stock in
the corporation shall be entitled to have a certificate signed by or in the name
of the corporation by the Chairman of the Board of Directors, or the
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President or any Vice President and by the Treasurer or Assistant Treasurer or
the Secretary or Assistant Secretary, certifying the number of shares owned by
him in the corporation. Any or all of the signatures on the certificate may be
facsimiles. In case any officer, transfer agent, or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent, or registrar before such certificate is
issued, it may be issued with the same effect as if he were such officer,
transfer agent, or registrar at the date of issue. Each certificate shall state
upon the face or back thereof, in full or in summary, all of the powers,
designations, preferences, and rights, and the limitations or restrictions of
the shares authorized to be issued or shall, except as otherwise required by
law, set forth on the face or back a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, designations,
preferences and relative, participating, optional, or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights. Within a reasonable time after
the issuance or transfer of uncertificated stock, the corporation shall send to
the registered owner thereof a written notice containing the information
required to be set forth or stated on certificates pursuant to this section or
otherwise required by law or with respect to this section a statement that the
corporation will furnish without charge to each stockholder who so requests the
powers, designations, preferences and relative participating, optional or other
special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights. Except as
otherwise expressly provided by law, the rights and obligations of the holders
of certificates representing stock of the same class and series shall be
identical.
SECTION 35. LOST CERTIFICATES. A new certificate or certificates shall
be issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. The corporation may require, as a condition
precedent to the issuance of a new certificate or certificates, the owner of
such lost, stolen, or destroyed certificate or certificates, or his legal
representative, to agree to indemnify the corporation in such manner as it shall
require or to give the corporation a surety bond in such form and amount as it
may direct as indemnity against any claim that may be made against the
corporation with respect to the certificate alleged to have been lost, stolen,
or destroyed.
SECTION 36. TRANSFERS.
(a) Transfers of record of shares of stock of the corporation shall
be made only upon its books by the holders thereof, in person or by attorney
duly authorized, and upon the surrender of a properly endorsed certificate or
certificates for a like number of shares.
(b) The corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock of
the corporation to restrict the transfer of shares of stock of the corporation
of any one or more classes owned by such stockholders in any manner not
prohibited by the Delaware General Corporation Law.
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SECTION 37. FIXING RECORD DATES.
(a) In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix, in advance, a record date,
which record date shall not precede the date upon which the resolution fixing
the record date is adopted by the Board of Directors, and which record date
shall, subject to applicable law, not be more than sixty (60) nor less than ten
(10) days before the date of such meeting. If no record date is fixed by the
Board of Directors, the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any adjournment
of the meeting; provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting.
(b) Prior to the Initial Public Offering, in order that the
corporation may determine the stockholders entitled to consent to corporate
action in writing without a meeting, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which date
shall not be more than ten (10) days after the date upon which the resolution
fixing the record date is adopted by the Board of Directors. Any stockholder of
record seeking to have the stockholders authorize or take corporate action by
written consent shall, by written notice to the Secretary, request the Board of
Directors to fix a record date. The Board of Directors shall promptly, but in
all events within ten (10) days after the date on which such a request is
received, adopt a resolution fixing the record date. If no record date has been
fixed by the Board of Directors within ten (10) days of the date on which such a
request is received, the record date for determining stockholders entitled to
consent to corporate action in writing without a meeting, when no prior action
by the Board of Directors is required by applicable law, shall be the first date
on which a signed written consent setting forth the action taken or proposed to
be taken is delivered to the corporation by delivery to its registered office in
the State of Delaware, its principal place of business or an officer or agent of
the corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
If no record date has been fixed by the Board of Directors and prior action by
the Board of Directors is required by law, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the day on which the Board of
Directors adopts the resolution taking such prior action.
(c) In order that the corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix, in advance, a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted, and which record date shall be not more than sixty (60)
days prior to such
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action. If no record date is fixed, the record date for determining stockholders
for any such purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto.
SECTION 38. REGISTERED STOCKHOLDERS. The corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and shall not
be bound to recognize any equitable or other claim to or interest in such share
or shares on the part of any other person whether or not it shall have express
or other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
SECTION 39. EXECUTION OF OTHER SECURITIES. All bonds, debentures and
other corporate securities of the corporation, other than stock certificates
(covered in Section 34), may be signed by the Chairman of the Board of
Directors, the President or any Vice President, or such other person as may be
authorized by the Board of Directors, and the corporate seal impressed thereon
or a facsimile of such seal imprinted thereon and attested by the signature of
the Secretary or an Assistant Secretary, or the Chief Financial Officer or
Treasurer or an Assistant Treasurer; provided, however, that where any such
bond, debenture or other corporate security shall be authenticated by the manual
signature, or where permissible facsimile signature, of a trustee under an
indenture pursuant to which such bond, debenture or other corporate security
shall be issued, the signatures of the persons signing and attesting the
corporate seal on such bond, debenture or other corporate security may be the
imprinted facsimile of the signatures of such persons. Interest coupons
appertaining to any such bond, debenture or other corporate security,
authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an
Assistant Treasurer of the corporation or such other person as may be authorized
by the Board of Directors, or bear imprinted thereon the facsimile signature of
such person. In case any officer who shall have signed or attested any bond,
debenture or other corporate security, or whose facsimile signature shall appear
thereon or on any such interest coupon, shall have ceased to be such officer
before the bond, debenture or other corporate security so signed or attested
shall have been delivered, such bond, debenture or other corporate security
nevertheless may be adopted by the corporation and issued and delivered as
though the person who signed the same or whose facsimile signature shall have
been used thereon had not ceased to be such officer of the corporation.
ARTICLE IX
DIVIDENDS
SECTION 40. DECLARATION OF DIVIDENDS. Dividends upon the capital stock
of the corporation, subject to the provisions of the Certificate of
Incorporation and applicable law, if any, may be declared by the Board of
Directors pursuant to law at any regular or special meeting.
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Dividends may be paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the Certificate of Incorporation and applicable
law.
SECTION 41. DIVIDEND RESERVE. Before payment of any dividend, there may
be set aside out of any funds of the corporation available for dividends such
sum or sums as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors shall think
conducive to the interests of the corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created.
ARTICLE X
FISCAL YEAR
SECTION 42. FISCAL YEAR. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.
ARTICLE XI
INDEMNIFICATION
SECTION 43. INDEMNIFICATION OF DIRECTORS, EXECUTIVE OFFICERS, OTHER
OFFICERS, EMPLOYEES AND OTHER AGENTS.
(a) DIRECTORS AND EXECUTIVE OFFICERS. The corporation shall
indemnify its directors and executive officers (for the purposes of this Article
XI, "executive officers" shall have the meaning defined in Rule 3b-7 promulgated
under the 1934 Act) to the fullest extent not prohibited by the Delaware General
Corporation Law or any other applicable law; provided, however, that the
corporation may modify the extent of such indemnification by individual
contracts with its directors and executive officers; and, provided, further,
that the corporation shall not be required to indemnify any director or
executive officer in connection with any proceeding (or part thereof) initiated
by such person unless (i) such indemnification is expressly required to be made
by law, (ii) the proceeding was authorized by the Board of Directors of the
corporation, (iii) such indemnification is provided by the corporation, in its
sole discretion, pursuant to the powers vested in the corporation under the
Delaware General Corporation Law or any other applicable law or (iv) such
indemnification is required to be made under subsection (d).
(b) OTHER OFFICERS. The corporation shall have power to indemnify
its other officers, employees and other agents as set forth in the Delaware
General Corporation Law or any other applicable law.
(c) EXPENSES. The corporation shall advance to any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he
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is or was a director or executive officer, of the corporation, or is or was
serving at the request of the corporation as a director or executive officer of
another corporation, partnership, joint venture, trust or other enterprise,
prior to the final disposition of the proceeding, promptly following request
therefor, all expenses incurred by any director or executive officer in
connection with such proceeding upon receipt of an undertaking by or on behalf
of such person to repay said amounts if it should be determined ultimately that
such person is not entitled to be indemnified under this Bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to
paragraph (e) of this Bylaw, no advance shall be made by the corporation to an
executive officer of the corporation (except by reason of the fact that such
executive officer is or was a director of the corporation in which event this
paragraph shall not apply) in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, if a determination is reasonably and
promptly made (i) by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to the proceeding, or (ii) if such
quorum is not obtainable, or, even if obtainable, a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion, that
the facts known to the decision-making party at the time such determination is
made demonstrate clearly and convincingly that such person acted in bad faith or
in a manner that such person did not believe to be in or not opposed to the best
interests of the corporation.
(d) ENFORCEMENT. Without the necessity of entering into an express
contract, all rights to indemnification and advances to directors and executive
officers under this Bylaw shall be deemed to be contractual rights and be
effective to the same extent and as if provided for in a contract between the
corporation and the director or executive officer. Any right to indemnification
or advances granted by this Bylaw to a director or executive officer shall be
enforceable by or on behalf of the person holding such right in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. The claimant in such enforcement action,
if successful in whole or in part, shall be entitled to be paid also the expense
of prosecuting his claim. In connection with any claim for indemnification, the
corporation shall be entitled to raise as a defense to any such action that the
claimant has not met the standards of conduct that make it permissible under the
Delaware General Corporation Law or any other applicable law for the corporation
to indemnify the claimant for the amount claimed. In connection with any claim
by an executive officer of the corporation (except in any action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that such executive officer is or was a director of the corporation)
for advances, the corporation shall be entitled to raise a defense as to any
such action clear and convincing evidence that such person acted in bad faith or
in a manner that such person did not believe to be in or not opposed to the best
interests of the corporation, or with respect to any criminal action or
proceeding that such person acted without reasonable cause to believe that his
conduct was lawful. Neither the failure of the corporation (including its Board
of Directors, independent legal counsel or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he has met the applicable
standard of conduct set forth in the Delaware General Corporation Law or any
other applicable
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law, nor an actual determination by the corporation (including its Board of
Directors, independent legal counsel or its stockholders) that the claimant has
not met such applicable standard of conduct, shall be a defense to the action or
create a presumption that claimant has not met the applicable standard of
conduct. In any suit brought by a director or executive officer to enforce a
right to indemnification or to an advancement of expenses hereunder, the burden
of proving that the director or executive officer is not entitled to be
indemnified, or to such advancement of expenses, under this Article XI or
otherwise shall be on the corporation.
(e) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person by
this Bylaw shall not be exclusive of any other right which such person may have
or hereafter acquire under any applicable statute, provision of the Certificate
of Incorporation, Bylaws, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office. The corporation is specifically
authorized to enter into individual contracts with any or all of its directors,
officers, employees or agents respecting indemnification and advances, to the
fullest extent not prohibited by the Delaware General Corporation Law, or by any
other applicable law.
(f) SURVIVAL OF RIGHTS. The rights conferred on any person by this
Bylaw shall continue as to a person who has ceased to be a director, officer,
employee or other agent and shall inure to the benefit of the heirs, executors
and administrators of such a person.
(g) INSURANCE. To the fullest extent permitted by the Delaware
General Corporation Law or any other applicable law, the corporation, upon
approval by the Board of Directors, may purchase insurance on behalf of any
person required or permitted to be indemnified pursuant to this Bylaw.
(h) AMENDMENTS. Any repeal or modification of this Bylaw shall only
be prospective and shall not affect the rights under this Bylaw in effect at the
time of the alleged occurrence of any action or omission to act that is the
cause of any proceeding against any agent of the corporation.
(i) SAVING CLAUSE. If this Bylaw or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director and executive officer to
the full extent not prohibited by any applicable portion of this Bylaw that
shall not have been invalidated, or by any other applicable law.
(j) CERTAIN DEFINITIONS. For the purposes of this Bylaw, the
following definitions shall apply:
(1) The term "proceeding" shall be broadly construed and shall
include, without limitation, the investigation, preparation, prosecution,
defense, settlement, arbitration and appeal of, and the giving of testimony in,
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative.
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(2) The term "expenses" shall be broadly construed and shall
include, without limitation, court costs, attorneys' fees, witness fees, fines,
amounts paid in settlement or judgment and any other costs and expenses of any
nature or kind incurred in connection with any proceeding.
(3) The term the "corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any constituent of
a constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under the provisions
of this Bylaw with respect to the resulting or surviving corporation as he would
have with respect to such constituent corporation if its separate existence had
continued.
(4) References to a "director," "executive officer," "officer,"
"employee," or "agent" of the corporation shall include, without limitation,
situations where such person is serving at the request of the corporation as,
respectively, a director, executive officer, officer, employee, trustee or agent
of another corporation, partnership, joint venture, trust or other enterprise.
(5) References to "other enterprises" shall include employee
benefit plans; references to "fines" shall include any excise taxes assessed on
a person with respect to an employee benefit plan; and references to "serving at
the request of the corporation" shall include any service as a director,
officer, employee or agent of the corporation which imposes duties on, or
involves services by, such director, officer, employee, or agent with respect to
an employee benefit plan, its participants, or beneficiaries; and a person who
acted in good faith and in a manner he reasonably believed to be in the interest
of the participants and beneficiaries of an employee benefit plan shall be
deemed to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this Bylaw.
ARTICLE XII
NOTICES
SECTION 44. NOTICES.
(a) NOTICE TO STOCKHOLDERS. Whenever, under any provisions of these
Bylaws, notice is required to be given to any stockholder, it shall be given in
writing, timely and duly deposited in the United States mail, postage prepaid,
and addressed to his last known post office address as shown by the stock record
of the corporation or its transfer agent.
(b) NOTICE TO DIRECTORS. Any notice required to be given to any
director may be given by the method stated in subsection (a), or by overnight
delivery service, facsimile, telex
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or telegram, except that such notice other than one which is delivered
personally shall be sent to such address as such director shall have filed in
writing with the Secretary, or, in the absence of such filing, to the last known
post office address of such director.
(c) AFFIDAVIT OF MAILING. An affidavit of mailing, executed by a
duly authorized and competent employee of the corporation or its transfer agent
appointed with respect to the class of stock affected, specifying the name and
address or the names and addresses of the stockholder or stockholders, or
director or directors, to whom any such notice or notices was or were given, and
the time and method of giving the same, shall in the absence of fraud, be prima
facie evidence of the facts therein contained.
(d) TIME NOTICES DEEMED GIVEN. All notices given by mail or by
overnight delivery service, as above provided, shall be deemed to have been
given as at the time of mailing, and all notices given by facsimile, telex or
telegram shall be deemed to have been given as of the sending time recorded at
time of transmission.
(e) METHODS OF NOTICE. It shall not be necessary that the same
method of giving notice be employed in respect of all directors, but one
permissible method may be employed in respect of any one or more, and any other
permissible method or methods may be employed in respect of any other or others.
(f) FAILURE TO RECEIVE NOTICE. The period or limitation of time
within which any stockholder may exercise any option or right, or enjoy any
privilege or benefit, or be required to act, or within which any director may
exercise any power or right, or enjoy any privilege, pursuant to any notice sent
him in the manner above provided, shall not be affected or extended in any
manner by the failure of such stockholder or such director to receive such
notice.
(g) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL. Whenever
notice is required to be given, under any provision of law or of the Certificate
of Incorporation or Bylaws of the corporation, to any person with whom
communication is unlawful, the giving of such notice to such person shall not be
required and there shall be no duty to apply to any governmental authority or
agency for a license or permit to give such notice to such person. Any action or
meeting which shall be taken or held without notice to any such person with whom
communication is unlawful shall have the same force and effect as if such notice
had been duly given. In the event that the action taken by the corporation is
such as to require the filing of a certificate under any provision of the
Delaware General Corporation Law, the certificate shall state, if such is the
fact and if notice is required, that notice was given to all persons entitled to
receive notice except such persons with whom communication is unlawful.
(h) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS. Whenever notice is
required to be given, under any provision of law or the Certificate of
Incorporation or Bylaws of the corporation, to any stockholder to whom (i)
notice of two consecutive annual meetings, and all notices of meetings or of the
taking of action by written consent without a meeting to such person during the
period between such two consecutive annual meetings, or (ii) all, and at least
two, payments (if sent by first class mail) of dividends or interest on
securities during a twelve-
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month period, have been mailed addressed to such person at his address as shown
on the records of the corporation and have been returned undeliverable, the
giving of such notice to such person shall not be required. Any action or
meeting which shall be taken or held without notice to such person shall have
the same force and effect as if such notice had been duly given. If any such
person shall deliver to the corporation a written notice setting forth his then
current address, the requirement that notice be given to such person shall be
reinstated. In the event that the action taken by the corporation is such as to
require the filing of a certificate under any provision of the Delaware General
Corporation Law, the certificate need not state that notice was not given to
persons to whom notice was not required to be given pursuant to this paragraph.
ARTICLE XIII
AMENDMENTS
SECTION 45. AMENDMENTS. Subject to paragraph (h) of Section 43 of the
Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by the
affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of the
voting power of all of the then-outstanding shares of the voting stock of the
corporation entitled to vote. The Board of Directors shall also have the power
to adopt, amend, or repeal Bylaws.
ARTICLE XIV
LOANS TO OFFICERS
SECTION 46. LOANS TO OFFICERS. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee who
is a Director of the corporation or its subsidiaries, whenever, in the judgment
of the Board of Directors, such loan, guarantee or assistance may reasonably be
expected to benefit the corporation. The loan, guarantee or other assistance may
be with or without interest and may be unsecured, or secured in such manner as
the Board of Directors shall approve, including, without limitation, a pledge of
shares of stock of the corporation. Nothing in these Bylaws shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
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EXHIBIT 10.1
INDEMNITY AGREEMENT
THIS AGREEMENT is made and entered into this ____ day of _________, 1999
by and between BUTTERFIELD & BUTTERFIELD AUCTIONEERS CORPORATION, a Delaware
corporation (the "Corporation"), and ____________ ("Agent").
RECITALS
WHEREAS, Agent performs a valuable service to the Corporation in his/her
capacity as _______________ of the Corporation;
WHEREAS, the stockholders of the Corporation have adopted bylaws (the
"Bylaws") providing for the indemnification of the directors, officers,
employees and other agents of the Corporation, including persons serving at the
request of the Corporation in such capacities with other corporations or
enterprises, as authorized by the Delaware General Corporation Law, as amended
(the "Code");
WHEREAS, the Bylaws and the Code, by their non-exclusive nature, permit
contracts between the Corporation and its agents, officers, employees and other
agents with respect to indemnification of such persons; and
WHEREAS, in order to induce Agent to continue to serve as ______________
of the Corporation, the Corporation has determined and agreed to enter into this
Agreement with Agent;
NOW, THEREFORE, in consideration of Agent's continued service as
_______________ after the date hereof, the parties hereto agree as follows:
AGREEMENT
1. SERVICES TO THE CORPORATION. Agent will serve, at the will of the
Corporation or under separate contract, if any such contract exists, as
______________ of the Corporation or as a director, officer or other fiduciary
of an affiliate of the Corporation (including any employee benefit plan of the
Corporation) faithfully and to the best of his/her ability so long as he/she is
duly elected and qualified in accordance with the provisions of the Bylaws or
other applicable charter documents of the Corporation or such affiliate;
provided, however, that Agent may at any time and for any reason resign from
such position (subject to any contractual obligation that Agent may have assumed
apart from this Agreement) and that the Corporation or any affiliate shall have
no obligation under this Agreement to continue Agent in any such position.
2. INDEMNITY OF AGENT. The Corporation hereby agrees to hold harmless
and indemnify Agent to the fullest extent authorized or permitted by the
provisions of the Bylaws and the Code, as the same may be amended from time to
time (but, only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than the Bylaws or the Code permitted
prior to adoption of such amendment).
1.
<PAGE> 2
3. ADDITIONAL INDEMNITY. In addition to and not in limitation of the
indemnification otherwise provided for herein, and subject only to the
exclusions set forth in Section 4 hereof, the Corporation hereby further agrees
to hold harmless and indemnify Agent:
(a) against any and all expenses (including attorneys' fees),
witness fees, damages, judgments, fines and amounts paid in settlement and any
other amounts that Agent becomes legally obligated to pay because of any claim
or claims made against or by him/her in connection with any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative (including an action by or in the right of the
Corporation) to which Agent is, was or at any time becomes a party, or is
threatened to be made a party, by reason of the fact that Agent is, was or at
any time becomes a director, officer, employee or other agent of Corporation, or
is or was serving or at any time serves at the request of the Corporation as a
director, officer, employee or other agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise; and
(b) otherwise to the fullest extent as may be provided to Agent by
the Corporation under the non-exclusivity provisions of the Code and Section 43
of the Bylaws.
4. LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity pursuant to
Section 3 hereof shall be paid by the Corporation:
(a) on account of any claim against Agent for an accounting of
profits made from the purchase or sale by Agent of securities of the Corporation
pursuant to the provisions of Section 16(b) of the Securities Exchange Act of
1934 and amendments thereto or similar provisions of any federal, state or local
statutory law;
(b) on account of Agent's conduct that was knowingly fraudulent or
deliberately dishonest or that constituted willful misconduct;
(c) on account of Agent's conduct that constituted a breach of
Agent's duty of loyalty to the Corporation or resulted in any personal profit or
advantage to which Agent was not legally entitled;
(d) for which payment is actually made to Agent under a valid and
collectible insurance policy or under a valid and enforceable indemnity clause,
bylaw or agreement, except in respect of any excess beyond payment under such
insurance, clause, bylaw or agreement;
(e) if indemnification is not lawful (and, in this respect, both the
Corporation and Agent have been advised that the Securities and Exchange
Commission believes that indemnification for liabilities arising under the
federal securities laws is against public policy and is, therefore,
unenforceable and that claims for indemnification should be submitted to
appropriate courts for adjudication); or
(f) in connection with any proceeding (or part thereof) initiated by
Agent, or any proceeding by Agent against the Corporation or its directors,
officers, employees or other agents, unless (i) such indemnification is
expressly required to be made by law, (ii) the proceeding was authorized by the
Board of Directors of the Corporation, (iii) such indemnification is provided by
the Corporation, in its sole discretion, pursuant to the powers
2.
<PAGE> 3
vested in the Corporation under the Code, or (iv) the proceeding is initiated
pursuant to Section 9 hereof.
5. CONTINUATION OF INDEMNITY. All agreements and obligations of the
Corporation contained herein shall continue during the period Agent is 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
other agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise) and shall continue thereafter so long as Agent
shall be subject to any possible claim or threatened, pending or completed
action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative, by reason of the fact that Agent was serving in
the capacity referred to herein.
6. PARTIAL INDEMNIFICATION. Agent shall be entitled under this
Agreement to indemnification by the Corporation for a portion of the expenses
(including attorneys' fees), witness fees, damages, judgments, fines and amounts
paid in settlement and any other amounts that Agent becomes legally obligated to
pay in connection with any action, suit or proceeding referred to in Section 3
hereof even if not entitled hereunder to indemnification for the total amount
thereof, and the Corporation shall indemnify Agent for the portion thereof to
which Agent is entitled.
7. NOTIFICATION AND DEFENSE OF CLAIM. Not later than thirty (30) days
after receipt by Agent of notice of the commencement of any action, suit or
proceeding, Agent will, if a claim in respect thereof is to be made against the
Corporation under this Agreement, notify the Corporation of the commencement
thereof; but the omission so to notify the Corporation will not relieve it from
any liability which it may have to Agent otherwise than under this Agreement.
With respect to any such action, suit or proceeding as to which Agent notifies
the Corporation of the commencement thereof:
(a) the Corporation will be entitled to participate therein at its
own expense;
(b) except as otherwise provided below, the Corporation may, at its
option and jointly with any other indemnifying party similarly notified and
electing to assume such defense, assume the defense thereof, with counsel
reasonably satisfactory to Agent. After notice from the Corporation to Agent of
its election to assume the defense thereof, the Corporation will not be liable
to Agent under this Agreement for any legal or other expenses subsequently
incurred by Agent in connection with the defense thereof except for reasonable
costs of investigation or otherwise as provided below. Agent shall have the
right to employ separate counsel in such action, suit or proceeding but the fees
and expenses of such counsel incurred after notice from the Corporation of its
assumption of the defense thereof shall be at the expense of Agent unless (i)
the employment of counsel by Agent has been authorized by the Corporation, (ii)
Agent shall have reasonably concluded that there may be a conflict of interest
between the Corporation and Agent in the conduct of the defense of such action
or (iii) the Corporation shall not in fact have employed counsel to assume the
defense of such action, in each of which cases the fees and expenses of Agent's
separate counsel shall be at the expense of the Corporation. The Corporation
shall not be entitled to assume the defense of any action, suit or proceeding
brought by or on behalf of the Corporation or as to which Agent shall have made
the conclusion provided for in clause (ii) above; and
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(c) the Corporation shall not be liable to indemnify Agent under
this Agreement for any amounts paid in settlement of any action or claim
effected without its written consent, which shall not be unreasonably withheld.
The Corporation shall be permitted to settle any action except that it shall not
settle any action or claim in any manner which would impose any penalty or
limitation on Agent without Agent's written consent, which may be given or
withheld in Agent's sole discretion.
8. EXPENSES. The Corporation shall advance, prior to the final
disposition of any proceeding, promptly following request therefor, all expenses
incurred by Agent in connection with such proceeding upon receipt of an
undertaking by or on behalf of Agent to repay said amounts if it shall be
determined ultimately that Agent is not entitled to be indemnified under the
provisions of this Agreement, the Bylaws, the Code or otherwise.
9. ENFORCEMENT. Any right to indemnification or advances granted by
this Agreement to Agent shall be enforceable by or on behalf of Agent in any
court of competent jurisdiction if (i) the claim for indemnification or advances
is denied, in whole or in part, or (ii) no disposition of such claim is made
within ninety (90) days of request therefor. Agent, in such enforcement action,
if successful in whole or in part, shall be entitled to be paid the expense of
prosecuting his claim. It shall be a defense to any action for which a claim for
indemnification is made under Section 3 hereof (other than an action brought to
enforce a claim for expenses pursuant to Section 8 hereof, provided that the
required undertaking has been tendered to the Corporation) that Agent is not
entitled to indemnification because of the limitations set forth in Section 4
hereof. Neither the failure of the Corporation (including its Board of Directors
or its stockholders) to have made a determination prior to the commencement of
such enforcement action that indemnification of Agent is proper in the
circumstances, nor an actual determination by the Corporation (including its
Board of Directors or its stockholders) that such indemnification is improper
shall be a defense to the action or create a presumption that Agent is not
entitled to indemnification under this Agreement or otherwise.
10. SUBROGATION. In the event of payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Agent, who shall execute all documents required and shall
do all acts that may be necessary to secure such rights and to enable the
Corporation effectively to bring suit to enforce such rights.
11. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on Agent by this
Agreement shall not be exclusive of any other right which Agent may have or
hereafter acquire under any statute, provision of the Corporation's Certificate
of Incorporation or Bylaws, agreement, vote of stockholders or directors, or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding office.
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12. SURVIVAL OF RIGHTS.
(a) The rights conferred on Agent by this Agreement shall continue
after Agent has ceased to be a director, officer, employee or other agent of the
Corporation or to serve at the request of the Corporation as a director,
officer, employee or other agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise and shall inure to the
benefit of Agent's heirs, executors and administrators.
(b) The Corporation shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Corporation, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform if no such succession
had taken place.
13. SEPARABILITY. Each of the provisions of this Agreement is a
separate and distinct agreement and independent of the others, so that if any
provision hereof shall be held to be invalid for any reason, such invalidity or
unenforceability shall not affect the validity or enforceability of the other
provisions hereof. Furthermore, if this Agreement shall be invalidated in its
entirety on any ground, then the Corporation shall nevertheless indemnify Agent
to the fullest extent provided by the Bylaws, the Code or any other applicable
law.
14. GOVERNING LAW. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Delaware.
15. AMENDMENT AND TERMINATION. No amendment, modification, termination
or cancellation of this Agreement shall be effective unless in writing signed by
both parties hereto.
16. IDENTICAL COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall for all purposes be deemed to be an
original but all of which together shall constitute but one and the same
Agreement. Only one such counterpart need be produced to evidence the existence
of this Agreement.
17. HEADINGS. The headings of the sections of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction hereof.
18. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given (i)
upon delivery if delivered by hand to the party to whom such communication was
directed or (ii) upon the third business day after the date on which such
communication was mailed if mailed by certified or registered mail with postage
prepaid:
(a) If to Agent, at the address indicated on the signature page
hereof.
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(b) If to the Corporation, to
Butterfield & Butterfield Auctioneers Corporation
220 San Bruno Avenue
San Francisco, CA 94103
or to such other address as may have been furnished to Agent by the Corporation.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
BUTTERFIELD & BUTTERFIELD AUCTIONEERS
CORPORATION
By:
--------------------------------
Title:
-----------------------------
AGENT
-----------------------------------
Address:
-----------------------------------
-----------------------------------
6.
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EXHIBIT 10.2
BUTTERFIELD & BUTTERFIELD, AUCTIONEERS CORP.
1999 EQUITY INCENTIVE PLAN
ADOPTED FEBRUARY 8, 1999
APPROVED BY STOCKHOLDERS _______________, 1999
TERMINATION DATE: FEBRUARY 7, 2009
1. PURPOSES.
(a) ELIGIBLE STOCK AWARD RECIPIENTS. The persons eligible to receive
Stock Awards are the Employees, Directors and Consultants of the Company and its
Affiliates.
(b) AVAILABLE STOCK AWARDS. The purpose of the Plan is to provide a
means by which selected Employees, Directors and Consultants may be given an
opportunity to benefit from increases in value of the Common Stock through the
granting of: (i) Incentive Stock Options, (ii) Nonstatutory Stock Options, (iii)
stock bonuses and (iv) rights to acquire restricted stock.
(c) GENERAL PURPOSE. The Company, by means of the Plan, seeks to retain
the services of persons who are now Employees, Directors or Consultants, 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.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation
of the Company, 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.
(d) "COMMITTEE" means a Committee appointed by the Board in accordance
with subsection 3(c).
(e) "COMMON STOCK" means the common stock of the Company.
(f) "COMPANY" means Butterfield & Butterfield, Auctioneers Corp., a
California corporation.
(g) "CONSULTANT" means any person, including an advisor, (1) engaged by
the Company or an Affiliate to render consulting or advisory services and who is
compensated for such services or (2) who is a member of the Board of Directors
of an Affiliate. However, the term "Consultant" shall not include either
Directors of the Company who are not compensated
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by the Company for their services as Directors or Directors of the Company who
are merely paid a director's fee by the Company for their services as Directors.
(h) "CONTINUOUS SERVICE" means that the Participant's service with the
Company or an Affiliate, whether as an Employee, Director or Consultant, is not
interrupted or terminated. The Participant's Continuous Service shall not be
deemed to have terminated merely because of a change in the capacity in which
the Participant renders service to the Company or an Affiliate as an Employee,
Consultant or Director or a change in the entity for which the Participant
renders such service, provided that there is no interruption or termination of
the Participant's Continuous Service. For example, a change in status from an
Employee of the Company to a Consultant of an Affiliate or a Director of the
Company will not constitute an interruption of Continuous Service. The Board or
the chief executive officer of the Company, in that party's sole discretion, may
determine whether Continuous Service shall be considered interrupted in the case
of any leave of absence approved by that party, including sick leave, military
leave or any other personal leave.
(i) "COVERED EMPLOYEE" means the chief executive officer and the four
(4) other highest compensated officers of the Company for whom total
compensation is required to be reported to stockholders under the Exchange Act,
as determined for purposes of Section 162(m) of the Code.
(j) "DIRECTOR" means a member of the Board.
(k) "DISABILITY" means (i) before the Listing Date, the inability of a
person, in the opinion of a qualified physician acceptable to the Company, to
perform the major duties of that person's position with the Company or an
Affiliate of the Company because of the sickness or injury of the person and
(ii) after the Listing Date, the permanent and total disability of a person
within the meaning of Section 22(e)(3) of the Code.
(l) "EMPLOYEE" means any person employed by the Company or an
Affiliate. Neither service as a Director nor payment of a director's fee by the
Company or an Affiliate shall be sufficient to constitute "employment" by the
Company or an Affiliate.
(m) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(n) "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock exchange
or traded on the Nasdaq National Market or the Nasdaq SmallCap Market, 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
exchange or market (or the exchange or market with the greatest volume of
trading in the Common Stock) on the last market trading day prior to the day of
determination, as reported in the WALL STREET JOURNAL or such other source as
the Board deems reliable.
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(ii) In the absence of such markets for the Common Stock, the Fair
Market Value shall be determined in good faith by the Board.
(iii) Prior to the Listing Date, the value of the Common Stock
shall be determined in a manner consistent with Section 260.140.50 of Title 10
of the California Code of Regulations.
(o) "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.
(p) "LISTING DATE" means the first date upon which any security of the
Company is listed (or approved for listing) upon notice of issuance on any
securities exchange or designated (or approved for designation) upon notice of
issuance as a national market security on an interdealer quotation system if
such securities exchange or interdealer quotation system has been certified in
accordance with the provisions of Section 25100(o) of the California Corporate
Securities Law of 1968.
(q) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or a subsidiary, does
not receive compensation (directly or indirectly) from the Company or its parent
or a subsidiary for services rendered as a consultant or in any capacity other
than as a Director (except for an amount as to which disclosure would not be
required under Item 404(a) of Regulation S-K promulgated pursuant to the
Securities Act ("Regulation S-K")), does not possess an interest in any other
transaction as to which disclosure would be required under Item 404(a) of
Regulation S-K and is not engaged in a business relationship as to which
disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is
otherwise considered a "non-employee director" for purposes of Rule 16b-3.
(r) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify
as an Incentive Stock Option.
(s) "OFFICER" means (i) before the Listing Date, any person designated
by the Company as an officer and (ii) on and after the Listing Date, 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.
(t) "OPTION" means an Incentive Stock Option or a Nonstatutory Stock
Option granted pursuant to the Plan.
(u) "OPTION AGREEMENT" means a written agreement between the Company
and an Optionholder evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of the
Plan.
(v) "OPTIONHOLDER" means a person to whom an Option is granted pursuant
to the Plan or, if applicable, such other person who holds an outstanding
Option.
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(w) "OUTSIDE DIRECTOR" means a Director of the Company who either (i)
is not a current employee of the Company or an "affiliated corporation" (within
the meaning of Treasury Regulations promulgated under Section 162(m) of the
Code), is not a former employee of the Company or an "affiliated corporation"
receiving compensation for prior services (other than benefits under a tax
qualified pension plan), was not an officer of the Company or an "affiliated
corporation" at any time and is not currently receiving direct or indirect
remuneration from the Company or an "affiliated corporation" for services in any
capacity other than as a Director or (ii) is otherwise considered an "outside
director" for purposes of Section 162(m) of the Code.
(x) "PARTICIPANT" means a person to whom a Stock Award is granted
pursuant to the Plan or, if applicable, such other person who holds an
outstanding Stock Award.
(y) "PLAN" means this Butterfield & Butterfield, Auctioneers Corp. 1999
Equity Incentive Plan.
(z) "RULE 16B-3" means Rule 16b-3 promulgated under the Exchange Act or
any successor to Rule 16b-3, as in effect from time to time.
(aa) "SECURITIES ACT" means the Securities Act of 1933, as amended.
(bb) "STOCK AWARD" means any right granted under the Plan, including an
Option, a stock bonus and a right to acquire restricted stock.
(cc) "STOCK AWARD AGREEMENT" means a written agreement between the
Company and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.
(dd) "TEN PERCENT STOCKHOLDER" means a person who 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.
3. ADMINISTRATION.
(a) ADMINISTRATION BY BOARD. The Board will administer the Plan unless
and until the Board delegates administration to a Committee, as provided in
subsection 3(c).
(b) POWERS OF BOARD. 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 Stock Awards; when and how each Stock Award
shall be granted; what type or combination of types of Stock Award shall be
granted; the provisions of each Stock Award granted (which need not be
identical), including the time or times when a person shall be permitted to
receive stock pursuant to a Stock Award; and the number of shares with respect
to which a Stock Award shall be granted to each such person.
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(ii) To construe and interpret the Plan and Stock Awards 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 Stock Award 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 or a Stock Award as provided in Section 12.
(iv) Generally, to exercise such powers and to perform such acts as
the Board deems necessary or expedient to promote the best interests of the
Company which are not in conflict with the provisions of the Plan.
(c) DELEGATION TO COMMITTEE.
(i) GENERAL. The Board may delegate administration of the Plan to a
Committee or Committees of one or more members of the Board, and the term
"Committee" shall apply to any person or persons to whom such authority has been
delegated. 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, including the power to delegate to a subcommittee any of
the administrative powers the Committee is authorized to exercise (and
references in this Plan to the Board shall thereafter be to the Committee or
subcommittee), 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.
(ii) COMMITTEE COMPOSITION WHEN COMMON STOCK IS PUBLICLY TRADED. At
such time as the Common Stock is publicly traded, in the discretion of the
Board, a Committee may consist solely of two or more Outside Directors, in
accordance with Section 162(m) of the Code, and/or solely of two or more
Non-Employee Directors, in accordance with Rule 16b-3. Within the scope of such
authority, the Board or the Committee may (i) delegate to a committee of one or
more members of the Board who are not Outside Directors, the authority to grant
Stock Awards to eligible persons who are either (a) not then Covered Employees
and are not expected to be Covered Employees at the time of recognition of
income resulting from such Stock Award or (b) not persons with respect to whom
the Company wishes to comply with Section 162(m) of the Code and/or (ii)
delegate to a committee of one or more members of the Board who are not
Non-Employee Directors the authority to grant Stock Awards to eligible persons
who are not then subject to Section 16 of the Exchange Act.
4. SHARES SUBJECT TO THE PLAN.
(a) SHARE RESERVE. Subject to the provisions of Section 11 relating to
adjustments upon changes in stock, the stock that may be issued pursuant to
Stock Awards shall not exceed in the aggregate eight hundred thirty seven (837)
shares of Common Stock.
(b) REVERSION OF SHARES TO THE SHARE RESERVE. If any Stock Award shall
for any reason expire or otherwise terminate, in whole or in part, without
having been exercised in full
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(or vested in the case of restricted stock), the stock not acquired under such
Stock Award shall revert to and again become available for issuance under the
Plan. If any Common Stock acquired pursuant to the exercise of an Option shall
for any reason be repurchased by the Company under an unvested share repurchase
option provided under the Plan, the stock repurchased by the Company under such
repurchase option shall not revert to and again become available for issuance
under the Plan.
(c) SOURCE OF SHARES. The stock subject to the Plan may be unissued
shares or reacquired shares, bought on the market or otherwise.
(d) SHARE RESERVE LIMITATION. Prior to the Listing Date, at no time
shall the total number of shares issuable upon exercise of all outstanding
Options and the total number of shares provided for under any stock bonus or
similar plan of the Company exceed the applicable percentage as calculated in
accordance with the conditions and exclusions of Section 260.140.45 of Title 10
of the California Code of Regulations, based on the shares of the Company which
are outstanding at the time the calculation is made.
5. ELIGIBILITY.
(a) ELIGIBILITY FOR SPECIFIC STOCK AWARDS. Incentive Stock Options and
stock appreciation rights appurtenant thereto may be granted only to Employees.
Stock Awards other than Incentive Stock Options and stock appreciation rights
appurtenant thereto may be granted to Employees, Directors and Consultants.
(b) TEN PERCENT STOCKHOLDERS. No Ten Percent Stockholder shall be
eligible for the grant of an Incentive Stock Option unless the exercise price of
such Option is at least one hundred ten percent (110%) of the Fair Market Value
of the Common Stock at the date of grant and the Option is not exercisable after
the expiration of five (5) years from the date of grant.
Prior to the Listing Date, no Ten Percent Stockholder shall be
eligible for the grant of a Nonstatutory Stock Option unless the exercise price
of such Option is at least one hundred ten percent (110%) of the Fair Market
Value of the Common Stock at the date of grant.
Prior to the Listing Date, no Ten Percent Stockholder shall be
eligible for a restricted stock award unless the purchase price of the
restricted stock is at least one hundred percent (100%) of the Fair Market Value
of the Common Stock at the date of grant.
(c) SECTION 162(m) LIMITATION. Subject to the provisions of Section 11
relating to adjustments upon changes in stock, no employee shall be eligible to
be granted Options covering more than ninety-two (92) shares of the Common Stock
during any calendar year. This subsection 5(c) shall not apply prior to the
Listing Date and, following the Listing Date, this subsection 5(c) shall not
apply until (i) the earliest of: (1) the first material modification of the Plan
(including any increase in the number of shares reserved for issuance under the
Plan in accordance with Section 4); (2) the issuance of all of the shares of
Common Stock reserved for issuance under the Plan; (3) the expiration of the
Plan; or (4) the first meeting of stockholders at which Directors of the Company
are to be elected that occurs after the close of the third calendar
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year following the calendar year in which occurred the first registration of an
equity security under Section 12 of the Exchange Act; or (ii) such other date
required by Section 162(m) of the Code and the rules and regulations promulgated
thereunder.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. All Options shall be separately
designated Incentive Stock Options or Nonstatutory Stock Options at the time of
grant, and a separate certificate or certificates will be issued for shares
purchased on exercise of each type of Option. 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. Subject to the provisions of subsection 5(b) regarding Ten
Percent Stockholders, no Incentive Stock Option shall be exercisable after the
expiration of ten (10) years from the date it was granted.
(b) EXERCISE PRICE OF AN INCENTIVE STOCK OPTION. Subject to the
provisions of subsection 5(b) regarding Ten Percent Stockholders, 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, an Incentive Stock Option
may be granted with an exercise price lower than that set forth in the preceding
sentence if such Option is granted pursuant to an assumption or substitution for
another option in a manner satisfying the provisions of Section 424(a) of the
Code.
(c) EXERCISE PRICE OF A NONSTATUTORY STOCK OPTION. Subject to the
provisions of subsection 5(b) regarding Ten Percent Stockholders, the exercise
price of each Nonstatutory Stock Option granted prior to the Listing Date shall
be not less than eighty-five percent (85%) of the Fair Market Value of the stock
subject to the Option on the date the Option is granted. The exercise price of
each Nonstatutory Stock Option granted on or after the Listing Date shall be not
less than eighty-five percent (85%) of the Fair Market Value of the stock
subject to the Option on the date the Option is granted. Notwithstanding the
foregoing, a Nonstatutory Stock Option may be granted with an exercise price
lower than that set forth in the preceding sentence if such Option is granted
pursuant to an assumption or substitution for another option in a manner
satisfying the provisions of Section 424(a) of the Code.
(d) 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 or (ii) at
the discretion of the Board at the time of the grant of the Option (or
subsequently in the case of a Nonstatutory Stock Option) by delivery to the
Company of other Common Stock, according to a deferred payment or other
arrangement (which may include, without limiting the generality of the
foregoing, the use of other Common Stock) with the Participant or in any other
form of legal consideration that may be acceptable to the Board; provided,
however, that at any time that the Company is incorporated in California,
payment of
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the Common Stock's "par value," as defined in the California General Corporation
Law, shall not be made by deferred payment.
In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be interest
under the deferred payment arrangement.
(e) TRANSFERABILITY OF AN INCENTIVE STOCK OPTION. 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 Optionholder
only by the Optionholder. Notwithstanding the foregoing provisions of this
subsection 6(e), the Optionholder 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 Optionholder, shall thereafter be entitled to
exercise the Option.
(f) TRANSFERABILITY OF A NONSTATUTORY STOCK OPTION. A Nonstatutory
Stock Option granted prior to the Listing Date shall not be transferable except
by will or by the laws of descent and distribution and shall be exercisable
during the lifetime of the Optionholder only by the Optionholder. A Nonstatutory
Stock Option granted on or after the Listing Date shall be transferable to the
extent provided in the Option Agreement. If the Nonstatutory Stock Option does
not provide for transferability, then the Nonstatutory 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 Optionholder only by the Optionholder.
Notwithstanding the foregoing provisions of this subsection 6(f), the
Optionholder 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 Optionholder, shall thereafter be entitled to exercise the Option.
(g) VESTING GENERALLY. The total number of shares of Common Stock
subject to an Option may, but need not, vest and therefore become exercisable in
periodic installments which may, but need not, be equal. 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 vesting provisions of individual Options may vary. The
provisions of this subsection 6(g) are subject to any Option provisions
governing the minimum number of shares as to which an Option may be exercised.
(h) MINIMUM VESTING PRIOR TO THE LISTING DATE. Notwithstanding the
foregoing subsection 6(g), Options granted prior to the Listing Date shall
provide for vesting of the total number of shares at a rate of at least twenty
percent (20%) per year over five (5) years from the date the Option was granted,
subject to reasonable conditions such as continued employment. However, in the
case of such Options granted to Officers, Directors or Consultants, the Option
may become fully exercisable, subject to reasonable conditions such as continued
employment, at any time or during any period established by the Company; for
example, the vesting provision of the Option may provide for vesting of less
than twenty percent (20%) per year of the total number of shares subject to the
Option.
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(i) TERMINATION OF CONTINUOUS SERVICE. In the event an
Optionholder's Continuous Service terminates (other than upon the Optionholder's
death or Disability), the Optionholder may exercise his or her Option (to the
extent that the Optionholder was entitled to exercise it as of the date of
termination) but only within such period of time ending on the earlier of (i)
the date three (3) months following the termination of the Optionholder's
Continuous Service (or such longer or shorter period specified in the Option
Agreement, which, for Options granted prior to the Listing Date, shall not be
less than thirty (30) days, unless such termination is for cause) or (ii) the
expiration of the term of the Option as set forth in the Option Agreement. If,
after termination, the Optionholder does not exercise his or her Option within
the time specified in the Option Agreement, the Option shall terminate.
(j) EXTENSION OF TERMINATION DATE. An Optionholder's Option Agreement
may also provide that if the exercise of the Option following the termination of
the Optionholder's Continuous Service (other than upon the Optionholder's death
or Disability) would be prohibited at any time solely because the issuance of
shares would violate the registration requirements under the Securities Act,
then the Option shall terminate on the earlier of (i) the expiration of the term
of the Option set forth in subsection 6(a) or (ii) the expiration of a period of
three (3) months after the termination of the Optionholder's Continuous Service
during which the exercise of the Option would not be in violation of such
registration requirements.
(k) DISABILITY OF OPTIONHOLDER. In the event an Optionholder's
Continuous Service terminates as a result of the Optionholder's Disability, the
Optionholder may exercise his or her Option (to the extent that the Optionholder
was entitled to exercise it as of the date of termination), but only within such
period of time ending on the earlier of (i) the date twelve (12) months
following such termination (or such longer or shorter period specified in the
Option Agreement, which, for Options granted prior to the Listing Date, shall
not be less than six (6) months) or (ii) the expiration of the term of the
Option as set forth in the Option Agreement. If, after termination, the
Optionholder does not exercise his or her Option within the time specified
herein, the Option shall terminate.
(l) DEATH OF OPTIONHOLDER. In the event (i) an Optionholder's
Continuous Service terminates as a result of the Optionholder's death or (ii)
the Optionholder dies within the period (if any) specified in the Option
Agreement after the termination of the Optionholder's Continuous Service for a
reason other than death, then the Option may be exercised (to the extent the
Optionholder was entitled to exercise the Option as of the date of death) by the
Optionholder'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 Optionholder's death pursuant to subsection 6(e) or 6(f), but only within
the period ending on the earlier of (1) the date eighteen (18) months following
the date of death (or such longer or shorter period specified in the Option
Agreement, which, for Options granted prior to the Listing Date, shall not be
less than six (6) months) or (2) the expiration of the term of such Option as
set forth in the Option Agreement. If, after death, the Option is not exercised
within the time specified herein, the Option shall terminate.
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(m) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionholder may elect at any time before the Optionholder's
Continuous Service terminates to exercise the Option as to any part or all of
the shares subject to the Option prior to the full vesting of the Option.
Subject to the "Repurchase Limitation" in subsection 10(h), any unvested shares
so purchased may be subject to an unvested share repurchase option in favor of
the Company or to any other restriction the Board determines to be appropriate.
(n) RIGHT OF REPURCHASE. Subject to the "Repurchase Limitation" in
subsection 10(h), the Option may, but need not, include a provision whereby the
Company may elect, prior to the Listing Date, to repurchase all or any part of
the vested shares acquired by the Optionholder pursuant to the exercise of the
Option.
(o) RIGHT OF FIRST REFUSAL. The Option may, but need not, include a
provision whereby the Company may elect, prior to the Listing Date, to exercise
a right of first refusal following receipt of notice from the Optionholder of
the intent to transfer all or any part of the shares exercised pursuant to the
Option. Except as expressly provided in this subsection 6(o), such right of
first refusal shall otherwise comply with any applicable provisions of the
Bylaws of the Company.
(p) RE-LOAD OPTIONS. Without in any way limiting the authority of the
Board to make or not to make grants of Options hereunder, the Board shall have
the authority (but not an obligation) to include as part of any Option Agreement
a provision entitling the Optionholder to a further Option (a "Re-Load Option")
in the event the Optionholder exercises the Option evidenced by the Option
Agreement, in whole or in part, by surrendering other shares of Common Stock in
accordance with this Plan and the terms and conditions of the Option Agreement.
Any such Re-Load Option shall (i) provide for a number of shares equal to the
number of shares surrendered as part or all of the exercise price of such
Option; (ii) have an expiration date which is the same as the expiration date of
the Option the exercise of which gave rise to such Re-Load Option; and (iii)
have an exercise price which is equal to one hundred percent (100%) of the Fair
Market Value of the Common Stock subject to the Re-Load Option on the date of
exercise of the original Option. Notwithstanding the foregoing, a Re-Load Option
shall be subject to the same exercise price and term provisions heretofore
described for Options under the Plan, including the provisions of Section 5(b)
applicable to Ten Percent Stockholders.
Any such Re-Load Option may be an Incentive Stock Option or a
Nonstatutory Stock Option, as the Board may designate at the time of the grant
of the original Option; provided, however, that the designation of any Re-Load
Option as an Incentive Stock Option shall be subject to the one hundred thousand
dollars ($100,000) annual limitation on exercisability of Incentive Stock
Options described in subsection 10(d) and in Section 422(d) of the Code. There
shall be no Re-Load Options on a Re-Load Option. Any such Re-Load Option shall
be subject to the availability of sufficient shares under subsection 4(a) and
the "Section 162(m) Limitation" on the grants of Options under subsection 5(c)
and shall be subject to such other terms and conditions as the Board may
determine which are not inconsistent with the express provisions of the Plan
regarding the terms of Options.
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7. PROVISIONS OF STOCK AWARDS OTHER THAN OPTIONS.
(a) STOCK BONUS AWARDS. Each stock bonus agreement shall be in such
form and shall contain such terms and conditions as the Board shall deem
appropriate. The terms and conditions of stock bonus agreements may change from
time to time, and the terms and conditions of separate stock bonus agreements
need not be identical, but each stock bonus agreement shall include (through
incorporation of provisions hereof by reference in the agreement or otherwise)
the substance of each of the following provisions:
(i) CONSIDERATION. A stock bonus shall be awarded in consideration
for past services actually rendered to the Company for its benefit.
(ii) VESTING. Subject to the "Repurchase Limitation" in subsection
10(h), shares of Common Stock awarded under the stock bonus agreement may, but
need not, be subject to a share repurchase option in favor of the Company in
accordance with a vesting schedule to be determined by the Board.
(iii) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. Subject to
the "Repurchase Limitation" in subsection 10(h), in the event a Participant's
Continuous Service terminates, the Company may reacquire any or all of the
shares of Common Stock held by the Participant which have not vested as of the
date of termination under the terms of the stock bonus agreement.
(iv) TRANSFERABILITY. For a stock bonus award made before the
Listing Date, rights to acquire shares under the stock bonus agreement shall not
be transferable except by will or by the laws of descent and distribution and
shall be exercisable during the lifetime of the Participant only by the
Participant. For a stock bonus award made on or after the Listing Date, rights
to acquire shares under the stock bonus agreement shall be transferable by the
Participant only upon such terms and conditions as are set forth in the stock
bonus agreement, as the Board shall determine in its discretion, so long as
stock awarded under the stock bonus agreement remains subject to the terms of
the stock bonus agreement.
(b) RESTRICTED STOCK AWARDS. Each restricted stock purchase agreement
shall be in such form and shall contain such terms and conditions as the Board
shall deem appropriate. The terms and conditions of the restricted stock
purchase agreements may change from time to time, and the terms and conditions
of separate restricted stock purchase agreements need not be identical, but each
restricted stock purchase agreement shall include (through incorporation of
provisions hereof by reference in the agreement or otherwise) the substance of
each of the following provisions:
(i) PURCHASE PRICE. Subject to the provisions of subsection 5(b)
regarding Ten Percent Stockholders, the purchase price under each restricted
stock purchase agreement shall be such amount as the Board shall determine and
designate in such restricted stock purchase agreement. For restricted stock
awards made prior to the Listing Date, the purchase price shall not be less than
eighty-five percent (85%) of the stock's Fair Market Value on the date such
award is made or at the time the purchase is consummated. For restricted stock
awards
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made on or after the Listing Date, the purchase price shall not be less than
eighty-five percent (85%) of the stock's Fair Market Value on the date such
award is made or at the time the purchase is consummated.
(ii) CONSIDERATION. The purchase price of stock acquired pursuant
to the restricted stock purchase agreement shall be paid either: (i) in cash at
the time of purchase; (ii) at the discretion of the Board, according to a
deferred payment or other arrangement with the Participant; or (iii) in any
other form of legal consideration that may be acceptable to the Board in its
discretion; provided, however, that at any time that the Company is incorporated
in California, payment of the Common Stock's "par value," as defined in the
California General Corporation Law, shall not be made by deferred payment.
(iii) VESTING. Subject to the "Repurchase Limitation" in subsection
10(h), shares of Common Stock acquired under the restricted stock purchase
agreement may, but need not, be subject to a share repurchase option in favor of
the Company in accordance with a vesting schedule to be determined by the Board.
(iv) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. Subject to
the "Repurchase Limitation" in subsection 10(h), in the event a Participant's
Continuous Service terminates, the Company may repurchase or otherwise reacquire
any or all of the shares of Common Stock held by the Participant which have not
vested as of the date of termination under the terms of the restricted stock
purchase agreement.
(v) TRANSFERABILITY. For a restricted stock award made before the
Listing Date, rights to acquire shares under the restricted stock purchase
agreement shall not be transferable except by will or by the laws of descent and
distribution and shall be exercisable during the lifetime of the Participant
only by the Participant. For a restricted stock award made on or after the
Listing Date, rights to acquire shares under the restricted stock purchase
agreement shall be transferable by the Participant only upon such terms and
conditions as are set forth in the restricted stock purchase agreement, as the
Board shall determine in its discretion, so long as stock awarded under the
restricted stock purchase agreement remains subject to the terms of the
restricted stock purchase agreement.
8. COVENANTS OF THE COMPANY.
(a) AVAILABILITY OF SHARES. During the terms of the Stock Awards, the
Company shall keep available at all times the number of shares of Common Stock
required to satisfy such Stock Awards.
(b) SECURITIES LAW COMPLIANCE. The Company shall seek to obtain from
each regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to grant Stock Awards and to issue and sell shares
of Common Stock upon exercise of the Stock Awards; provided, however, that this
undertaking shall not require the Company to register under the Securities Act
the Plan, any Stock Award or any stock issued or issuable pursuant to any such
Stock Award. If, after reasonable efforts, the Company is unable to obtain from
any such regulatory commission or agency the authority which counsel for the
Company
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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 Stock Awards unless and until such authority is obtained.
9. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Stock Awards shall
constitute general funds of the Company.
10. MISCELLANEOUS.
(a) ACCELERATION OF EXERCISABILITY AND VESTING. The Board shall have
the power to accelerate the time at which a Stock Award may first be exercised
or the time during which a Stock Award or any part thereof will vest in
accordance with the Plan, notwithstanding the provisions in the Stock Award
stating the time at which it may first be exercised or the time during which it
will vest.
(b) STOCKHOLDER RIGHTS. No Participant 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 Stock Award unless and until such Participant has satisfied all
requirements for exercise of the Stock Award pursuant to its terms.
(c) NO EMPLOYMENT OR OTHER SERVICE RIGHTS. Nothing in the Plan or any
instrument executed or Stock Award granted pursuant thereto shall confer upon
any Participant or other holder of Stock Awards any right to continue to serve
the Company or an Affiliate in the capacity in effect at the time the Stock
Award was granted or shall affect the right of the Company or an Affiliate to
terminate (i) the employment of an Employee with or without notice and with or
without cause, (ii) the service of a Consultant pursuant to the terms of such
Consultant's agreement with the Company or an Affiliate or (iii) the service of
a Director pursuant to the Bylaws of the Company or an Affiliate, and any
applicable provisions of the corporate law of the state in which the Company or
the Affiliate is incorporated, as the case may be.
(d) INCENTIVE STOCK OPTION $100,000 LIMITATION. 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 exercisable for the first time by
any Optionholder 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.
(e) INVESTMENT ASSURANCES. The Company may require a Participant, as a
condition of exercising or acquiring stock under any Stock Award, (i) to give
written assurances satisfactory to the Company as to the Participant'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
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risks of exercising the Stock Award; and (ii) to give written assurances
satisfactory to the Company stating that the Participant is acquiring the stock
subject to the Stock Award for the Participant'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 (iii) the issuance of the shares upon the exercise or acquisition
of stock under the Stock Award has been registered under a then currently
effective registration statement under the Securities Act or (iv) 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.
(f) WITHHOLDING OBLIGATIONS. To the extent provided by the terms of a
Stock Award Agreement, the Participant may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of stock
under a Stock Award by any of the following means (in addition to the Company's
right to withhold from any compensation paid to the Participant by the Company)
or by a combination of such means: (i) tendering a cash payment; (ii)
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 Stock Award; or (iii) delivering to the Company owned and
unencumbered shares of the Common Stock.
(g) INFORMATION OBLIGATION. Prior to the Listing Date, to the extent
required by Section 260.140.46 of Title 10 of the California Code of
Regulations, the Company shall deliver financial statements to Participants at
least annually. This subsection 10(g) shall not apply to key Employees whose
duties in connection with the Company assure them access to equivalent
information.
(h) REPURCHASE LIMITATION. The terms of any repurchase option shall be
specified in the Stock Award and may be either at Fair Market Value at the time
of repurchase or at not less than the original purchase price. To the extent
required by Section 260.140.41 and Section 260.140.42 of Title 10 of the
California Code of Regulations, any repurchase option contained in a Stock Award
granted prior to the Listing Date to a person who is not an Officer, Director or
Consultant shall be upon the terms described below:
(i) FAIR MARKET VALUE. If the repurchase option gives the Company
the right to repurchase the shares upon termination of employment at not less
than the Fair Market Value of the shares to be purchased on the date of
termination of Continuous Service, then (i) the right to repurchase shall be
exercised for cash or cancellation of purchase money indebtedness for the shares
within ninety (90) days of termination of Continuous Service (or in the case of
shares issued upon exercise of Stock Awards after such date of termination,
within ninety (90) days after the date of the exercise) or such longer period as
may be agreed to by the Company and the Participant (for example, for purposes
of satisfying the requirements of Section 1202(c)(3) of the
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Code regarding "qualified small business stock") and (ii) the right terminates
when the shares become publicly traded.
(ii) ORIGINAL PURCHASE PRICE. If the repurchase option gives the
Company the right to repurchase the shares upon termination of Continuous
Service at the original purchase price, then (i) the right to repurchase at the
original purchase price shall lapse at the rate of at least twenty percent (20%)
of the shares per year over five (5) years from the date the Stock Award is
granted (without respect to the date the Stock Award was exercised or became
exercisable) and (ii) the right to repurchase shall be exercised for cash or
cancellation of purchase money indebtedness for the shares within ninety (90)
days of termination of Continuous Service (or in the case of shares issued upon
exercise of Options after such date of termination, within ninety (90) days
after the date of the exercise) or such longer period as may be agreed to by the
Company and the Participant (for example, for purposes of satisfying the
requirements of Section 1202(c)(3) of the Code regarding "qualified small
business stock").
11. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) CAPITALIZATION ADJUSTMENTS. If any change is made in the stock
subject to the Plan, or subject to any Stock Award, due to a change in corporate
capitalization and without the receipt of consideration by the Company (through
reincorporation, stock dividend, stock split, reverse stock split, combination
or reclassification of shares), the Plan will be appropriately adjusted in the
class(es) and maximum number of securities subject to the Plan pursuant to
subsection 4(a), and the outstanding Stock Awards will be appropriately adjusted
in the class(es) and number of securities and price per share of stock subject
to such outstanding Stock Awards. Such adjustments shall be made by the Board,
the determination of which shall be final, binding and conclusive.
(b) CAPITALIZATION AND TRANSACTION ADJUSTMENTS. If any change is made
in the stock subject to the Plan, or subject to any Stock Award, without the
receipt of consideration by the Company (through merger, consolidation,
reorganization, recapitalization, reincorporation, separation, stock dividend,
dividend in property other than cash, stock split, reverse stock split,
liquidating dividend, combination of shares, exchange of shares, change in
corporate structure or other transaction not involving the receipt of
consideration by the Company), the Plan will be appropriately adjusted in the
maximum number of securities subject to award to any person pursuant to
subsection 5(c). (The conversion of any convertible securities of the Company
shall not be treated as a transaction "without receipt of consideration" by the
Company.) Such adjustments shall be made by the Board, the determination of
which shall be final, binding and conclusive.
(c) CHANGE IN CONTROL--DISSOLUTION OR LIQUIDATION. In the event of a
dissolution or liquidation of the Company, then such Stock Awards shall be
terminated if not exercised (if applicable) prior to such event.
(d) CHANGE IN CONTROL--ASSET SALE, MERGER, CONSOLIDATION OR REVERSE
MERGER. In the event of (1) a 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
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which the Company is the surviving corporation but the shares of 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 any surviving corporation or acquiring corporation shall assume
any Stock Awards outstanding under the Plan or shall substitute similar stock
awards (including an award to acquire the same consideration paid to the
stockholders in the transaction described in this subsection 11(d) for those
outstanding under the Plan. In the event any surviving corporation or acquiring
corporation refuses to assume such Stock Awards or to substitute similar stock
awards for those outstanding under the Plan, then with respect to Stock Awards
held by Participants whose Continuous Service has not terminated, the vesting of
such Stock Awards (and, if applicable, the time during which such Stock Awards
may be exercised) shall be accelerated in full prior to such event, and the
Stock Awards shall terminate if not exercised (if applicable) at or prior to
such event. With respect to any other Stock Awards outstanding under the Plan,
such Stock Awards shall terminate if not exercised (if applicable) prior to such
event.
(e) CHANGE IN CONTROL--SECURITIES ACQUISITION. After the Listing Date,
in the event of an acquisition by any person, entity or group within the meaning
of Section 13(d) or 14(d) of the Exchange Act, or any comparable successor
provisions (excluding any employee benefit plan, or related trust, sponsored or
maintained by the Company or an Affiliate) of the beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act, or comparable
successor rule) of securities of the Company representing at least [fifty
percent (50%)] of the combined voting power entitled to vote in the election of
directors, then with respect to Stock Awards held by Participants whose
Continuous Service has not terminated, the vesting of such Stock Awards (and, if
applicable, the time during which such Stock Awards may be exercised) shall be
accelerated in full.
12. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) AMENDMENT OF PLAN. The Board at any time, and from time to time,
may amend the Plan. However, except as provided in Section 11 relating to
adjustments upon changes in stock, no amendment shall be effective unless
approved by the stockholders of the Company to the extent stockholder approval
is necessary to satisfy the requirements of Section 422 of the Code, Rule 16b-3
or any Nasdaq or securities exchange listing requirements.
(b) STOCKHOLDER APPROVAL. 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 thereunder regarding the
exclusion of performance-based compensation from the limit on corporate
deductibility of compensation paid to certain executive officers.
(c) CONTEMPLATED AMENDMENTS. It is expressly contemplated that the
Board may amend the Plan in any respect the Board deems necessary or advisable
to provide eligible Employees 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.
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(d) NO IMPAIRMENT OF RIGHTS. Rights under any Stock Award granted
before amendment of the Plan shall not be impaired by any amendment of the Plan
unless (i) the Company requests the consent of the Participant and (ii) the
Participant consents in writing.
(e) AMENDMENT OF STOCK AWARDS. The Board at any time, and from time to
time, may amend the terms of any one or more Stock Awards; provided, however,
that the rights under any Stock Award shall not be impaired by any such
amendment unless (i) the Company requests the consent of the Participant and
(ii) the Participant consents in writing.
13. TERMINATION OR SUSPENSION OF THE PLAN.
(a) PLAN TERM. The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate on the day before the tenth
(10th) anniversary of the date the Plan is adopted by the Board or approved by
the stockholders of the Company, whichever is earlier. No Stock Awards may be
granted under the Plan while the Plan is suspended or after it is terminated.
Notwithstanding the foregoing, all Incentive Stock Options shall be granted, if
at all, no later than the last day preceding the tenth (10th) anniversary of the
earlier of (i) the date on which the latest increase in the maximum number of
shares issuable under the Plan was approved by the stockholders of the Company
or (ii) the date such amendment was adopted by the Board.
(b) NO IMPAIRMENT OF RIGHTS. Rights and obligations under any Stock
Award granted while the Plan is in effect shall not be impaired by suspension or
termination of the Plan, except with the written consent of the Participant.
14. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no Stock
Award shall be exercised (or, in the case of a stock bonus, shall be granted)
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.
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EXHIBIT 10.3
BUTTERFIELD & BUTTERFIELD, AUCTIONEERS CORP.
STOCK OPTION GRANT NOTICE
(1999 EQUITY INCENTIVE PLAN)
Butterfield & Butterfield, Auctioneers Corp. (the "Company"), pursuant to its
1999 Equity Incentive Plan (the "Plan"), hereby grants to Optionholder an option
to purchase the number of shares of the Company's Common Stock set forth below.
This option is subject to all of the terms and conditions as set forth herein
and in the Stock Option Agreement, the Plan and the Notice of Exercise, all of
which are attached hereto and incorporated herein in their entirety.
Optionholder: _______________________________________
Date of Grant: _______________________________________
Vesting Commencement Date: _______________________________________
Number of Shares Subject to Option: _______________________________________
Exercise Price Per Share: _______________________________________
Expiration Date: _______________________________________
TYPE OF GRANT: [_] Incentive Stock Option [_] Nonstatutory Stock Option
EXERCISE SCHEDULE: [_] Same as Vesting Schedule [_] Early Exercise Permitted
VESTING SCHEDULE: 1/5th of the shares vest one year after the Vesting
Commencement Date.
1/5th of the shares vest annually thereafter over the next
four years.(1)
PAYMENT: By one or a combination of the following items (described in
the Stock Option Agreement):
By cash or check
Pursuant to a Regulation T Program if the Shares are
publicly traded
By delivery of already-owned shares if the Shares are
publicly traded
[By deferred payment]
ADDITIONAL TERMS/ACKNOWLEDGEMENTS: The undersigned Optionholder acknowledges
receipt of, and understands and agrees to, this Grant Notice, the Stock Option
Agreement and the Plan. Optionholder further acknowledges that as of the Date of
Grant, this Grant Notice, the Stock Option Agreement and the Plan set forth the
entire understanding between Optionholder and the Company regarding the
acquisition of stock in the Company and supersede all prior oral and written
agreements on that subject with the exception of (i) options previously granted
and delivered to Optionholder under the Plan, and (ii) the following agreements
only:
OTHER AGREEMENTS: ____________________________________________
____________________________________________
BUTTERFIELD & BUTTERFIELD,
AUCTIONEERS CORP. OPTIONHOLDER:
By:__________________________ ____________________________________________
Signature Signature
Title:_______________________ Date:_______________________________________
Date:________________________
ATTACHMENTS: Stock Option Agreement, Butterfield & Butterfield, Auctioneers
Corp. 1999 Equity Incentive Plan and Notice of Exercise
__________________________________
1 Sample vesting schedule. Use vesting schedule approved by the Board. If this
is an incentive stock option, it (plus your other outstanding incentive stock
options) cannot be first exercisable for more than $100,000 in any calendar
year. Any excess over $100,000 is a nonstatutory stock option.
<PAGE> 2
BUTTERFIELD & BUTTERFIELD, AUCTIONEERS CORP.
1999 EQUITY INCENTIVE PLAN
STOCK OPTION AGREEMENT
(INCENTIVE AND NONSTATUTORY STOCK OPTIONS)
Pursuant to your Stock Option Grant Notice ("Grant Notice") and this
Stock Option Agreement, Butterfield & Butterfield, Auctioneers Corp. (the
"Company") has granted you an option under its 1999 Equity Incentive Plan (the
"Plan") to purchase the number of shares of the Company's Common Stock indicated
in your Grant Notice at the exercise price indicated in your Grant Notice.
Defined terms not explicitly defined in this Stock Option Agreement but defined
in the Plan shall have the same definitions as in the Plan.
The details of your option are as follows:
1. VESTING. Subject to the limitations contained herein, your option
will vest as provided in your Grant Notice, provided that vesting will cease
upon the termination of your Continuous Service.
2. NUMBER OF SHARES AND EXERCISE PRICE. The number of shares of Common
Stock subject to your option and your exercise price per share referenced in
your Grant Notice may be adjusted from time to time for Capitalization
Adjustments, as provided in the Plan.
3. EXERCISE PRIOR TO VESTING ("EARLY EXERCISE"). If permitted in your
Grant Notice (i.e., the "Exercise Schedule" indicates that "Early Exercise" of
your option is permitted) and subject to the provisions of your option, you may
elect at any time that is both (i) during the period of your Continuous Service
and (ii) during the term of your option, to exercise all or part of your option,
including the nonvested portion of your option; provided, however, that:
(a) a partial exercise of your option shall be deemed to cover first
vested shares of Common Stock and then the earliest vesting installment of
unvested shares of Common Stock;
(b) any shares of Common Stock so purchased from installments that
have not vested as of the date of exercise shall be subject to the purchase
option in favor of the Company as described in the Company's form of Early
Exercise Stock Purchase Agreement;
(c) you shall enter into the Company's form of Early Exercise Stock
Purchase Agreement with a vesting schedule that will result in the same vesting
as if no early exercise had occurred; and
(d) if your option is an incentive stock option, then, as provided in
the Plan, to the extent that the aggregate Fair Market Value (determined at the
time of grant) of the shares of Common Stock with respect to which your option
plus all other incentive stock options you hold
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are exercisable for the first time by you during any calendar year (under all
plans of the Company and its Affiliates) exceeds one hundred thousand dollars
($100,000), your option(s) or portions thereof that exceed such limit (according
to the order in which they were granted) shall be treated as nonstatutory stock
options.
4. METHOD OF PAYMENT. Payment of the exercise price is due in full upon
exercise of all or any part of your option. You may elect to make payment of the
exercise price in cash or by check or in any other manner PERMITTED BY YOUR
GRANT NOTICE, which may include one or more of the following:
(a) In the Company's sole discretion at the time your option is
exercised and provided that at the time of exercise the Common Stock is publicly
traded and quoted regularly in The Wall Street Journal, pursuant to a program
developed under Regulation T as promulgated by the Federal Reserve Board that,
prior to the issuance of Common Stock, results in either the receipt of cash (or
check) by the Company or the receipt of irrevocable instructions to pay the
aggregate exercise price to the Company from the sales proceeds.
(b) Provided that at the time of exercise the Common Stock is
publicly traded and quoted regularly in The Wall Street Journal, by delivery of
already-owned shares of Common Stock either that you have held for the period
required to avoid a charge to the Company's reported earnings (generally six
months) or that you did not acquire, directly or indirectly from the Company,
that are owned free and clear of any liens, claims, encumbrances or security
interests, and that are valued at Fair Market Value on the date of exercise.
"Delivery" for these purposes, in the sole discretion of the Company at the time
you exercise your option, shall include delivery to the Company of your
attestation of ownership of such shares of Common Stock in a form approved by
the Company. Notwithstanding the foregoing, you may not exercise your option by
tender to the Company of Common Stock to the extent such tender would violate
the provisions of any law, regulation or agreement restricting the redemption of
the Company's stock.
(c) Pursuant to the following deferred payment alternative:
(i) Not less than one hundred percent (100%) of the aggregate
exercise price, plus accrued interest, shall be due four (4) years from date of
exercise or, at the Company's election, upon termination of your Continuous
Service.
(ii) Interest shall be compounded at least annually and shall be
charged at the minimum rate of interest necessary to avoid the treatment as
interest, under any applicable provisions of the Code, of any portion of any
amounts other than amounts stated to be interest under the deferred payment
arrangement.
(iii) At any time that the Company is incorporated in Delaware,
payment of the Common Stock's "par value," as defined in the Delaware General
Corporation Law, shall be made in cash and not by deferred payment.
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(iv) In order to elect the deferred payment alternative, you
must, as a part of your written notice of exercise, give notice of the election
of this payment alternative and, in order to secure the payment of the deferred
exercise price to the Company hereunder, if the Company so requests, you must
tender to the Company a promissory note and a security agreement covering the
purchased shares of Common Stock, both in form and substance satisfactory to the
Company, or such other or additional documentation as the Company may request.
5. WHOLE SHARES. You may exercise your option only for whole shares of
Common Stock.
6. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary
contained herein, you may not exercise your option unless the shares of Common
Stock issuable upon such exercise are then registered under the Securities Act
or, if such shares of Common Stock are not then so registered, the Company has
determined that such exercise and issuance would be exempt from the registration
requirements of the Securities Act. The exercise of your option must also comply
with other applicable laws and regulations governing your option, and you may
not exercise your option if the Company determines that such exercise would not
be in material compliance with such laws and regulations.
7. TERM. The term of your option commences on the Date of Grant and
expires upon the EARLIEST of the following:
(a) immediately upon the termination of your Continuous Service for
Cause;
(b) three (3) months after the termination of your Continuous Service
for any reason other than Cause, Disability or death, provided that if during
any part of such three- (3-) month period you may not exercise your option
solely because of the condition set forth in the preceding paragraph relating to
"Securities Law Compliance," your option shall not expire until the earlier of
the Expiration Date or until it shall have been exercisable for an aggregate
period of three (3) months after the termination of your Continuous Service;
(c) twelve (12) months after the termination of your Continuous
Service due to your Disability;
(d) eighteen (18) months after your death if you die either during
your Continuous Service or within three (3) months after your Continuous Service
terminates for reason other than Cause;
(e) the Expiration Date indicated in your Grant Notice; or
(f) the tenth (10th) anniversary of the Date of Grant.
For purposes of your option, "Cause" means your misconduct, including
but not limited to: (i) your conviction of any felony or any crime involving
moral turpitude or dishonesty, (ii) your participation in a fraud or act of
dishonesty against the Company, (iii) your conduct that,
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based upon a good faith and reasonable factual investigation and determination
by the Board, demonstrates your gross unfitness to serve, or (iv) your
intentional, material violation of any contract between the Company and you or
any statutory duty of yours to the Company that you do not correct within thirty
(30) days after written notice to you thereof. Your physical or mental
disability shall not constitute "Cause."
If your option is an incentive stock option, note that, to obtain the
federal income tax advantages associated with an "incentive stock option," the
Code requires that at all times beginning on the date of grant of your option
and ending on the day three (3) months before the date of your option's
exercise, you must be an employee of the Company or an Affiliate, except in the
event of your death or Disability. The Company has provided for extended
exercisability of your option under certain circumstances for your benefit but
cannot guarantee that your option will necessarily be treated as an "incentive
stock option" if you continue to provide services to the Company or an Affiliate
as a Consultant or Director after your employment terminates or if you otherwise
exercise your option more than three (3) months after the date your employment
terminates.
8. EXERCISE.
(a) You may exercise the vested portion of your option (and the
unvested portion of your option if your Grant Notice so permits) during its term
by delivering a Notice of Exercise (in a form designated by the Company)
together with the exercise price to the Secretary of the Company, or to such
other person as the Company may designate, during regular business hours,
together with such additional documents as the Company may then require.
(b) By exercising your option you agree that, as a condition to any
exercise of your option, the Company may require you to enter into an
arrangement providing for the payment by you to the Company of any tax
withholding obligation of the Company arising by reason of (1) the exercise of
your option, (2) the lapse of any substantial risk of forfeiture to which the
shares of Common Stock are subject at the time of exercise, or (3) the
disposition of shares of Common Stock acquired upon such exercise.
(c) If your option is an incentive stock option, by exercising your
option you agree that you will notify the Company in writing within fifteen (15)
days after the date of any disposition of any of the shares of the Common Stock
issued upon exercise of your option that occurs within two (2) years after the
date of your option grant or within one (1) year after such shares of Common
Stock are transferred upon exercise of your option.
(d) By exercising your option you agree that the Company (or a
representative of the underwriter(s)) may, in connection with the first
underwritten registration of the offering of any securities of the Company under
the Securities Act, require that you not sell, dispose of, transfer, make any
short sale of, grant any option for the purchase of, or enter into any hedging
or similar transaction with the same economic effect as a sale, any shares of
Common Stock or other securities of the Company held by you, for a period of
time specified by the underwriter(s) (not to exceed one hundred eighty (180)
days) following the effective date of the registration statement of the Company
filed under the Securities Act. You further agree to execute and
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<PAGE> 6
deliver such other agreements as may be reasonably requested by the Company
and/or the underwriter(s) that are consistent with the foregoing or that are
necessary to give further effect thereto. In order to enforce the foregoing
covenant, the Company may impose stop-transfer instructions with respect to your
shares of Common Stock until the end of such period.
9. TRANSFERABILITY. Your option is not transferable, except by will or
by the laws of descent and distribution, and is exercisable during your life
only by you. Notwithstanding the foregoing, by delivering written notice to the
Company, in a form satisfactory to the Company, you may designate a third party
who, in the event of your death, shall thereafter be entitled to exercise your
option.
10. RIGHT OF FIRST REFUSAL. Shares of Common Stock that you acquire upon
exercise of your option are subject to any right of first refusal that may be
described in the Company's bylaws in effect at such time the Company elects to
exercise its right. The Company's right of first refusal shall expire on the
Listing Date.
11. RIGHT OF REPURCHASE. To the extent provided in the Company's bylaws
as amended from time to time, the Company shall have the right to repurchase all
or any part of the shares of Common Stock you acquire pursuant to the exercise
of your option.
12. OPTION NOT A SERVICE CONTRACT. Your option is not an employment or
service contract, and nothing in your option shall be deemed to create in any
way whatsoever any obligation on your part to continue in the employ of the
Company or an Affiliate, or of the Company or an Affiliate to continue your
employment. In addition, nothing in your option shall obligate the Company or an
Affiliate, their respective shareholders, Boards of Directors, Officers or
Employees to continue any relationship that you might have as a Director or
Consultant for the Company or an Affiliate.
13. WITHHOLDING OBLIGATIONS.
(a) At the time you exercise your option, in whole or in part, or at
any time thereafter as requested by the Company, you hereby authorize
withholding from payroll and any other amounts payable to you, and otherwise
agree to make adequate provision for (including by means of a "cashless
exercise" pursuant to a program developed under Regulation T as promulgated by
the Federal Reserve Board to the extent permitted by the Company), any sums
required to satisfy the federal, state, local and foreign tax withholding
obligations of the Company or an Affiliate, if any, which arise in connection
with your option.
(b) Upon your request and subject to approval by the Company, in its
sole discretion, and compliance with any applicable conditions or restrictions
of law, the Company may withhold from fully vested shares of Common Stock
otherwise issuable to you upon the exercise of your option a number of whole
shares of Common Stock having a Fair Market Value, determined by the Company as
of the date of exercise, not in excess of the minimum amount of tax required to
be withheld by law. If the date of determination of any tax withholding
obligation is deferred to a date later than the date of exercise of your option,
share withholding pursuant to the preceding sentence shall not be permitted
unless you make a proper and timely
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election under Section 83(b) of the Code, covering the aggregate number of
shares of Common Stock acquired upon such exercise with respect to which such
determination is otherwise deferred, to accelerate the determination of such tax
withholding obligation to the date of exercise of your option. Notwithstanding
the filing of such election, shares of Common Stock shall be withheld solely
from fully vested shares of Common Stock determined as of the date of exercise
of your option that are otherwise issuable to you upon such exercise. Any
adverse consequences to you arising in connection with such share withholding
procedure shall be your sole responsibility.
(c) You may not exercise your option unless the tax withholding
obligations of the Company and/or any Affiliate are satisfied. Accordingly, you
may not be able to exercise your option when desired even though your option is
vested, and the Company shall have no obligation to issue a certificate for such
shares of Common Stock or release such shares of Common Stock from any escrow
provided for herein.
14. NOTICES. Any notices provided for in your option or the Plan shall
be given in writing and shall be deemed effectively given upon receipt or, in
the case of notices delivered by mail by the Company to you, five (5) days after
deposit in the United States mail, postage prepaid, addressed to you at the last
address you provided to the Company.
15. GOVERNING PLAN DOCUMENT. Your option is subject to all the
provisions of the Plan, the provisions of which are hereby made a part of your
option, and is further subject to all interpretations, amendments, rules and
regulations which may from time to time be promulgated and adopted pursuant to
the Plan. In the event of any conflict between the provisions of your option and
those of the Plan, the provisions of the Plan shall control.
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EXHIBIT 10.4
BUTTERFIELD & BUTTERFIELD AUCTIONEERS CORPORATION
STOCK OPTION GRANT NOTICE
(1999 EQUITY INCENTIVE PLAN)
Butterfield & Butterfield Auctioneers Corporation (the "Company"), pursuant to
its 1999 Equity Incentive Plan (the "Plan"), hereby grants to Optionholder an
option to purchase the number of shares of the Company's Common Stock set forth
below. This option is subject to all of the terms and conditions as set forth
herein and in the Stock Option Agreement, the Plan and the Notice of Exercise,
all of which are attached hereto and incorporated herein in their entirety.
Optionholder: ________________________________
Date of Grant: ________________________________
Vesting Commencement Date: ________________________________
Number of Shares Subject to Option: ________________________________
Exercise Price (Per Share): ________________________________
Total Exercise Price: ________________________________
Expiration Date: ________________________________
TYPE OF GRANT: [ ] Incentive Stock Option(1) [ ] Nonstatutory Stock Option
EXERCISE SCHEDULE: [ ] Same as Vesting Schedule [ ] Early Exercise Permitted
VESTING SCHEDULE: 1/3rd of the shares vest two years after the Vesting
Commencement Date. 1/3rd of the shares vest annually
thereafter over the next two years.
PAYMENT: By one or a combination of the following items
(described in the Stock Option Agreement):
By cash or check
Pursuant to a Regulation T Program if the Shares are
publicly traded
By delivery of already-owned shares if the Shares are
publicly traded
[By deferred payment]
ADDITIONAL TERMS/ACKNOWLEDGEMENTS: The undersigned Optionholder acknowledges
receipt of, and understands and agrees to, this Grant Notice, the Stock Option
Agreement and the Plan. Optionholder further acknowledges that as of the Date of
Grant, this Grant Notice, the Stock Option Agreement and the Plan set forth the
entire understanding between Optionholder and the Company regarding the
acquisition of stock in the Company and supersede all prior oral and written
agreements on that subject with the exception of (i) options previously granted
and delivered to Optionholder under the Plan, and (ii) the following agreements
only:
OTHER AGREEMENTS:_________________________________________________
_________________________________________________
BUTTERFIELD & BUTTERFIELD AUCTIONEERS CORPORATION OPTIONHOLDER:
By:_____________________________ ___________________________
Signature Signature
Title:__________________________ Date:______________________
Date:_____________________________
ATTACHMENTS: Stock Option Agreement, Butterfield & Butterfield,
Auctioneers Corp. 1999 Equity Incentive Plan and Notice
of Exercise
- - --------
(1) Sample vesting schedule. Use vesting schedule approved by the Board. If this
is an incentive stock option, it (plus your other outstanding incentive stock
options) cannot be first exercisable for more than $100,000 in any calendar
year. Any excess over $100,000 is a nonstatutory stock option.
<PAGE> 2
BUTTERFIELD & BUTTERFIELD, AUCTIONEERS CORP.
1999 EQUITY INCENTIVE PLAN
STOCK OPTION AGREEMENT
(INCENTIVE AND NONSTATUTORY STOCK OPTIONS)
Pursuant to your Stock Option Grant Notice ("Grant Notice") and this
Stock Option Agreement, Butterfield & Butterfield Auctioneers Corporation (the
"Company") has granted you an option under its 1999 Equity Incentive Plan (the
"Plan") to purchase the number of shares of the Company's Common Stock indicated
in your Grant Notice at the exercise price indicated in your Grant Notice.
Defined terms not explicitly defined in this Stock Option Agreement but defined
in the Plan shall have the same definitions as in the Plan.
The details of your option are as follows:
1. VESTING. Subject to the limitations contained herein, your option
will vest as provided in your Grant Notice, provided that vesting will cease
upon the termination of your Continuous Service.
2. NUMBER OF SHARES AND EXERCISE PRICE. The number of shares of Common
Stock subject to your option and your exercise price per share referenced in
your Grant Notice may be adjusted from time to time for Capitalization
Adjustments, as provided in the Plan.
3. EXERCISE PRIOR TO VESTING ("EARLY EXERCISE"). If permitted in your
Grant Notice (i.e., the "Exercise Schedule" indicates that "Early Exercise" of
your option is permitted) and subject to the provisions of your option, you may
elect at any time that is both (i) during the period of your Continuous Service
and (ii) during the term of your option, to exercise all or part of your option,
including the nonvested portion of your option; provided, however, that:
(a) a partial exercise of your option shall be deemed to cover
first vested shares of Common Stock and then the earliest vesting installment of
unvested shares of Common Stock;
(b) any shares of Common Stock so purchased from installments
that have not vested as of the date of exercise shall be subject to the purchase
option in favor of the Company as described in the Company's form of Early
Exercise Stock Purchase Agreement;
(c) you shall enter into the Company's form of Early Exercise
Stock Purchase Agreement with a vesting schedule that will result in the same
vesting as if no early exercise had occurred; and
(d) if your option is an incentive stock option, then, as
provided in the Plan, to the extent that the aggregate Fair Market Value
(determined at the time of grant) of the shares of Common Stock with respect to
which your option plus all other incentive stock options you hold are
exercisable for the first time by you during any calendar year (under all plans
of the
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Company and its Affiliates) exceeds one hundred thousand dollars ($100,000),
your option(s) or portions thereof that exceed such limit (according to the
order in which they were granted) shall be treated as nonstatutory stock
options.
4. METHOD OF PAYMENT. Payment of the exercise price is due in full upon
exercise of all or any part of your option. You may elect to make payment of the
exercise price in cash or by check or in any other manner PERMITTED BY YOUR
GRANT NOTICE, which may include one or more of the following:
(a) In the Company's sole discretion at the time your option is
exercised and provided that at the time of exercise the Common Stock is publicly
traded and quoted regularly in The Wall Street Journal, pursuant to a program
developed under Regulation T as promulgated by the Federal Reserve Board that,
prior to the issuance of Common Stock, results in either the receipt of cash (or
check) by the Company or the receipt of irrevocable instructions to pay the
aggregate exercise price to the Company from the sales proceeds.
(b) Provided that at the time of exercise the Common Stock is
publicly traded and quoted regularly in The Wall Street Journal, by delivery of
already-owned shares of Common Stock either that you have held for the period
required to avoid a charge to the Company's reported earnings (generally six
months) or that you did not acquire, directly or indirectly from the Company,
that are owned free and clear of any liens, claims, encumbrances or security
interests, and that are valued at Fair Market Value on the date of exercise.
"Delivery" for these purposes, in the sole discretion of the Company at the time
you exercise your option, shall include delivery to the Company of your
attestation of ownership of such shares of Common Stock in a form approved by
the Company. Notwithstanding the foregoing, you may not exercise your option by
tender to the Company of Common Stock to the extent such tender would violate
the provisions of any law, regulation or agreement restricting the redemption of
the Company's stock.
(c) Pursuant to the following deferred payment alternative:
(i) Not less than one hundred percent (100%) of the
aggregate exercise price, plus accrued interest, shall be due four (4) years
from date of exercise or, at the Company's election, upon termination of your
Continuous Service.
(ii) Interest shall be compounded at least annually and
shall be charged at the minimum rate of interest necessary to avoid the
treatment as interest, under any applicable provisions of the Code, of any
portion of any amounts other than amounts stated to be interest under the
deferred payment arrangement.
(iii) At any time that the Company is incorporated in
Delaware, payment of the Common Stock's "par value," as defined in the Delaware
General Corporation Law, shall be made in cash and not by deferred payment.
(iv) In order to elect the deferred payment alternative,
you must, as a part of your written notice of exercise, give notice of the
election of this payment alternative and,
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in order to secure the payment of the deferred exercise price to the Company
hereunder, if the Company so requests, you must tender to the Company a
promissory note and a security agreement covering the purchased shares of Common
Stock, both in form and substance satisfactory to the Company, or such other or
additional documentation as the Company may request.
5. WHOLE SHARES. You may exercise your option only for whole shares of
Common Stock.
6. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary
contained herein, you may not exercise your option unless the shares of Common
Stock issuable upon such exercise are then registered under the Securities Act
or, if such shares of Common Stock are not then so registered, the Company has
determined that such exercise and issuance would be exempt from the registration
requirements of the Securities Act. The exercise of your option must also comply
with other applicable laws and regulations governing your option, and you may
not exercise your option if the Company determines that such exercise would not
be in material compliance with such laws and regulations.
7. TERM. The term of your option commences on the Date of Grant and
expires upon the EARLIEST of the following:
(a) immediately upon the termination of your Continuous Service
for Cause;
(b) three (3) months after the termination of your Continuous
Service for any reason other than Cause, Disability or death, provided that if
during any part of such three- (3-) month period you may not exercise your
option solely because of the condition set forth in the preceding paragraph
relating to "Securities Law Compliance," your option shall not expire until the
earlier of the Expiration Date or until it shall have been exercisable for an
aggregate period of three (3) months after the termination of your Continuous
Service;
(c) twelve (12) months after the termination of your Continuous
Service due to your Disability;
(d) eighteen (18) months after your death if you die either
during your Continuous Service or within three (3) months after your Continuous
Service terminates for reason other than Cause;
(e) the Expiration Date indicated in your Grant Notice; or
(f) the tenth (10th) anniversary of the Date of Grant.
For purposes of your option, "Cause" means your misconduct, including
but not limited to: (i) your conviction of any felony or any crime involving
moral turpitude or dishonesty, (ii) your participation in a fraud or act of
dishonesty against the Company, (iii) your conduct that, based upon a good faith
and reasonable factual investigation and determination by the Board,
demonstrates your gross unfitness to serve, or (iv) your intentional, material
violation of any
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<PAGE> 5
contract between the Company and you or any statutory duty of yours to the
Company that you do not correct within thirty (30) days after written notice to
you thereof. Your physical or mental disability shall not constitute "Cause."
If your option is an incentive stock option, note that, to obtain the
federal income tax advantages associated with an "incentive stock option," the
Code requires that at all times beginning on the date of grant of your option
and ending on the day three (3) months before the date of your option's
exercise, you must be an employee of the Company or an Affiliate, except in the
event of your death or Disability. The Company has provided for extended
exercisability of your option under certain circumstances for your benefit but
cannot guarantee that your option will necessarily be treated as an "incentive
stock option" if you continue to provide services to the Company or an Affiliate
as a Consultant or Director after your employment terminates or if you otherwise
exercise your option more than three (3) months after the date your employment
terminates.
8. EXERCISE.
(a) You may exercise the vested portion of your option (and the
unvested portion of your option if your Grant Notice so permits) during its term
by delivering a Notice of Exercise (in a form designated by the Company)
together with the exercise price to the Secretary of the Company, or to such
other person as the Company may designate, during regular business hours,
together with such additional documents as the Company may then require.
(b) By exercising your option you agree that, as a condition to
any exercise of your option, the Company may require you to enter into an
arrangement providing for the payment by you to the Company of any tax
withholding obligation of the Company arising by reason of (1) the exercise of
your option, (2) the lapse of any substantial risk of forfeiture to which the
shares of Common Stock are subject at the time of exercise, or (3) the
disposition of shares of Common Stock acquired upon such exercise.
(c) If your option is an incentive stock option, by exercising
your option you agree that you will notify the Company in writing within fifteen
(15) days after the date of any disposition of any of the shares of the Common
Stock issued upon exercise of your option that occurs within two (2) years after
the date of your option grant or within one (1) year after such shares of Common
Stock are transferred upon exercise of your option.
9. TRANSFERABILITY. Your option is not transferable, except by will or
by the laws of descent and distribution, and is exercisable during your life
only by you. Notwithstanding the foregoing, by delivering written notice to the
Company, in a form satisfactory to the Company, you may designate a third party
who, in the event of your death, shall thereafter be entitled to exercise your
option.
10. RIGHT OF FIRST REFUSAL. Shares of Common Stock that you acquire upon
exercise of your option are subject to any right of first refusal that may be
described in the Company's bylaws in effect at such time the Company elects to
exercise its right. The Company's right of first refusal shall expire on the
Listing Date.
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11. RIGHT OF REPURCHASE. To the extent provided in the Company's bylaws
as amended from time to time, the Company shall have the right to repurchase all
or any part of the shares of Common Stock you acquire pursuant to the exercise
of your option.
12. OPTION NOT A SERVICE CONTRACT. Your option is not an employment or
service contract, and nothing in your option shall be deemed to create in any
way whatsoever any obligation on your part to continue in the employ of the
Company or an Affiliate, or of the Company or an Affiliate to continue your
employment. In addition, nothing in your option shall obligate the Company or an
Affiliate, their respective shareholders, Boards of Directors, Officers or
Employees to continue any relationship that you might have as a Director or
Consultant for the Company or an Affiliate.
13. WITHHOLDING OBLIGATIONS.
(a) At the time you exercise your option, in whole or in part, or
at any time thereafter as requested by the Company, you hereby authorize
withholding from payroll and any other amounts payable to you, and otherwise
agree to make adequate provision for (including by means of a "cashless
exercise" pursuant to a program developed under Regulation T as promulgated by
the Federal Reserve Board to the extent permitted by the Company), any sums
required to satisfy the federal, state, local and foreign tax withholding
obligations of the Company or an Affiliate, if any, which arise in connection
with your option.
(b) Upon your request and subject to approval by the Company, in
its sole discretion, and compliance with any applicable conditions or
restrictions of law, the Company may withhold from fully vested shares of Common
Stock otherwise issuable to you upon the exercise of your option a number of
whole shares of Common Stock having a Fair Market Value, determined by the
Company as of the date of exercise, not in excess of the minimum amount of tax
required to be withheld by law. If the date of determination of any tax
withholding obligation is deferred to a date later than the date of exercise of
your option, share withholding pursuant to the preceding sentence shall not be
permitted unless you make a proper and timely election under Section 83(b) of
the Code, covering the aggregate number of shares of Common Stock acquired upon
such exercise with respect to which such determination is otherwise deferred, to
accelerate the determination of such tax withholding obligation to the date of
exercise of your option. Notwithstanding the filing of such election, shares of
Common Stock shall be withheld solely from fully vested shares of Common Stock
determined as of the date of exercise of your option that are otherwise issuable
to you upon such exercise. Any adverse consequences to you arising in connection
with such share withholding procedure shall be your sole responsibility.
(c) You may not exercise your option unless the tax withholding
obligations of the Company and/or any Affiliate are satisfied. Accordingly, you
may not be able to exercise your option when desired even though your option is
vested, and the Company shall have no obligation to issue a certificate for such
shares of Common Stock or release such shares of Common Stock from any escrow
provided for herein.
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14. NOTICES. Any notices provided for in your option or the Plan shall
be given in writing and shall be deemed effectively given upon receipt or, in
the case of notices delivered by mail by the Company to you, five (5) days after
deposit in the United States mail, postage prepaid, addressed to you at the last
address you provided to the Company.
15. GOVERNING PLAN DOCUMENT. Your option is subject to all the
provisions of the Plan, the provisions of which are hereby made a part of your
option, and is further subject to all interpretations, amendments, rules and
regulations which may from time to time be promulgated and adopted pursuant to
the Plan. In the event of any conflict between the provisions of your option and
those of the Plan, the provisions of the Plan shall control.
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<PAGE> 1
EXHIBIT 10.5
STANDARD INDUSTRIAL LEASE - SPECIAL NET
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. PARTIES. This Lease, dated, for reference purposes only, April 10, 1996, is
made by and between HBJ Partnership, a California partnership (herein called
"Lessor") and Butterfield & Butterfield Auctioneers, a California corporation
(herein called "Lessee").
2. PREMISES. Lessor hereby leases to Lessee and Lessee leases from Lessor for
the term, at the rental, and upon all of the conditions set forth herein, that
certain real property situated in the County of San Francisco, State of
California, commonly known as 220 San Bruno Avenue (Butterfield Square) and
described as Assessor's lot 001, Block 26-3933, consisting of 50,000 square
feet. Said real property including the land and all improvements therein, is
herein called "the Premises".
3. TERM.
3.1 TERM. The term of this Lease shall be for Ten (10) years (Two successive
ten year options) commencing on January 1, 1996 and ending on December 31, 2005
unless sooner terminated pursuant to any provision hereof. For Conditions of
Option, see paragraph 49, infra.
3.2 DELAY IN POSSESSION. Notwithstanding said commencement date, if for any
reason Lessor cannot deliver possession of the Premises to Lessee on said date,
Lessor shall not be subject to any liability therefor, nor shall such failure
affect the validity of this Lease or the obligations of Lessee hereunder or
extend the term hereof, but in such case, Lessee shall not be obligated to pay
rent until possession of the Premises is tendered to Lessee; provided, however,
that if Lessor shall not have delivered possession of the Premises within sixty
(60) days from said commencement date, Lessee may, at Lessee's option, by notice
in writing to Lessee within ten (10) days thereafter, cancel this Lease, in
which event the parties shall be discharged from all obligations hereunder;
provided further, however, that if such written notice of Lessee is not received
by Lessor within said ten (10) day period, Lessee's right to cancel this Lease
hereunder shall terminate and be of no further force or effect.
3.3 EARLY POSSESSION. If Lessee occupies the Premises prior to said
commencement date, such occupancy shall be subject to all provisions hereof,
such occupancy shall not advance the termination date, and Lessee shall pay rent
for such period at the initial monthly rates set forth below.
4. RENT: SPECIAL NET LEASE.
4.1 RENT. Lessee shall pay to Lessor as rent for the Premises, monthly
payments of $50,000, in advance, on the 1st day of each month of the term
hereof. Lessee shall pay Lessor upon the execution hereof $50,000 as rent for
January 1996 and each month thereafter, together with all additional rents or
payments due, pursuant to the terms of paragraph 4.2 and 10.1-10.2 and subject
to the annual adjustment set forth in paragraph 48 infra. Rent for any period
during the term hereof which is for less than one month shall be a pro rata
portion of the monthly installment. Rent shall be payable in lawful money of the
United States to Lessor at the address stated herein or to such other persons or
at such other places as Lessor may designate in writing.
4.2 SPECIAL NET LEASE. This Lease is what is commonly called a "Net, Net,
Net Lease", it being understood that the Lessor shall receive the rent set forth
in Paragraph 4.1 free and clear of any and all other impositions, taxes, liens,
charges or expenses of any nature whatsoever in connection with the ownership
and operation of the Premises. In addition to the rent reserved by Paragraph
4.1, Lessee shall pay to the parties respectively entitled thereto all
impositions, insurance premiums, operating charges, maintenance charges,
construction costs, and any other charges, costs and expenses which arise or may
be contemplated under any provisions of this Lease during the term hereof. All
of such charges, costs and expenses shall constitute additional rent, and upon
the failure of Lessee to pay any of such costs, charges or expenses, Lessor
shall have the same rights and remedies as otherwise provided in this Lease for
the failure of Lessee to pay rent. It is the intention of the parties hereto
that this Lease shall not be terminable for any reason by the Lessee, and that
Lessee shall in no event be entitled to any abatement or of reduction in rent
payable under this Lease, except as herein expressly provided. Any present or
future law to the contrary shall not alter this agreement of the parties.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof $-0-
as security for Lessee's faithful performance of Lessee's obligations hereunder.
If Lessee fails to pay rent or other charges due hereunder, or otherwise
defaults with respect to any provision of this Lease, Lessor may use, apply or
retain all or any portion of said deposit for the payment of any rent or other
charge in default or for the payment of any other sum to which Lessor may become
obligated by reason of Lessee's default, or to compensate Lessor for any loss or
damage which Lessor may suffer thereby. If Lessor so uses or applies all or any
portion of said deposit, Lessee shall within ten (10) days after written demand
therefor deposit cash with Lessor in an amount sufficient to restore said
deposit to the full amount hereinabove stated and Lessee's failure to do so
shall be a material breath of this Lease. If the monthly rent shall, from time
to time, increase during the term of this Lease, Lessee shall thereupon deposit
with Lessor additional security deposit so that the amount of security deposit
held by Lessor shall at all times bear the same proportion to current rent as
the original security deposit bears to the original monthly rent set forth in
paragraph 4 hereof. Lessor shall not be required to keep said deposit separate
from its general accounts. If Lessee performs all of Lessee's obligations
hereunder, said deposit, or so much thereof as has not theretofore been applied
by Lessor, shall be returned, without payment of interest or other increment for
its use, to Lessee (or, at Lessor's option, to the last assignee, if any, of
Lessee's interest hereunder) at the expiration of the term hereof, and after
Lessee has vacated the Premises. No trust relationship is created herein between
Lessor and Lessee with respect to said Security Deposit.
6. USE.
6.1 USE. The Premises shall be used and occupied only for the storage and
display of goods and merchandise and the sale of same at public auction or any
other use which is reasonably comparable and for no other purpose.
6.2 COMPLIANCE WITH LAW.
(a) Lessor warrants to Lessee that the Premises, in its state existing
on the date that the Lease term commences, but without regard to the use for
which Lessee will use the Premises, does not violate any covenants or
restrictions of record, or any applicable building code, regulation or ordinance
in effect on such Lease term commencement date. In the event it is determined
that this warranty has been violated, then it shall be the obligation of the
Lessor, after written notice from Lessee, to promptly, at Lessor's sole cost and
expense, rectify any such violation. In the event Lessee does not give to Lessor
written notice of the violation of this warranty within six months from the date
that the Lease term commences, the correction of same shall be the obligation of
the Lessee at Lessee's sole cost. The warranty contained in this paragraph
6.2(a) shall be of no force or effect if, prior to the date of this Lease,
Lessee was the owner or occupant of the Premises, and, in such event, Lessee
shall correct any such violation at Lessee's sole cost.
(b) Except as provided in paragraph 6.2(a), Lessee shall, at Lessee's
expense, comply promptly with all applicable statutes, ordinances, rules,
regulations, orders, covenants and restrictions of record, and requirements in
effect during the term or any part of the term hereof, regulating the use by
Lessee of the Premises. Lessee shall not use or permit the use of the Premises
in any manner that will tend to create waste or a nuisance or, if there shall be
more than one tenant in the building containing the Premises, shall tend to
disturb such other tenants.
6.3 CONDITION OF PREMISES.
(a) Lessor shall deliver the Premises to Lessee clean and free of debris
on Lease commencement date (unless Lessee is already in possession) and Lessor
further warrants to Lessee that the plumbing, lighting, air conditioning,
heating, and loading doors in the Premises shall be in good operating condition
on the Lease commencement date. In the event that it is determined that this
warranty has been violated, then it shall be the obligation of Lessor, after
receipt of written notice from Lessee setting forth with specificity the nature
of the violation, to promptly, at Lessor's sole cost, rectify such violation.
Lessee's failure to give such written notice to Lessor within thirty (30) days
after the Lease commencement date shall cause the conclusive presumption that
Lessor has complied with all of Lessor's obligations hereunder. The warranty
contained in this paragraph 6.3(a) shall be of no force or effect if prior to
the date of this Lease, Lessee was the owner or occupant of the Premises.
(b) Except as otherwise provided in this Lease, Lessee hereby accepts
the Premises in their condition existing as of the Lease commencement date or
the date that Lessee takes possession of the Premises, whichever is earlier,
subject to all applicable zoning, municipal, county and state laws, ordinances
and regulations governing and regulating the use of the Premises, and any
covenants or restrictions of record, and accepts this Lease subject thereto and
to all matters disclosed thereby and by any exhibits attached hereto. Lessee
acknowledges that neither Lessor nor Lessor's agent has made any representation
or warranty as to the present or future suitability of the Premises for the
conduct of Lessee's business.
SPECIAL NET
(This is a special form containing unique provisions and should
only be used in special situations where the LESSEE will pay
rent under all circumstances and in the event of destruction the
LESSEE will rebuild under all circumstances.)
<PAGE> 2
7. MAINTENANCE, REPAIRS AND ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS. Lessee shall keep in good order, condition and
repair the Premises and every part thereof, structural and nonstructural,
(whether or not such portion of the Premises requiring repair, or the means of
repairing the same are reasonably or readily accessible to Lessee, and whether
or not the need for such repairs occurs as a result of Lessee's use, any prior
use, the elements or the age of such portion of the Premises) including, without
limiting the generality of the foregoing, all plumbing, heating, air
conditioning, (Lessee shall procure and maintain, at Lessee's expense, an air
conditioning system maintenance contract) ventilating, electrical, lighting
facilities and equipment within the Premises, fixtures, walls (interior and
exterior), foundations, ceilings, roofs (inferior and exterior), floors,
windows, doors, plate glass and skylights located within the Premises, and all
landscaping, driveways, parking lots, fences and signs located on the Premises
and sidewalks and parkways adjacent to the Premises.
7.2 SURRENDER. On the last day of the term hereof, or on any sooner
termination, Lessee shall surrender the Premises to Lessor in the same condition
as when received, ordinary wear and tear excepted, clean and free of debris.
Lessee shall repair any damage to the Premises occasioned by the installation or
removal of Lessee's trade fixtures, furnishings and equipment. Notwithstanding
anything to the contrary otherwise stated in this Lease, Lessee shall leave the
air lines, power panels, electrical distribution systems, lighting fixtures,
space heaters, air conditioning, plumbing and fencing on the premises in good
operating condition.
7.3 LESSOR'S RIGHTS. If Lessee fails to perform Lessee's obligations under
this Paragraph 7, or under any other paragraph of this Lease, Lessor may at its
option (but shall not be required to) enter upon the Premises after then (10)
days' prior written notice to Lessee (except in the case of an emergency, in
which case no notice shall be required), perform such obligations on Lessee's
behalf and put the same in good order, condition and repair, and the cost
thereof together with interest thereon at the maximum rate than allowable by law
shall become due and payable as additional rental to Lessor together with
Lessee's next rental installment.
7.4 LESSOR'S OBLIGATIONS. Except for the obligations of Lessor under
Paragraph 6.2(a) and 6.3(a) (relating to Lessor's warrant), Paragraph 9
(relating to destruction of the Premises) and under Paragraph 14 (relating to
condemnation of the Premises), it is intended by the parties hereto that Lessor
have no obligation, in any manner whatsoever, to repair and maintain the
Premises not the building located thereon nor the equipment therein, whether
structural or non structural, all of which obligations are intended to be that
of the Lessee under Paragraph 7.1 hereof. Lessee expressly waives the benefit of
any statute now or hereinafter in effect which would otherwise afford Lessee the
right to make repairs at Lessor's expense or to terminate this Lease because of
Lessor's failure to keep the premises in good order, condition and repair.
7.5 ALTERATIONS AND ADDITIONS.
(a)Lessee shall not, without Lessor's prior written consent make any
alterations, improvements, additions, or Utility Installations in, on or about
the Premises, except for nonstructural alterations not exceeding $2,500 in
cumulative costs during the term of this Lease. In any event, whether or not in
excess of $2,500 in cumulative cost, Lessee shall make no change or alteration
to the exterior of the Premises nor the exterior of the building(s) on the
Premises without Lessor's prior written consent. As used in this Paragraph 7.5
the term "Utility Installation" shall mean carpeting, window coverings, air
lines, power panels, electrical distribution systems, lighting fixtures, space
heaters, air conditioning, plumbing, and fencing. Lessor may require that Lessee
remove any or all of said alterations, improvements, additions or Utility
Installations at the expiration of the term, and restore the Premises to their
prior condition. Lessor may require Lessee to provide Lessor, at Lessee's sole
cost and expense, a line and completion bond in an amount equal to one and
one-half times the estimated cost of such improvements, to insure Lessor against
any liability for mechanic's and materialmen's liens and to insure completion of
the work. Should Lessee make any alterations, improvements, additions or Utility
Installations without the prior approval of Lessor, Lessor may require that
Lessee remove any or all of the same.
(b) Any alterations, improvements, additions or Utility Installations
in, or about the Premises that Lessee shall desire to make and which requires
the consent of the Lessor shall be presented to Lessor in written form, with
proposed detailed plans. If Lessor shall give its consent, the consent shall be
deemed conditioned upon Lessee acquiring a permit to do so from appropriate
governmental agencies, the furnishing of a copy thereof to Lessor prior to the
commencement of the work and the compliance by Lessee of all conditions of said
permit in a prompt and expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for Lessee at or for use in
the Premises, which claims are or may be secured by any mechanics' or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in the Premises, and Lessor shall have the right to post notices of
non-responsibility in or on the Premises as provided by law. If Lessee shall, in
good faith, contest the validity of any such lien, claim or demand, then Lessee
shall, at its sole expense defend itself and Lessor against the same and shall
pay and satisfy any such adverse judgment that may be rendered thereon before
the enforcement thereof against the Lessor or the Premises, upon the condition
that if Lessor shall require, Lessee shall furnish to Lessor a surety bond
satisfactory to Lessor in an amount equal to such contested lien claim or demand
indemnifying Lessor against liability for the same and holding the Premises free
from the effect of such lien or claim. In addition, Lessor may require Lessee to
pay Lessor's attorneys fees and costs in participating in such action if Lessor
shall decide it is to its best interest to do so.
(d) Unless Lessor requires their removal, as set forth in Paragraph
7.5(a), all alterations, improvements, additions and Utility Installations
(whether or not such Utility Installations constitute trade fixtures of Lessee),
which may be made on the Premises, hall become the property of Lessor and remain
upon and be surrendered with the Premises at the expiration of the term.
Notwithstanding the provisions of this Paragraph 7.5(d), Lessee's machinery and
equipment, other than that which is affixed to the Premises so that it cannot be
removed without material damage to the Premises, shall remain the property of
Lessee and may be removed by Lessee subject to the provisions of Paragraph 7.2.
8. INSURANCE INDEMNITY.
8.1 INSURING PARTY. As used in this Paragraph 8, the term "insuring party"
shall mean the party who has the obligation to obtain the Property Insurance
required hereunder. The insuring party shall be designated in Paragraph 46
hereof. In the event Lessor is the insuring party, Lessor shall also maintain
the liability insurance described in paragraph 8.2 hereof, in addition to, and
not in lieu of, the insurance required to be maintained by Lessee under said
paragraph 8.2, but Lessor shall not be required to name Lessee as an additional
insured on such policy. Whether the insuring party is the Lessor or the Lessee,
Lessee shall, as additional rent for the Premises, pay the cost of all insurance
required hereunder, except for that portion of the cost attributable to Lessor's
liability insurance coverage in excess of $1,000,000 per occurrence. If Lessor
is the insuring party Lessee shall, within ten (10) days following demand by
Lessor, reimburse Lessor for the cost of the insurance so obtained.
8.2 LIABILITY INSURANCE. Lessee shall, at Lessee's expense obtain and keep
in force during the term of this Lease a policy of Combined Single Limit,
Bodily Injury and Property Damage insurance insuring Lessor and Lessee against
any liability arising out of the ownership, use, occupancy or maintenance of the
Premises and all areas appurtenant thereto. Such insurance shall be a combined
single limit policy in an amount not less than $2,000,000 per occurrence. The
policy shall insure performance by Lessee of the indemnity provisions of this
Paragraph 8. The limits of said insurance shall not, however, limit the
liability of Lessee hereunder.
8.3 PROPERTY INSURANCE.
(a) The insuring party shall obtain and keep in force during the term of
this Lease a policy or policies of insurance covering loss or damage to the
Premises, in the amount of the full replacement value thereof, as the same may
exist from time to time, which replacement value is now $6,000,000, but in no
event less than the total amount required by lenders having liens on the
Premises, against all perils included within the classification of fire,
extended coverage, vandalism, malicious mischief, flood (in the event same is
required by a lender having a lien on the Premises), and special extended perils
("all risk" as such term is used in the insurance industry). Said insurance
shall provide for payment of loss thereunder to Lessor or to the holders of
mortgages or deeds of trust on the Premises. The insuring party shall, in
addition, obtain and keep in force during the term of this Lease a policy of
rental value insurance covering a period of one year, with loss payable to
Lessee, which insurance shall also cover all real estate taxes and insurance
costs for said period. A stipulated value or agreed amount endorsement deleting
the coinsurance provision of the policy shall be procured with said insurance as
well as an automatic increase in insurance endorsement causing the increase in
annual property insurance coverage by 2% per quarter. If the insuring party
shall fail to procure and maintain said insurance, the other party may, but
shall not be required to, procure and maintain the same, but at the expense of
Lessee. If such insurance coverage has a deductible clause, the deductible
amount shall not exceed $1,000 per occurrence, and Lessee shall be liable for
such deductible amount.
(b) If the Premises are part of a larger building, or if the Premises
are part of a group of buildings owned by Lessor which are adjacent to the
Premises, then Lessee shall pay for any increase in the property insurance of
such other building or buildings if said increase is caused by Lessee's acts,
omissions, use or occupancy of the Premises.
(c) If the Lessor is the insuring party the Lessor will not insure
Lessee's fixtures, equipment or tenant improvements unless the tenant
improvements have become a part of the Premises under paragraph 7, hereof. But
if Lessee is the insuring party the Lessee shall insure its fixtures, equipment
and tenant improvements.
8.4 INSURANCE POLICIES. Insurance required hereunder shall be in companies
holding a "General Policyholders Rating" of at least B plus, or such other
rating as may be required by a lender having a line on the Premises, as set
forth in the most current issue of "Best's Insurance Guide." The insuring party
shall deliver to the other party copies of policies of such insurance or
certificates evidencing the
<PAGE> 3
existence and amounts of such insurance with loss payable clauses as required by
this paragraph 8. No such policy shall be cancelable or subject to reduction of
coverage or other modification except after thirty (30) days' prior written
notice to Lessor. If Lessee is the insuring party Lessee shall, at least thirty
(30) days prior to the expiration of such policies, furnish Lessor with renewals
or "binders" thereof, or Lessor may order such insurance and charge the cost
thereof to Lessee, which amount shall be payable by Lessee upon demand. Lessee
shall not do or permit to be done anything which shall invalidate the insurance
policies referred to in Paragraph 8.3, then Lessee shall forthwith upon Lessor's
demand reimburse Lessor for any additional premiums attributable to any act or
omission or operation of Lessee causing such increase in the cost of insurance.
If Lessor is the insuring party, and if the insurance policies maintained
hereunder cover other improvements in addition to the Premises, Lessor shall
deliver to Lessee a written statement setting forth the amount of any such
insurance cost increase and showing in reasonable detail the manner in which it
has been computed.
8.5 WAIVER OF SUBROGATION. Lessee and Lessor each hereby release and relieve
the other, and waive their entire right of recovery against the other for loss
or damage arising out of or incident to the perils insured against under
paragraph 8.3, which perils occur in, on or about the Premises, whether due to
the negligence of Lessor or Lessee or their agents, employees, contractors
and/or invitees. Lessee and Lessor shall, upon obtaining the policies of
insurance required hereunder, give notice to the insurance carrier or carriers
that the foregoing mutual waiver of subrogation is contained in this Lease.
8.6 INDEMNITY. Lessee shall indemnify and hold harmless Lessor from and
against any and all claims arising from Lessee's use of the Premises, or from
the conduct of Lessee's business or from any activity, work or things done,
permitted or suffered by Lessee in or about the Premises or elsewhere and shall
further indemnify and hold harmless Lessor from and against any and all claims
arising from any breach or default in the performance of any obligation on
Lessee's part to be performed under the terms of this Lease, or arising from any
negligence of the Lessee, or any of Lessee's agents, contractors, or employees,
and from and against all costs, attorneys' fees, expenses and liabilities
incurred in the defense of any such claim or any action or proceeding brought
thereon; and in case any action or proceeding be brought against Lessor by
reason of any such claim, Lessee upon notice from Lessor shall defend the same
at Lessee's expense by counsel satisfactory to Lessor. Lessee, as a material
part of the consideration to Lessor, hereby assumes all risk of damage to
property or injury to persons, in, upon or about the Premises arising from any
cause and Lessee hereby waives all claims in respect thereof against Lessor.
8.7 EXEMPTION OF LESSOR FROM LIABILITY. Lessee hereby agrees that Lessor
shall not be liable for injury to Lessee's business or any loss of income
therefrom or for damage to the goods, wares, merchandise or other property of
Lessee, Lessee's employees, invitees, customers, or any other person in or about
the Premises, nor shall Lessor be liable for injury to the person of Lessee,
Lessee's employees, agents or contractors, whether such damage or injury is
caused by or results from fire, steam, electricity, gas, water or rain, or from
the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether the said damage or injury results from conditions arising upon
the Premises or upon other portions of the building of which the Premises are a
part, or from other sources or places and regardless of whether the cause of
such damage or injury or the means of repairing the same is inaccessible to
Lessee. Lessor shall not be liable for any damages arising from any act or
neglect of any other tenant, if any, of the building in which the Premises are
located.
9. DAMAGE, DESTRUCTION, OBLIGATION TO REBUILD, RENT ABATEMENT.
9.1 OBLIGATION TO REBUILD. In the event that some or all of the improvements
constituting a part of the Premises or the Premises itself are damaged or
destroyed, partially or totally from any cause whatsoever, whether or not such
damage or destruction is covered by any insurance required to be maintained
under Paragraph 8.3 hereof, then Lessee shall repair, restore and rebuild the
Premises to its condition existing immediately prior to such damage or
destruction and this Lease shall remain in full force and effect. Such repair,
restoration and rebuilding (all of which are herein called "repair") shall be
commenced within a reasonable time after such damage or destruction has occurred
and shall be diligently pursued to completion.
9.2 INSURANCE PROCEEDS. The proceeds of any insurance maintained under
Paragraph 8.3 hereof shall be made available to Lessee for payment of costs and
expense of repair, provided however, that such proceeds may be made available to
Lessee subject to reasonable conditions, including, but not limited to
architect's certification of cost, retention of percentage of such proceeds
pending recordation of a notice of completion and a lien and completion bond to
insure against mechanic's or materialmen's liens arising out of the repair and
to insure completion of the repair, all at the expense of Lessee. In the event
the insurance proceeds are insufficient to cover the cost of repair, then any
amounts required over the amount of the insurance proceeds received that are
required to complete said repair shall be paid by Lessee. In the event the
insurance proceeds are not made available to Lessee within 120 days after such
damage or destruction, unless the amount of insurance coverage is in dispute
with the insurance carrier, Lessee shall have the option for 30 days commencing
on the expiration of such 120 day period, of canceling this Lease. If Lessee
shall exercise such option, Lessee shall have no further obligation hereunder
and shall have no claim against Lessor. Lessee, in order to exercise said
option, shall exercise said option by giving written notice to Lessor within
said 30 day period, time being of the essence.
9.3 DAMAGE NEAR END OF TERM.
(a) If the Premises are damaged or destroyed, either partially or
totally, during the last six months of the term of this Lease, Lessor may at
Lessor's option cancel and terminate this Lease as of the date of occurrence of
such damage by giving written notice to Lessee of Lessor's election to do so
within 30 days after the date of occurrence of such damage.
(b) Notwithstanding paragraph 9.3(a) to the contrary, in the event that
Lessee has an option to extend or renew this Lease, and the time within which
said option may be exercised has not yet expired, Lessee shall exercise such
option, if it is to be exercised at all, no later than 20 days after damage or
destruction to the Premises, either total or partial occurring during the last
six months of the term of this Lease, which damage or destruction is covered by
insurance required to be maintained under paragraph 8. If Lessee duly exercises
such option during said 20 day period, Lessee shall, in accordance with
paragraph 9.2, at Lessee's expense, repair such damage as soon as reasonably
possible and this Lese shall continue in full force and effect. If Lessee fails
to exercise such option during said 20 day period, then Lessor may at Lessor's
option terminate and cancel this Lease as of the expiration of said 20 day
period by giving written notice to Lessee of Lessor's election to do so within
10 days after the expiration of said 20 day period, notwithstanding any term or
provision in the grant of option to the contrary.
9.4 ABATEMENT OF RENT. Notwithstanding the partial or total destruction of
the Premises and any part thereof, and notwithstanding whether the casualty is
insured or not, there shall be no abatement of rent or of any other obligation
of Lessee hereunder by reason of such damage or destruction unless the Lease is
terminated by virtue of any other provision of this Lease.
9.5 TERMINATION - ADVANCE PAYMENTS. Upon termination of this Lease pursuant
to this Paragraph 9, an equitable adjustment shall be made concerning advance
rent and any advance payments made by Lessee to Lessor. Lessor shall, in
addition, return to Lessee so much of Lessee's security deposit as has not
theretofore been applied by Lessor.
9.6 WAIVER. Lessee waives the provision of any statutes which relate to
termination of leases when the thing leased is destroyed and agrees that such
event shall be governed by the terms of this Lease.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. Lessee shall pay the real property tax, as defined in
paragraph 10.2, applicable to the Premises during the term of this Lease. All
such payments shall be made at least ten (10) days prior to the delinquency date
of such payment. Lessee shall promptly furnish Lessor with satisfactory evidence
that such taxes have been paid. If any such taxes paid by Lessee shall cover any
period of time prior to or after the expiration of the term hereof, Lessee's
share of such taxes shall be equitably prorated to cover only the period of time
within the tax fiscal year during which this Lease shall be in effect, and
Lessor shall reimburse Lessee to the extent required. If Lessee shall fail to
pay any such taxes, Lessor shall have the right to pay the same, in which case
Lessee shall repay such amount to Lessor with Lessee's next rent installment
together with interest at the maximum rate then allowable by law.
10.2 DEFINITION OF "REAL PROPERTY TAX." As used herein, the term "real
property tax" shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed on the Premises by any authority having the direct or
indirect power to tax, including any city, state or federal government, or any
school, agricultural, sanitary, fire, street, drainage or other improvement
district thereof, as against any legal or equitable interest of Lessor in the
Premises or in the real property of which the Premises are a part, as against
Lessor's right to rent or other income therefrom, and as against Lessor's
business of leasing the Premises. The term "real property tax" shall also
include any tax, fee, levy, assessment or charge (i) in substitution of,
partially or totally, any tax, fee, levy, assessment or charge hereinabove,
included within the definition of "real property tax," or (ii) the nature of
which was hereinbefore included within the definition of "real property tax," or
(iii) which is imposed for a service or right not charged prior to June 1, 1978,
or, if previously charged, has been increased since June 1, 1978, or (iv) which
is imposed as a result of a transfer, either partial or total, of Lessor's
interest in the Premises or which is added to a tax or charge hereinbefore
included within the definition of real property tax by reason of such transfer,
or (v) which is imposed by reason of this transaction, any modifications or
changes hereto, or any transfers hereof.
10.3 JOINT ASSESSMENT. If the Premises are not separately assessed, Lessee's
liability shall be an equitable proportion of the real property taxes for all of
the land and improvements included within the tax parcel assessed, such
proportion to be determined by Lessor from the respective valuations assigned in
the assessor's work sheets or such other information as may be reasonably
available. Lessor's reasonable determination thereof, in good faith, shall be
conclusive.
10.4 PERSONAL PROPERTY TAXES.
<PAGE> 4
(a) Lessee shall pay prior to delinquency all taxes assessed against and
levied upon trade fixtures, furnishings, equipment and all other personal
property of Lessee contained in the Premises or elsewhere. When possible, Lessee
shall cause said trade fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of Lessor.
(b) If any of Lessee's said personal property shall be assessed with
Lessor's real property, Lessee shall pay Lessor the taxes attributable to Lessee
within 10 days after receipt of a written statement setting forth the taxes
applicable to Lessee's property.
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone and other utilities and services supplied to the Premises, together
with any taxes thereon. If any such services are not separately metered to
Lessee, Lessee shall pay a reasonable proportion to be determined by Lessor of
all charges jointly metered with other premises.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED. Lessee shall not voluntarily or by operation
of law assign, transfer, mortgage, sublet, or otherwise transfer or encumber all
or any part of Lessee's interest in this Lease or in the Premises, without
Lessor's prior written consent, which Lessor shall not unreasonably withhold.
Lessor shall respond to Lessee's request for consent hereunder in a timely
manner and any attempted assignment, transfer, mortgage, encumbrance or
subletting without such consent shall be void, and shall constitute a breach of
this Lease.
12.2 LESSEE AFFILIATE. Notwithstanding the provisions of paragraph 12.1
hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which controls, is controlled by or
is under common control with Lessee, or to any corporation resulting from the
merger or consolidation with Lessee, or to any person or entity which acquires
all the assets of Lessee as a going concern of the business that is being
conducted on the Premises, provided that said assignee assumes, in full, the
obligations of Lessee under this Lease. Any such assignment shall not, in any
way, affect or limit the liability of Lessee under the terms of this Lease even
if after such assignment or subletting the terms of this Lease are materially
changed or altered without the consent of Lessee, the consent of whom shall not
be necessary.
12.3 NO RELEASE OF LESSEE. Regardless of Lessor's consent, no subletting or
assignment shall release Lessee of Lessee's obligations or alter the primary
liability of Lessee to pay the rent and to perform all other obligations to be
performed by Lessee hereunder. The acceptance of rent by Lessor from any other
person shall not be deemed to be a waiver by Lessor of any provision hereof.
Consent to one assignment or subletting shall not be deemed consent to any
subsequent assignment or subletting. In the event of default by any assignee of
Lessee or any successor of Lessee, in the performance of any of the terms
hereof, Lessor may proceed directly against Lessee without the necessity of
exhausting remedies against said assignee. Lessor may consent to subsequent
assignments or subletting of this Lease or amendments or modifications to this
Lease with assignees of Lessee, without notifying Lessee, or any successor of
Lessee, and without obtaining its or their consent thereto and such action shall
not relieve Lessee of liability under this Lease.
12.4 ATTORNEY'S FEES. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting of if
Lessee shall request the consent of Lessor for any act Lessee proposes to do
then Lessee shall pay Lessor's reasonable attorney's fees incurred in connection
therewith, such attorney's fees not to exceed $350.0 for reach such request.
13. DEFAULTS; REMEDIES.
13.1 DEFAULTS. The occurrence of any one or more of the following events
shall constitute a material default and breach of this Lease by Lessee:
(a) The vacating or abandonment of the Premises by Lessee.
(b) The failure by Lessee to make any payment of rent or any other
payment required to be made by Lessee hereunder, as and when due, where such
failure shall continue for a period of three days after written notice thereof
from Lessor to Lessee. In the event that Lessor serves Lessee with a Notice to
Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes such Notice
to Pay Rent or Quit shall also constitute the notice required by this
subparagraph.
(c) The failure by Lessee to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by Lessee,
other than described in paragraph (b) above, where such failure shall continue
for a period of 30 days after written notice thereof from Lessor to Lessee;
provided, however, that if the nature of Lessee's default is such that more than
30 days are reasonably required for its cure, then Lessee shall not be deemed to
be in default if Lessee commenced such cure within said 30-day period and
thereafter diligently prosecutes such cure to completion.
(d) (i) The making by Lessee of any general arrangement or assignment
for the benefit of creditors; (ii) Lessee becomes a "debtor" as defined in 11
U.S.C. Section 101 or any successor statute thereto (unless, in the case of a
petition filed against Lessee, the same is dismissed within 60 days); (iii) the
appointment of a trustee or receiver to take possession of substantially all of
Lessee's assets located at the Premises or of Lessee's interest in this Lease,
where possession is not restored to Lessee within 30 days; or (iv) the
attachment, execution or other judicial seizure of substantially all of Lessee's
Assets located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within 30 days. Provided, however, in the event that
any provision of this paragraph 13.1(d) is contrary to any applicable law, such
provisions shall be of no force or effect.
(e) The discovery by Lessor that any financial statement given to Lessor
by Lessee, any assignee of Lessee, any subtenant of Lessee, any successor in
interest of Lessee or any guarantor of Lessee's obligation hereunder, and any of
them, was materially false.
13.2 REMEDIES. In the event of any such material default or breach by
Lessee, Lessor may at any time thereafter, with or without notice or demand and
without limiting Lessor in the exercise of any right or remedy which Lessor may
have by reason of such default or breach:
(a) Terminate Lessee's right to possession of the Premises by any lawful
means, in which case this Lease shall terminate and Lessee shall immediately
surrender possession of the Premises to Lessor. In such event Lessor shall be
entitled to recover from Lessee all damages incurred by Lessor by reason of
Lessee's default including, but not limited to, the cost of recovering
possession of the Premises; expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorney's fees, and any
real estate commission actually paid; the worth at the time of award by the
court having jurisdiction thereof of the amount by which the unpaid rent of the
balance of the term after the time of such award exceeds the amount of such
rental loss for the same period that Lessee proves could be reasonably avoided;
that portion of the leasing commission paid by Lessor pursuant to Paragraph 15
applicable to the unexpired term of this Lease.
(b) Maintain Lessee's right to possession in which case this Lease shall
continue in effect whether or not Lessee shall have abandoned the Premises. In
such event Lessor shall be entitled to enforce all of Lessor's rights and
remedies under this Lease, including the right to recover the rent as it becomes
due hereunder.
(c) Pursue any other remedy now or hereafter available to Lessor under
the laws or judicial decisions of the state wherein the Premises are located.
Unpaid installments of rent and other unpaid monetary obligations of Lessee
under the terms of this Lease shall bear interest from the date due at the
maximum rate then allowable by law.
13.3 DEFAULT BY LESSOR. Lessor shall not be in default unless Lessor fails
to perform obligations required of Lessor within a reasonable time, but in no
event later than thirty (30) day after written notice by Lessee to Lessor and to
the holder of any first mortgage or deed of trust covering the Premises whose
name and address shall have theretofore been furnished to Lessee in writing,
specifying wherein Lessor has failed to perform such obligation; provided,
however, that if the nature of Lessor's obligation is such that more than thirty
(30) days are required for performance then Lessor shall not be in default if
Lessor commences performance within such 30-day period and thereafter diligently
prosecutes the same to completion.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee to
Lessor of rent and other sums due hereunder will cause Lessor to incur costs not
contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed on Lessor by the
terms of any mortgage or trust deed covering the Premises. Accordingly, if any
installment of rent or any other sum due from Lessee shall not be received by
Lessor or Lessor's designee within ten (10) days after such amount shall be due,
then, without any requirement for notice to Lessee, Lessee shall pay to Lessor a
late charge equal to 6% of such overdue amount. The parties hereby agree that
such late charge represents a fair and reasonable estimate of the costs Lessor
will incur by reason of late payment by Lessee. Acceptance of such late charge
by Lessor shall in no event constitute a waiver of Lessee's default with respect
to such overdue amount, nor prevent Lessor from exercising any of the other
rights and remedies granted hereunder. In the event that a late charge is
payable hereunder, whether to not collected, for three (3) consecutive
installments of rent, then rent shall automatically become due and payable
quarterly in advance, rather than monthly, notwithstanding paragraph 4 or any
other provision of this Lease to the contrary.
13.5 IMPOUNDS. In the event that a late charge is payable hereunder, whether
or not collected, for three (3) installments of rent or any other monetary
obligation of Lessee under the terms of this Lease, Lessee shall pay to Lessor,
if Lessor shall so request, in addition to any other payments required under
this Lease, a monthly advance installment, payable at the time same time as the
monthly rent, as estimated by Lessor, for real property tax and insurance
expenses on the Premises which are payable by Lessee under the terms of this
Lease. Such fund shall be established to insure payment when due, before
delinquency, of any or all such real property taxes and insurance premiums. If
the amounts paid to Lessor by Lessee under the provisions of this paragraph are
insufficient to discharge the obligations of Lessee to pay such real property
taxes and insurance premiums as the same become due, Lessee shall pay to Lessor,
upon Lessor's demand, such additional sums necessary to pay such obligations.
All moneys paid to Lessor under this paragraph may be intermingled with other
moneys of Lessor and shall not bear interest. In the event of a default in the
obligations of Lessee to perform under this Lease, then any balance remaining
from
<PAGE> 5
funds paid to Lessor under the provisions of this paragraph may, at the option
of Lessor, be applied to the payment of any monetary default of Lessee in lieu
of being applied to the payment of real property tax and insurance premiums.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain, or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than 10% of the floor area of the
building on the remises, or more than 25% of the land area of the Premises which
is not occupied by any building, is taken by condemnation, Lessee may, at
Lessee's option, to e exercised in writing only within ten (10) days after
Lessor shall have given Lessee written notice of such taking (or in the absence
of such notice, within ten (10) days after the condemning authority shall have
taken possession) terminate this Lease as of the date the condemning authority
takes such possession. If Lessee does not terminate this Lease in accordance
with the foregoing, this Lease shall remain in full force and effect as to the
portion of the building situated on the Premises. No reduction of rent shall
occur if the only area taken is that which does not have a building located
thereon. Any award for the taking of all or any part of the Premises under the
power of eminent domain or any payment made under threat of the exercise of such
power shall be the property of Lessor, whether such award shall be made as
compensation for diminution in value of the leasehold or for the taking of the
fee, or as severance damages; provided, however, that Lessee shall be entitled
to any award for loss of or damage to Lessee's trade fixtures and removable
personal property. In the event that this Lease is not terminated by reason of
such condemnation, Lessor shall to the extent of severance damages received by
Lessor in connection with such condemnation, repair any damage to the Premises
caused by such condemnation except to the extent that Lessee has been reimbursed
therefor by the condemning authority. Lessee shall pay any amount in excess of
such severance damages required to complete such repair.
15. [deleted]
16. ESTOPPEL CERTIFICATE.
(a) Lessee shall at any time upon not less than ten (10) days' prior
written notice from Lessor execute, acknowledge and deliver to Lessor a
statement in writing (i) certifying that this Lease is unmodified and in full
force and effect (or, if modified, stating the nature of such modification and
certifying that this Lease, as so modified, is in full force and effect) and the
date to which the rent and other charges are paid in advance, if any, and (ii)
acknowledging that there are to, to Lessee's knowledge, any uncured defaults on
the part of Lessor hereunder, or specifying such defaults if any are claimed.
Any such statement may be conclusively relied upon by any prospective purchaser
or encumbrancer of the Premises.
(b) At Lessor's opinion, Lessee's failure to deliver such statement
within such time shall be a material breach of this Lease or shall be conclusive
upon Lessee (i) that this Lease is in full force and effect, without
modification except as may be represented by Lessor, (ii) that there are no
uncured defaults in Lessor's performance, and (iii) that not more than one
month's rent has been paid in advance or such failure may be considered by
Lessor as a default by Lessee under this Lease.
(c) If Lessor desires to finance, refinance or sell the Premises, or any
part thereof, Lessee hereby agrees to deliver to any lender or purchaser
designated by Lessor such financial statements of Lessee as may be reasonably
required by such lender or purchaser. Such statements shall include the past
three years' financial statements of Lessee. All such financial statements shall
be received by Lessor and such lender or purchaser in confidence and shall be
used only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean only the
owner or owners at the time in question of the fee title or a Lessee's interest
in a ground lease of the Premises, and except as expressly provided in Paragraph
15, in the event of any transfer of such title or interest, Lessor herein named
(and in case of any subsequent transfers then the grantor) shall be relieved
form and after the date of such transfer of all liability as respects Lessor's
obligations thereafter to be performed, provided that any funds in the hands of
Lessor or the then grantor at the time of such transfer, in which Lessee has an
interest, shall be delivered to the grantee. The obligations contained in this
Lease to be performed by Lessor shall, subject as aforesaid, be binding on
Lessor's successors and assigns, only during their respective periods of
ownership.
18. SEVERABILITY. The invalidity of any provision of this Lease as determined by
a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein provided, any
amount due to Lessor not paid when due shall bear interest at the maximum rate
then allowable by law from the date due. Payment of such interest shall not
excuse or cure any default by Lessee under this Lease, provided, however, that
interest shall not be payable on late charges incurred by Lessee nor on any
amounts upon which late charges are paid by Lessee.
20. TIME OF ESSENCE. Time is of the essence.
21. ADDITIONAL RENT. Any monetary obligations of Lessee to Lessor under the
terms of this Lease shall be deemed to be rent.
22. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No prior
agreement or understanding pertaining to any such matter shall be effective.
This Lease may be modified in writing only, signed by the parties in interest at
the time of the modification. Except as otherwise stated in this Lease, Lessee
hereby acknowledges that neither the real estate broker listed in Paragraph 15
hereof nor any cooperating broker on this transaction nor the Lessor or any
employees or agent s of any of said persons has made any oral or written
warranties or representations to Lessee relative to the condition or use by
Lessee of said Premises and Lessee acknowledges that Lessee assumes all
responsibility regarding the Occupational Safety Health Act, the legal use and
adaptability of the Premises and the compliance thereof with all applicable laws
and regulations in effect during the term of this lease except as otherwise
specifically stated in this Lease.
23. NOTICES. Any notice required or permitted to be given hereunder shall be in
writing and may be given by personal delivery or by certified mail, and if given
personally or by mail, shall be deemed sufficiently given if addressed to Lessee
or to Lessor at the address noted below the signature of the respective parties,
as the case may be. Either party may by notice to the other specify a different
address for notice purposes except that upon Lessee's taking possession of the
Premises, the Premises shall constitute Lessee's address for notice purposes. A
copy of all notices required or permitted to be given to Lessor hereunder shall
be concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate by notice to Lessee.
24. WAIVERS. No waiver by Lessor or any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provision. Lessor's consent to, or approval of, any act
shall not be deemed to render unnecessary the obtaining of Lessor's consent to
or approval of any subsequent act by Lessee. The acceptance of rent hereunder by
Lessor shall not be a waiver of any preceding breach by Lessee of any provision
hereof other than the failure of Lessee to pay the particular rent so accepted,
regardless of Lessor's knowledge of such preceding breach at the time of
acceptance of such rent.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a "short form" memorandum of this
Lease for recording purposes.
26. HOLDING OVER. If Lessee, with Lessor's consent, remains in possession of the
Premises or any part thereof after the expiration of the term hereof, such
occupancy shall be a tenancy from month to month upon all the provisions of this
Lease pertaining to the obligations of Lessee, but all options and rights of
first refusal, if any, granted under the terms of this Lease shall be deemed
terminated and be of no further effect during said month-to-month tenancy.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS. Each provision of this Lease performable by Lessee
shall be deemed both a covenant and a condition.
29. BINDING EFFECT; CHOICE OF LAW. Subject to any provisions hereof restricting
assignment or subletting by Lessee and subject to the provisions of Paragraph
17, this Lease shall bind the parties, their personal representatives,
successors and assigns. This Lease shall be governed by the laws of the State
wherein the Premises are located.
30. SUBORDINATION.
(a) This Lease, at Lessor's option, shall be subordinate to any ground
lease, mortgage, deed of trust, or any other hypothecation or security now or
hereafter placed upon the real property of which the Premises are a part and to
any and all advances made on the security thereof and to all renewals,
modifications, consolidations, replacements and extensions thereof.
Notwithstanding such subordination, Lessee's right to quiet possession of the
Premised shall not be disturbed if Lessee is not in default and so long as
Lessee shall pay the rent and observe and perform all of the provisions of this
Lease, unless this Lease is otherwise terminated pursuant to its terms. If any
mortgagee, trustee or ground lessor shall elect to have this Lease prior to the
lien of its mortgage, deed of trust or ground lease, and shall give written
notice thereof to Lessee, this Lease shall be deemed prior to such mortgage,
deed of trust, or ground lease, whether this Lease is dated prior or subsequent
to the date of said mortgage, deed of trust or ground lease or the date of
recording thereof.
(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination or to make this Lese prior to the lien of any
mortgage, deed of trust or ground lease, as the case may be. Lessee's failure to
execute such documents within 10 days after written demand shall constitute a
material default by Lessee hereunder, or, at Lessor's option, Lessor shall
execute such documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee
does hereby make, constitute and irrevocably appoint Lessor as Lessee's
attorney-in-fact and in Lessee's name, place and stead, to execute such
documents in accordance with this paragraph 30(b).
<PAGE> 6
31. ATTORNEY'S FEES. If either party or the broker named herein brings an action
to enforce the terms hereof or declare rights hereunder, the prevailing party in
any such action, on trial or appeal, shall be entitled to his reasonable
attorney's fees to be paid by the losing party as fixed by the court. The
provisions of this paragraph shall inure to the benefit of the broker named
herein who seeks to enforce a right hereunder.
32. LESSOR'S ACCESS. Lessor and Lessor's agents shall have the right to enter
the Premises at reasonable times for the purpose of inspecting the same, showing
the same to prospective purchasers, lenders, or lessees, and making such
alterations, repairs, improvements or additions to the Premises or the building
of which they are a part as Lessor may deem necessary or desirable. Lessor may
at any time place on or about the Premises any ordinary "For Sale" signs and
Lessor may at any time during the last 120 days of the term hereof place on or
about the Premises any ordinary "For Lease" signs, all without rebate of rent or
liability to Lessee.
33. [deleted]
34. SIGNS. Lessee shall not place any sign upon the Premises without Lessor's
prior written consent except that Lessee shall have the right, without the prior
permission of Lessor to place ordinary and usual for rent or sublet signs
thereon.
35. MERGER. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or at termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to Lessor
of any or all of such subtenancies
36. CONSENTS. Except for paragraph 33 hereof, wherever in this Lease the consent
of one party is required to an act of the other party such consent shall not be
unreasonably withheld.
37. GUARANTOR. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
38. QUIET POSSESSION. Upon Lessee paying the rent for the Premises and observing
and performing all of the covenants, conditions and provisions on Lessee's part
to be observed and performed hereunder, Lessee shall have quiet possession of
the Premises for the entire term hereof subject to all of the provisions of this
Lease. The individuals executing this Lease on behalf of Lessor represent and
warrant to Lessee that they are fully authorized and legally capable of
executing this Lease on behalf of Lessor and that such execution is binding upon
all parties holding an ownership interest in the Premises.
39. OPTIONS.
39.1 DEFINITIONS. As used in this paragraph the word "Options:" has the
following meaning: (1) the right or option to extend the term of this Lease or
to renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (2) the option or right of first refusal to lease the
Premises or the right of first offer to lease the Premises or the right of first
refusal to lease other property of Lessor or the right of first offer to lease
other property of Lessor; (3) the right or option to purchase the Premises, or
the right of first refusal to purchase the Premises, or the right of first offer
to purchase the Premises or the right or option to purchase other property of
Lessor, or the right of first refusal to purchase other property of Lessor or
the right of first offer to purchase other property of Lessor.
39.2 OPTIONS PERSONAL. Each Option granted to Lessee in this Lease are
personal to Lessee and may not be exercised or be assigned, voluntarily or
involuntarily, by or to any person or entity other than Lessee, provided,
however, the Option may be exercised by or assigned to any Lessee Affiliate as
defined in paragraph 12.2 of this Lease. The Options herein granted to Lessee
are not assignable separate and apart from this Lease.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple options to
extend or renew this Lease a later option cannot be exercised unless the prior
option to extend or renew this Lease has been so exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option, notwithstanding
any provision in the grant of Option to the contrary, (i) during the time
commencing from the date Lessor gives to Lessee a notice of default pursuant to
paragraph 13.1(c) and continuing until the default alleged in said notice of
default is cured, or (ii) during the period of time commencing on the day after
a monetary obligation to Lessor is due from Lessee and unpaid (without any
necessity for notice thereof to Lessee) continuing until the obligation is paid,
or (iii) at any time after an event of default described in paragraphs 13.1(a),
13.1(d), or 13.1(e) (without any necessity of Lessor to give notice of such
default to Lessee), or (iv) in the event that Lessor has given to Lessee three
or more notices of default under paragraph 13.1(b), where a late charge has
become payable under paragraph 13.4 for each of such defaults, or paragraph
13.1(c), whether or not the defaults are cured, during the 12 month period prior
to the time that Lessee intends to exercise the subject Option.
(b) The period of time within which an Option may be exercised shall not
be extended or enlarged by reason of Lessee's inability exercise an Option
because of the provisions of paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of 30 days after such obligation becomes due (without any necessity
of Lessor to give notice thereof to Lessee), or (ii) Lessee fails to commence to
cure a default specified in paragraph 13.1(b) or 13.1(c) within 30 days after
the date that Lessor gives notice to Lessee of such default and/or Lessee fails
thereafter to diligently prosecute said cure to completion, or (iii) Lessee
commits a default described in paragraph 13.1(a), 13.1(d) or 13.1(e) (without
any necessity of Lessor to give notice of such default to Lessee), or (iv)
Lessor gives to Lessee three or more notices of default under paragraph 13.1(b),
where a late charges becomes payable under paragraph 13.4 for each such default,
or paragraph 13.1(c), whether or not the defaults are cured.
40. MULTIPLE TENANT BUILDING. In the event that the Premises are part of a
larger building or group of buildings then Lessee agrees that it will abide by,
keep and observe all reasonable rules and regulations which Lessor may make from
time to time for the management, safety, care, and cleanliness of the building
and grounds, the parking of vehicles and the preservation of good order therein
as well as for the convenience of other occupants and tenants of the building.
The violations of any such rules and regulations shall be deemed a material
breach of this Lease by Lessee.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of Lessee, its agents and
invitees from acts of third parties.
42. EASEMENTS. Lessor reserves to itself the right, from time to time, to grant
such easements, rights and dedications that Lessor deems necessary or desirable,
and to cause the recordation of Parcel Maps and restrictions, so long as such
easements, rights, dedications, Maps and restrictions do not unreasonably
interfere with the use of the Premises by Lessee. Lessee shall sign any of the
aforementioned documents upon request of Lessor and failure to do so shall
constitute a material breach of this Lease.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one party to the other under the provisions
hereof, the party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment, and there shall survive the right on the part
of said party to institute suit for recovery of such sum. If it shall be
adjudged that there was no legal obligation on the party of said party to pay
such sum or any part thereof, said party shall be entitled to recover such sum
or so much thereof as it was not legally required to pay under the provisions of
this Lease.
44. AUTHORITY. If Lessee is a corporation, trust, or general or limited
partnership, each individual executing this Lease on behalf of such entity
represents and warrants that he or she is duly authorized to execute and deliver
this Lease on behalf of said entity. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after execution of this
Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
45. CONFLICT. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. INSURING PARTY. The insuring party under this lease shall be the Lessee.
47. ADDENDUM. Attached hereto is an addendum or addenda containing paragraphs 48
through 49 which constitutes part of this Lease.
48. Lessee's base monthly rent shall be increased by three (3) percent annually
commencing with January 1, 1997 payment. The base year shall be January 1 1996 -
December 31, 1996.
49. Lessee shall be granted two (2) successive ten (10) year lease options
provided however, the terms and conditions shall be negotiated between Lessor
and Lessee at the time the option is exercised. Lessee shall exercise its
option, in writing, 120 days prior to the expiration of the original and any
extended term.
<PAGE> 7
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS
MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL
ESTATE BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY,
LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION
RELATING THERETO; THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR
OWN LEGAL COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
The parties hereto have executed this Lease at the place on the dates specified
immediately adjacent to their respective signatures.
Executed at San Francisco, California HBJ Partnership
-------------------------- ------------------------------------
on January 1, 1996 By /s/ Bernard A. Osher, Partner
------------------------------------ ---------------------------------
Address 660 Third Street By
------------------------------- ---------------------------------
San Francisco, CA 94107 "LESSOR" (Corporate Seal)
- - ---------------------------------------
Butterfield &
Executed at San Francisco, California Butterfield, Auctioneers
-------------------------- ------------------------------------
on January 1, 1996 By /s/ John Gallo
------------------------------------ ---------------------------------
Address 220 San Bruno Ave. By
------------------------------- ---------------------------------
San Francisco, CA 94103 "LESSEE" (Corporate Seal)
- - --------------------------------------
For these forms write or call the American Industrial Real Estate Association,
350 South Figueroa St., Suite 275, Los Angeles, CA 90071 (213) 687-8777
<PAGE> 1
EXHIBIT 10.6
STANDARD INDUSTRIAL LEASE - SPECIAL NET
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. PARTIES. This Lease, dated, for reference purposes only, January 1, 1996, is
made by and between HBJ Partners, LLC (herein called "Lessor") and Butterfield &
Butterfield Auctioneers, a California corporation (herein called "Lessee").
2. PREMISES. Lessor hereby leases to Lessee and Lessee leases from Lessor for
the term, at the rental, and upon all of the conditions set forth herein, that
certain real property situated in the County of San Francisco, State of
California, commonly known as 290 San Bruno Avenue and described as consisting
of 3,987 square feet. Said real property including the land and all improvements
therein, is herein called "the Premises".
3. TERM.
3.1 TERM. The term of this Lease shall be for Ten (10) years (two
successive ten year options) commencing on March 1, 1996 and ending on December
31, 2005 unless sooner terminated pursuant to any provision hereof. For
Conditions of Option, see paragraph 49, infra.
3.2 DELAY IN POSSESSION. Notwithstanding said commencement date, if for
any reason Lessor cannot deliver possession of the Premises to Lessee on said
date, Lessor shall not be subject to any liability therefor, nor shall such
failure affect the validity of this Lease or the obligations of Lessee hereunder
or extend the term hereof, but in such case, Lessee shall not be obligated to
pay rent until possession of the Premises is tendered to Lessee; provided,
however, that if Lessor shall not have delivered possession of the Premises
within sixty (60) days from said commencement date, Lessee may, at Lessee's
option, by notice in writing to Lessee within ten (10) days thereafter, cancel
this Lease, in which event the parties shall be discharged from all obligations
hereunder; provided further, however, that if such written notice of Lessee is
not received by Lessor within said ten (10) day period, Lessee's right to cancel
this Lease hereunder shall terminate and be of no further force or effect.
3.3 EARLY POSSESSION. If Lessee occupies the Premises prior to said
commencement date, such occupancy shall be subject to all provisions hereof,
such occupancy shall not advance the termination date, and Lessee shall pay rent
for such period at the initial monthly rates set forth below.
4. RENT: SPECIAL NET LEASE.
4.1 RENT. Lessee shall pay to Lessor as rent for the Premises, monthly
payments of $3,987.00, in advance, on the _____ day of each month of the term
hereof. Lessee shall pay Lessor upon the execution hereof $3,987.00 as rent for
January 1996 and each month thereafter, together with all additional rents or
payment due, pursuant to the terms of paragraph 4.2 and 10.1-10.2 and subject to
the annual adjustment set forth in paragraph 48 infra. Rent for any period
during the term hereof which is for less than one month shall be a pro rata
portion of the monthly installment. Rent shall be payable in lawful money of the
United States to Lessor at the address stated herein or to such other persons or
at such other places as Lessor may designate in writing.
4.2 SPECIAL NET LEASE. This Lease is what is commonly called a "Net,
Net, Net Lease", it being understood that the Lessor shall receive the rent set
forth in Paragraph 4.1 free and clear of any and all other impositions, taxes,
liens, charges or expenses of any nature whatsoever in connection with the
ownership and operation of the Premises. In addition to the rent reserved by
Paragraph 4.1, Lessee shall pay to the parties respectively entitled thereto all
impositions, insurance premiums, operating charges, maintenance charges,
construction costs, and any other charges, costs and expenses which arise or may
be contemplated under any provisions of this Lease during the term hereof. All
of such charges, costs and expenses shall constitute additional rent, and upon
the failure of Lessee to pay any of such costs, charges or expenses, Lessor
shall have the same rights and remedies as otherwise provided in this Lease for
the failure of Lessee to pay rent. It is the intention of the parties hereto
that this Lease shall not be terminable for any reason by the Lessee, and that
Lessee shall in no event be entitled to any abatement or of reduction in rent
payable under this Lease, except as herein expressly provided. Any present or
future law to the contrary shall not alter this agreement of the parties.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof $-0-
as security for Lessee's faithful performance of Lessee's obligations hereunder.
If Lessee fails to pay rent or other charges due hereunder, or otherwise
defaults with respect to any provision of this Lease, Lessor may use, apply or
retain all or any portion of said deposit for the payment of any rent or other
charge in default or for the payment of any other sum to which Lessor may become
obligated by reason of Lessee's default, or to compensate Lessor for any loss or
damage which Lessor may suffer thereby. If Lessor so uses or applies all or any
portion of said deposit, Lessee shall within ten (10) days after written demand
therefor deposit cash with Lessor in an amount sufficient to restore said
deposit to the full amount hereinabove stated and Lessee's failure to do so
shall be a material breath of this Lease. If the monthly rent shall, from time
to time, increase during the term of this Lease, Lessee shall thereupon deposit
with Lessor additional security deposit so that the amount of security deposit
held by Lessor shall at all times bear the same proportion to current rent as
the original security deposit bears to the original monthly rent set forth in
paragraph 4 hereof. Lessor shall not be required to keep said deposit separate
from its general accounts. If Lessee performs all of Lessee's obligations
hereunder, said deposit, or so much thereof as has not theretofore been applied
by Lessor, shall be returned, without payment of interest or other increment for
its use, to Lessee (or, at Lessor's option, to the last assignee, if any, of
Lessee's interest hereunder) at the expiration of the term hereof, and after
Lessee has vacated the Premises. No trust relationship is created herein between
Lessor and Lessee with respect to said Security Deposit.
6. USE.
6.1 USE. The Premises shall be used and occupied only for General
office use or any other use which is reasonably comparable and for no other
purpose.
6.2 COMPLIANCE WITH LAW.
(a) Lessor warrants to Lessee that the Premises, in its state
existing on the date that the Lease term commences, but without regard to the
use for which Lessee will use the Premises, does not violate any covenants or
restrictions of record, or any applicable building code, regulation or ordinance
in effect on such Lease term commencement date. In the event it is determined
that this warranty has been violated, then it shall be the obligation of the
Lessor, after written notice from Lessee, to promptly, at Lessor's sole cost and
expense, rectify any such violation. In the event Lessee does not give to Lessor
written notice of the violation of this warranty within six months from the date
that the Lease term commences, the correction of same shall be the obligation of
the Lessee at Lessee's sole cost. The warranty contained in this paragraph
6.2(a) shall be of no force or effect if, prior to the date of this Lease,
Lessee was the owner or occupant of the Premises, and, in such event, Lessee
shall correct any such violation at Lessee's sole cost.
(b) Except as provided in paragraph 6.2(a), Lessee shall, at
Lessee's expense, comply promptly with all applicable statutes, ordinances,
rules, regulations, orders, covenants and restrictions of record, and
requirements in effect during the term or any part of the term hereof,
regulating the use by Lessee of the Premises. Lessee shall not use or permit the
use of the Premises in any manner that will tend to create waste or a nuisance
or, if there shall be more than one tenant in the building containing the
Premises, shall tend to disturb such other tenants.
6.3 CONDITION OF PREMISES.
(a) Lessor shall deliver the Premises to Lessee clean and free
of debris on Lease commencement date (unless Lessee is already in possession)
and Lessor further warrants to Lessee that the plumbing, lighting, air
conditioning, heating, and loading doors in the Premises shall be in good
operating condition on the Lease commencement date. In the event that it is
determined that this warranty has been violated, then it shall be the obligation
of Lessor, after receipt of written notice from Lessee setting forth with
specificity the nature of the violation, to promptly, at Lessor's sole cost,
rectify such violation. Lessee's failure to give such written notice to Lessor
within thirty (30) days after the Lease commencement date shall cause the
conclusive presumption that Lessor has complied with all of Lessor's obligations
hereunder. The warranty contained in this paragraph 6.3(a) shall be of no force
or effect if prior to the date of this Lease, Lessee was the owner or occupant
of the Premises.
(b) Except as otherwise provided in this Lease, Lessee hereby
accepts the Premises in their condition existing as of the Lease commencement
date or the date that Lessee takes possession of the Premises, whichever is
earlier, subject to all applicable zoning, municipal, county and state laws,
ordinances and regulations governing and regulating the use of the Premises, and
any covenants or restrictions of record, and accepts this Lease subject thereto
and to all matters disclosed thereby and by any exhibits attached hereto. Lessee
acknowledges that neither Lessor nor Lessor's agent has made any representation
or warranty as to the present or future suitability of the Premises for the
conduct of Lessee's business.
SPECIAL NET
(This is a special form containing unique provisions and should
only be used in special situations where the LESSEE will pay rent
under all circumstances and in the event of destruction the
LESSEE will rebuild under all circumstances.)
1.
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7. MAINTENANCE, REPAIRS AND ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS. Lessee shall keep in good order, condition
and repair the Premises and every part thereof, structural and nonstructural,
(whether or not such portion of the Premises requiring repair, or the means of
repairing the same are reasonably or readily accessible to Lessee, and whether
or not the need for such repairs occurs as a result of Lessee's use, any prior
use, the elements or the age of such portion of the Premises) including, without
limiting the generality of the foregoing, all plumbing, heating, air
conditioning, (Lessee shall procure and maintain, at Lessee's expense, an air
conditioning system maintenance contract) ventilating, electrical, lighting
facilities and equipment within the Premises, fixtures, walls (interior and
exterior), foundations, ceilings, roofs (inferior and exterior), floors,
windows, doors, plate glass and skylights located within the Premises, and all
landscaping, driveways, parking lots, fences and signs located on the Premises
and sidewalks and parkways adjacent to the Premises.
7.2 SURRENDER. On the last day of the term hereof, or on any sooner
termination, Lessee shall surrender the Premises to Lessor in the same condition
as when received, ordinary wear and tear excepted, clean and free of debris.
Lessee shall repair any damage to the Premises occasioned by the installation or
removal of Lessee's trade fixtures, furnishings and equipment. Notwithstanding
anything to the contrary otherwise stated in this Lease, Lessee shall leave the
air lines, power panels, electrical distribution systems, lighting fixtures,
space heaters, air conditioning, plumbing and fencing on the premises in good
operating condition.
7.3 LESSOR'S RIGHTS. If Lessee fails to perform Lessee's obligations
under this Paragraph 7, or under any other paragraph of this Lease, Lessor may
at its option (but shall not be required to) enter upon the Premises after then
(10) days' prior written notice to Lessee (except in the case of an emergency,
in which case no notice shall be required), perform such obligations on Lessee's
behalf and put the same in good order, condition and repair, and the cost
thereof together with interest thereon at the maximum rate than allowable by law
shall become due and payable as additional rental to Lessor together with
Lessee's next rental installment.
7.4 LESSOR'S OBLIGATIONS. Except for the obligations of Lessor under
Paragraph 6.2(a) and 6.3(a) (relating to Lessor's warrant), Paragraph 9
(relating to destruction of the Premises) and under Paragraph 14 (relating to
condemnation of the Premises), it is intended by the parties hereto that Lessor
have no obligation, in any manner whatsoever, to repair and maintain the
Premises not the building located thereon nor the equipment therein, whether
structural or non structural, all of which obligations are intended to be that
of the Lessee under Paragraph 7.1 hereof. Lessee expressly waives the benefit of
any statute now or hereinafter in effect which would otherwise afford Lessee the
right to make repairs at Lessor's expense or to terminate this Lease because of
Lessor's failure to keep the premises in good order, condition and repair.
7.5 ALTERATIONS AND ADDITIONS.
(a)Lessee shall not, without Lessor's prior written consent
make any alterations, improvements, additions, or Utility Installations in, on
or about the Premises, except for nonstructural alterations not exceeding $2,500
in cumulative costs during the term of this Lease. In any event, whether or not
in excess of $2,500 in cumulative cost, Lessee shall make no change or
alteration to the exterior of the Premises nor the exterior of the building(s)
on the Premises without Lessor's prior written consent. As used in this
Paragraph 7.5 the term "Utility Installation" shall mean carpeting, window
coverings, air lines, power panels, electrical distribution systems, lighting
fixtures, space heaters, air conditioning, plumbing, and fencing. Lessor may
require that Lessee remove any or all of said alterations, improvements,
additions or Utility Installations at the expiration of the term, and restore
the Premises to their prior condition. Lessor may require Lessee to provide
Lessor, at Lessee's sole cost and expense, a line and completion bond in an
amount equal to one and one-half times the estimated cost of such improvements,
to insure Lessor against any liability for mechanic's and materialmen's liens
and to insure completion of the work. Should Lessee make any alterations,
improvements, additions or Utility Installations without the prior approval of
Lessor, Lessor may require that Lessee remove any or all of the same.
(b)Any alterations, improvements, additions or Utility
Installations in, or about the Premises that Lessee shall desire to make and
which requires the consent of the Lessor shall be presented to Lessor in written
form, with proposed detailed plans. If Lessor shall give its consent, the
consent shall be deemed conditioned upon Lessee acquiring a permit to do so from
appropriate governmental agencies, the furnishing of a copy thereof to Lessor
prior to the commencement of the work and the compliance by Lessee of all
conditions of said permit in a prompt and expeditious manner.
(c)Lessee shall pay, when due, all claims for labor or
materials furnished or alleged to have been furnished to or for Lessee at or for
use in the Premises, which claims are or may be secured by any mechanics' or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in the Premises, and Lessor shall have the right to post notices of
non-responsibility in or on the Premises as provided by law. If Lessee shall, in
good faith, contest the validity of any such lien, claim or demand, then Lessee
shall, at its sole expense defend itself and Lessor against the same and shall
pay and satisfy any such adverse judgment that may be rendered thereon before
the enforcement thereof against the Lessor or the Premises, upon the condition
that if Lessor shall require, Lessee shall furnish to Lessor a surety bond
satisfactory to Lessor in an amount equal to such contested lien claim or demand
indemnifying Lessor against liability for the same and holding the Premises free
from the effect of such lien or claim. In addition, Lessor may require Lessee to
pay Lessor's attorneys fees and costs in participating in such action if Lessor
shall decide it is to its best interest to do so.
(d)Unless Lessor requires their removal, as set forth in
Paragraph 7.5(a), all alterations, improvements, additions and Utility
Installations (whether or not such Utility Installations constitute trade
fixtures of Lessee), which may be made on the Premises, hall become the property
of Lessor and remain upon and be surrendered with the Premises at the expiration
of the term. Notwithstanding the provisions of this Paragraph 7.5(d), Lessee's
machinery and equipment, other than that which is affixed to the Premises so
that it cannot be removed without material damage to the Premises, shall remain
the property of Lessee and may be removed by Lessee subject to the provisions of
Paragraph 7.2.
8. INSURANCE INDEMNITY.
8.1 INSURING PARTY. As used in this Paragraph 8, the term "insuring
party" shall mean the party who has the obligation to obtain the Property
Insurance required hereunder. The insuring party shall be designated in
Paragraph 46 hereof. In the event Lessor is the insuring party, Lessor shall
also maintain the liability insurance described in paragraph 8.2 hereof, in
addition to, and not in lieu of, the insurance required to be maintained by
Lessee under said paragraph 8.2, but Lessor shall not be required to name Lessee
as an additional insured on such policy. Whether the insuring party is the
Lessor or the Lessee, Lessee shall, as additional rent for the Premises, pay the
cost of all insurance required hereunder, except for that portion of the cost
attributable to Lessor's liability insurance coverage in excess of $1,000,000
per occurrence. If Lessor is the insuring party Lessee shall, within ten (10)
days following demand by Lessor, reimburse Lessor for the cost of the insurance
so obtained.
8.2 LIABILITY INSURANCE. Lessee shall, at Lessee's expense obtain and
keep in force during the term of this Lease a policy of Combined Single Limit,
Bodily Injury and Property Damage insurance insuring Lessor and Lessee against
any liability arising out of the ownership, use, occupancy or maintenance of the
Premises and all areas appurtenant thereto. Such insurance shall be a combined
single limit policy in an amount not less than $2,000,000 per occurrence. The
policy shall insure performance by Lessee of the indemnity provisions of this
Paragraph 8. The limits of said insurance shall not, however, limit the
liability of Lessee hereunder.
8.3 PROPERTY INSURANCE.
(a)The insuring party shall obtain and keep in force during
the term of this Lease a policy or policies of insurance covering loss or damage
to the Premises, in the amount of the full replacement value thereof, as the
same may exist from time to time, which replacement value is now $4,000,000, but
in no event less than the total amount required by lenders having liens on the
Premises, against all perils included within the classification of fire,
extended coverage, vandalism, malicious mischief, flood (in the event same is
required by a lender having a lien on the Premises), and special extended perils
("all risk" as such term is used in the insurance industry). Said insurance
shall provide for payment of loss thereunder to Lessor or to the holders of
mortgages or deeds of trust on the Premises. The insuring party shall, in
addition, obtain and keep in force during the term of this Lease a policy of
rental value insurance covering a period of one year, with loss payable to
Lessee, which insurance shall also cover all real estate taxes and insurance
costs for said period. A stipulated value or agreed amount endorsement deleting
the coinsurance provision of the policy shall be procured with said insurance as
well as an automatic increase in insurance endorsement causing the increase in
annual property insurance coverage by 2% per quarter. If the insuring party
shall fail to procure and maintain said insurance, the other party may, but
shall not be required to, procure and maintain the same, but at the expense of
Lessee. If such insurance coverage has a deductible clause, the deductible
amount shall not exceed $1,000 per occurrence, and Lessee shall be liable for
such deductible amount.
(b)If the Premises are part of a larger building, or if the
Premises are part of a group of buildings owned by Lessor which are adjacent to
the Premises, then Lessee shall pay for any increase in the property insurance
of such other building or buildings if said increase is caused by Lessee's acts,
omissions, use or occupancy of the Premises.
(c)If the Lessor is the insuring party the Lessor will not
insure Lessee's fixtures, equipment or tenant improvements unless the tenant
improvements have become a part of the Premises under paragraph 7, hereof. But
if Lessee is the insuring party the Lessee shall insure its fixtures, equipment
and tenant improvements.
2.
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8.4 INSURANCE POLICIES. Insurance required hereunder shall be in
companies holding a "General Policyholders Rating" of at least B plus, or such
other rating as may be required by a lender having a line on the Premises, as
set forth in the most current issue of "Best's Insurance Guide." The insuring
party shall deliver to the other party copies of policies of such insurance or
certificates evidencing the existence and amounts of such insurance with loss
payable clauses as required by this paragraph 8. No such policy shall be
cancelable or subject to reduction of coverage or other modification except
after thirty (30) days' prior written notice to Lessor. If Lessee is the
insuring party Lessee shall, at least thirty (30) days prior to the expiration
of such policies, furnish Lessor with renewals or "binders" thereof, or Lessor
may order such insurance and charge the cost thereof to Lessee, which amount
shall be payable by Lessee upon demand. Lessee shall not do or permit to be done
anything which shall invalidate the insurance policies referred to in Paragraph
8.3, then Lessee shall forthwith upon Lessor's demand reimburse Lessor for any
additional premiums attributable to any act or omission or operation of Lessee
causing such increase in the cost of insurance. If Lessor is the insuring party,
and if the insurance policies maintained hereunder cover other improvements in
addition to the Premises, Lessor shall deliver to Lessee a written statement
setting forth the amount of any such insurance cost increase and showing in
reasonable detail the manner in which it has been computed.
8.5 WAIVER OF SUBROGATION. Lessee and Lessor each hereby release and
relieve the other, and waive their entire right of recovery against the other
for loss or damage arising out of or incident to the perils insured against
under paragraph 8.3, which perils occur in, on or about the Premises, whether
due to the negligence of Lessor or Lessee or their agents, employees,
contractors and/or invitees. Lessee and Lessor shall, upon obtaining the
policies of insurance required hereunder, give notice to the insurance carrier
or carriers that the foregoing mutual waiver of subrogation is contained in this
Lease.
8.6 INDEMNITY. Lessee shall indemnify and hold harmless Lessor from and
against any and all claims arising from Lessee's use of the Premises, or from
the conduct of Lessee's business or from any activity, work or things done,
permitted or suffered by Lessee in or about the Premises or elsewhere and shall
further indemnify and hold harmless Lessor from and against any and all claims
arising from any breach or default in the performance of any obligation on
Lessee's part to be performed under the terms of this Lease, or arising from any
negligence of the Lessee, or any of Lessee's agents, contractors, or employees,
and from and against all costs, attorneys' fees, expenses and liabilities
incurred in the defense of any such claim or any action or proceeding brought
thereon; and in case any action or proceeding be brought against Lessor by
reason of any such claim, Lessee upon notice from Lessor shall defend the same
at Lessee's expense by counsel satisfactory to Lessor. Lessee, as a material
part of the consideration to Lessor, hereby assumes all risk of damage to
property or injury to persons, in, upon or about the Premises arising from any
cause and Lessee hereby waives all claims in respect thereof against Lessor.
8.7 EXEMPTION OF LESSOR FROM LIABILITY. Lessee hereby agrees that
Lessor shall not be liable for injury to Lessee's business or any loss of income
therefrom or for damage to the goods, wares, merchandise or other property of
Lessee, Lessee's employees, invitees, customers, or any other person in or about
the Premises, nor shall Lessor be liable for injury to the person of Lessee,
Lessee's employees, agents or contractors, whether such damage or injury is
caused by or results from fire, steam, electricity, gas, water or rain, or from
the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether the said damage or injury results from conditions arising upon
the Premises or upon other portions of the building of which the Premises are a
part, or from other sources or places and regardless of whether the cause of
such damage or injury or the means of repairing the same is inaccessible to
Lessee. Lessor shall not be liable for any damages arising from any act or
neglect of any other tenant, if any, of the building in which the Premises are
located.
9. DAMAGE, DESTRUCTION, OBLIGATION TO REBUILD, RENT ABATEMENT.
9.1 OBLIGATION TO REBUILD. In the event that some or all of the
improvements constituting a part of the Premises or the Premises itself are
damaged or destroyed, partially or totally from any cause whatsoever, whether or
not such damage or destruction is covered by any insurance required to be
maintained under Paragraph 8.3 hereof, then Lessee shall repair, restore and
rebuild the Premises to its condition existing immediately prior to such damage
or destruction and this Lease shall remain in full force and effect. Such
repair, restoration and rebuilding (all of which are herein called "repair")
shall be commenced within a reasonable time after such damage or destruction has
occurred and shall be diligently pursued to completion.
9.2 INSURANCE PROCEEDS. The proceeds of any insurance maintained under
Paragraph 8.3 hereof shall be made available to Lessee for payment of costs and
expense of repair, provided however, that such proceeds may be made available to
Lessee subject to reasonable conditions, including, but not limited to
architect's certification of cost, retention of percentage of such proceeds
pending recordation of a notice of completion and a lien and completion bond to
insure against mechanic's or materialmen's liens arising out of the repair and
to insure completion of the repair, all at the expense of Lessee. In the event
the insurance proceeds are insufficient to cover the cost of repair, then any
amounts required over the amount of the insurance proceeds received that are
required to complete said repair shall be paid by Lessee. In the event the
insurance proceeds are not made available to Lessee within 120 days after such
damage or destruction, unless the amount of insurance coverage is in dispute
with the insurance carrier, Lessee shall have the option for 30 days commencing
on the expiration of such 120 day period, of canceling this Lease. If Lessee
shall exercise such option, Lessee shall have no further obligation hereunder
and shall have no claim against Lessor. Lessee, in order to exercise said
option, shall exercise said option by giving written notice to Lessor within
said 30 day period, time being of the essence.
9.3 DAMAGE NEAR END OF TERM.
(a)If the Premises are damaged or destroyed, either partially
or totally, during the last six months of the term of this Lease, Lessor may at
Lessor's option cancel and terminate this Lease as of the date of occurrence of
such damage by giving written notice to Lessee of Lessor's election to do so
within 30 days after the date of occurrence of such damage.
(b)Notwithstanding paragraph 9.3(a) to the contrary, in the
event that Lessee has an option to extend or renew this Lease, and the time
within which said option may be exercised has not yet expired, Lessee shall
exercise such option, if it is to be exercised at all, no later than 20 days
after damage or destruction to the Premises, either total or partial occurring
during the last six months of the term of this Lease, which damage or
destruction is covered by insurance required to be maintained under paragraph 8.
If Lessee duly exercises such option during said 20 day period, Lessee shall, in
accordance with paragraph 9.2, at Lessee's expense, repair such damage as soon
as reasonably possible and this Lese shall continue in full force and effect. If
Lessee fails to exercise such option during said 20 day period, then Lessor may
at Lessor's option terminate and cancel this Lease as of the expiration of said
20 day period by giving written notice to Lessee of Lessor's election to do so
within 10 days after the expiration of said 20 day period, notwithstanding any
term or provision in the grant of option to the contrary.
9.4 ABATEMENT OF RENT. Notwithstanding the partial or total destruction
of the Premises and any part thereof, and notwithstanding whether the casualty
is insured or not, there shall be no abatement of rent or of any other
obligation of Lessee hereunder by reason of such damage or destruction unless
the Lease is terminated by virtue of any other provision of this Lease.
9.5 TERMINATION - ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this Paragraph 9, an equitable adjustment shall be made concerning
advance rent and any advance payments made by Lessee to Lessor. Lessor shall, in
addition, return to Lessee so much of Lessee's security deposit as has not
theretofore been applied by Lessor.
9.6 WAIVER. Lessee waives the provision of any statutes which relate to
termination of leases when the thing leased is destroyed and agrees that such
event shall be governed by the terms of this Lease.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. Lessee shall pay the real property tax, as
defined in paragraph 10.2, applicable to the Premises during the term of this
Lease. All such payments shall be made at least ten (10) days prior to the
delinquency date of such payment. Lessee shall promptly furnish Lessor with
satisfactory evidence that such taxes have been paid. If any such taxes paid by
Lessee shall cover any period of time prior to or after the expiration of the
term hereof, Lessee's share of such taxes shall be equitably prorated to cover
only the period of time within the tax fiscal year during which this Lease shall
be in effect, and Lessor shall reimburse Lessee to the extent required. If
Lessee shall fail to pay any such taxes, Lessor shall have the right to pay the
same, in which case Lessee shall repay such amount to Lessor with Lessee's next
rent installment together with interest at the maximum rate then allowable by
law.
10.2 DEFINITION OF "REAL PROPERTY TAX." As used herein, the term "real
property tax" shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed on the Premises by any authority having the direct or
indirect power to tax, including any city, state or federal government, or any
school, agricultural, sanitary, fire, street, drainage or other improvement
district thereof, as against any legal or equitable interest of Lessor in the
Premises or in the real property of which the Premises are a part, as against
Lessor's right to rent or other income therefrom, and as against Lessor's
business of leasing the Premises. The term "real property tax" shall also
include any tax, fee, levy, assessment or charge (i) in substitution of,
partially or totally, any tax, fee, levy, assessment or charge hereinabove,
included within the definition of "real property tax," or (ii) the nature of
which was hereinbefore included within the definition of "real property tax," or
(iii) which is imposed for a service or right not charged prior to June 1, 1978,
or, if previously charged, has been increased since June 1, 1978, or (iv) which
is imposed as a result of a transfer, either partial or total, of Lessor's
interest in the Premises or which is added to a tax or charge hereinbefore
included within the definition of real property tax by reason of such transfer,
or (v) which is imposed by reason of this transaction, any modifications or
changes hereto, or any transfers hereof.
3.
<PAGE> 4
10.3 JOINT ASSESSMENT. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the real property taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be determined by Lessor from the respective valuations
assigned in the assessor's work sheets or such other information as may be
reasonably available. Lessor's reasonable determination thereof, in good faith,
shall be conclusive.
10.4 PERSONAL PROPERTY TAXES.
(a)Lessee shall pay prior to delinquency all taxes assessed
against and levied upon trade fixtures, furnishings, equipment and all other
personal property of Lessee contained in the Premises or elsewhere. When
possible, Lessee shall cause said trade fixtures, furnishings, equipment and all
other personal property to be assessed and billed separately from the real
property of Lessor.
(b)If any of Lessee's said personal property shall be assessed
with Lessor's real property, Lessee shall pay Lessor the taxes attributable to
Lessee within 10 days after receipt of a written statement setting forth the
taxes applicable to Lessee's property.
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone and other utilities and services supplied to the Premises, together
with any taxes thereon. If any such services are not separately metered to
Lessee, Lessee shall pay a reasonable proportion to be determined by Lessor of
all charges jointly metered with other premises.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED. Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Lessee's interest in this Lease or in the Premises,
without Lessor's prior written consent, which Lessor shall not unreasonably
withhold. Lessor shall respond to Lessee's request for consent hereunder in a
timely manner and any attempted assignment, transfer, mortgage, encumbrance or
subletting without such consent shall be void, and shall constitute a breach of
this Lease.
12.2 LESSEE AFFILIATE. Notwithstanding the provisions of paragraph 12.1
hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which controls, is controlled by or
is under common control with Lessee, or to any corporation resulting from the
merger or consolidation with Lessee, or to any person or entity which acquires
all the assets of Lessee as a going concern of the business that is being
conducted on the Premises, provided that said assignee assumes, in full, the
obligations of Lessee under this Lease. Any such assignment shall not, in any
way, affect or limit the liability of Lessee under the terms of this Lease even
if after such assignment or subletting the terms of this Lease are materially
changed or altered without the consent of Lessee, the consent of whom shall not
be necessary.
12.3 NO RELEASE OF LESSEE. Regardless of Lessor's consent, no
subletting or assignment shall release Lessee of Lessee's obligations or alter
the primary liability of Lessee to pay the rent and to perform all other
obligations to be performed by Lessee hereunder. The acceptance of rent by
Lessor from any other person shall not be deemed to be a waiver by Lessor of any
provision hereof. Consent to one assignment or subletting shall not be deemed
consent to any subsequent assignment or subletting. In the event of default by
any assignee of Lessee or any successor of Lessee, in the performance of any of
the terms hereof, Lessor may proceed directly against Lessee without the
necessity of exhausting remedies against said assignee. Lessor may consent to
subsequent assignments or subletting of this Lease or amendments or
modifications to this Lease with assignees of Lessee, without notifying Lessee,
or any successor of Lessee, and without obtaining its or their consent thereto
and such action shall not relieve Lessee of liability under this Lease.
12.4 ATTORNEY'S FEES. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting of if
Lessee shall request the consent of Lessor for any act Lessee proposes to do
then Lessee shall pay Lessor's reasonable attorney's fees incurred in connection
therewith, such attorney's fees not to exceed $350.0 for reach such request.
13. DEFAULTS; REMEDIES.
13.1 DEFAULTS. The occurrence of any one or more of the following
events shall constitute a material default and breach of this Lease by Lessee:
(a)The vacating or abandonment of the Premises by Lessee.
(b)The failure by Lessee to make any payment of rent or any
other payment required to be made by Lessee hereunder, as and when due, where
such failure shall continue for a period of three days after written notice
thereof from Lessor to Lessee. In the event that Lessor serves Lessee with a
Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes
such Notice to Pay Rent or Quit shall also constitute the notice required by
this subparagraph.
(c)The failure by Lessee to observe or perform any of the
covenants, conditions or provisions of this Lease to be observed or performed by
Lessee, other than described in paragraph (b) above, where such failure shall
continue for a period of 30 days after written notice thereof from Lessor to
Lessee; provided, however, that if the nature of Lessee's default is such that
more than 30 days are reasonably required for its cure, then Lessee shall not be
deemed to be in default if Lessee commenced such cure within said 30-day period
and thereafter diligently prosecutes such cure to completion.
(d)(i) The making by Lessee of any general arrangement or
assignment for the benefit of creditors; (ii) Lessee becomes a "debtor" as
defined in 11 U.S.C. Section 101 or any successor statute thereto (unless, in
the case of a petition filed against Lessee, the same is dismissed within 60
days); (iii) the appointment of a trustee or receiver to take possession of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where possession is not restored to Lessee within 30
days; or (iv) the attachment, execution or other judicial seizure of
substantially all of Lessee's Assets located at the Premises or of Lessee's
interest in this Lease, where such seizure is not discharged within 30 days.
Provided, however, in the event that any provision of this paragraph 13.1(d) is
contrary to any applicable law, such provisions shall be of no force or effect.
(e) The discovery by Lessor that any financial statement given
to Lessor by Lessee, any assignee of Lessee, any subtenant of Lessee, any
successor in interest of Lessee or any guarantor of Lessee's obligation
hereunder, and any of them, was materially false.
13.2 REMEDIES. In the event of any such material default or breach by
Lessee, Lessor may at any time thereafter, with or without notice or demand and
without limiting Lessor in the exercise of any right or remedy which Lessor may
have by reason of such default or breach:
(a)Terminate Lessee's right to possession of the Premises by
any lawful means, in which case this Lease shall terminate and Lessee shall
immediately surrender possession of the Premises to Lessor. In such event Lessor
shall be entitled to recover from Lessee all damages incurred by Lessor by
reason of Lessee's default including, but not limited to, the cost of recovering
possession of the Premises; expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorney's fees, and any
real estate commission actually paid; the worth at the time of award by the
court having jurisdiction thereof of the amount by which the unpaid rent of the
balance of the term after the time of such award exceeds the amount of such
rental loss for the same period that Lessee proves could be reasonably avoided;
that portion of the leasing commission paid by Lessor pursuant to Paragraph 15
applicable to the unexpired term of this Lease.
(b)Maintain Lessee's right to possession in which case this
Lease shall continue in effect whether or not Lessee shall have abandoned the
Premises. In such event Lessor shall be entitled to enforce all of Lessor's
rights and remedies under this Lease, including the right to recover the rent as
it becomes due hereunder.
(c)Pursue any other remedy now or hereafter available to
Lessor under the laws or judicial decisions of the state wherein the Premises
are located. Unpaid installments of rent and other unpaid monetary obligations
of Lessee under the terms of this Lease shall bear interest from the date due at
the maximum rate then allowable by law.
13.3 DEFAULT BY LESSOR. Lessor shall not be in default unless Lessor
fails to perform obligations required of Lessor within a reasonable time, but in
no event later than thirty (30) day after written notice by Lessee to Lessor and
to the holder of any first mortgage or deed of trust covering the Premises whose
name and address shall have theretofore been furnished to Lessee in writing,
specifying wherein Lessor has failed to perform such obligation; provided,
however, that if the nature of Lessor's obligation is such that more than thirty
(30) days are required for performance then Lessor shall not be in default if
Lessor commences performance within such 30-day period and thereafter diligently
prosecutes the same to completion.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed on
Lessor by the terms of any mortgage or trust deed covering the Premises.
Accordingly, if any installment or rent or any other sum due from Lessee shall
not be received by Lessor or Lessor's designee within ten (10) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to 6% of such overdue amount. The
parties hereby agree that such late charge represents a fair and reasonable
estimate of the costs Lessor will incur by reason of late payment by Lessee.
Acceptance of such late charge by Lessor shall in no event constitute a waiver
of Lessee's default with respect to such overdue amount, nor prevent Lessor from
exercising any of the other rights and remedies granted hereunder. In the event
that a late charge is payable hereunder, whether to not collected, for three (3)
consecutive installments of rent, then rent shall automatically become due and
payable quarterly in advance, rather than monthly, notwithstanding paragraph 4
or any other provision of this Lease to the contrary.
4.
<PAGE> 5
13.5 IMPOUNDS. In the event that a late charge is payable hereunder,
whether or not collected, for three (3) installments of rent or any other
monetary obligation of Lessee under the terms of this Lease, Lessee shall pay to
Lessor, if Lessor shall so request, in addition to any other payments required
under this Lease, a monthly advance installment, payable at the time same time
as the monthly rent, as estimated by Lessor, for real property tax and insurance
expenses on the Premises which are payable by Lessee under the terms of this
Lease. Such fund shall be established to insure payment when due, before
delinquency, of any or all such real property taxes and insurance premiums. If
the amounts paid to Lessor by Lessee under the provisions of this paragraph are
insufficient to discharge the obligations of Lessee to pay such real property
taxes and insurance premiums as the same become due, Lessee shall pay to Lessor,
upon Lessor's demand, such additional sums necessary to pay such obligations.
All moneys paid to Lessor under this paragraph may be intermingled with other
moneys of Lessor and shall not bear interest. In the event of a default in the
obligations of Lessee to perform under this Lease, then any balance remaining
from funds paid to Lessor under the provisions of this paragraph may, at the
option of Lessor, be applied to the payment of any monetary default of Lessee in
lieu of being applied to the payment of real property tax and insurance
premiums.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain, or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than 10% of the floor area of the
building on the remises, or more than 25% of the land area of the Premises which
is not occupied by any building, is taken by condemnation, Lessee may, at
Lessee's option, to e exercised in writing only within ten (10) days after
Lessor shall have given Lessee written notice of such taking (or in the absence
of such notice, within ten (10) days after the condemning authority shall have
taken possession) terminate this Lease as of the date the condemning authority
takes such possession. If Lessee does not terminate this Lease in accordance
with the foregoing, this Lease shall remain in full force and effect as to the
portion of the building situated on the Premises. No reduction of rent shall
occur if the only area taken is that which does not have a building located
thereon. Any award for the taking of all or any part of the Premises under the
power of eminent domain or any payment made under threat of the exercise of such
power shall be the property of Lessor, whether such award shall be made as
compensation for diminution in value of the leasehold or for the taking of the
fee, or as severance damages; provided, however, that Lessee shall be entitled
to any award for loss of or damage to Lessee's trade fixtures and removable
personal property. In the event that this Lease is not terminated by reason of
such condemnation, Lessor shall to the extent of severance damages received by
Lessor in connection with such condemnation, repair any damage to the Premises
caused by such condemnation except to the extent that Lessee has been reimbursed
therefor by the condemning authority. Lessee shall pay any amount in excess of
such severance damages required to complete such repair.
15. [deleted]
16. ESTOPPEL CERTIFICATE.
(a)Lessee shall at any time upon not less than ten (10) days'
prior written notice from Lessor execute, acknowledge and deliver to Lessor a
statement in writing (i) certifying that this Lease is unmodified and in full
force and effect (or, if modified, stating the nature of such modification and
certifying that this Lease, as so modified, is in full force and effect) and the
date to which the rent and other charges are paid in advance, if any, and (ii)
acknowledging that there are to, to Lessee's knowledge, any uncured defaults on
the part of Lessor hereunder, or specifying such defaults if any are claimed.
Any such statement may be conclusively relied upon by any prospective purchaser
or encumbrancer of the Premises.
(b)At Lessor's opinion, Lessee's failure to deliver such
statement within such time shall be a material breach of this Lease or shall be
conclusive upon Lessee (i) that this Lease is in full force and effect, without
modification except as may be represented by Lessor, (ii) that there are no
uncured defaults in Lessor's performance, and (iii) that not more than one
month's rent has been paid in advance or such failure may be considered by
Lessor as a default by Lessee under this Lease.
(c)If Lessor desires to finance, refinance or sell the
Premises, or any part thereof, Lessee hereby agrees to deliver to any lender or
purchaser designated by Lessor such financial statements of Lessee as may be
reasonably required by such lender or purchaser. Such statements shall include
the past three years' financial statements of Lessee. All such financial
statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean only the
owner or owners at the time in question of the fee title or a Lessee's interest
in a ground lease of the Premises, and except as expressly provided in Paragraph
15, in the event of any transfer of such title or interest, Lessor herein named
(and in case of any subsequent transfers then the grantor) shall be relieved
form and after the date of such transfer of all liability as respects Lessor's
obligations thereafter to be performed, provided that any funds in the hands of
Lessor or the then grantor at the time of such transfer, in which Lessee has an
interest, shall be delivered to the grantee. The obligations contained in this
Lease to be performed by Lessor shall, subject as aforesaid, be binding on
Lessor's successors and assigns, only during their respective periods of
ownership.
18. SEVERABILITY. The invalidity of any provision of this Lease as determined by
a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein provided, any
amount due to Lessor not paid when due shall bear interest at the maximum rate
then allowable by law from the date due. Payment of such interest shall not
excuse or cure any default by Lessee under this Lease, provided, however, that
interest shall not be payable on late charges incurred by Lessee nor on any
amounts upon which late charges are paid by Lessee.
20. TIME OF ESSENCE. Time is of the essence.
21. ADDITIONAL RENT. Any monetary obligations of Lessee to Lessor under the
terms of this Lease shall be deemed to be rent.
22. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No prior
agreement or understanding pertaining to any such matter shall be effective.
This Lease may be modified in writing only, signed by the parties in interest at
the time of the modification. Except as otherwise stated in this Lease, Lessee
hereby acknowledges that neither the real estate broker listed in Paragraph 15
hereof nor any cooperating broker on this transaction nor the Lessor or any
employees or agent s of any of said persons has made any oral or written
warranties or representations to Lessee relative to the condition or use by
Lessee of said Premises and Lessee acknowledges that Lessee assumes all
responsibility regarding the Occupational Safety Health Act, the legal use and
adaptability of the Premises and the compliance thereof with all applicable laws
and regulations in effect during the term of this lease except as otherwise
specifically stated in this Lease.
23. NOTICES. Any notice required or permitted to be given hereunder shall be in
writing and may be given by personal delivery or by certified mail, and if given
personally or by mail, shall be deemed sufficiently given if addressed to Lessee
or to Lessor at the address noted below the signature of the respective parties,
as the case may be. Either party may by notice to the other specify a different
address for notice purposes except that upon Lessee's taking possession of the
Premises, the Premises shall constitute Lessee's address for notice purposes. A
copy of all notices required or permitted to be given to Lessor hereunder shall
be concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate by notice to Lessee.
24. WAIVERS. No waiver by Lessor or any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provision. Lessor's consent to, or approval of, any act
shall not be deemed to render unnecessary the obtaining of Lessor's consent to
or approval of any subsequent act by Lessee. The acceptance of rent hereunder by
Lessor shall not be a waiver of any preceding breach by Lessee of any provision
hereof other than the failure of Lessee to pay the particular rent so accepted,
regardless of Lessor's knowledge of such preceding breach at the time of
acceptance of such rent.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a "short form" memorandum of this
Lease for recording purposes.
26. HOLDING OVER. If Lessee, with Lessor's consent, remains in possession of the
Premises or any part thereof after the expiration of the term hereof, such
occupancy shall be a tenancy from month to month upon all the provisions of this
Lease pertaining to the obligations of Lessee, but all options and rights of
first refusal, if any, granted under the terms of this Lease shall be deemed
terminated and be of no further effect during said month-to-month tenancy.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS. Each provision of this Lease performable by Lessee
shall be deemed both a covenant and a condition.
29. BINDING EFFECT; CHOICE OF LAW. Subject to any provisions hereof restricting
assignment or subletting by Lessee and subject to the provisions of Paragraph
17, this Lease shall bind the parties, their personal representatives,
successors and assigns. This Lease shall be governed by the laws of the State
wherein the Premises are located.
30. SUBORDINATION.
(a)This Lease, at Lessor's option, shall be subordinate to any
ground lease, mortgage, deed of trust, or any other hypothecation or security
now or hereafter placed upon the real property of which the Premises are a part
and to any and all advances made on the security thereof and to all renewals,
modifications, consolidations, replacements and extensions thereof.
Notwithstanding such subordination,
5.
<PAGE> 6
Lessee's right to quiet possession of the Premised shall not be disturbed if
Lessee is not in default and so long as Lessee shall pay the rent and observe
and perform all of the provisions of this Lease, unless this Lease is otherwise
terminated pursuant to its terms. If any mortgagee, trustee or ground lessor
shall elect to have this Lease prior to the lien of its mortgage, deed of trust
or ground lease, and shall give written notice thereof to Lessee, this Lease
shall be deemed prior to such mortgage, deed of trust, or ground lease, whether
this Lease is dated prior or subsequent to the date of said mortgage, deed of
trust or ground lease or the date of recording thereof.
(b)Lessee agrees to execute any documents required to
effectuate an attornment, a subordination or to make this Lese prior to the lien
of any mortgage, deed of trust or ground lease, as the case may be. Lessee's
failure to execute such documents within 10 days after written demand shall
constitute a material default by Lessee hereunder, or, at Lessor's option,
Lessor shall execute such documents on behalf of Lessee as Lessee's
attorney-in-fact. Lessee does hereby make, constitute and irrevocably appoint
Lessor as Lessee's attorney-in-fact and in Lessee's name, place and stead, to
execute such documents in accordance with this paragraph 30(b).
31. ATTORNEY'S FEES. If either party or the broker named herein brings an action
to enforce the terms hereof or declare rights hereunder, the prevailing party in
any such action, on trial or appeal, shall be entitled to his reasonable
attorney's fees to be paid by the losing party as fixed by the court. The
provisions of this paragraph shall inure to the benefit of the broker named
herein who seeks to enforce a right hereunder.
32. LESSOR'S ACCESS. Lessor and Lessor's agents shall have the right to enter
the Premises at reasonable times for the purpose of inspecting the same, showing
the same to prospective purchasers, lenders, or lessees, and making such
alterations, repairs, improvements or additions to the Premises or the building
of which they are a part as Lessor may deem necessary or desirable. Lessor may
at any time place on or about the Premises any ordinary "For Sale" signs and
Lessor may at any time during the last 120 days of the term hereof place on or
about the Premises any ordinary "For Lease" signs, all without rebate of rent or
liability to Lessee.
33. [deleted]
34. SIGNS. Lessee shall not place any sign upon the Premises without Lessor's
prior written consent except that Lessee shall have the right, without the prior
permission of Lessor to place ordinary and usual for rent or sublet signs
thereon.
35. MERGER. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or at termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to Lessor
of any or all of such subtenancies
36. CONSENTS. Except for paragraph 33 hereof, wherever in this Lease the consent
of one party is required to an act of the other party such consent shall not be
unreasonably withheld.
37. GUARANTOR. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
38. QUIET POSSESSION. Upon Lessee paying the rent for the Premises and observing
and performing all of the covenants, conditions and provisions on Lessee's part
to be observed and performed hereunder, Lessee shall have quiet possession of
the Premises for the entire term hereof subject to all of the provisions of this
Lease. The individuals executing this Lease on behalf of Lessor represent and
warrant to Lessee that they are fully authorized and legally capable of
executing this Lease on behalf of Lessor and that such execution is binding upon
all parties holding an ownership interest in the Premises.
39. OPTIONS.
39.1 DEFINITION. As used in this paragraph the word "Options:" has the
following meaning: (1) the right or option to extend the term of this Lease or
to renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (2) the option or right of first refusal to lease the
Premises or the right of first offer to lease the Premises or the right of first
refusal to lease other property of Lessor or the right of first offer to lease
other property of Lessor; (3) the right or option to purchase the Premises, or
the right of first refusal to purchase the Premises, or the right of first offer
to purchase the Premises or the right or option to purchase other property of
Lessor, or the right of first refusal to purchase other property of Lessor or
the right of first offer to purchase other property of Lessor.
39.2 OPTIONS PERSONAL. Each Option granted to Lessee in this Lease are
personal to Lessee and may not be exercised or be assigned, voluntarily or
involuntarily, by or to any person or entity other than Lessee, provided,
however, the Option may be exercised by or assigned to any Lessee Affiliate as
defined in paragraph 12.2 of this Lease. The Options herein granted to Lessee
are not assignable separate and apart from this Lease.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple
options to extend or renew this Lease a later option cannot be exercised unless
the prior option to extend or renew this Lease has been so exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a)Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary, (i) during
the time commencing from the date Lessor gives to Lessee a notice of default
pursuant to paragraph 13.1(c) and continuing until the default alleged in said
notice of default is cured, or (ii) during the period of time commencing on the
day after a monetary obligation to Lessor is due from Lessee and unpaid (without
any necessity for notice thereof to Lessee) continuing until the obligation is
paid, or (iii) at any time after an event of default described in paragraphs
13.1(a), 13.1(d), or 13.1(e) (without any necessity of Lessor to give notice of
such default to Lessee), or (iv) in the event that Lessor has given to Lessee
three or more notices of default under paragraph 13.1(b), where a late charge
has become payable under paragraph 13.4 for each of such defaults, or paragraph
13.1(c), whether or not the defaults are cured, during the 12 month period prior
to the time that Lessee intends to exercise the subject Option.
(b)The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability exercise an
Option because of the provisions of paragraph 39.4(a).
(c)All rights of Lessee under the provisions of an Option
shall terminate and be of no further force or effect, notwithstanding Lessee's
due and timely exercise of the Option, if, after such exercise and during the
term of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of
Lessee for a period of 30 days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessee fails to
commence to cure a default specified in paragraph 13.1(b) or 13.1(c) within 30
days after the date that Lessor gives notice to Lessee of such default and/or
Lessee fails thereafter to diligently prosecute said cure to completion, or
(iii) Lessee commits a default described in paragraph 13.1(a), 13.1(d) or
13.1(e) (without any necessity of Lessor to give notice of such default to
Lessee), or (iv) Lessor gives to Lessee three or more notices of default under
paragraph 13.1(b), where a late charges becomes payable under paragraph 13.4 for
each such default, or paragraph 13.1(c), whether or not the defaults are cured.
40. MULTIPLE TENANT BUILDING. In the event that the Premises are part of a
larger building or group of buildings then Lessee agrees that it will abide by,
keep and observe all reasonable rules and regulations which Lessor may make from
time to time for the management, safety, care, and cleanliness of the building
and grounds, the parking of vehicles and the preservation of good order therein
as well as for the convenience of other occupants and tenants of the building.
The violations of any such rules and regulations shall be deemed a material
breach of this Lease by Lessee.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of Lessee, its agents and
invitees from acts of third parties.
42. EASEMENTS. Lessor reserves to itself the right, from time to time, to grant
such easements, rights and dedications that Lessor deems necessary or desirable,
and to cause the recordation of Parcel Maps and restrictions, so long as such
easements, rights, dedications, Maps and restrictions do not unreasonably
interfere with the use of the Premises by Lessee. Lessee shall sign any of the
aforementioned documents upon request of Lessor and failure to do so shall
constitute a material breach of this Lease.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one party to the other under the provisions
hereof, the party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment, and there shall survive the right on the part
of said party to institute suit for recovery of such sum. If it shall be
adjudged that there was no legal obligation on the party of said party to pay
such sum or any part thereof, said party shall be entitled to recover such sum
or so much thereof as it was not legally required to pay under the provisions of
this Lease.
44. AUTHORITY. If Lessee is a corporation, trust, or general or limited
partnership, each individual executing this Lease on behalf of such entity
represents and warrants that he or she is duly authorized to execute and deliver
this Lease on behalf of said entity. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after execution of this
Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
45. CONFLICT. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. INSURING PARTY. The insuring party under this lease shall be the Lessee.
47. ADDENDUM. Attached hereto is an addendum or addenda containing paragraphs 48
through 49 which constitutes part of this Lease.
6.
<PAGE> 7
48. Lessee's base monthly rent shall be increased by three (3) percent annually
commencing with January 1, 1997 payment. The base year shall be January 1 1996 -
December 31, 1996.
49. Lessee shall be granted two (2) successive ten (10) year lease options
provided however, the terms and conditions shall be negotiated between Lessor
and Lessee at the time the option is exercised. Lessee shall exercise its
option, in writing, 120 days prior to the expiration of the original and any
extended term.
7.
<PAGE> 8
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR
SUBMISSION TO YOUR ATTORNEY FOR HIS APPROVAL. NO
REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN
INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE
BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY,
LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE
TRANSACTION RELATING THERETO; THE PARTIES SHALL RELY SOLELY
UPON THE ADVICE OF THEIR OWN LEGAL COUNSEL AS TO THE LEGAL AND
TAX CONSEQUENCES OF THIS LEASE.
The parties hereto have executed this Lease at the place on the dates specified
immediately adjacent to their respective signatures.
<TABLE>
<S> <C>
Executed at San Francisco, California HBJ Partners, LLC
---------------------------------- --------------------------------------------------
on January 1, 1996 By /s/ Irving Rabin
-------------------------------------------- ------------------------------------------------
Address 298 San Bruno Avenue By
--------------------------------------- ------------------------------------------------
San Francisco, CA 94103 "LESSOR" (Corporate Seal)
- - ----------------------------------------------
Executed at San Francisco, California Butterfield & Butterfield, Auctioneers
---------------------------------- --------------------------------------------------
on January 1, 1996 By /s/ Bernard A. Osher
-------------------------------------------- ------------------------------------------------
Address 220 San Bruno Ave. By
--------------------------------------- ------------------------------------------------
San Francisco, CA 94103 "LESSEE" (Corporate Seal)
- - --------------------------------------------
</TABLE>
For these forms write or call the American Industrial Real Estate Association,
350 South Figueroa St., Suite 275, Los Angeles, CA 90071 (213) 687-8777
<PAGE> 1
EXHIBIT 10.7
STANDARD INDUSTRIAL LEASE - SPECIAL NET
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. PARTIES. This Lease, dated, for reference purposes only, January 1, 1996, is
made by and between 111 Potrero Partners, LLC (herein called "Lessor") and
Butterfield & Butterfield, a California corporation (herein called "Lessee").
2. PREMISES. Lessor hereby leases to Lessee and Lessee leases from Lessor for
the term, at the rental, and upon all of the conditions set forth herein, that
certain real property situated in the County of Los Angeles, State of
California, commonly known as 7575 Sunset Boulevard, Los Angeles and described
as Lots 17, 18, 19 & 21 Sierra Bonita Tract, Map block 21-193, containing 30,000
s.f +/-.
Said real property including the land and all improvements therein, is herein
called "the "Premises."
3. TERM.
3.1 TERM. The term of this Lease shall be for Ten (10) years commencing
on January 1, 1996 and ending on December 31, 2005, unless sooner terminated
pursuant to any provision hereof.
3.2 DELAY IN POSSESSION. Notwithstanding said commencement date, if for
any reason Lessor cannot deliver possession of the Premises to Lessee on said
date, Lessor shall not be subject to any liability therefor, nor shall such
failure affect the validity of this Lease or the obligations of Lessee hereunder
or extend the term hereof, but in such case, Lessee shall not be obligated to
pay rent until possession of the Premises is tendered to Lessee; provided,
however, that if Lessor shall not have delivered possession of the Premises
within sixty (60) days from said commencement date, Lessee may, at Lessee's
option, by notice in writing to Lessee within ten (10) days thereafter, cancel
this Lease, in which event the parties shall be discharged from all obligations
hereunder; provided further, however, that if such written notice of Lessee is
not received by Lessor within said ten (10) day period, Lessee's right to cancel
this Lease hereunder shall terminate and be of no further force or effect.
3.3 EARLY POSSESSION. If Lessee occupies the Premises prior to said
commencement date, such occupancy shall be subject to all provisions hereof,
such occupancy shall not advance the termination date, and Lessee shall pay rent
for such period at the initial monthly rates set forth below.
4. RENT: SPECIAL NET LEASE.
4.1 RENT. Lessee shall pay to Lessor as rent for the Premises, monthly
payments of $26,00.00, in advance, on the First day of each month of the term
hereof. Lessee shall pay Lessor upon the execution hereof $26,000.00 as rent for
January 1996 and each month thereafter, together with all additional rents or
payments due, pursuant to the terms of paragraph 4.2 and 10.1-10.2 and subject
to the annual adjustment set forth in paragraph 48 infra.
Rent for any period during the term hereof which is for less than one month
shall be a pro rata portion of the monthly installment. Rent shall be payable in
lawful money of the United States to Lessor at the address stated herein or to
such other persons or at such other places as Lessor may designate in writing.
4.2 SPECIAL NET LEASE. This Lease is what is commonly called a "Net,
Net, Net Lease", it being understood that the Lessor shall receive the rent set
forth in Paragraph 4.1 free and clear of any and all other impositions, taxes,
liens, charges or expenses of any nature whatsoever in connection with the
ownership and operation of the Premises. In addition to the rent reserved by
Paragraph 4.1, Lessee shall pay to the parties respectively entitled thereto all
impositions, insurance premiums, operating charges, maintenance charges,
construction costs, and any other charges, costs and expenses which arise or may
be contemplated under any provisions of this Lease during the term hereof. All
of such charges, costs and expenses shall constitute additional rent, and upon
the failure of Lessee to pay any of such costs, charges or expenses, Lessor
shall have the same rights and remedies as otherwise provided in this Lease for
the failure of Lessee to pay rent. It is the intention of the parties hereto
that this Lease shall not be terminable for any reason by the Lessee, and that
Lessee shall in no event be entitled to any abatement or of reduction in rent
payable under this Lease, except as herein expressly provided. Any present or
future law to the contrary shall not alter this agreement of the parties.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
$1.00 (only) as security for Lessee's faithful performance of Lessee's
obligations hereunder. If Lessee fails to pay rent or other charges due
hereunder, or otherwise defaults with respect to any provision of this Lease,
Lessor may use, apply or retain all or any portion of said deposit for the
payment of any rent or other charge in default or for the payment of any other
sum to which Lessor may become obligated by reason of Lessee's default, or to
compensate Lessor for any loss or damage which Lessor may suffer thereby. If
Lessor so uses or applies all or any portion of said deposit, Lessee shall
within ten (10) days after written demand therefor deposit cash with Lessor in
an amount sufficient to restore said deposit to the full amount hereinabove
stated and Lessee's failure to do so shall be a material breath of this Lease.
If the monthly rent shall, from time to time, increase during the term of this
Lease, Lessee shall thereupon deposit with Lessor additional security deposit so
that the amount of security deposit held by Lessor shall at all times bear the
same proportion to current rent as the original security deposit bears to the
original monthly rent set forth in paragraph 4 hereof. Lessor shall not be
required to keep said deposit separate from its general accounts. If Lessee
performs all of Lessee's obligations hereunder, said deposit, or so much thereof
as has not theretofore been applied by Lessor, shall be returned, without
payment of interest or other increment for its use, to Lessee (or, at Lessor's
option, to the last assignee, if any, of Lessee's interest hereunder) at the
expiration of the term hereof, and after Lessee has vacated the Premises. No
trust relationship is created herein between Lessor and Lessee with respect to
said Security Deposit.
6. USE.
6.1 USE. The Premises shall be used and occupied only for Lessee's
Auction business or any other use which is reasonably comparable and for no
other purpose.
6.2 COMPLIANCE WITH LAW.
(a) Lessor warrants to Lessee that the Premises, in its state
existing on the date that the Lease term commences, but without regard to the
use for which Lessee will use the Premises, does not violate any covenants or
restrictions of record, or any applicable building code, regulation or ordinance
in effect on such Lease term commencement date. In the event it is determined
that this warranty has been violated, then it shall be the obligation of the
Lessor, after written notice from Lessee, to promptly, at Lessor's sole cost and
expense, rectify any such violation. In the event Lessee does not give to Lessor
written notice of the violation of this warranty within six months from the date
that the Lease term commences, the correction of same shall be the obligation of
the Lessee at Lessee's sole cost. The warranty contained in this paragraph
6.2(a) shall be of no force or effect if, prior to the date of this Lease,
Lessee was the owner or occupant of the Premises, and, in such event, Lessee
shall correct any such violation at Lessee's sole cost.
(b) Except as provided in paragraph 6.2(a), Lessee shall, at
Lessee's expense, comply promptly with all applicable statutes, ordinances,
rules, regulations, orders, covenants and restrictions of record, and
requirements in effect during the term or any part of the term hereof,
regulating the use by Lessee of the Premises. Lessee shall not use or permit the
use of the Premises in any manner that will tend to create waste or a nuisance
or, if there shall be more than one tenant in the building containing the
Premises, shall tend to disturb such other tenants.
6.3 CONDITION OF PREMISES.
(a) Lessor shall deliver the Premises to Lessee clean and free
of debris on Lease commencement date (unless Lessee is already in possession)
and Lessor further warrants to Lessee that the plumbing, lighting, air
conditioning, heating, and loading doors in the Premises shall be in good
operating condition on the Lease commencement date. In the event that it is
determined that this warranty has been violated, then it shall be the obligation
of Lessor, after receipt of written notice from Lessee setting forth with
specificity the nature of the violation, to promptly, at Lessor's sole cost,
rectify such violation. Lessee's failure to give such written notice to Lessor
within thirty (30) days after the Lease commencement date shall cause the
conclusive presumption that Lessor has complied with all of Lessor's obligations
hereunder. The warranty contained in this paragraph 6.3(a) shall be of no force
or effect if prior to the date of this Lease, Lessee was the owner or occupant
of the Premises.
(b) Except as otherwise provided in this Lease, Lessee hereby
accepts the Premises in their condition existing as of the Lease commencement
date or the date that Lessee takes possession of the Premises, whichever is
earlier, subject to all applicable zoning, municipal, county and state laws,
ordinances and regulations governing and regulating the use of the Premises, and
any covenants or restrictions of record, and accepts this Lease subject thereto
and to all matters disclosed thereby and by any exhibits attached hereto. Lessee
acknowledges that neither Lessor nor Lessor's agent has made any representation
or warranty as to the present or future suitability of the Premises for the
conduct of Lessee's business.
SPECIAL NET
(This is a special form containing unique provisions and should
only be used in special situations where the LESSEE will pay rent
under all circumstances and in the event of destruction the
LESSEE will rebuild under all circumstances.)
1.
<PAGE> 2
7. MAINTENANCE, REPAIRS AND ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS. Lessee shall keep in good order, condition
and repair the Premises and every part thereof, structural and nonstructural,
(whether or not such portion of the Premises requiring repair, or the means of
repairing the same are reasonably or readily accessible to Lessee, and whether
or not the need for such repairs occurs as a result of Lessee's use, any prior
use, the elements or the age of such portion of the Premises) including, without
limiting the generality of the foregoing, all plumbing, heating, air
conditioning, (Lessee shall procure and maintain, at Lessee's expense, an air
conditioning system maintenance contract) ventilating, electrical, lighting
facilities and equipment within the Premises, fixtures, walls (interior and
exterior), foundations, ceilings, roofs (inferior and exterior), floors,
windows, doors, plate glass and skylights located within the Premises, and all
landscaping, driveways, parking lots, fences and signs located on the Premises
and sidewalks and parkways adjacent to the Premises.
7.2 SURRENDER. On the last day of the term hereof, or on any sooner
termination, Lessee shall surrender the Premises to Lessor in the same condition
as when received, ordinary wear and tear excepted, clean and free of debris.
Lessee shall repair any damage to the Premises occasioned by the installation or
removal of Lessee's trade fixtures, furnishings and equipment. Notwithstanding
anything to the contrary otherwise stated in this Lease, Lessee shall leave the
air lines, power panels, electrical distribution systems, lighting fixtures,
space heaters, air conditioning, plumbing and fencing on the premises in good
operating condition.
7.3 LESSOR'S RIGHTS. If Lessee fails to perform Lessee's obligations
under this Paragraph 7, or under any other paragraph of this Lease, Lessor may
at its option (but shall not be required to) enter upon the Premises after then
(10) days' prior written notice to Lessee (except in the case of an emergency,
in which case no notice shall be required), perform such obligations on Lessee's
behalf and put the same in good order, condition and repair, and the cost
thereof together with interest thereon at the maximum rate than allowable by law
shall become due and payable as additional rental to Lessor together with
Lessee's next rental installment.
7.4 LESSOR'S OBLIGATIONS. Except for the obligations of Lessor under
Paragraph 6.2(a) and 6.3(a) (relating to Lessor's warrant), Paragraph 9
(relating to destruction of the Premises) and under Paragraph 14 (relating to
condemnation of the Premises), it is intended by the parties hereto that Lessor
have no obligation, in any manner whatsoever, to repair and maintain the
Premises not the building located thereon nor the equipment therein, whether
structural or non structural, all of which obligations are intended to be that
of the Lessee under Paragraph 7.1 hereof. Lessee expressly waives the benefit of
any statute now or hereinafter in effect which would otherwise afford Lessee the
right to make repairs at Lessor's expense or to terminate this Lease because of
Lessor's failure to keep the premises in good order, condition and repair.
7.5 ALTERATIONS AND ADDITIONS.
(a) Lessee shall not, without Lessor's prior written consent
make any alterations, improvements, additions, or Utility Installations in, on
or about the Premises, except for nonstructural alterations not exceeding $2,500
in cumulative costs during the term of this Lease. In any event, whether or not
in excess of $2,500 in cumulative cost, Lessee shall make no change or
alteration to the exterior of the Premises nor the exterior of the building(s)
on the Premises without Lessor's prior written consent. As used in this
Paragraph 7.5 the term "Utility Installation" shall mean carpeting, window
coverings, air lines, power panels, electrical distribution systems, lighting
fixtures, space heaters, air conditioning, plumbing, and fencing. Lessor may
require that Lessee remove any or all of said alterations, improvements,
additions or Utility Installations at the expiration of the term, and restore
the Premises to their prior condition. Lessor may require Lessee to provide
Lessor, at Lessee's sole cost and expense, a line and completion bond in an
amount equal to one and one-half times the estimated cost of such improvements,
to insure Lessor against any liability for mechanic's and materialmen's liens
and to insure completion of the work. Should Lessee make any alterations,
improvements, additions or Utility Installations without the prior approval of
Lessor, Lessor may require that Lessee remove any or all of the same.
(b) Any alterations, improvements, additions or Utility
Installations in, or about the Premises that Lessee shall desire to make and
which requires the consent of the Lessor shall be presented to Lessor in written
form, with proposed detailed plans. If Lessor shall give its consent, the
consent shall be deemed conditioned upon Lessee acquiring a permit to do so from
appropriate governmental agencies, the furnishing of a copy thereof to Lessor
prior to the commencement of the work and the compliance by Lessee of all
conditions of said permit in a prompt and expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or
materials furnished or alleged to have been furnished to or for Lessee at or for
use in the Premises, which claims are or may be secured by any mechanics' or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in the Premises, and Lessor shall have the right to post notices of
non-responsibility in or on the Premises as provided by law. If Lessee shall, in
good faith, contest the validity of any such lien, claim or demand, then Lessee
shall, at its sole expense defend itself and Lessor against the same and shall
pay and satisfy any such adverse judgment that may be rendered thereon before
the enforcement thereof against the Lessor or the Premises, upon the condition
that if Lessor shall require, Lessee shall furnish to Lessor a surety bond
satisfactory to Lessor in an amount equal to such contested lien claim or demand
indemnifying Lessor against liability for the same and holding the Premises free
from the effect of such lien or claim. In addition, Lessor may require Lessee to
pay Lessor's attorneys fees and costs in participating in such action if Lessor
shall decide it is to its best interest to do so.
(d) Unless Lessor requires their removal, as set forth in
Paragraph 7.5(a), all alterations, improvements, additions and Utility
Installations (whether or not such Utility Installations constitute trade
fixtures of Lessee), which may be made on the Premises, hall become the property
of Lessor and remain upon and be surrendered with the Premises at the expiration
of the term. Notwithstanding the provisions of this Paragraph 7.5(d), Lessee's
machinery and equipment, other than that which is affixed to the Premises so
that it cannot be removed without material damage to the Premises, shall remain
the property of Lessee and may be removed by Lessee subject to the provisions of
Paragraph 7.2.
8. INSURANCE INDEMNITY.
8.1 INSURING PARTY. As used in this Paragraph 8, the term "insuring
party" shall mean the party who has the obligation to obtain the Property
Insurance required hereunder. The insuring party shall be designated in
Paragraph 46 hereof. In the event Lessor is the insuring party, Lessor shall
also maintain the liability insurance described in paragraph 8.2 hereof, in
addition to, and not in lieu of, the insurance required to be maintained by
Lessee under said paragraph 8.2, but Lessor shall not be required to name Lessee
as an additional insured on such policy. Whether the insuring party is the
Lessor or the Lessee, Lessee shall, as additional rent for the Premises, pay the
cost of all insurance required hereunder, except for that portion of the cost
attributable to Lessor's liability insurance coverage in excess of $1,000,000
per occurrence. If Lessor is the insuring party Lessee shall, within ten (10)
days following demand by Lessor, reimburse Lessor for the cost of the insurance
so obtained.
8.2 LIABILITY INSURANCE. Lessee shall, at Lessee's expense obtain and
keep in force during the term of this Lease a policy of Combined Single Limit,
Bodily Injury and Property Damage insurance insuring Lessor and Lessee against
any liability arising out of the ownership, use, occupancy or maintenance of the
Premises and all areas appurtenant thereto. Such insurance shall be a combined
single limit policy in an amount not less than $2,000,000 per occurrence. The
policy shall insure performance by Lessee of the indemnity provisions of this
Paragraph 8. The limits of said insurance shall not, however, limit the
liability of Lessee hereunder.
8.3 PROPERTY INSURANCE.
(a) The insuring party shall obtain and keep in force during
the term of this Lease a policy or policies of insurance covering loss or damage
to the Premises, in the amount of the full replacement value thereof, as the
same may exist from time to time, which replacement value is now $6,000,000, but
in no event less than the total amount required by lenders having liens on the
Premises, against all perils included within the classification of fire,
extended coverage, vandalism, malicious mischief, flood (in the event same is
required by a lender having a lien on the Premises), and special extended perils
("all risk" as such term is used in the insurance industry). Said insurance
shall provide for payment of loss thereunder to Lessor or to the holders of
mortgages or deeds of trust on the Premises. The insuring party shall, in
addition, obtain and keep in force during the term of this Lease a policy of
rental value insurance covering a period of one year, with loss payable to
Lessee, which insurance shall also cover all real estate taxes and insurance
costs for said period. A stipulated value or agreed amount endorsement deleting
the coinsurance provision of the policy shall be procured with said insurance as
well as an automatic increase in insurance endorsement causing the increase in
annual property insurance coverage by 2% per quarter. If the insuring party
shall fail to procure and maintain said insurance, the other party may, but
shall not be required to, procure and maintain the same, but at the expense of
Lessee. If such insurance coverage has a deductible clause, the deductible
amount shall not exceed $1,000 per occurrence, and Lessee shall be liable for
such deductible amount.
(b) If the Premises are part of a larger building, or if the
Premises are part of a group of buildings owned by Lessor which are adjacent to
the Premises, then Lessee shall pay for any increase in the property insurance
of such other building or buildings if said increase is caused by Lessee's acts,
omissions, use or occupancy of the Premises.
2.
<PAGE> 3
(c) If the Lessor is the insuring party the Lessor will not
insure Lessee's fixtures, equipment or tenant improvements unless the tenant
improvements have become a part of the Premises under paragraph 7, hereof. But
if Lessee is the insuring party the Lessee shall insure its fixtures, equipment
and tenant improvements.
8.4 INSURANCE POLICIES. Insurance required hereunder shall be in
companies holding a "General Policyholders Rating" of at least B plus, or such
other rating as may be required by a lender having a line on the Premises, as
set forth in the most current issue of "Best's Insurance Guide." The insuring
party shall deliver to the other party copies of policies of such insurance or
certificates evidencing the existence and amounts of such insurance with loss
payable clauses as required by this paragraph 8. No such policy shall be
cancelable or subject to reduction of coverage or other modification except
after thirty (30) days' prior written notice to Lessor. If Lessee is the
insuring party Lessee shall, at least thirty (30) days prior to the expiration
of such policies, furnish Lessor with renewals or "binders" thereof, or Lessor
may order such insurance and charge the cost thereof to Lessee, which amount
shall be payable by Lessee upon demand. Lessee shall not do or permit to be done
anything which shall invalidate the insurance policies referred to in Paragraph
8.3, then Lessee shall forthwith upon Lessor's demand reimburse Lessor for any
additional premiums attributable to any act or omission or operation of Lessee
causing such increase in the cost of insurance. If Lessor is the insuring party,
and if the insurance policies maintained hereunder cover other improvements in
addition to the Premises, Lessor shall deliver to Lessee a written statement
setting forth the amount of any such insurance cost increase and showing in
reasonable detail the manner in which it has been computed.
8.5 WAIVER OF SUBROGATION. Lessee and Lessor each hereby release and
relieve the other, and waive their entire right of recovery against the other
for loss or damage arising out of or incident to the perils insured against
under paragraph 8.3, which perils occur in, on or about the Premises, whether
due to the negligence of Lessor or Lessee or their agents, employees,
contractors and/or invitees. Lessee and Lessor shall, upon obtaining the
policies of insurance required hereunder, give notice to the insurance carrier
or carriers that the foregoing mutual waiver of subrogation is contained in this
Lease.
8.6 INDEMNITY. Lessee shall indemnify and hold harmless Lessor from and
against any and all claims arising from Lessee's use of the Premises, or from
the conduct of Lessee's business or from any activity, work or things done,
permitted or suffered by Lessee in or about the Premises or elsewhere and shall
further indemnify and hold harmless Lessor from and against any and all claims
arising from any breach or default in the performance of any obligation on
Lessee's part to be performed under the terms of this Lease, or arising from any
negligence of the Lessee, or any of Lessee's agents, contractors, or employees,
and from and against all costs, attorneys' fees, expenses and liabilities
incurred in the defense of any such claim or any action or proceeding brought
thereon; and in case any action or proceeding be brought against Lessor by
reason of any such claim, Lessee upon notice from Lessor shall defend the same
at Lessee's expense by counsel satisfactory to Lessor. Lessee, as a material
part of the consideration to Lessor, hereby assumes all risk of damage to
property or injury to persons, in, upon or about the Premises arising from any
cause and Lessee hereby waives all claims in respect thereof against Lessor.
8.7 EXEMPTION OF LESSOR FROM LIABILITY. Lessee hereby agrees that
Lessor shall not be liable for injury to Lessee's business or any loss of income
therefrom or for damage to the goods, wares, merchandise or other property of
Lessee, Lessee's employees, invitees, customers, or any other person in or about
the Premises, nor shall Lessor be liable for injury to the person of Lessee,
Lessee's employees, agents or contractors, whether such damage or injury is
caused by or results from fire, steam, electricity, gas, water or rain, or from
the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether the said damage or injury results from conditions arising upon
the Premises or upon other portions of the building of which the Premises are a
part, or from other sources or places and regardless of whether the cause of
such damage or injury or the means of repairing the same is inaccessible to
Lessee. Lessor shall not be liable for any damages arising from any act or
neglect of any other tenant, if any, of the building in which the Premises are
located.
9. DAMAGE, DESTRUCTION, OBLIGATION TO REBUILD, RENT ABATEMENT.
9.1 OBLIGATION TO REBUILD. In the event that some or all of the
improvements constituting a part of the Premises or the Premises itself are
damaged or destroyed, partially or totally from any cause whatsoever, whether or
not such damage or destruction is covered by any insurance required to be
maintained under Paragraph 8.3 hereof, then Lessee shall repair, restore and
rebuild the Premises to its condition existing immediately prior to such damage
or destruction and this Lease shall remain in full force and effect. Such
repair, restoration and rebuilding (all of which are herein called "repair")
shall be commenced within a reasonable time after such damage or destruction has
occurred and shall be diligently pursued to completion.
9.2 INSURANCE PROCEEDS. The proceeds of any insurance maintained under
Paragraph 8.3 hereof shall be made available to Lessee for payment of costs and
expense of repair, provided however, that such proceeds may be made available to
Lessee subject to reasonable conditions, including, but not limited to
architect's certification of cost, retention of percentage of such proceeds
pending recordation of a notice of completion and a lien and completion bond to
insure against mechanic's or materialmen's liens arising out of the repair and
to insure completion of the repair, all at the expense of Lessee. In the event
the insurance proceeds are insufficient to cover the cost of repair, then any
amounts required over the amount of the insurance proceeds received that are
required to complete said repair shall be paid by Lessee. In the event the
insurance proceeds are not made available to Lessee within 120 days after such
damage or destruction, unless the amount of insurance coverage is in dispute
with the insurance carrier, Lessee shall have the option for 30 days commencing
on the expiration of such 120 day period, of canceling this Lease. If Lessee
shall exercise such option, Lessee shall have no further obligation hereunder
and shall have no claim against Lessor. Lessee, in order to exercise said
option, shall exercise said option by giving written notice to Lessor within
said 30 day period, time being of the essence.
9.3 DAMAGE NEAR END OF TERM.
(a) If the Premises are damaged or destroyed, either partially
or totally, during the last six months of the term of this Lease, Lessor may at
Lessor's option cancel and terminate this Lease as of the date of occurrence of
such damage by giving written notice to Lessee of Lessor's election to do so
within 30 days after the date of occurrence of such damage.
(b) Notwithstanding paragraph 9.3(a) to the contrary, in the
event that Lessee has an option to extend or renew this Lease, and the time
within which said option may be exercised has not yet expired, Lessee shall
exercise such option, if it is to be exercised at all, no later than 20 days
after damage or destruction to the Premises, either total or partial occurring
during the last six months of the term of this Lease, which damage or
destruction is covered by insurance required to be maintained under paragraph 8.
If Lessee duly exercises such option during said 20 day period, Lessee shall, in
accordance with paragraph 9.2, at Lessee's expense, repair such damage as soon
as reasonably possible and this Lese shall continue in full force and effect. If
Lessee fails to exercise such option during said 20 day period, then Lessor may
at Lessor's option terminate and cancel this Lease as of the expiration of said
20 day period by giving written notice to Lessee of Lessor's election to do so
within 10 days after the expiration of said 20 day period, notwithstanding any
term or provision in the grant of option to the contrary.
9.4 ABATEMENT OF RENT. Notwithstanding the partial or total destruction
of the Premises and any part thereof, and notwithstanding whether the casualty
is insured or not, there shall be no abatement of rent or of any other
obligation of Lessee hereunder by reason of such damage or destruction unless
the Lease is terminated by virtue of any other provision of this Lease.
9.5 TERMINATION - ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this Paragraph 9, an equitable adjustment shall be made concerning
advance rent and any advance payments made by Lessee to Lessor. Lessor shall, in
addition, return to Lessee so much of Lessee's security deposit as has not
theretofore been applied by Lessor.
9.6 WAIVER. Lessee waives the provision of any statutes which relate to
termination of leases when the thing leased is destroyed and agrees that such
event shall be governed by the terms of this Lease.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. Lessee shall pay the real property tax, as
defined in paragraph 10.2, applicable to the Premises during the term of this
Lease. All such payments shall be made at least ten (10) days prior to the
delinquency date of such payment. Lessee shall promptly furnish Lessor with
satisfactory evidence that such taxes have been paid. If any such taxes paid by
Lessee shall cover any period of time prior to or after the expiration of the
term hereof, Lessee's share of such taxes shall be equitably prorated to cover
only the period of time within the tax fiscal year during which this Lease shall
be in effect, and Lessor shall reimburse Lessee to the extent required. If
Lessee shall fail to pay any such taxes, Lessor shall have the right to pay the
same, in which case Lessee shall repay such amount to Lessor with Lessee's next
rent installment together with interest at the maximum rate then allowable by
law.
10.2 DEFINITION OF "REAL PROPERTY TAX." As used herein, the term "real
property tax" shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed on the Premises by any authority having the direct or
indirect power to tax, including any city, state or federal government, or any
school, agricultural, sanitary, fire, street, drainage or other improvement
district thereof, as against any legal or equitable interest of Lessor in the
Premises or in the real property of which the Premises are a part, as against
Lessor's right to rent or other income therefrom, and as against Lessor's
business of leasing the Premises. The term "real property tax" shall also
include any tax, fee, levy, assessment or charge (i) in substitution of,
partially or totally, any tax, fee, levy, assessment or charge hereinabove,
3.
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included within the definition of "real property tax," or (ii) the nature of
which was hereinbefore included within the definition of "real property tax," or
(iii) which is imposed for a service or right not charged prior to June 1, 1978,
or, if previously charged, has been increased since June 1, 1978, or (iv) which
is imposed as a result of a transfer, either partial or total, of Lessor's
interest in the Premises or which is added to a tax or charge hereinbefore
included within the definition of real property tax by reason of such transfer,
or (v) which is imposed by reason of this transaction, any modifications or
changes hereto, or any transfers hereof.
10.3 JOINT ASSESSMENT. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the real property taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be determined by Lessor from the respective valuations
assigned in the assessor's work sheets or such other information as may be
reasonably available. Lessor's reasonable determination thereof, in good faith,
shall be conclusive.
10.4 PERSONAL PROPERTY TAXES.
(a) Lessee shall pay prior to delinquency all taxes assessed
against and levied upon trade fixtures, furnishings, equipment and all other
personal property of Lessee contained in the Premises or elsewhere. When
possible, Lessee shall cause said trade fixtures, furnishings, equipment and all
other personal property to be assessed and billed separately from the real
property of Lessor.
(b) If any of Lessee's said personal property shall be
assessed with Lessor's real property, Lessee shall pay Lessor the taxes
attributable to Lessee within 10 days after receipt of a written statement
setting forth the taxes applicable to Lessee's property.
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone and other utilities and services supplied to the Premises, together
with any taxes thereon. If any such services are not separately metered to
Lessee, Lessee shall pay a reasonable proportion to be determined by Lessor of
all charges jointly metered with other premises.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED. Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Lessee's interest in this Lease or in the Premises,
without Lessor's prior written consent, which Lessor shall not unreasonably
withhold. Lessor shall respond to Lessee's request for consent hereunder in a
timely manner and any attempted assignment, transfer, mortgage, encumbrance or
subletting without such consent shall be void, and shall constitute a breach of
this Lease.
12.2 LESSEE AFFILIATE. Notwithstanding the provisions of paragraph 12.1
hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which controls, is controlled by or
is under common control with Lessee, or to any corporation resulting from the
merger or consolidation with Lessee, or to any person or entity which acquires
all the assets of Lessee as a going concern of the business that is being
conducted on the Premises, provided that said assignee assumes, in full, the
obligations of Lessee under this Lease. Any such assignment shall not, in any
way, affect or limit the liability of Lessee under the terms of this Lease even
if after such assignment or subletting the terms of this Lease are materially
changed or altered without the consent of Lessee, the consent of whom shall not
be necessary.
12.3 NO RELEASE OF LESSEE. Regardless of Lessor's consent, no
subletting or assignment shall release Lessee of Lessee's obligations or alter
the primary liability of Lessee to pay the rent and to perform all other
obligations to be performed by Lessee hereunder. The acceptance of rent by
Lessor from any other person shall not be deemed to be a waiver by Lessor of any
provision hereof. Consent to one assignment or subletting shall not be deemed
consent to any subsequent assignment or subletting. In the event of default by
any assignee of Lessee or any successor of Lessee, in the performance of any of
the terms hereof, Lessor may proceed directly against Lessee without the
necessity of exhausting remedies against said assignee. Lessor may consent to
subsequent assignments or subletting of this Lease or amendments or
modifications to this Lease with assignees of Lessee, without notifying Lessee,
or any successor of Lessee, and without obtaining its or their consent thereto
and such action shall not relieve Lessee of liability under this Lease.
12.4 ATTORNEY'S FEES. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting of if
Lessee shall request the consent of Lessor for any act Lessee proposes to do
then Lessee shall pay Lessor's reasonable attorney's fees incurred in connection
therewith, such attorney's fees not to exceed $350.0 for reach such request.
13. DEFAULTS; REMEDIES.
13.1 DEFAULTS. The occurrence of any one or more of the following
events shall constitute a material default and breach of this Lease by Lessee:
(a) The vacating or abandonment of the Premises by Lessee.
(b) The failure by Lessee to make any payment of rent or any
other payment required to be made by Lessee hereunder, as and when due, where
such failure shall continue for a period of three days after written notice
thereof from Lessor to Lessee. In the event that Lessor serves Lessee with a
Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes
such Notice to Pay Rent or Quit shall also constitute the notice required by
this subparagraph.
(c) The failure by Lessee to observe or perform any of the
covenants, conditions or provisions of this Lease to be observed or performed by
Lessee, other than described in paragraph (b) above, where such failure shall
continue for a period of 30 days after written notice thereof from Lessor to
Lessee; provided, however, that if the nature of Lessee's default is such that
more than 30 days are reasonably required for its cure, then Lessee shall not be
deemed to be in default if Lessee commenced such cure within said 30-day period
and thereafter diligently prosecutes such cure to completion.
(d)(i) The making by Lessee of any general arrangement or
assignment for the benefit of creditors; (ii) Lessee becomes a "debtor" as
defined in 11 U.S.C. Section 101 or any successor statute thereto (unless, in
the case of a petition filed against Lessee, the same is dismissed within 60
days); (iii) the appointment of a trustee or receiver to take possession of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where possession is not restored to Lessee within 30
days; or (iv) the attachment, execution or other judicial seizure of
substantially all of Lessee's Assets located at the Premises or of Lessee's
interest in this Lease, where such seizure is not discharged within 30 days.
Provided, however, in the event that any provision of this paragraph 13.1(d) is
contrary to any applicable law, such provisions shall be of no force or effect.
(e) The discovery by Lessor that any financial statement given
to Lessor by Lessee, any assignee of Lessee, any subtenant of Lessee, any
successor in interest of Lessee or any guarantor of Lessee's obligation
hereunder, and any of them, was materially false.
13.2 REMEDIES. In the event of any such material default or breach by
Lessee, Lessor may at any time thereafter, with or without notice or demand and
without limiting Lessor in the exercise of any right or remedy which Lessor may
have by reason of such default or breach:
(a) Terminate Lessee's right to possession of the Premises by
any lawful means, in which case this Lease shall terminate and Lessee shall
immediately surrender possession of the Premises to Lessor. In such event Lessor
shall be entitled to recover from Lessee all damages incurred by Lessor by
reason of Lessee's default including, but not limited to, the cost of recovering
possession of the Premises; expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorney's fees, and any
real estate commission actually paid; the worth at the time of award by the
court having jurisdiction thereof of the amount by which the unpaid rent of the
balance of the term after the time of such award exceeds the amount of such
rental loss for the same period that Lessee proves could be reasonably avoided;
that portion of the leasing commission paid by Lessor pursuant to Paragraph 15
applicable to the unexpired term of this Lease.
(b) Maintain Lessee's right to possession in which case this
Lease shall continue in effect whether or not Lessee shall have abandoned the
Premises. In such event Lessor shall be entitled to enforce all of Lessor's
rights and remedies under this Lease, including the right to recover the rent as
it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to
Lessor under the laws or judicial decisions of the state wherein the Premises
are located. Unpaid installments of rent and other unpaid monetary obligations
of Lessee under the terms of this Lease shall bear interest from the date due at
the maximum rate then allowable by law.
13.3 DEFAULT BY LESSOR. Lessor shall not be in default unless Lessor
fails to perform obligations required of Lessor within a reasonable time, but in
no event later than thirty (30) day after written notice by Lessee to Lessor and
to the holder of any first mortgage or deed of trust covering the Premises whose
name and address shall have theretofore been furnished to Lessee in writing,
specifying wherein Lessor has failed to perform such obligation; provided,
however, that if the nature of Lessor's obligation is such that more than thirty
(30) days are required for performance then Lessor shall not be in default if
Lessor commences performance within such 30-day period and thereafter diligently
prosecutes the same to completion.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed on
Lessor by the terms of any
4.
<PAGE> 5
mortgage or trust deed concerning the Premises. Accordingly, if any installment
of rent or any other sum due from Lessee shall not be received by Lessor or
Lessor's designee within ten (10) days after such amount shall be due, then,
without any requirement for notice to Lessee, Lessee shall pay to Lessor a late
charge equal to 6% of such overdue amount. The parties hereby agree that such
late charge represents a fair and reasonable estimate of the costs Lessor will
incur by reason of late payment by Lessee. Acceptance of such late charge by
Lessor shall in no event constitute a waiver of Lessee's default with respect to
such overdue amount, nor prevent Lessor from exercising any of the other rights
and remedies granted hereunder. In the event that a late charge is payable
hereunder, whether to not collected, for three (3) consecutive installments of
rent, then rent shall automatically become due and payable quarterly in advance,
rather than monthly, notwithstanding paragraph 4 or any other provision of this
Lease to the contrary.
13.5 IMPOUNDS. In the event that a late charge is payable hereunder,
whether or not collected, for three (3) installments of rent or any other
monetary obligation of Lessee under the terms of this Lease, Lessee shall pay to
Lessor, if Lessor shall so request, in addition to any other payments required
under this Lease, a monthly advance installment, payable at the time same time
as the monthly rent, as estimated by Lessor, for real property tax and insurance
expenses on the Premises which are payable by Lessee under the terms of this
Lease. Such fund shall be established to insure payment when due, before
delinquency, of any or all such real property taxes and insurance premiums. If
the amounts paid to Lessor by Lessee under the provisions of this paragraph are
insufficient to discharge the obligations of Lessee to pay such real property
taxes and insurance premiums as the same become due, Lessee shall pay to Lessor,
upon Lessor's demand, such additional sums necessary to pay such obligations.
All moneys paid to Lessor under this paragraph may be intermingled with other
moneys of Lessor and shall not bear interest. In the event of a default in the
obligations of Lessee to perform under this Lease, then any balance remaining
from funds paid to Lessor under the provisions of this paragraph may, at the
option of Lessor, be applied to the payment of any monetary default of Lessee in
lieu of being applied to the payment of real property tax and insurance
premiums.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain, or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than 10% of the floor area of the
building on the remises, or more than 25% of the land area of the Premises which
is not occupied by any building, is taken by condemnation, Lessee may, at
Lessee's option, to e exercised in writing only within ten (10) days after
Lessor shall have given Lessee written notice of such taking (or in the absence
of such notice, within ten (10) days after the condemning authority shall have
taken possession) terminate this Lease as of the date the condemning authority
takes such possession. If Lessee does not terminate this Lease in accordance
with the foregoing, this Lease shall remain in full force and effect as to the
portion of the building situated on the Premises. No reduction of rent shall
occur if the only area taken is that which does not have a building located
thereon. Any award for the taking of all or any part of the Premises under the
power of eminent domain or any payment made under threat of the exercise of such
power shall be the property of Lessor, whether such award shall be made as
compensation for diminution in value of the leasehold or for the taking of the
fee, or as severance damages; provided, however, that Lessee shall be entitled
to any award for loss of or damage to Lessee's trade fixtures and removable
personal property. In the event that this Lease is not terminated by reason of
such condemnation, Lessor shall to the extent of severance damages received by
Lessor in connection with such condemnation, repair any damage to the Premises
caused by such condemnation except to the extent that Lessee has been reimbursed
therefor by the condemning authority. Lessee shall pay any amount in excess of
such severance damages required to complete such repair.
15. [deleted]
16. ESTOPPEL CERTIFICATE.
(a) Lessee shall at any time upon not less than ten (10) days'
prior written notice from Lessor execute, acknowledge and deliver to Lessor a
statement in writing (i) certifying that this Lease is unmodified and in full
force and effect (or, if modified, stating the nature of such modification and
certifying that this Lease, as so modified, is in full force and effect) and the
date to which the rent and other charges are paid in advance, if any, and (ii)
acknowledging that there are to, to Lessee's knowledge, any uncured defaults on
the part of Lessor hereunder, or specifying such defaults if any are claimed.
Any such statement may be conclusively relied upon by any prospective purchaser
or encumbrancer of the Premises.
(b) At Lessor's opinion, Lessee's failure to deliver such
statement within such time shall be a material breach of this Lease or shall be
conclusive upon Lessee (i) that this Lease is in full force and effect, without
modification except as may be represented by Lessor, (ii) that there are no
uncured defaults in Lessor's performance, and (iii) that not more than one
month's rent has been paid in advance or such failure may be considered by
Lessor as a default by Lessee under this Lease.
(c) If Lessor desires to finance, refinance or sell the
Premises, or any part thereof, Lessee hereby agrees to deliver to any lender or
purchaser designated by Lessor such financial statements of Lessee as may be
reasonably required by such lender or purchaser. Such statements shall include
the past three years' financial statements of Lessee. All such financial
statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean only the
owner or owners at the time in question of the fee title or a Lessee's interest
in a ground lease of the Premises, and except as expressly provided in Paragraph
15, in the event of any transfer of such title or interest, Lessor herein named
(and in case of any subsequent transfers then the grantor) shall be relieved
form and after the date of such transfer of all liability as respects Lessor's
obligations thereafter to be performed, provided that any funds in the hands of
Lessor or the then grantor at the time of such transfer, in which Lessee has an
interest, shall be delivered to the grantee. The obligations contained in this
Lease to be performed by Lessor shall, subject as aforesaid, be binding on
Lessor's successors and assigns, only during their respective periods of
ownership.
18. SEVERABILITY. The invalidity of any provision of this Lease as determined by
a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein provided, any
amount due to Lessor not paid when due shall bear interest at the maximum rate
then allowable by law from the date due. Payment of such interest shall not
excuse or cure any default by Lessee under this Lease, provided, however, that
interest shall not be payable on late charges incurred by Lessee nor on any
amounts upon which late charges are paid by Lessee.
20. TIME OF ESSENCE. Time is of the essence.
21. ADDITIONAL RENT. Any monetary obligations of Lessee to Lessor under the
terms of this Lease shall be deemed to be rent.
22. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No prior
agreement or understanding pertaining to any such matter shall be effective.
This Lease may be modified in writing only, signed by the parties in interest at
the time of the modification. Except as otherwise stated in this Lease, Lessee
hereby acknowledges that neither the real estate broker listed in Paragraph 15
hereof nor any cooperating broker on this transaction nor the Lessor or any
employees or agents of any of said persons has made any oral or written
warranties or representations to Lessee relative to the condition or use by
Lessee of said Premises and Lessee acknowledges that Lessee assumes all
responsibility regarding the Occupational Safety Health Act, the legal use and
adaptability of the Premises and the compliance thereof with all applicable laws
and regulations in effect during the term of this lease except as otherwise
specifically stated in this Lease.
23. NOTICES. Any notice required or permitted to be given hereunder shall be in
writing and may be given by personal delivery or by certified mail, and if given
personally or by mail, shall be deemed sufficiently given if addressed to Lessee
or to Lessor at the address noted below the signature of the respective parties,
as the case may be. Either party may by notice to the other specify a different
address for notice purposes except that upon Lessee's taking possession of the
Premises, the Premises shall constitute Lessee's address for notice purposes. A
copy of all notices required or permitted to be given to Lessor hereunder shall
be concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate by notice to Lessee.
24. WAIVERS. No waiver by Lessor or any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provision. Lessor's consent to, or approval of, any act
shall not be deemed to render unnecessary the obtaining of Lessor's consent to
or approval of any subsequent act by Lessee. The acceptance of rent hereunder by
Lessor shall not be a waiver of any preceding breach by Lessee of any provision
hereof other than the failure of Lessee to pay the particular rent so accepted,
regardless of Lessor's knowledge of such preceding breach at the time of
acceptance of such rent.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a "short form" memorandum of this
Lease for recording purposes.
26. HOLDING OVER. If Lessee, with Lessor's consent, remains in possession of the
Premises or any part thereof after the expiration of the term hereof, such
occupancy shall be a tenancy from month to month upon all the provisions of this
Lease pertaining to the obligations of Lessee, but all options and rights of
first refusal, if any, granted under the terms of this Lease shall be deemed
terminated and be of no further effect during said month-to-month tenancy.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS. Each provision of this Lease performable by Lessee
shall be deemed both a covenant and a condition.
5.
<PAGE> 6
29. BINDING EFFECT; CHOICE OF LAW. Subject to any provisions hereof restricting
assignment or subletting by Lessee and subject to the provisions of Paragraph
17, this Lease shall bind the parties, their personal representatives,
successors and assigns. This Lease shall be governed by the laws of the State
wherein the Premises are located.
30. SUBORDINATION.
(a) This Lease, at Lessor's option, shall be subordinate to
any ground lease, mortgage, deed of trust, or any other hypothecation or
security now or hereafter placed upon the real property of which the Premises
are a part and to any and all advances made on the security thereof and to all
renewals, modifications, consolidations, replacements and extensions thereof.
Notwithstanding such subordination, Lessee's right to quiet possession of the
Premised shall not be disturbed if Lessee is not in default and so long as
Lessee shall pay the rent and observe and perform all of the provisions of this
Lease, unless this Lease is otherwise terminated pursuant to its terms. If any
mortgagee, trustee or ground lessor shall elect to have this Lease prior to the
lien of its mortgage, deed of trust or ground lease, and shall give written
notice thereof to Lessee, this Lease shall be deemed prior to such mortgage,
deed of trust, or ground lease, whether this Lease is dated prior or subsequent
to the date of said mortgage, deed of trust or ground lease or the date of
recording thereof.
(b) Lessee agrees to execute any documents required to
effectuate an attornment, a subordination or to make this Lese prior to the lien
of any mortgage, deed of trust or ground lease, as the case may be. Lessee's
failure to execute such documents within 10 days after written demand shall
constitute a material default by Lessee hereunder, or, at Lessor's option,
Lessor shall execute such documents on behalf of Lessee as Lessee's
attorney-in-fact. Lessee does hereby make, constitute and irrevocably appoint
Lessor as Lessee's attorney-in-fact and in Lessee's name, place and stead, to
execute such documents in accordance with this paragraph 30(b).
31. ATTORNEY'S FEES. If either party or the broker named herein brings an action
to enforce the terms hereof or declare rights hereunder, the prevailing party in
any such action, on trial or appeal, shall be entitled to his reasonable
attorney's fees to be paid by the losing party as fixed by the court. The
provisions of this paragraph shall inure to the benefit of the broker named
herein who seeks to enforce a right hereunder.
32. LESSOR'S ACCESS. Lessor and Lessor's agents shall have the right to enter
the Premises at reasonable times for the purpose of inspecting the same, showing
the same to prospective purchasers, lenders, or lessees, and making such
alterations, repairs, improvements or additions to the Premises or the building
of which they are a part as Lessor may deem necessary or desirable. Lessor may
at any time place on or about the Premises any ordinary "For Sale" signs and
Lessor may at any time during the last 120 days of the term hereof place on or
about the Premises any ordinary "For Lease" signs, all without rebate of rent or
liability to Lessee.
33. [Deleted]
34. SIGNS. Lessee shall not place any sign upon the Premises without Lessor's
prior written consent except that Lessee shall have the right, without the prior
permission of Lessor to place ordinary and usual for rent or sublet signs
thereon.
35. MERGER. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or at termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to Lessor
of any or all of such subtenancies
36. CONSENTS. Except for paragraph 33 hereof, wherever in this Lease the consent
of one party is required to an act of the other party such consent shall not be
unreasonably withheld.
37. GUARANTOR. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
38. QUIET POSSESSION. Upon Lessee paying the rent for the Premises and observing
and performing all of the covenants, conditions and provisions on Lessee's part
to be observed and performed hereunder, Lessee shall have quiet possession of
the Premises for the entire term hereof subject to all of the provisions of this
Lease. The individuals executing this Lease on behalf of Lessor represent and
warrant to Lessee that they are fully authorized and legally capable of
executing this Lease on behalf of Lessor and that such execution is binding upon
all parties holding an ownership interest in the Premises.
39. OPTIONS.
39.1 DEFINITION. As used in this paragraph the word "Options:" has the
following meaning: (1) the right or option to extend the term of this Lease or
to renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (2) the option or right of first refusal to lease the
Premises or the right of first offer to lease the Premises or the right of first
refusal to lease other property of Lessor or the right of first offer to lease
other property of Lessor; (3) the right or option to purchase the Premises, or
the right of first refusal to purchase the Premises, or the right of first offer
to purchase the Premises or the right or option to purchase other property of
Lessor, or the right of first refusal to purchase other property of Lessor or
the right of first offer to purchase other property of Lessor.
39.2 OPTIONS PERSONAL. Each Option granted to Lessee in this Lease are
personal to Lessee and may not be exercised or be assigned, voluntarily or
involuntarily, by or to any person or entity other than Lessee, provided,
however, the Option may be exercised by or assigned to any Lessee Affiliate as
defined in paragraph 12.2 of this Lease. The Options herein granted to Lessee
are not assignable separate and apart from this Lease.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple
options to extend or renew this Lease a later option cannot be exercised unless
the prior option to extend or renew this Lease has been so exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary, (i) during
the time commencing from the date Lessor gives to Lessee a notice of default
pursuant to paragraph 13.1(b) or 13.1(b) or 13.1(c) and continuing until the
default alleged in said notice of default is cured, or (ii) during the period of
time commencing on the day after a monetary obligation to Lessor is due from
Lessee and unpaid (without any necessity for notice thereof to Lessee)
continuing until the obligation is paid, or (iii) at any time after an event of
default described in paragraphs 13.1(a), 13.1(d), or 13.1(e) (without any
necessity of Lessor to give notice of such default to Lessee), or (iv) in the
event that Lessor has given to Lessee three or more notices of default under
paragraph 13.1(b), where a late charge has become payable under paragraph 13.4
for each of such defaults, or paragraph 13.1(c), whether or not the defaults are
cured, during the 12 month period prior to the time that Lessee intends to
exercise the subject Option.
(b) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability exercise an
Option because of the provisions of paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option
shall terminate and be of no further force or effect, notwithstanding Lessee's
due and timely exercise of the Option, if, after such exercise and during the
term of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of
Lessee for a period of 30 days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessee fails to
commence to cure a default specified in paragraph 13.1(c) within 30 days after
the date that Lessor gives notice to Lessee of such default and/or Lessee fails
thereafter to diligently prosecute said cure to completion, or (iii) Lessee
commits a default described in paragraph 13.1(a), 13.1(d) or 13.1(e) (without
any necessity of Lessor to give notice of such default to Lessee), or (iv)
Lessor gives to Lessee three or more notices of default under paragraph 13.1(b),
where a late charges becomes payable under paragraph 13.4 for each such default,
or paragraph 13.1(c), whether or not the defaults are cured.
40. MULTIPLE TENANT BUILDING. In the event that the Premises are part of a
larger building or group of buildings then Lessee agrees that it will abide by,
keep and observe all reasonable rules and regulations which Lessor may make from
time to time for the management, safety, care, and cleanliness of the building
and grounds, the parking of vehicles and the preservation of good order therein
as well as for the convenience of other occupants and tenants of the building.
The violations of any such rules and regulations shall be deemed a material
breach of this Lease by Lessee.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of Lessee, its agents and
invitees from acts of third parties.
42. EASEMENTS. Lessor reserves to itself the right, from time to time, to grant
such easements, rights and dedications that Lessor deems necessary or desirable,
and to cause the recordation of Parcel Maps and restrictions, so long as such
easements, rights, dedications, Maps and restrictions do not unreasonably
interfere with the use of the Premises by Lessee. Lessee shall sign any of the
aforementioned documents upon request of Lessor and failure to do so shall
constitute a material breach of this Lease.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one party to the other under the provisions
hereof, the party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment, and there shall survive the right on the part
of said party to institute suit for recovery of such sum. If it shall be
adjudged that there was no legal obligation on the party of said party to pay
such sum or any part thereof, said party shall be entitled to recover such sum
or so much thereof as it was not legally required to pay under the provisions of
this Lease.
<PAGE> 7
44. AUTHORITY. If Lessee is a corporation, trust, or general or limited
partnership, each individual executing this Lease on behalf of such entity
represents and warrants that he or she is duly authorized to execute and deliver
this Lease on behalf of said entity. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after execution of this
Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
45. CONFLICT. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. INSURING PARTY. The insuring party under this lease shall be the Lessee.
47. ADDENDUM. Attached hereto is an addendum or addenda containing paragraphs 48
through 50 which constitutes part of this Lease.
48. Lessee's base monthly rent shall be increased by three (3) percent annually
commencing with January 1, 1997 payment. The base year shall be January 1 1996 -
December 31, 1996.
49. Notwithstanding paragraph 7.1, supra, LESSEE shall have the total
responsibility for the maintenance and repair of all the buildings presently or
hereinafter located at the premises, and LESSEE shall have the duty to replace
the same in the event of the total destruction of said building(s).
50. Lessee is granted five (5) successive five (5) year options to renew "at the
then Market Rate." Said options shall be executed in writing 180 days prior to
the expiration of the term.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TEM AND
PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR
SUBMISSION TO YOUR ATTORNEY FOR HIS APPROVAL. NO
REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN
INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE
BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY,
LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE
TRANSACTION RELATING THERETO; THE PARTIES SHALL RELY SOLELY
UPON THE ADVICE OF THEIR OWN LEGAL COUNSEL AS TO THE LEGAL AND
TAX CONSEQUENCES OF THIS LEASE.
The parties hereto have executed this Lease at the place on the dates specified
immediately adjacent to their respective signatures.
<TABLE>
<S> <C>
Executed at San Francisco, California 111 Potrero Partners, LLC
-------------------------------- --------------------------------------------------
on January 1, 1996 By /s/ Irving Rabin
------------------------------------------ ------------------------------------------------
Address 220 San Bruno Avenue By
------------------------------------- ------------------------------------------------
San Francisco, CA 94103 "LESSOR" (Corporate Seal)
- - --------------------------------------------
Executed at San Francisco, California Butterfield & Butterfield
-------------------------------- --------------------------------------------------
on January 1, 1996 By /s/ Bernard A. Osher
------------------------------------------ ------------------------------------------------
Address 220 San Bruno Ave. By
------------------------------------- ------------------------------------------------
San Francisco, CA 94103 "LESSEE" (Corporate Seal)
- - --------------------------------------------
</TABLE>
For these forms write or call the American Industrial Real Estate Association,
350 South Figueroa St., Suite 275, Los Angeles, CA 90071 (213) 687-8777
<PAGE> 1
EXHIBIT 10.8
STANDARD INDUSTRIAL LEASE - SPECIAL NET
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. PARTIES. This Lease, dated, for reference purposes only, January 1, 1996, is
made by and between 111 Potrero Partners, LLC (herein called "Lessor") and
Butterfield & Butterfield Auctioneers, a California corporation (herein called
"Lessee").
2. PREMISES. Lessor hereby leases to Lessee and Lessee leases from Lessor for
the term, at the rental, and upon all of the conditions set forth herein, that
certain real property situated in the County of Los Angeles, State of
California, commonly known as 7601 Sunset Boulevard and described as Lots 69,
70, 71, 72, 89, 90 and the east 5' of Lot 88 of Tract 1416, City of Los Angeles
as recorded in book 18, page 117 of maps, and recorded easement appurtenant
thereto.
3. TERM.
3.1 TERM. The term of this Lease shall be for Ten (10) years commencing
on January 1, 1996 and ending on December 31, 2005, unless sooner terminated
pursuant to any provision hereof, with options set forth in Sec. 49, infra.
3.2 DELAY IN POSSESSION. Notwithstanding said commencement date, if for
any reason Lessor cannot deliver possession of the Premises to Lessee on said
date, Lessor shall not be subject to any liability therefor, nor shall such
failure affect the validity of this Lease or the obligations of Lessee hereunder
or extend the term hereof, but in such case, Lessee shall not be obligated to
pay rent until possession of the Premises is tendered to Lessee; provided,
however, that if Lessor shall not have delivered possession of the Premises
within sixty (60) days from said commencement date, Lessee may, at Lessee's
option, by notice in writing to Lessee within ten (10) days thereafter, cancel
this Lease, in which event the parties shall be discharged from all obligations
hereunder; provided further, however, that if such written notice of Lessee is
not received by Lessor within said ten (10) day period, Lessee's right to cancel
this Lease hereunder shall terminate and be of no further force or effect.
3.3 EARLY POSSESSION. If Lessee occupies the Premises prior to said
commencement date, such occupancy shall be subject to all provisions hereof,
such occupancy shall not advance the termination date, and Lessee shall pay rent
for such period at the initial monthly rates set forth below.
4. RENT: SPECIAL NET LEASE.
4.1 RENT. Lessee shall pay to Lessor as rent for the Premises, monthly
payments of $30,00.00, in advance, on the 1st day of each month of the term
hereof. Lessee shall pay Lessor upon the execution hereof $30,000.00 as rent for
January 1996 and each month thereafter, together with all additional rents or
payments due, pursuant to the terms of paragraph 4.2 and 10.1-10.2 and subject
to the annual adjustment set forth in paragraph 48 infra.
Rent for any period during the term hereof which is for less than one month
shall be a pro rata portion of the monthly installment. Rent shall be payable in
lawful money of the United States to Lessor at the address stated herein or to
such other persons or at such other places as Lessor may designate in writing.
4.2 SPECIAL NET LEASE. This Lease is what is commonly called a "Net,
Net, Net Lease", it being understood that the Lessor shall receive the rent set
forth in Paragraph 4.1 free and clear of any and all other impositions, taxes,
liens, charges or expenses of any nature whatsoever in connection with the
ownership and operation of the Premises. In addition to the rent reserved by
Paragraph 4.1, Lessee shall pay to the parties respectively entitled thereto all
impositions, insurance premiums, operating charges, maintenance charges,
construction costs, and any other charges, costs and expenses which arise or may
be contemplated under any provisions of this Lease during the term hereof. All
of such charges, costs and expenses shall constitute additional rent, and upon
the failure of Lessee to pay any of such costs, charges or expenses, Lessor
shall have the same rights and remedies as otherwise provided in this Lease for
the failure of Lessee to pay rent. It is the intention of the parties hereto
that this Lease shall not be terminable for any reason by the Lessee, and that
Lessee shall in no event be entitled to any abatement or of reduction in rent
payable under this Lease, except as herein expressly provided. Any present or
future law to the contrary shall not alter this agreement of the parties.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
$1.00 (only) as security for Lessee's faithful performance of Lessee's
obligations hereunder. If Lessee fails to pay rent or other charges due
hereunder, or otherwise defaults with respect to any provision of this Lease,
Lessor may use, apply or retain all or any portion of said deposit for the
payment of any rent or other charge in default or for the payment of any other
sum to which Lessor may become obligated by reason of Lessee's default, or to
compensate Lessor for any loss or damage which Lessor may suffer thereby. If
Lessor so uses or applies all or any portion of said deposit, Lessee shall
within ten (10) days after written demand therefor deposit cash with Lessor in
an amount sufficient to restore said deposit to the full amount hereinabove
stated and Lessee's failure to do so shall be a material breath of this Lease.
If the monthly rent shall, from time to time, increase during the term of this
Lease, Lessee shall thereupon deposit with Lessor additional security deposit so
that the amount of security deposit held by Lessor shall at all times bear the
same proportion to current rent as the original security deposit bears to the
original monthly rent set forth in paragraph 4 hereof. Lessor shall not be
required to keep said deposit separate from its general accounts. If Lessee
performs all of Lessee's obligations hereunder, said deposit, or so much thereof
as has not theretofore been applied by Lessor, shall be returned, without
payment of interest or other increment for its use, to Lessee (or, at Lessor's
option, to the last assignee, if any, of Lessee's interest hereunder) at the
expiration of the term hereof, and after Lessee has vacated the Premises. No
trust relationship is created herein between Lessor and Lessee with respect to
said Security Deposit.
6. USE.
6.1 USE. The Premises shall be used and occupied only for the storage,
display and sale of merchandise at public auction or any other use which is
reasonably comparable and for no other purpose.
6.2 COMPLIANCE WITH LAW.
(a) Lessor warrants to Lessee that the Premises, in its state
existing on the date that the Lease term commences, but without regard to the
use for which Lessee will use the Premises, does not violate any covenants or
restrictions of record, or any applicable building code, regulation or ordinance
in effect on such Lease term commencement date. In the event it is determined
that this warranty has been violated, then it shall be the obligation of the
Lessor, after written notice from Lessee, to promptly, at Lessor's sole cost and
expense, rectify any such violation. In the event Lessee does not give to Lessor
written notice of the violation of this warranty within six months from the date
that the Lease term commences, the correction of same shall be the obligation of
the Lessee at Lessee's sole cost. The warranty contained in this paragraph
6.2(a) shall be of no force or effect if, prior to the date of this Lease,
Lessee was the owner or occupant of the Premises, and, in such event, Lessee
shall correct any such violation at Lessee's sole cost.
(b) Except as provided in paragraph 6.2(a), Lessee shall, at Lessee's
expense, comply promptly with all applicable statutes, ordinances, rules,
regulations, orders, covenants and restrictions of record, and requirements in
effect during the term or any part of the term hereof, regulating the use by
Lessee of the Premises. Lessee shall not use or permit the use of the Premises
in any manner that will tend to create waste or a nuisance or, if there shall be
more than one tenant in the building containing the Premises, shall tend to
disturb such other tenants.
6.3 CONDITION OF PREMISES.
(a) Lessor shall deliver the Premises to Lessee clean and free of
debris on Lease commencement date (unless Lessee is already in possession) and
Lessor further warrants to Lessee that the plumbing, lighting, air conditioning,
heating, and loading doors in the Premises shall be in good operating condition
on the Lease commencement date. In the event that it is determined that this
warranty has been violated, then it shall be the obligation of Lessor, after
receipt of written notice from Lessee setting forth with specificity the nature
of the violation, to promptly, at Lessor's sole cost, rectify such violation.
Lessee's failure to give such written notice to Lessor within thirty (30) days
after the Lease commencement date shall cause the conclusive presumption that
Lessor has complied with all of Lessor's obligations hereunder. The warranty
contained in this paragraph 6.3(a) shall be of no force or effect if prior to
the date of this Lease, Lessee was the owner or occupant of the Premises.
(b) Except as otherwise provided in this Lease, Lessee hereby accepts
the Premises in their condition existing as of the Lease commencement date or
the date that Lessee takes possession of the Premises, whichever is earlier,
subject to all applicable zoning, municipal, county and state laws, ordinances
and regulations governing and regulating the use of the Premises, and any
covenants or restrictions of record, and accepts this Lease subject thereto and
to all matters disclosed thereby and by any exhibits attached hereto. Lessee
acknowledges that neither Lessor nor Lessor's agent has made any representation
or warranty as to the present or future suitability of the Premises for the
conduct of Lessee's business.
SPECIAL NET
(This is a special form containing unique provisions and should
only be used in special situations where the LESSEE will pay rent
under all circumstances and in the event of destruction the
LESSEE will rebuild under all circumstances.)
1.
<PAGE> 2
7. MAINTENANCE, REPAIRS AND ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS. Lessee shall keep in good order, condition
and repair the Premises and every part thereof, structural and nonstructural,
(whether or not such portion of the Premises requiring repair, or the means of
repairing the same are reasonably or readily accessible to Lessee, and whether
or not the need for such repairs occurs as a result of Lessee's use, any prior
use, the elements or the age of such portion of the Premises) including, without
limiting the generality of the foregoing, all plumbing, heating, air
conditioning, (Lessee shall procure and maintain, at Lessee's expense, an air
conditioning system maintenance contract) ventilating, electrical, lighting
facilities and equipment within the Premises, fixtures, walls (interior and
exterior), foundations, ceilings, roofs (inferior and exterior), floors,
windows, doors, plate glass and skylights located within the Premises, and all
landscaping, driveways, parking lots, fences and signs located on the Premises
and sidewalks and parkways adjacent to the Premises.
7.2 SURRENDER. On the last day of the term hereof, or on any sooner
termination, Lessee shall surrender the Premises to Lessor in the same condition
as when received, ordinary wear and tear excepted, clean and free of debris.
Lessee shall repair any damage to the Premises occasioned by the installation or
removal of Lessee's trade fixtures, furnishings and equipment. Notwithstanding
anything to the contrary otherwise stated in this Lease, Lessee shall leave the
air lines, power panels, electrical distribution systems, lighting fixtures,
space heaters, air conditioning, plumbing and fencing on the premises in good
operating condition.
7.3 LESSOR'S RIGHTS. If Lessee fails to perform Lessee's obligations
under this Paragraph 7, or under any other paragraph of this Lease, Lessor may
at its option (but shall not be required to) enter upon the Premises after then
(10) days' prior written notice to Lessee (except in the case of an emergency,
in which case no notice shall be required), perform such obligations on Lessee's
behalf and put the same in good order, condition and repair, and the cost
thereof together with interest thereon at the maximum rate than allowable by law
shall become due and payable as additional rental to Lessor together with
Lessee's next rental installment.
7.4 LESSOR'S OBLIGATIONS. Except for the obligations of Lessor under
Paragraph 6.2(a) and 6.3(a) (relating to Lessor's warrant), Paragraph 9
(relating to destruction of the Premises) and under Paragraph 14 (relating to
condemnation of the Premises), it is intended by the parties hereto that Lessor
have no obligation, in any manner whatsoever, to repair and maintain the
Premises not the building located thereon nor the equipment therein, whether
structural or non structural, all of which obligations are intended to be that
of the Lessee under Paragraph 7.1 hereof. Lessee expressly waives the benefit of
any statute now or hereinafter in effect which would otherwise afford Lessee the
right to make repairs at Lessor's expense or to terminate this Lease because of
Lessor's failure to keep the premises in good order, condition and repair.
7.5 ALTERATIONS AND ADDITIONS.
(a) Lessee shall not, without Lessor's prior written consent
make any alterations, improvements, additions, or Utility Installations in, on
or about the Premises, except for nonstructural alterations not exceeding $2,500
in cumulative costs during the term of this Lease. In any event, whether or not
in excess of $2,500 in cumulative cost, Lessee shall make no change or
alteration to the exterior of the Premises nor the exterior of the building(s)
on the Premises without Lessor's prior written consent. As used in this
Paragraph 7.5 the term "Utility Installation" shall mean carpeting, window
coverings, air lines, power panels, electrical distribution systems, lighting
fixtures, space heaters, air conditioning, plumbing, and fencing. Lessor may
require that Lessee remove any or all of said alterations, improvements,
additions or Utility Installations at the expiration of the term, and restore
the Premises to their prior condition. Lessor may require Lessee to provide
Lessor, at Lessee's sole cost and expense, a line and completion bond in an
amount equal to one and one-half times the estimated cost of such improvements,
to insure Lessor against any liability for mechanic's and materialmen's liens
and to insure completion of the work. Should Lessee make any alterations,
improvements, additions or Utility Installations without the prior approval of
Lessor, Lessor may require that Lessee remove any or all of the same.
(b) Any alterations, improvements, additions or Utility
Installations in, or about the Premises that Lessee shall desire to make and
which requires the consent of the Lessor shall be presented to Lessor in written
form, with proposed detailed plans. If Lessor shall give its consent, the
consent shall be deemed conditioned upon Lessee acquiring a permit to do so from
appropriate governmental agencies, the furnishing of a copy thereof to Lessor
prior to the commencement of the work and the compliance by Lessee of all
conditions of said permit in a prompt and expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or
materials furnished or alleged to have been furnished to or for Lessee at or for
use in the Premises, which claims are or may be secured by any mechanics' or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in the Premises, and Lessor shall have the right to post notices of
non-responsibility in or on the Premises as provided by law. If Lessee shall, in
good faith, contest the validity of any such lien, claim or demand, then Lessee
shall, at its sole expense defend itself and Lessor against the same and shall
pay and satisfy any such adverse judgment that may be rendered thereon before
the enforcement thereof against the Lessor or the Premises, upon the condition
that if Lessor shall require, Lessee shall furnish to Lessor a surety bond
satisfactory to Lessor in an amount equal to such contested lien claim or demand
indemnifying Lessor against liability for the same and holding the Premises free
from the effect of such lien or claim. In addition, Lessor may require Lessee to
pay Lessor's attorneys fees and costs in participating in such action if Lessor
shall decide it is to its best interest to do so.
(d) Unless Lessor requires their removal, as set forth in
Paragraph 7.5(a), all alterations, improvements, additions and Utility
Installations (whether or not such Utility Installations constitute trade
fixtures of Lessee), which may be made on the Premises, hall become the property
of Lessor and remain upon and be surrendered with the Premises at the expiration
of the term. Notwithstanding the provisions of this Paragraph 7.5(d), Lessee's
machinery and equipment, other than that which is affixed to the Premises so
that it cannot be removed without material damage to the Premises, shall remain
the property of Lessee and may be removed by Lessee subject to the provisions of
Paragraph 7.2.
8. INSURANCE INDEMNITY.
8.1 INSURING PARTY. As used in this Paragraph 8, the term "insuring
party" shall mean the party who has the obligation to obtain the Property
Insurance required hereunder. The insuring party shall be designated in
Paragraph 46 hereof. In the event Lessor is the insuring party, Lessor shall
also maintain the liability insurance described in paragraph 8.2 hereof, in
addition to, and not in lieu of, the insurance required to be maintained by
Lessee under said paragraph 8.2, but Lessor shall not be required to name Lessee
as an additional insured on such policy. Whether the insuring party is the
Lessor or the Lessee, Lessee shall, as additional rent for the Premises, pay the
cost of all insurance required hereunder, except for that portion of the cost
attributable to Lessor's liability insurance coverage in excess of $1,000,000
per occurrence. If Lessor is the insuring party Lessee shall, within ten (10)
days following demand by Lessor, reimburse Lessor for the cost of the insurance
so obtained.
8.2 LIABILITY INSURANCE. Lessee shall, at Lessee's expense obtain and
keep in force during the term of this Lease a policy of Combined Single Limit,
Bodily Injury and Property Damage insurance insuring Lessor and Lessee against
any liability arising out of the ownership, use, occupancy or maintenance of the
Premises and all areas appurtenant thereto. Such insurance shall be a combined
single limit policy in an amount not less than $2,000,000 per occurrence. The
policy shall insure performance by Lessee of the indemnity provisions of this
Paragraph 8. The limits of said insurance shall not, however, limit the
liability of Lessee hereunder.
8.3 PROPERTY INSURANCE.
(a) The insuring party shall obtain and keep in force during
the term of this Lease a policy or policies of insurance covering loss or damage
to the Premises, in the amount of the full replacement value thereof, as the
same may exist from time to time, which replacement value is now $6,000,000, but
in no event less than the total amount required by lenders having liens on the
Premises, against all perils included within the classification of fire,
extended coverage, vandalism, malicious mischief, flood (in the event same is
required by a lender having a lien on the Premises), and special extended perils
("all risk" as such term is used in the insurance industry). Said insurance
shall provide for payment of loss thereunder to Lessor or to the holders of
mortgages or deeds of trust on the Premises. The insuring party shall, in
addition, obtain and keep in force during the term of this Lease a policy of
rental value insurance covering a period of one year, with loss payable to
Lessee, which insurance shall also cover all real estate taxes and insurance
costs for said period. A stipulated value or agreed amount endorsement deleting
the coinsurance provision of the policy shall be procured with said insurance as
well as an automatic increase in insurance endorsement causing the increase in
annual property insurance coverage by 2% per quarter. If the insuring party
shall fail to procure and maintain said insurance, the other party may, but
shall not be required to, procure and maintain the same, but at the expense of
Lessee. If such insurance coverage has a deductible clause, the deductible
amount shall not exceed $1,000 per occurrence, and Lessee shall be liable for
such deductible amount.
(b) If the Premises are part of a larger building, or if the
Premises are part of a group of buildings owned by Lessor which are adjacent to
the Premises, then Lessee shall pay for any increase in the property insurance
of such other building or buildings if said increase is caused by Lessee's acts,
omissions, use or occupancy of the Premises.
(c) If the Lessor is the insuring party the Lessor will not
insure Lessee's fixtures, equipment or tenant improvements unless the tenant
improvements have become a part of the Premises under paragraph 7, hereof. But
if Lessee is the insuring party the Lessee shall insure its fixtures, equipment
and tenant improvements.
2.
<PAGE> 3
8.4 INSURANCE POLICIES. Insurance required hereunder shall be in
companies holding a "General Policyholders Rating" of at least B plus, or such
other rating as may be required by a lender having a line on the Premises, as
set forth in the most current issue of "Best's Insurance Guide." The insuring
party shall deliver to the other party copies of policies of such insurance or
certificates evidencing the existence and amounts of such insurance with loss
payable clauses as required by this paragraph 8. No such policy shall be
cancelable or subject to reduction of coverage or other modification except
after thirty (30) days' prior written notice to Lessor. If Lessee is the
insuring party Lessee shall, at least thirty (30) days prior to the expiration
of such policies, furnish Lessor with renewals or "binders" thereof, or Lessor
may order such insurance and charge the cost thereof to Lessee, which amount
shall be payable by Lessee upon demand. Lessee shall not do or permit to be done
anything which shall invalidate the insurance policies referred to in Paragraph
8.3, then Lessee shall forthwith upon Lessor's demand reimburse Lessor for any
additional premiums attributable to any act or omission or operation of Lessee
causing such increase in the cost of insurance. If Lessor is the insuring party,
and if the insurance policies maintained hereunder cover other improvements in
addition to the Premises, Lessor shall deliver to Lessee a written statement
setting forth the amount of any such insurance cost increase and showing in
reasonable detail the manner in which it has been computed.
8.5 WAIVER OF SUBROGATION. Lessee and Lessor each hereby release and
relieve the other, and waive their entire right of recovery against the other
for loss or damage arising out of or incident to the perils insured against
under paragraph 8.3, which perils occur in, on or about the Premises, whether
due to the negligence of Lessor or Lessee or their agents, employees,
contractors and/or invitees. Lessee and Lessor shall, upon obtaining the
policies of insurance required hereunder, give notice to the insurance carrier
or carriers that the foregoing mutual waiver of subrogation is contained in this
Lease.
8.6 INDEMNITY. Lessee shall indemnify and hold harmless Lessor from and
against any and all claims arising from Lessee's use of the Premises, or from
the conduct of Lessee's business or from any activity, work or things done,
permitted or suffered by Lessee in or about the Premises or elsewhere and shall
further indemnify and hold harmless Lessor from and against any and all claims
arising from any breach or default in the performance of any obligation on
Lessee's part to be performed under the terms of this Lease, or arising from any
negligence of the Lessee, or any of Lessee's agents, contractors, or employees,
and from and against all costs, attorneys' fees, expenses and liabilities
incurred in the defense of any such claim or any action or proceeding brought
thereon; and in case any action or proceeding be brought against Lessor by
reason of any such claim, Lessee upon notice from Lessor shall defend the same
at Lessee's expense by counsel satisfactory to Lessor. Lessee, as a material
part of the consideration to Lessor, hereby assumes all risk of damage to
property or injury to persons, in, upon or about the Premises arising from any
cause and Lessee hereby waives all claims in respect thereof against Lessor.
8.7 EXEMPTION OF LESSOR FROM LIABILITY. Lessee hereby agrees that
Lessor shall not be liable for injury to Lessee's business or any loss of income
therefrom or for damage to the goods, wares, merchandise or other property of
Lessee, Lessee's employees, invitees, customers, or any other person in or about
the Premises, nor shall Lessor be liable for injury to the person of Lessee,
Lessee's employees, agents or contractors, whether such damage or injury is
caused by or results from fire, steam, electricity, gas, water or rain, or from
the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether the said damage or injury results from conditions arising upon
the Premises or upon other portions of the building of which the Premises are a
part, or from other sources or places and regardless of whether the cause of
such damage or injury or the means of repairing the same is inaccessible to
Lessee. Lessor shall not be liable for any damages arising from any act or
neglect of any other tenant, if any, of the building in which the Premises are
located.
9. DAMAGE, DESTRUCTION, OBLIGATION TO REBUILD, RENT ABATEMENT.
9.1 OBLIGATION TO REBUILD. In the event that some or all of the
improvements constituting a part of the Premises or the Premises itself are
damaged or destroyed, partially or totally from any cause whatsoever, whether or
not such damage or destruction is covered by any insurance required to be
maintained under Paragraph 8.3 hereof, then Lessee shall repair, restore and
rebuild the Premises to its condition existing immediately prior to such damage
or destruction and this Lease shall remain in full force and effect. Such
repair, restoration and rebuilding (all of which are herein called "repair")
shall be commenced within a reasonable time after such damage or destruction has
occurred and shall be diligently pursued to completion.
9.2 INSURANCE PROCEEDS. The proceeds of any insurance maintained under
Paragraph 8.3 hereof shall be made available to Lessee for payment of costs and
expense of repair, provided however, that such proceeds may be made available to
Lessee subject to reasonable conditions, including, but not limited to
architect's certification of cost, retention of percentage of such proceeds
pending recordation of a notice of completion and a lien and completion bond to
insure against mechanic's or materialmen's liens arising out of the repair and
to insure completion of the repair, all at the expense of Lessee. In the event
the insurance proceeds are insufficient to cover the cost of repair, then any
amounts required over the amount of the insurance proceeds received that are
required to complete said repair shall be paid by Lessee. In the event the
insurance proceeds are not made available to Lessee within 120 days after such
damage or destruction, unless the amount of insurance coverage is in dispute
with the insurance carrier, Lessee shall have the option for 30 days commencing
on the expiration of such 120 day period, of canceling this Lease. If Lessee
shall exercise such option, Lessee shall have no further obligation hereunder
and shall have no claim against Lessor. Lessee, in order to exercise said
option, shall exercise said option by giving written notice to Lessor within
said 30 day period, time being of the essence.
9.3 DAMAGE NEAR END OF TERM.
(a) If the Premises are damaged or destroyed, either partially
or totally, during the last six months of the term of this Lease, Lessor may at
Lessor's option cancel and terminate this Lease as of the date of occurrence of
such damage by giving written notice to Lessee of Lessor's election to do so
within 30 days after the date of occurrence of such damage.
(b) Notwithstanding paragraph 9.3(a) to the contrary, in the
event that Lessee has an option to extend or renew this Lease, and the time
within which said option may be exercised has not yet expired, Lessee shall
exercise such option, if it is to be exercised at all, no later than 20 days
after damage or destruction to the Premises, either total or partial occurring
during the last six months of the term of this Lease, which damage or
destruction is covered by insurance required to be maintained under paragraph 8.
If Lessee duly exercises such option during said 20 day period, Lessee shall, in
accordance with paragraph 9.2, at Lessee's expense, repair such damage as soon
as reasonably possible and this Lese shall continue in full force and effect. If
Lessee fails to exercise such option during said 20 day period, then Lessor may
at Lessor's option terminate and cancel this Lease as of the expiration of said
20 day period by giving written notice to Lessee of Lessor's election to do so
within 10 days after the expiration of said 20 day period, notwithstanding any
term or provision in the grant of option to the contrary.
9.4 ABATEMENT OF RENT. Notwithstanding the partial or total destruction
of the Premises and any part thereof, and notwithstanding whether the casualty
is insured or not, there shall be no abatement of rent or of any other
obligation of Lessee hereunder by reason of such damage or destruction unless
the Lease is terminated by virtue of any other provision of this Lease.
9.5 TERMINATION - ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this Paragraph 9, an equitable adjustment shall be made concerning
advance rent and any advance payments made by Lessee to Lessor. Lessor shall, in
addition, return to Lessee so much of Lessee's security deposit as has not
theretofore been applied by Lessor.
9.6 WAIVER. Lessee waives the provision of any statutes which relate to
termination of leases when the thing leased is destroyed and agrees that such
event shall be governed by the terms of this Lease.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. Lessee shall pay the real property tax, as
defined in paragraph 10.2, applicable to the Premises during the term of this
Lease. All such payments shall be made at least ten (10) days prior to the
delinquency date of such payment. Lessee shall promptly furnish Lessor with
satisfactory evidence that such taxes have been paid. If any such taxes paid by
Lessee shall cover any period of time prior to or after the expiration of the
term hereof, Lessee's share of such taxes shall be equitably prorated to cover
only the period of time within the tax fiscal year during which this Lease shall
be in effect, and Lessor shall reimburse Lessee to the extent required. If
Lessee shall fail to pay any such taxes, Lessor shall have the right to pay the
same, in which case Lessee shall repay such amount to Lessor with Lessee's next
rent installment together with interest at the maximum rate then allowable by
law.
10.2 DEFINITION OF "REAL PROPERTY TAX." As used herein, the term "real
property tax" shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed on the Premises by any authority having the direct or
indirect power to tax, including any city, state or federal government, or any
school, agricultural, sanitary, fire, street, drainage or other improvement
district thereof, as against any legal or equitable interest of Lessor in the
Premises or in the real property of which the Premises are a part, as against
Lessor's right to rent or other income therefrom, and as against Lessor's
business of leasing the Premises. The term "real property tax" shall also
include any tax, fee, levy, assessment or charge (i) in substitution of,
partially or totally, any tax, fee, levy, assessment or charge hereinabove,
included within the definition of "real property tax," or (ii) the nature of
which was hereinbefore included within the definition of "real property tax," or
(iii) which is imposed for a service or right not charged prior to June 1, 1978,
or, if previously charged, has been increased since June 1, 1978, or (iv) which
is imposed as a result of a transfer, either partial or total, of Lessor's
interest in the Premises or which is added to a tax or charge hereinbefore
included within the definition of real property tax by reason of such transfer,
or (v) which is imposed by reason of this transaction, any modifications or
changes hereto, or any transfers hereof.
3.
<PAGE> 4
10.3 JOINT ASSESSMENT. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the real property taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be determined by Lessor from the respective valuations
assigned in the assessor's work sheets or such other information as may be
reasonably available. Lessor's reasonable determination thereof, in good faith,
shall be conclusive.
10.4 PERSONAL PROPERTY TAXES.
(a) Lessee shall pay prior to delinquency all taxes assessed
against and levied upon trade fixtures, furnishings, equipment and all other
personal property of Lessee contained in the Premises or elsewhere. When
possible, Lessee shall cause said trade fixtures, furnishings, equipment and all
other personal property to be assessed and billed separately from the real
property of Lessor.
(b) If any of Lessee's said personal property shall be
assessed with Lessor's real property, Lessee shall pay Lessor the taxes
attributable to Lessee within 10 days after receipt of a written statement
setting forth the taxes applicable to Lessee's property.
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone and other utilities and services supplied to the Premises, together
with any taxes thereon. If any such services are not separately metered to
Lessee, Lessee shall pay a reasonable proportion to be determined by Lessor of
all charges jointly metered with other premises.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED. Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Lessee's interest in this Lease or in the Premises,
without Lessor's prior written consent, which Lessor shall not unreasonably
withhold. Lessor shall respond to Lessee's request for consent hereunder in a
timely manner and any attempted assignment, transfer, mortgage, encumbrance or
subletting without such consent shall be void, and shall constitute a breach of
this Lease.
12.2 LESSEE AFFILIATE. Notwithstanding the provisions of paragraph 12.1
hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which controls, is controlled by or
is under common control with Lessee, or to any corporation resulting from the
merger or consolidation with Lessee, or to any person or entity which acquires
all the assets of Lessee as a going concern of the business that is being
conducted on the Premises, provided that said assignee assumes, in full, the
obligations of Lessee under this Lease. Any such assignment shall not, in any
way, affect or limit the liability of Lessee under the terms of this Lease even
if after such assignment or subletting the terms of this Lease are materially
changed or altered without the consent of Lessee, the consent of whom shall not
be necessary.
12.3 NO RELEASE OF LESSEE. Regardless of Lessor's consent, no
subletting or assignment shall release Lessee of Lessee's obligations or alter
the primary liability of Lessee to pay the rent and to perform all other
obligations to be performed by Lessee hereunder. The acceptance of rent by
Lessor from any other person shall not be deemed to be a waiver by Lessor of any
provision hereof. Consent to one assignment or subletting shall not be deemed
consent to any subsequent assignment or subletting. In the event of default by
any assignee of Lessee or any successor of Lessee, in the performance of any of
the terms hereof, Lessor may proceed directly against Lessee without the
necessity of exhausting remedies against said assignee. Lessor may consent to
subsequent assignments or subletting of this Lease or amendments or
modifications to this Lease with assignees of Lessee, without notifying Lessee,
or any successor of Lessee, and without obtaining its or their consent thereto
and such action shall not relieve Lessee of liability under this Lease.
12.4 ATTORNEY'S FEES. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting of if
Lessee shall request the consent of Lessor for any act Lessee proposes to do
then Lessee shall pay Lessor's reasonable attorney's fees incurred in connection
therewith, such attorney's fees not to exceed $350.0 for reach such request.
13. DEFAULTS; REMEDIES.
13.1 DEFAULTS. The occurrence of any one or more of the following
events shall constitute a material default and breach of this Lease by Lessee:
(a) The vacating or abandonment of the Premises by Lessee.
(b) The failure by Lessee to make any payment of rent or any
other payment required to be made by Lessee hereunder, as and when due, where
such failure shall continue for a period of three days after written notice
thereof from Lessor to Lessee. In the event that Lessor serves Lessee with a
Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes
such Notice to Pay Rent or Quit shall also constitute the notice required by
this subparagraph.
(c) The failure by Lessee to observe or perform any of the
covenants, conditions or provisions of this Lease to be observed or performed by
Lessee, other than described in paragraph (b) above, where such failure shall
continue for a period of 30 days after written notice thereof from Lessor to
Lessee; provided, however, that if the nature of Lessee's default is such that
more than 30 days are reasonably required for its cure, then Lessee shall not be
deemed to be in default if Lessee commenced such cure within said 30-day period
and thereafter diligently prosecutes such cure to completion.
(d) (i) The making by Lessee of any general arrangement or
assignment for the benefit of creditors; (ii) Lessee becomes a "debtor" as
defined in 11 U.S.C. Section 101 or any successor statute thereto (unless, in
the case of a petition filed against Lessee, the same is dismissed within 60
days); (iii) the appointment of a trustee or receiver to take possession of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where possession is not restored to Lessee within 30
days; or (iv) the attachment, execution or other judicial seizure of
substantially all of Lessee's Assets located at the Premises or of Lessee's
interest in this Lease, where such seizure is not discharged within 30 days.
Provided, however, in the event that any provision of this paragraph 13.1(d) is
contrary to any applicable law, such provisions shall be of no force or effect.
(e) The discovery by Lessor that any financial statement given
to Lessor by Lessee, any assignee of Lessee, any subtenant of Lessee, any
successor in interest of Lessee or any guarantor of Lessee's obligation
hereunder, and any of them, was materially false.
13.2 REMEDIES. In the event of any such material default or breach by
Lessee, Lessor may at any time thereafter, with or without notice or demand and
without limiting Lessor in the exercise of any right or remedy which Lessor may
have by reason of such default or breach:
(a) Terminate Lessee's right to possession of the Premises by
any lawful means, in which case this Lease shall terminate and Lessee shall
immediately surrender possession of the Premises to Lessor. In such event Lessor
shall be entitled to recover from Lessee all damages incurred by Lessor by
reason of Lessee's default including, but not limited to, the cost of recovering
possession of the Premises; expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorney's fees, and any
real estate commission actually paid; the worth at the time of award by the
court having jurisdiction thereof of the amount by which the unpaid rent of the
balance of the term after the time of such award exceeds the amount of such
rental loss for the same period that Lessee proves could be reasonably avoided;
that portion of the leasing commission paid by Lessor pursuant to Paragraph 15
applicable to the unexpired term of this Lease.
(b) Maintain Lessee's right to possession in which case this
Lease shall continue in effect whether or not Lessee shall have abandoned the
Premises. In such event Lessor shall be entitled to enforce all of Lessor's
rights and remedies under this Lease, including the right to recover the rent as
it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to
Lessor under the laws or judicial decisions of the state wherein the Premises
are located. Unpaid installments of rent and other unpaid monetary obligations
of Lessee under the terms of this Lease shall bear interest from the date due at
the maximum rate then allowable by law.
13.3 DEFAULT BY LESSOR. Lessor shall not be in default unless Lessor
fails to perform obligations required of Lessor within a reasonable time, but in
no event later than thirty (30) day after written notice by Lessee to Lessor and
to the holder of any first mortgage or deed of trust covering the Premises whose
name and address shall have theretofore been furnished to Lessee in writing,
specifying wherein Lessor has failed to perform such obligation; provided,
however, that if the nature of Lessor's obligation is such that more than thirty
(30) days are required for performance then Lessor shall not be in default if
Lessor commences performance within such 30-day period and thereafter diligently
prosecutes the same to completion.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed on
Lessor by the terms of any mortgage or trust deed concerning the Premises.
Accordingly, if any installment of rent or any other sum due from Lessee shall
not be received by Lessor or Lessor's designee within ten (10) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to 6% of such overdue amount. The
parties hereby agree that such late charge represents a fair and reasonable
estimate of the costs Lessor will incur by reason of late payment by Lessee.
Acceptance of such late charge by Lessor shall in no event constitute a waiver
of Lessee's default with respect to such overdue amount, nor prevent Lessor from
exercising any of the other rights and remedies granted hereunder. In the event
that a late charge is payable hereunder, whether to not collected, for three (3)
consecutive installments of rent, then rent shall automatically become due and
payable quarterly in advance, rather than monthly, notwithstanding paragraph 4
or any other provision of this Lease to the contrary.
4.
<PAGE> 5
13.5 IMPOUNDS. In the event that a late charge is payable hereunder,
whether or not collected, for three (3) installments of rent or any other
monetary obligation of Lessee under the terms of this Lease, Lessee shall pay to
Lessor, if Lessor shall so request, in addition to any other payments required
under this Lease, a monthly advance installment, payable at the time same time
as the monthly rent, as estimated by Lessor, for real property tax and insurance
expenses on the Premises which are payable by Lessee under the terms of this
Lease. Such fund shall be established to insure payment when due, before
delinquency, of any or all such real property taxes and insurance premiums. If
the amounts paid to Lessor by Lessee under the provisions of this paragraph are
insufficient to discharge the obligations of Lessee to pay such real property
taxes and insurance premiums as the same become due, Lessee shall pay to Lessor,
upon Lessor's demand, such additional sums necessary to pay such obligations.
All moneys paid to Lessor under this paragraph may be intermingled with other
moneys of Lessor and shall not bear interest. In the event of a default in the
obligations of Lessee to perform under this Lease, then any balance remaining
from funds paid to Lessor under the provisions of this paragraph may, at the
option of Lessor, be applied to the payment of any monetary default of Lessee in
lieu of being applied to the payment of real property tax and insurance
premiums.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain, or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than 10% of the floor area of the
building on the remises, or more than 25% of the land area of the Premises which
is not occupied by any building, is taken by condemnation, Lessee may, at
Lessee's option, to e exercised in writing only within ten (10) days after
Lessor shall have given Lessee written notice of such taking (or in the absence
of such notice, within ten (10) days after the condemning authority shall have
taken possession) terminate this Lease as of the date the condemning authority
takes such possession. If Lessee does not terminate this Lease in accordance
with the foregoing, this Lease shall remain in full force and effect as to the
portion of the building situated on the Premises. No reduction of rent shall
occur if the only area taken is that which does not have a building located
thereon. Any award for the taking of all or any part of the Premises under the
power of eminent domain or any payment made under threat of the exercise of such
power shall be the property of Lessor, whether such award shall be made as
compensation for diminution in value of the leasehold or for the taking of the
fee, or as severance damages; provided, however, that Lessee shall be entitled
to any award for loss of or damage to Lessee's trade fixtures and removable
personal property. In the event that this Lease is not terminated by reason of
such condemnation, Lessor shall to the extent of severance damages received by
Lessor in connection with such condemnation, repair any damage to the Premises
caused by such condemnation except to the extent that Lessee has been reimbursed
therefor by the condemning authority. Lessee shall pay any amount in excess of
such severance damages required to complete such repair.
15. [DELETED]
16. ESTOPPEL CERTIFICATE.
(a) Lessee shall at any time upon not less than ten (10) days'
prior written notice from Lessor execute, acknowledge and deliver to Lessor a
statement in writing (i) certifying that this Lease is unmodified and in full
force and effect (or, if modified, stating the nature of such modification and
certifying that this Lease, as so modified, is in full force and effect) and the
date to which the rent and other charges are paid in advance, if any, and (ii)
acknowledging that there are to, to Lessee's knowledge, any uncured defaults on
the part of Lessor hereunder, or specifying such defaults if any are claimed.
Any such statement may be conclusively relied upon by any prospective purchaser
or encumbrancer of the Premises.
(b) At Lessor's opinion, Lessee's failure to deliver such
statement within such time shall be a material breach of this Lease or shall be
conclusive upon Lessee (i) that this Lease is in full force and effect, without
modification except as may be represented by Lessor, (ii) that there are no
uncured defaults in Lessor's performance, and (iii) that not more than one
month's rent has been paid in advance or such failure may be considered by
Lessor as a default by Lessee under this Lease.
(c) If Lessor desires to finance, refinance or sell the
Premises, or any part thereof, Lessee hereby agrees to deliver to any lender or
purchaser designated by Lessor such financial statements of Lessee as may be
reasonably required by such lender or purchaser. Such statements shall include
the past three years' financial statements of Lessee. All such financial
statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean only the
owner or owners at the time in question of the fee title or a Lessee's interest
in a ground lease of the Premises, and except as expressly provided in Paragraph
15, in the event of any transfer of such title or interest, Lessor herein named
(and in case of any subsequent transfers then the grantor) shall be relieved
form and after the date of such transfer of all liability as respects Lessor's
obligations thereafter to be performed, provided that any funds in the hands of
Lessor or the then grantor at the time of such transfer, in which Lessee has an
interest, shall be delivered to the grantee. The obligations contained in this
Lease to be performed by Lessor shall, subject as aforesaid, be binding on
Lessor's successors and assigns, only during their respective periods of
ownership.
18. SEVERABILITY. The invalidity of any provision of this Lease as determined by
a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein provided, any
amount due to Lessor not paid when due shall bear interest at the maximum rate
then allowable by law from the date due. Payment of such interest shall not
excuse or cure any default by Lessee under this Lease, provided, however, that
interest shall not be payable on late charges incurred by Lessee nor on any
amounts upon which late charges are paid by Lessee.
20. TIME OF ESSENCE. Time is of the essence.
21. ADDITIONAL RENT. Any monetary obligations of Lessee to Lessor under the
terms of this Lease shall be deemed to be rent.
22. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No prior
agreement or understanding pertaining to any such matter shall be effective.
This Lease may be modified in writing only, signed by the parties in interest at
the time of the modification. Except as otherwise stated in this Lease, Lessee
hereby acknowledges that neither the real estate broker listed in Paragraph 15
hereof nor any cooperating broker on this transaction nor the Lessor or any
employees or agents of any of said persons has made any oral or written
warranties or representations to Lessee relative to the condition or use by
Lessee of said Premises and Lessee acknowledges that Lessee assumes all
responsibility regarding the Occupational Safety Health Act, the legal use and
adaptability of the Premises and the compliance thereof with all applicable laws
and regulations in effect during the term of this lease except as otherwise
specifically stated in this Lease.
23. NOTICES. Any notice required or permitted to be given hereunder shall be in
writing and may be given by personal delivery or by certified mail, and if given
personally or by mail, shall be deemed sufficiently given if addressed to Lessee
or to Lessor at the address noted below the signature of the respective parties,
as the case may be. Either party may by notice to the other specify a different
address for notice purposes except that upon Lessee's taking possession of the
Premises, the Premises shall constitute Lessee's address for notice purposes. A
copy of all notices required or permitted to be given to Lessor hereunder shall
be concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate by notice to Lessee.
24. WAIVERS. No waiver by Lessor or any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provision. Lessor's consent to, or approval of, any act
shall not be deemed to render unnecessary the obtaining of Lessor's consent to
or approval of any subsequent act by Lessee. The acceptance of rent hereunder by
Lessor shall not be a waiver of any preceding breach by Lessee of any provision
hereof other than the failure of Lessee to pay the particular rent so accepted,
regardless of Lessor's knowledge of such preceding breach at the time of
acceptance of such rent.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a "short form" memorandum of this
Lease for recording purposes.
26. HOLDING OVER. If Lessee, with Lessor's consent, remains in possession of the
Premises or any part thereof after the expiration of the term hereof, such
occupancy shall be a tenancy from month to month upon all the provisions of this
Lease pertaining to the obligations of Lessee, but all options and rights of
first refusal, if any, granted under the terms of this Lease shall be deemed
terminated and be of no further effect during said month-to-month tenancy.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS. Each provision of this Lease performable by Lessee
shall be deemed both a covenant and a condition.
29. BINDING EFFECT; CHOICE OF LAW. Subject to any provisions hereof restricting
assignment or subletting by Lessee and subject to the provisions of Paragraph
17, this Lease shall bind the parties, their personal representatives,
successors and assigns. This Lease shall be governed by the laws of the State
wherein the Premises are located.
30. SUBORDINATION.
(a) This Lease, at Lessor's option, shall be subordinate to
any ground lease, mortgage, deed of trust, or any other hypothecation or
security now or hereafter placed upon the real property of which the Premises
are a part and to any and all advances made on the security thereof and to all
renewals, modifications, consolidations, replacements and extensions thereof.
Notwithstanding such
5.
<PAGE> 6
subordination, Lessee's right to quiet possession of the Premised shall not be
disturbed if Lessee is not in default and so long as Lessee shall pay the rent
and observe and perform all of the provisions of this Lease, unless this Lease
is otherwise terminated pursuant to its terms. If any mortgagee, trustee or
ground lessor shall elect to have this Lease prior to the lien of its mortgage,
deed of trust or ground lease, and shall give written notice thereof to Lessee,
this Lease shall be deemed prior to such mortgage, deed of trust, or ground
lease, whether this Lease is dated prior or subsequent to the date of said
mortgage, deed of trust or ground lease or the date of recording thereof.
(b) Lessee agrees to execute any documents required to
effectuate an attornment, a subordination or to make this Lese prior to the lien
of any mortgage, deed of trust or ground lease, as the case may be. Lessee's
failure to execute such documents within 10 days after written demand shall
constitute a material default by Lessee hereunder, or, at Lessor's option,
Lessor shall execute such documents on behalf of Lessee as Lessee's
attorney-in-fact. Lessee does hereby make, constitute and irrevocably appoint
Lessor as Lessee's attorney-in-fact and in Lessee's name, place and stead, to
execute such documents in accordance with this paragraph 30(b).
31. ATTORNEY'S FEES. If either party or the broker named herein brings an action
to enforce the terms hereof or declare rights hereunder, the prevailing party in
any such action, on trial or appeal, shall be entitled to his reasonable
attorney's fees to be paid by the losing party as fixed by the court. The
provisions of this paragraph shall inure to the benefit of the broker named
herein who seeks to enforce a right hereunder.
32. LESSOR'S ACCESS. Lessor and Lessor's agents shall have the right to enter
the Premises at reasonable times for the purpose of inspecting the same, showing
the same to prospective purchasers, lenders, or lessees, and making such
alterations, repairs, improvements or additions to the Premises or the building
of which they are a part as Lessor may deem necessary or desirable. Lessor may
at any time place on or about the Premises any ordinary "For Sale" signs and
Lessor may at any time during the last 120 days of the term hereof place on or
about the Premises any ordinary "For Lease" signs, all without rebate of rent or
liability to Lessee.
33. [DELETED]
34. SIGNS. Lessee shall not place any sign upon the Premises without Lessor's
prior written consent except that Lessee shall have the right, without the prior
permission of Lessor to place ordinary and usual for rent or sublet signs
thereon.
35. MERGER. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or at termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to Lessor
of any or all of such subtenancies
36. CONSENTS. Except for paragraph 33 hereof, wherever in this Lease the consent
of one party is required to an act of the other party such consent shall not be
unreasonably withheld.
37. GUARANTOR. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
38. QUIET POSSESSION. Upon Lessee paying the rent for the Premises and observing
and performing all of the covenants, conditions and provisions on Lessee's part
to be observed and performed hereunder, Lessee shall have quiet possession of
the Premises for the entire term hereof subject to all of the provisions of this
Lease. The individuals executing this Lease on behalf of Lessor represent and
warrant to Lessee that they are fully authorized and legally capable of
executing this Lease on behalf of Lessor and that such execution is binding upon
all parties holding an ownership interest in the Premises.
39. OPTIONS.
39.1 DEFINITION. As used in this paragraph the word "Options:" has the
following meaning: (1) the right or option to extend the term of this Lease or
to renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (2) the option or right of first refusal to lease the
Premises or the right of first offer to lease the Premises or the right of first
refusal to lease other property of Lessor or the right of first offer to lease
other property of Lessor; (3) the right or option to purchase the Premises, or
the right of first refusal to purchase the Premises, or the right of first offer
to purchase the Premises or the right or option to purchase other property of
Lessor, or the right of first refusal to purchase other property of Lessor or
the right of first offer to purchase other property of Lessor.
39.2 OPTIONS PERSONAL. Each Option granted to Lessee in this Lease are
personal to Lessee and may not be exercised or be assigned, voluntarily or
involuntarily, by or to any person or entity other than Lessee, provided,
however, the Option may be exercised by or assigned to any Lessee Affiliate as
defined in paragraph 12.2 of this Lease. The Options herein granted to Lessee
are not assignable separate and apart from this Lease.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple
options to extend or renew this Lease a later option cannot be exercised unless
the prior option to extend or renew this Lease has been so exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary, (i) during
the time commencing from the date Lessor gives to Lessee a notice of default
pursuant to paragraph 13.1(b) or 13.1(c) and continuing until the default
alleged in said notice of default is cured, or (ii) during the period of time
commencing on the day after a monetary obligation to Lessor is due from Lessee
and unpaid (without any necessity for notice thereof to Lessee) continuing until
the obligation is paid, or (iii) at any time after an event of default described
in paragraphs 13.1(a), 13.1(d), or 13.1(e) (without any necessity of Lessor to
give notice of such default to Lessee), or (iv) in the event that Lessor has
given to Lessee three or more notices of default under paragraph 13.1(b), where
a late charge has become payable under paragraph 13.4 for each of such defaults,
or paragraph 13.1(c), whether or not the defaults are cured, during the 12 month
period prior to the time that Lessee intends to exercise the subject Option.
(b) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability exercise an
Option because of the provisions of paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option
shall terminate and be of no further force or effect, notwithstanding Lessee's
due and timely exercise of the Option, if, after such exercise and during the
term of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of
Lessee for a period of 30 days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessee fails to
commence to cure a default specified in paragraph 13.1(c) within 30 days after
the date that Lessor gives notice to Lessee of such default and/or Lessee fails
thereafter to diligently prosecute said cure to completion, or (iii) Lessee
commits a default described in paragraph 13.1(a), 13.1(d) or 13.1(e) (without
any necessity of Lessor to give notice of such default to Lessee), or (iv)
Lessor gives to Lessee three or more notices of default under paragraph 13.1(b),
where a late charges becomes payable under paragraph 13.4 for each such default,
or paragraph 13.1(c), whether or not the defaults are cured.
40. MULTIPLE TENANT BUILDING. In the event that the Premises are part of a
larger building or group of buildings then Lessee agrees that it will abide by,
keep and observe all reasonable rules and regulations which Lessor may make from
time to time for the management, safety, care, and cleanliness of the building
and grounds, the parking of vehicles and the preservation of good order therein
as well as for the convenience of other occupants and tenants of the building.
The violations of any such rules and regulations shall be deemed a material
breach of this Lease by Lessee.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of Lessee, its agents and
invitees from acts of third parties.
42. EASEMENTS. Lessor reserves to itself the right, from time to time, to grant
such easements, rights and dedications that Lessor deems necessary or desirable,
and to cause the recordation of Parcel Maps and restrictions, so long as such
easements, rights, dedications, Maps and restrictions do not unreasonably
interfere with the use of the Premises by Lessee. Lessee shall sign any of the
aforementioned documents upon request of Lessor and failure to do so shall
constitute a material breach of this Lease.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one party to the other under the provisions
hereof, the party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment, and there shall survive the right on the part
of said party to institute suit for recovery of such sum. If it shall be
adjudged that there was no legal obligation on the party of said party to pay
such sum or any part thereof, said party shall be entitled to recover such sum
or so much thereof as it was not legally required to pay under the provisions of
this Lease.
44. AUTHORITY. If Lessee is a corporation, trust, or general or limited
partnership, each individual executing this Lease on behalf of such entity
represents and warrants that he or she is duly authorized to execute and deliver
this Lease on behalf of said entity. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after execution of this
Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
45. CONFLICT. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. INSURING PARTY. The insuring party under this lease shall be the Lessee.
47. ADDENDUM. Attached hereto is an addendum or addenda containing paragraphs 48
through 50 which constitutes part of this Lease.
6.
<PAGE> 7
48. Lessee's base monthly rent shall be increased by three (3) percent annually
commencing with January 1, 1997 payment. The base year shall be January 1 1996 -
December 31, 1996.
49. Lessee shall be granted five successive five year options to renew "at the
then market rate." Said option shall be executed in writing 180 days prior to
the expiration of the term.
50. Notwithstanding paragraph 7.1, supra, LESSEE shall have the total
responsibility for the maintenance and repair of all the buildings presently or
hereinafter located at the premises, and LESSEE shall have the duty to replace
the same in the event of the total destruction of said building(s).
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR
SUBMISSION TO YOUR ATTORNEY FOR HIS APPROVAL. NO
REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN
INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE
BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY,
LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE
TRANSACTION RELATING THERETO; THE PARTIES SHALL RELY SOLELY
UPON THE ADVICE OF THEIR OWN LEGAL COUNSEL AS TO THE LEGAL AND
TAX CONSEQUENCES OF THIS LEASE.
The parties hereto have executed this Lease at the place on the dates specified
immediately adjacent to their respective signatures.
<TABLE>
<S> <C>
Executed at San Francisco, California 111 Potrero Partners, LLC
-------------------------------- --------------------------------------------------
on January 1, 1996 By /s/ Irving Rabin
------------------------------------------ ------------------------------------------------
Address 220 San Bruno Avenue By
------------------------------------- ------------------------------------------------
San Francisco, CA 94103 "LESSOR" (Corporate Seal)
- - --------------------------------------------
Executed at San Francisco, California Butterfield & Butterfield, Auctioneers
-------------------------------- --------------------------------------------------
on January 1, 1996 By /s/ Bernard A. Osher
------------------------------------------ ------------------------------------------------
Address 220 San Bruno Ave. By
------------------------------------- ------------------------------------------------
San Francisco, CA 94103 "LESSEE" (Corporate Seal)
- - --------------------------------------------
</TABLE>
For these forms write or call the American Industrial Real Estate Association,
350 South Figueroa St., Suite 275, Los Angeles, CA 90071 (213) 687-8777
7.
<PAGE> 1
EXHIBIT 10.9
REVOLVING LINE OF CREDIT NOTE
$3,000,000.00 San Francisco, California
September 30, 1998
FOR VALUE RECEIVED, the undersigned BUTTERFIELD & BUTTERFIELD,
AUCTIONEERS CORP. ("Borrower") promises to pay to the order of WELLS FARGO BANK,
NATIONAL ASSOCIATION ("Bank") at its office at San Francisco RCBO, 420
Montgomery Street, 9th Fl., San Francisco, CA 94104, or at such other place as
the holder hereof may designate, in lawful money of the United States of America
and in immediately available funds, the principal sum of $3,000,000.00, or so
much thereof as may be advanced and be outstanding, with interest thereon, to be
computed on each advance from the date of its disbursement as set forth herein.
DEFINITIONS:
As used herein, the following terms shall have the meanings set forth
after each, and any other term defined in this Note shall have the meaning set
forth at the place defined:
(a) "Business Day" means any day except a Saturday, Sunday or any
other day on which commercial banks in California are authorized or required by
law to close.
(b) "Fixed Rate Term" means a period commencing on a Business Day
and continuing for 1, 2, 3, 6 or 12 months as designated by Borrower, during
which all or a portion of the outstanding principal balance of this Note bears
interest determined in relation to LIBOR; provided however, that no Fixed Rate
Term may be selected for a principal amount less than $100,000.00; and provided
further, that no Fixed Rate Term shall extend beyond the scheduled maturity date
hereof. If any Fixed Rate Term would end on a day which is not a Business Day,
then such Fixed Rate Term shall be extended to the next succeeding Business Day.
(c) "LIBOR" means the rate per annum (rounded upward, if necessary,
to the nearest whole 1/8 of 1%) and determined by dividing Base LIBOR by a
percentage equal to 100% less any LIBOR Reserve Percentage formula:
(i) "Base LIBOR" means the rate per annum for United States
dollar deposits quoted by Bank as the Inter-Bank Market Offered Rate, with the
understanding that such rate is quoted by Bank f or the purpose of calculating
effective rates of interest for loans making reference thereto, on the first day
of a Fixed Rate Term for delivery of funds on said date for a period of time
approximately equal to the number of days in such Fixed Rate Term and in an
amount approximately equal to the principal amount to which such Fixed Rate Term
applies. Borrower understands and agrees that Bank may base its quotation of the
Inter-Bank Market Offered Rate upon such offers or other market indicators of
the Inter-Bank Market as Bank in its
1.
<PAGE> 2
discretion deems appropriate including, but not limited to, the rate offered for
U.S. dollar deposits on the London Inter-Bank Market.
(ii) "LIBOR Reserve Percentage" means the reserve percentage
prescribed by the Board of Governors of the Federal Reserve System (or any
successor) for "Eurocurrency Liabilities" (as defined in Regulation D of the
Federal Reserve Board, as amended), adjusted by Bank for expected changes in
such reserve percentage during the applicable Fixed Rate Term.
(d) "Prime Rate" means at any time the rate of interest most
recently announced within Bank at its principal office as its Prime Rate, with
the understanding that the Prime Rate is one of Bank's base rates and serves as
the basis upon which effective rates of interest are calculated for those loans
making reference thereto, and is evidenced by the recording thereof after its
announcement in such internal publication or publications as Bank may designate.
INTEREST:
(a) Interest. The outstanding principal balance of this Note shall
bear interest (computed on the basis of a 360-day year, actual days elapsed)
either (i) at a fluctuating rate per annum .25000% below the Prime Rate in
effect from time to time, or (ii) at a fixed rate per annum determined by Bank
to be 2.00000% above LIBOR in effect on the first day of the applicable Fixed
Rate Term. When interest is determined in relation to the Prime Rate, each
change in the rate of interest hereunder shall become effective on the date each
Prime Rate change is announced within Bank. With respect to each LIBOR selection
hereunder, Bank is hereby authorized to note the date, principal amount,
interest rate and Fixed Rate Term applicable thereto and any payments made
thereon on Bank's books and records (either manually or by electronic entry)
and/or on any schedule attached to this Note, which notations shall be prima
facie evidence of the accuracy of the information noted.
(b) Selection of Interest Rate Options. At any time any portion of
this Note bears interest determined in relation to LIBOR, it may be continued by
Borrower at the end of the Fixed Rate Term applicable thereto so that all or a
portion thereof bears interest determined in relation to the Prime Rate or to
LIBOR for a new Fixed Rate Term designated by Borrower. At any time any portion
of this Note bears interest determined in relation to the Prime Rate, Borrower
may convert all or a portion thereof so that it bears interest determined in
relation to LIBOR for a Fixed Rate Term designated by Borrower. At such time as
Borrower requests an advance hereunder or wishes to select a LIBOR option for
all or a portion of the outstanding principal balance hereof, and at the end of
each Fixed Rate Term, Borrower shall give Bank notice specifying: (i) the
interest rate option selected by Borrower; (ii) the principal amount subject
thereto; and (iii) for each LIBOR selection, the length of the applicable Fixed
Rate Term. Any such notice may be given by telephone so long as, with respect to
each LIBOR selection, (A) Bank receives written confirmation from Borrower not
later than three (3) Business Days after such telephone notice is given, and (B)
such notice is given to Bank prior to 10:00 a.m., California time, on the first
day of the Fixed Rate Term. For each LIBOR option requested hereunder, Bank will
quote the applicable fixed rate to Borrower at approximately 10:00 a.m.,
California time, on the first day of the Fixed Rate Term. If Borrower does not
immediately accept the rate quoted by Bank, any subsequent acceptance by
Borrower shall be subject to a redetermination by Bank of the applicable fixed
rate; provided however, that if Borrower fails to
2.
<PAGE> 3
accept any such rate by 11:00 a.m., California time, on the Business Day such
quotation is given, then the quoted rate shall expire and Bank shall have no
obligation to permit a LIBOR option to be selected on such day. If no specific
designation of interest is made at the time any advance is requested hereunder
or at the end of any Fixed Rate Term, Borrower shall be deemed to have made a
Prime Rate interest selection for such advance or the principal amount to which
such Fixed Rate Term applied.
(c) Additional LIBOR Provisions.
(i) If Bank at any time shall determine that for any reason
adequate and reasonable means do not exist for ascertaining LIBOR, then Bank
shall promptly give notice thereof to Borrower. If such notice is given and
until such notice has been withdrawn by Bank, then (A) no new LIBOR option may
be selected by Borrower, and (B) any portion of the outstanding principal
balance hereof which bears interest determined in relation to LIBOR, subsequent
to the end of the Fixed Rate Term applicable thereto, shall bear interest
determined in relation to the Prime Rate.
(ii) If any law, treaty, rule, regulation or determination of a
court or governmental authority or any change therein or in the interpretation
or application thereof (each, a "Change in Law") shall make it unlawful for Bank
(A) to make LIBOR options available hereunder, or (B) to maintain interest rates
based on LIBOR, then in the former event, any obligation of Bank to make
available such unlawful LIBOR options shall immediately be cancelled, and in the
latter event, any such unlawful LIBOR-based interest rates then outstanding
shall be converted, at Bank's option, so that interest on the portion of the
outstanding principal balance subject thereto is determined in relation to the
Prime Rate; provided however, that if any such Change in Law shall permit any
LIBOR-based interest rates to remain in effect until the expiration of the Fixed
Rate Term applicable thereto, then such permitted LIBOR-based interest rates
shall continue in effect until the expiration of such Fixed Rate Term. Upon the
occurrence of any of the foregoing events, Borrower shall pay to Bank
immediately upon demand such amounts as may be necessary to compensate Bank for
any fines, fees, charges, penalties or other costs incurred or payable by Bank
as, a result thereof and which are attributable to any LIBOR options made
available to Borrower hereunder, and any reasonable allocation made by Bank
among its operations shall be conclusive and binding upon Borrower.
(iii) If any Change in Law or compliance by Bank with any
request or directive (whether or not having the force of law) from any central
bank or other governmental authority shall:
(A) subject Bank to any tax, duty or other charge with
respect to any LIBOR options, or change the basis of
taxation of payments to Bank of principal, interest,
fees or any other amount payable hereunder (except
for changes in the rate of tax on the overall net
income of Bank); or
(B) impose, modify or hold applicable any reserve,
special deposit, compulsory loan or similar
requirement against assets held by, deposits or other
liabilities in or for the account of, advances or
3.
<PAGE> 4
loans by, or any other acquisition of funds by any
office of Bank; or
(C) impose on Bank any other condition;
and the result of any of the foregoing is to increase the cost to Bank of
making, renewing or maintaining any LIBOR options hereunder and/or to reduce any
amount receivable by Bank in connection therewith, then in any such case,
Borrower shall pay to Bank immediately upon demand such amounts as may be
necessary to compensate Bank for any additional costs incurred by Bank and/or
reductions in amounts received by Bank which are attributable to such LIBOR
options. In determining which costs incurred by Bank and/or reductions in
amounts received by Bank are attributable to any LIBOR options made available to
Borrower hereunder, any reasonable allocation made by Bank among its operations
shall be conclusive and binding upon Borrower.
(d) Payment of Interest. Interest accrued on this Note shall be
payable on the 1st day of each month, commencing October 1, 1998.
(e) Default Interest. From and after the maturity date of this Note,
or such earlier date as all principal owing hereunder becomes due and payable by
acceleration or otherwise, the outstanding principal balance of this Note shall
bear interest until paid in full at an increased rate per annum (computed on the
basis of a 360-day year, actual days elapsed) equal to four percent (4%) above
the rate of interest from time to time applicable to this Note.
BORROWING AND REPAYMENT:
(f) Borrowing and Repayment. Borrower may from time to time during
the term of this Note borrow, partially or wholly repay its outstanding
borrowings, and reborrow, subject to all of the limitations, terms and
conditions of this Note and of any document executed in connection with or
governing this Note; provided however, that the total outstanding borrowings
under this Note shall not at any time exceed the principal amount stated above.
The unpaid principal balance of this obligation at any time shall be the total
amounts advanced hereunder by the holder hereof less the amount of principal
payments made hereon by or for any Borrower, which balance may be endorsed
hereon from time to time by the holder. The outstanding principal balance of
this Note shall be due and payable in full on July 31, 1998.
(g) Advances. Advances hereunder, to the total amount of the
principal sum stated above, may be made by the holder at the oral or written
request of (i) BERNARD OSHER or JOHN GALLO or KEN STUPI, any one acting alone,
who are authorized to request advances and direct the disposition of any
advances until written notice of the revocation of such authority is received by
the holder at the office designated above, or (ii) any person, with respect to
advances deposited to the credit of any account of any Borrower with the holder,
which advances, when so deposited, shall be conclusively presumed to have been
made to or for the benefit of each Borrower regardless of the fact that persons
other than those authorized to request advances may have authority to draw
against such account. The holder shall have no obligation to determine whether
any person requesting an advance is or has been authorized by any Borrower.
4.
<PAGE> 5
(h) Application of Payments. Each payment made on this Note shall be
credited first, to any interest then due and second, to the outstanding
principal balance hereof. All payments credited to principal shall be applied
first, to the outstanding principal balance of this Note which bears interest
determined in relation to the Prime Rate, if any, and second, to the outstanding
principal balance of this Note which bears interest determined in relation to
LIBOR, with such payments applied to the oldest Fixed Rate Term first.
PREPAYMENT:
(i) Prime Rate. Borrower may prepay principal on any portion of this
Note which bears interest determined in relation to the Prime Rate at any time,
in any amount and without penalty.
(j) LIBOR. Borrower may prepay principal on any portion of this Note
which bears interest determined in relation to LIBOR at any time and in the
minimum amount of Fifty Thousand Dollars ($50,000.00); provided however, that if
the outstanding principal balance of such portion of this Note is less than said
amount, the minimum prepayment amount shall be the entire outstanding principal
balance thereof. In consideration of Bank providing this prepayment option to
Borrower, or if any such portion of this Note shall become due and payable at
any time prior to the last day of the Fixed Rate Term applicable thereto by
acceleration or otherwise, Borrower shall pay to Bank immediately upon demand a
fee which is the sum of the discounted monthly differences for each month from
the month of prepayment through the month in which such Fixed Rate Term matures,
calculated as follows for each such month:
(i) Determine the amount of interest which would have
accrued each month on the amount prepaid at the interest
rate applicable to such amount had it remained outstanding
until the last day of the Fixed Rate Term applicable
thereto.
(ii) Subtract from the amount determined in (i) above the
amount of interest which would have accrued for the same
month on the amount prepaid for the remaining term of such
Fixed Rate Term at LIBOR in effect on the date of
prepayment for new loans made for such term and in a
principal amount equal to the amount prepaid.
(iii) If the result obtained in (ii) for any month is greater
than zero, discount that difference by LIBOR used in (ii)
above.
Each Borrower acknowledges that prepayment of such amount may result in Bank
incurring additional costs, expenses and/or liabilities, and that it is
difficult to ascertain the full extent of such costs, expenses and/or
liabilities. Each Borrower, therefore, agrees to pay the above-described
prepayment fee and agrees that said amount represents a reasonable estimate of
the prepayment costs, expenses and/or liabilities of Bank. If Borrower fails to
pay any prepayment fee when due, the amount of such prepayment fee shall
thereafter bear interest until paid at a rate per annum 2.000% above the Prime
Rate in effect from time to time (computed on the basis of a 360-day year,
actual days elapsed). Each change in the rate of interest on any such past due
5.
<PAGE> 6
prepayment fee shall become effective on the date each Prime Rate change is
announced within Bank.
EVENTS OF DEFAULT:
The occurrence of any of the following shall constitute an "Event of
Default" under this Note:
(a) The failure to pay and principal, interest, fees or other
charges when due hereunder of under any contract, instrument or document
executed in connection with this Note.
(b) The filing of a petition by or against any Borrower, any
guarantor of this Note or any general, partner or joint venturer in any
Borrower which is a partnership or a joint venture (with each such guarantor,
general partner and/or joint venturer referred to herein as a "Third Party
Obligor") under any provisions of the Bankruptcy Reform Act, Title 11 of the
United States Code, as amended or recodified from time to time, or under any
similar or other law relating to bankruptcy insolvency, reorganization or other
relief for debtor; the appointment of a receiver, trustee, custodian or
liquidator of or for any part of the assets or property of any Borrower or
Third Party Obligor; any Borrower or Third Party Obligor becomes insolvent,
makes a general assignment for the benefit of creditors or is generally not
paying its debts as they become due; or any attachment or like levy on any
property of any Borrower or Third Party Obligor.
(c) The death or incapacity of any individual Borrower or Third
Party Obligor, or the dissolution or liquidation of any Borrower or Third Party
Obligor which is a corporation, partnership, joint venture or other type of
entity.
(d) Any default in the payment or performance of any obligation, or
any defined event of default, under any provisions of any contract, instrument
or document pursuant to which any Borrower or Third Party Obligor has incurred
any obligation for borrowed money, any purchase obligation, or any other
liability of any kind to any person or entity, including the holder.
(e) Any financial statement provided by any Borrower or Third Party
Obligor to Bank proves to be incorrect, false or misleading in any material
respect.
(f) Any sale or transfer of all or a substantial or material part
of the assets of any Borrower or Third Party Obligor other than in the ordinary
course of its business.
(g) Any violation or breach of any provision of, or any defined
event of default under, any addendum to this Note or any loan agreement,
guaranty, security agreement, deed of trust, mortgage or other document executed
in connection with or securing this Note.
MISCELLANEOUS:
(k) Remedies. Upon the occurrence of any Event of Default, the
holder of this Note, at the holder's option, may declare all sums of principal
and interest outstanding hereunder to be immediately due and payable without
presentment, demand, notice of nonperformance, notice of protest, protest or
notice of dishonor, all of which are expressly waived by each Borrower, and the
obligation, if any, of the holder to extend any further credit hereunder shall
immediately cease and terminate. Each Borrower shall pay to the holder
immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including reasonable attorneys' fees (to include outside
counsel fees and all allocated costs of the holder's in-house counsel), expended
or incurred by the holder in connection with the enforcement of the holder's
rights and/or the collection of any amounts which become due to the holder under
this Note, and the prosecution or , defense of any action in any way related to
this Note, including without limitation, any action for declaratory relief,
whether incurred at the trial or appellate level, in an arbitration proceeding
or otherwise, and including any of the foregoing incurred in connection with any
bankruptcy proceeding (including without limitation, any adversary proceeding,
contested matter or motion brought by Bank or any other person) relating to any
Borrower or any other person or entity.
(l) Obligations Joint and Several. Should more than one person or
entity sign this Note as a Borrower, the obligations of each such Borrower shall
be joint and several.
(m) Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of California.
IN WITNESS WHEREOF, the undersigned has executed this Note as of the
date first written above.
BUTTERFIELD & BUTTERFIELD, AUCTIONEERS CORP.
By: /s/ Ken Stupi
-------------------------------
Title: C.F.O.
----------------------------
6.
<PAGE> 7
[WELLS FARGO LETTERHEAD]
September 30, 1998
Butterfield & Butterfield, Auctioneers Corp.
220 San Bruno Avenue
San Francisco, CA 94103
Gentlemen:
This letter amendment (this "Amendment") is to confirm the changes
agreed upon between Wells Fargo Bank, National Association ("Bank") and
Butterfield & Butterfield, Auctioneers Corp. ("Borrower") to the terms and
conditions of that certain letter agreement between Bank and Borrower dated as
of March 5, 1995, as amended from time to time (the "Agreement"). For valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Bank and Borrower hereby agree that the Agreement shall be amended as follows to
reflect said changes.
1. The Agreement is hereby amended by deleting "September 30, 1998" as
the last day on which Bank will make advances under the Line of Credit, and by
substituting for said date "October 1, 1999," with such change to be effective
upon the execution and delivery to Bank of a promissory note substantially in
the form of Exhibit A attached hereto (which promissory note shall replace and
be deemed the Line of Credit Note defined in and made pursuant to the Agreement)
and all other contracts, instruments and documents required by Bank to evidence
such change.
2. The Agreement is hereby amended (a) by deleting "September 30, 1998"
as the last day on which Bank will issue Letters of Credit under the subfeature
therefor under the Line of Credit, and by substituting for said date "October 1,
1999," and (b) by deleting "September 30, 1998" as the last date on which any
such Letter of Credit may expire, and by substituting for said date "October 1,
1999."
3. Paragraph V.3. (a) and (b) is hereby deleted in its entirety, and
the following substituted therefor:
"(a) not later than 120 days after and as of the end of each
fiscal year, an audited financial statement of Borrower and guarantor
(combined
<PAGE> 8
Butterfield & Butterfield, Auctioneers Corp.
September 30, 1998
Page 2
financial statement acceptable), prepared by a certified public
accountant acceptable to bank, to include a reconciliation of
owner's equity, a balance sheet, income statement and cash flow;
(b) not later than 30 days after and as of the end of each
fiscal quarter, a financial statement of Borrower and guarantor
(combined financial statement acceptable), prepared by Borrower and
guarantor, to include a reconciliation of owner's equity, balance sheet
and income statement; and"
4. Paragraph V.8. (b) is hereby deleted in its entirety, and the
following substituted therefor:
"(b) Tangible Net Worth not less than $2,500,000.00 on a
combined basis with Butterfield's Credit Corporation, Inc., determined
as of each fiscal year end, with "Tangible Net Worth" defined as the
aggregate of total stockholders' equity plus subordinated debt less the
aggregate of any treasury stock, intangible assets and obligations due
from stockholders, employees and/or affiliates."
5. The following is hereby added to the Agreement as Paragraph V.15:
"15. Year 2000 Compliance. Perform all acts reasonably
necessary to ensure that (a) Borrower and any business in
which Borrower holds a substantial interest, and (b) all
customers, suppliers and vendors that are material to
Borrower's business, become Year 2000 Compliant in a timely
manner. Such acts shall include, without limitation,
performing a comprehensive review and assessment of all of
Borrower's systems and adopting a detailed plan, with itemized
budget, for the remediation, monitoring and testing of such
systems. As used herein, "Year 2000 Compliant" shall mean, in
regard to any entity, that all
<PAGE> 9
Butterfield & Butterfield, Auctioneers Corp.
September 30, 1998
Page 3
software, hardware, firmware, equipment, goods or systems
utilized by or material to the business operations or
financial condition of such entity, will properly perform date
sensitive functions before, during and after the year 2000.
Borrower shall, immediately upon request, provide to Bank such
certifications or other evidence of Borrower's compliance with
the terms hereof as Bank may from time to time require."
6. Except as specifically provided herein, all terms and conditions of
the Agreement remain in full force and effect, without waiver or modification.
All terms defined in the Agreement shall have the same meaning when used herein.
This Amendment and the Agreement shall be read together, as one document.
7. Borrower hereby remakes all representations and warranties contained
in the Agreement and reaffirms all covenants set forth therein. Borrower further
certifies that as of the date of Borrower's acknowledgment set forth below there
exists no default or defined event of default under the Agreement or any
promissory note or other contract, instrument or document executed in connection
therewith, nor any condition, act or event which with the giving of notice or
the passage of time or both would constitute such a default or defined event of
default.
Your acknowledgment of this Amendment shall constitute acceptance of
the foregoing terms and conditions.
Sincerely,
WELLS FARGO BANK,
NATIONAL ASSOCIATION
By:
----------------------------------
M. Kharkar
Vice President
<PAGE> 10
Butterfield & Butterfield, Auctioneers Corp.
September 30, 1998
Page 4
Acknowledged and accepted as of 9/25/98:
BUTTERFIELD & BUTTERFIELD,
AUCTIONEERS, CORP.
By: /s/ Ken Stupi
------------------------------------
Title: C.F.O.
---------------------------------
<PAGE> 1
EXHIBIT 10.10
REVOLVING LINE OF CREDIT NOTE
$3,000,000.00 San Francisco, California
September 30, 1998
FOR VALUE RECEIVED, the undersigned BUTTERFIELD'S CREDIT CORPORATION,
INC. ("Borrower") promises to pay to the order of WELLS FARGO BANK, NATIONAL
ASSOCIATION ("Bank") at its office at San Francisco RCBO, 420 Montgomery Street,
9th Fl., San Francisco, CA 94104, or at such other place as the holder hereof
may designate, in lawful money of the United States of America and in
immediately available funds, the principal sum of $3,000,000.00, or so much
thereof as may be advanced and be outstanding, with interest thereon, to be
computed on each advance from the date of its disbursement as set forth herein.
DEFINITIONS:
As used herein, the following terms shall have the meanings set forth
after each, and any other term defined in this Note shall have the meaning set
forth at the place defined:
(a) "Business Day" means any day except a Saturday, Sunday or any
other day on which commercial banks in California are authorized or required by
law to close.
(b) "Fixed Rate Term" means a period commencing on a Business Day
and continuing for 1, 2, 3, 6 or 12 months, as designated by Borrower, during
which all or a portion of the outstanding principal balance of this Note bears
interest determined in relation to LIBOR; provided however, that no Fixed Rate
Term may be selected for a principal amount less than $100,000.00; and provided
further, that no Fixed Rate Term shall extend beyond the scheduled maturity date
hereof. If any Fixed Rate Term would end on a day which is not a Business Day,
then such Fixed Rate Term shall be extended to the next succeeding Business Day.
(c) "LIBOR" means the rate per annum (rounded upward, if necessary,
to the nearest whole 1/8 of 1%) determined by dividing Base LIBOR by a
percentage equal to 100% less any LIBOR Reserve Percentage.
(i) "Base LIBOR" means the rate per annum for United States
dollar deposits quoted by Bank as the Inter-Bank Market Offered Rate, with the
understanding that such rate is quoted by Bank for the purpose of calculating
effective rates of interest for loans making reference thereto, on the first day
of a Fixed Rate Term for delivery of funds on said date for a period of time
approximately equal to the number of days in such Fixed Rate Term and in an
amount approximately equal to the principal amount to which such Fixed Rate Term
applies. Borrower understands and agrees that Bank may base its quotation of the
Inter-Bank Market Offered Rate upon such offers or other market indicators of
the Inter-Bank Market as Bank in its
1.
<PAGE> 2
discretion deems appropriate including, but not limited to, the rate offered for
U.S. dollar deposits on the London Inter-Bank Market.
(ii) "LIBOR Reserve Percentage" means the reserve percentage
prescribed by the Board of Governors of the Federal Reserve System (or any
successor) for "Eurocurrency Liabilities" (as defined in Regulation D of the
Federal Reserve Board, as amended), adjusted by Bank for expected changes in
such reserve percentage during the applicable Fixed Rate Term.
(d) "Prime Rate" means at any time the rate of interest most
recently announced within Bank at its principal office as its Prime Rate, with
the understanding that the Prime Rate is one of Bank's base rates and serves as
the basis upon which effective rates of interest are calculated for those loans
making reference thereto, and is evidenced by the recording thereof after its
announcement in such internal publication or publications as Bank may designate.
INTEREST:
(a) Interest. The outstanding principal balance of this Note shall
bear interest (computed on the basis of a 360-day year, actual days elapsed)
either (i) at a fluctuating rate per annum .25000% below the Prime Rate in
effect from time to time, or (ii) at a fixed rate per annum determined by Bank
to be 2.00000% above LIBOR in effect on the first day of the applicable Fixed
Rate Term. When interest is determined in relation to the Prime Rate, each
change in the rate of interest hereunder shall become effective on the date each
Prime Rate change is announced within Bank. With respect to each LIBOR selection
hereunder, Bank is hereby authorized to note the date, principal amount,
interest rate and Fixed Rate Term applicable thereto and any payments made
thereon on Bank's books and records (either manually or by electronic entry)
and/or on any schedule attached to this Note, which notations shall be prima
facie evidence of the accuracy of the information noted.
(b) Selection of Interest Rate Options. At any time any portion of
this Note bears interest determined in relation to LIBOR, it may be continued by
Borrower at the end of the Fixed Rate Term applicable thereto so that all or a
portion thereof bears interest determined in relation to the Prime Rate or to
LIBOR for a new Fixed Rate Term designated by Borrower. At any time any portion
of this Note bears interest determined in relation to the Prime Rate, Borrower
may convert all or a portion thereof so that it bears interest determined in
relation to LIBOR for a Fixed Rate Term designated by Borrower. At such time as
Borrower requests an advance hereunder or wishes to select a LIBOR option for
all or a portion of the outstanding principal balance hereof, and at the end of
each Fixed Rate Term, Borrower shall give Bank notice specifying: (i) the
interest rate option selected by Borrower; (ii) the principal amount subject
thereto; and (iii) for each LIBOR selection, the length of the applicable Fixed
Rate Term. Any such notice may be given by telephone so long as, with respect to
each LIBOR selection, (A) Bank receives written confirmation from Borrower not
later than 3 Business Days after such telephone notice is given, and (B) such
notice is given to Bank prior to 10:00 a.m., California time, on the first day
of the Fixed Rate Term. For each LIBOR option requested hereunder, Bank will
quote the applicable fixed rate to Borrower at approximately 10:00 a.m.,
California time, on the first day of the Fixed Rate Term. If Borrower does not
immediately accept the rate quoted by Bank, any subsequent acceptance by
Borrower shall be subject to a redetermination by Bank of the applicable fixed
rate; provided however, that if Borrower fails to
2.
<PAGE> 3
accept any such rate by 11:00 a.m., California time, on the Business Day such
quotation is given, then the quoted rate shall expire and Bank shall have no
obligation to permit a LIBOR option to be selected on such day. If no specific
designation of interest is made at the time any advance is requested hereunder
or at the end of any Fixed Rate Term, Borrower shall be deemed to have made a
Prime Rate interest selection for such advance or the principal amount to which
such Fixed Rate Term applied.
(c) Additional LIBOR Provisions.
(i) If Bank at any time shall determine that for any reason
adequate and reasonable means do not exist for ascertaining LIBOR, then Bank
shall promptly give notice thereof to Borrower. If such notice is given and
until such notice has been withdrawn by Bank, then (A) no new LIBOR option may
be selected by Borrower, and (B) any portion of the outstanding principal
balance hereof which bears interest determined in relation to LIBOR, subsequent
to the end of the Fixed Rate Term applicable thereto, shall bear interest
determined in relation to the Prime Rate.
(ii) If any law, treaty, rule, regulation or determination of a
court or governmental authority or any change therein or in the interpretation
or application thereof (each, a "Change in Law") shall make it unlawful for Bank
(A) to make LIBOR options available hereunder, or (B) to maintain interest rates
based on LIBOR, then in the former event, any obligation of Bank to make
available such unlawful LIBOR options shall immediately be cancelled, and in the
latter event, any such unlawful LIBOR-based interest rates then outstanding
shall be converted, at Bank's option, so that interest on the portion of the
outstanding principal balance subject thereto is determined in relation to the
Prime Rate; provided however, that if any such Change in Law shall permit any
LIBOR-based interest rates to remain in effect until the expiration of the Fixed
Rate Term applicable thereto, then such permitted LIBOR-based interest rates
shall continue in effect until the expiration of such Fixed Rate Term. Upon the
occurrence of any of the foregoing events, Borrower shall pay to Bank
immediately upon demand such amounts as may be necessary to compensate Bank for
any fines, fees, charges, penalties or other costs incurred or payable by Bank
as, a result thereof and which are attributable to any LIBOR options made
available to Borrower hereunder, and any reasonable allocation made by Bank
among its operations shall be conclusive and binding upon Borrower.
(iii) If any Change in Law or compliance by Bank with any request
or directive (whether or not having the force of law) from any central bank or
other governmental authority shall:
(A) subject Bank to any tax, duty or other charge with
respect to any LIBOR options, or change the basis of
taxation of payments to Bank of principal, interest,
fees or any other amount payable hereunder (except for
changes in the rate of tax on the overall net income of
Bank); or
(B) impose, modify or hold applicable any reserve, special
deposit, compulsory loan or similar requirement against
assets held by, deposits or other liabilities in or for
the account of, advances or
3.
<PAGE> 4
loans by, or any other acquisition of funds by any
office of Bank; or
(c) impose on Bank any other condition;
and the result of any of the foregoing is to increase the cost to Bank of
making, renewing or maintaining any LIBOR options hereunder and/or to reduce any
amount receivable by Bank in connection therewith, then in any such case,
Borrower shall pay to Bank immediately upon demand such amounts as may be
necessary to compensate Bank for any additional costs incurred by Bank and/or
reductions in amounts received by Bank which are attributable to such LIBOR
options. In determining which costs incurred by Bank and/or reductions in
amounts received by Bank are attributable to any LIBOR options made available to
Borrower hereunder, any reasonable allocation made by Bank among its operations
shall be conclusive and binding upon Borrower.
(d) Payment of Interest. Interest accrued on this Note shall be
payable on the 1st day of each month, commencing October 1, 1998.
(e) Default Interest. From and after the maturity date of this Note,
or such earlier date as all principal owing hereunder becomes due and payable by
acceleration or otherwise, the outstanding principal balance of this Note shall
bear interest until paid in full at an increased rate per annum (computed on the
basis of a 360-day year, actual days elapsed) equal to 4% above the rate of
interest from time to time applicable to this Note.
BORROWING AND REPAYMENT:
(a) Borrowing and Repayment. Borrower may from time to time during
the term of this Note borrow, partially or wholly repay its outstanding
borrowings, and reborrow, subject to all of the limitations, terms and
conditions of this Note and of any document executed in connection with or
governing this Note; provided however, that the total outstanding borrowings
under this Note shall not at any time exceed the principal amount stated above.
The unpaid principal balance of this obligation at any time shall be the total
amounts advanced hereunder by the holder hereof less the amount of principal
payments made hereon by or for any Borrower, which balance may be endorsed
hereon from time to time by the holder. The outstanding principal balance of
this Note shall be due and payable in full on July 31, 1998.
(b) Advances. Advances hereunder, to the total amount of the
principal sum stated above, may be made by the holder at the oral or written
request of (i) BERNARD OSHER or JOHN GALLO or KEN STUPI, any one acting alone,
who are authorized to request advances and direct the disposition of any
advances until written notice of the revocation of such authority is received by
the holder at the office designated above, or (ii) any person, with respect to
advances deposited to the credit of any account of any Borrower with the holder,
which advances, when so deposited, shall be conclusively presumed to have been
made to or for the benefit of each Borrower regardless of the fact that persons
other than those authorized to request advances may have authority to draw
against such account. The holder shall have no obligation to determine whether
any person requesting an advance is or has been authorized by any Borrower.
4.
<PAGE> 5
(c) Application of Payments. Each payment made on this Note shall be
credited first, to any interest then due and second, to the outstanding
principal balance hereof. All payments credited to principal shall be applied
first, to the outstanding principal balance of this Note which bears interest
determined in relation to the Prime Rate, if any, and second, to the outstanding
principal balance of this Note which bears interest determined in relation to
LIBOR, with such payments applied to the oldest Fixed Rate Term first.
PREPAYMENT:
(a) Prime Rate. Borrower may prepay principal on any portion of this
Note which bears interest determined in relation to the Prime Rate at any time,
in any amount and without penalty.
(b) LIBOR. Borrower may prepay principal on any portion of this Note
which bears interest determined in relation to LIBOR at any time and in the
minimum amount of Fifty Thousand Dollars ($50,000.00); provided however, that if
the outstanding principal balance of such portion of this Note is less than said
amount, the minimum prepayment amount shall be the entire outstanding principal
balance thereof. In consideration of Bank providing this prepayment option to
Borrower, or if any such portion of this Note shall become due and payable at
any time prior to the last day of the Fixed Rate Term applicable thereto by
acceleration or otherwise, Borrower shall pay to Bank immediately upon demand a
fee which is the sum of the discounted monthly differences for each month from
the month of prepayment through the month in which such Fixed Rate Term matures,
calculated as follows for each such month:
(i) Determine the amount of interest which would have accrued
each month on the amount prepaid at the interest rate
applicable to such amount had it remained outstanding until
the last day of the Fixed Rate Term applicable thereto.
(ii) Subtract from the amount determined in (i) above the amount
of interest which would have accrued for the same month on
the amount prepaid for the remaining term of such Fixed
Rate Term at LIBOR in effect on the date of prepayment for
new loans made for such term and in a principal amount
equal to the amount prepaid.
(iii) If the result obtained in (ii) for any month is greater
than zero, discount that difference by LIBOR used in (ii)
above.
Each Borrower acknowledges that prepayment of such amount may result in Bank
incurring additional costs, expenses and/or liabilities, and that it is
difficult to ascertain the full extent of such costs, expenses and/or
liabilities. Each Borrower, therefore, agrees to pay the above-described
prepayment fee and agrees that said amount represents a reasonable estimate of
the prepayment costs, expenses and/or liabilities of Bank. If Borrower fails to
pay any prepayment fee when due, the amount of such prepayment fee shall
thereafter bear interest until paid at a rate per annum 2.000% above the Prime
Rate in effect from time to time (computed on the basis of a 360-day year,
actual days elapsed). Each change in the rate of interest on any such past due
5.
<PAGE> 6
prepayment fee shall become effective on the date each Prime Rate change is
announced within Bank.
EVENTS OF DEFAULT:
The occurrence of any of the following shall constitute an "Event of
Default" under this Note:
(a) The failure to pay any principal, interest, fees or other
charges when due hereunder or under any contract, instrument or document
executed in connection with this Note.
(b) The filing of a petition by or against any Borrower, any
guarantor of this Note or any general partner or joint venturer in any Borrower
which is a partnership or a joint venture (with each such guarantor, general
partner and/or joint venturer referred to herein as a "Third Party Obligor")
under any provisions of the Bankruptcy Reform Act, Title 11 of the United States
Code, as amended or recodified from time to time, or under any similar or other
law relating to bankruptcy, insolvency, reorganization or other relief for
debtor; the appointment of a receiver, trustee, custodian or liquidator of or
for any part of the assets or property of any Borrower or Third Party Obligor;
any Borrower or Third Party Obligor becomes insolvent, makes a general
assignment for the benefit of creditors or is generally not paying its debts as
they become due; or any attachment or like levy on any property of any Borrower
or Third Party Obligor.
(c) The death or incapacity of any individual Borrower or Third
Party Obligor, or the dissolution or liquidation of any Borrower or Third Party
Obligor which is a corporation, partnership, joint venture or other type of
entity.
(d) Any default in the payment or performance of any obligation, or
any defined event of default, under any provisions of any contract, instrument
or document pursuant to which any Borrower or Third Party Obligor has incurred
any obligation for borrowed money, any purchase obligation, or any other
liabilities of any kind to any person or entity, including the holder.
(e) Any financial statement provided by any Borrower or Third Party
Obligor to Bank proves to be incorrect, false or misleading in any material
respect.
(f) Any sale or transfer of all or a substantial or material part of
the assets of any Borrower or Third Party Obligor other than in the ordinary
course of its business.
(g) Any violation or breach of any provision of, or any defined
event of default under; any addendum to this Note or any loan agreement,
guaranty, security agreement, deed of trust, mortgage or other document
execution in connection with or securing this Note.
MISCELLANEOUS:
(a) Remedies. Upon the occurrence of any Event of Default, the
holder of this Note, at the holder's option, may declare all sums of principal
and interest outstanding hereunder to be immediately due and payable without
presentment, demand, notice of nonperformance, notice of protest, protest or
notice of dishonor, all of which are expressly waived by each Borrower, and the
obligation, if any, of the holder to extend any further credit hereunder shall
immediately cease and terminate. Each Borrower shall pay to the holder
immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including reasonable attorneys' fees (to include outside
counsel fees and all allocated costs of the holder's in-house counsel), expended
or incurred by the holder in connection with the enforcement of the holder's
rights and/or the collection of any amounts which become due to the holder under
this Note, and the prosecution or , defense of any action in any way related to
this Note, including without limitation, any action for declaratory relief,
whether incurred at the trial or appellate level, in an arbitration proceeding
or otherwise, and including any of the foregoing incurred in connection with any
bankruptcy proceeding (including without limitation, any adversary proceeding,
contested matter or motion brought by Bank or any other person) relating to any
Borrower or any other person or entity.
(b) Obligations Joint and Several. Should more than one person or
entity sign this Note as a Borrower, the obligations of each such Borrower shall
be joint and several.
(c) Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of California.
IN WITNESS WHEREOF, the undersigned has executed this Note as of the
date first written above.
BUTTERFIELD'S CREDIT CORPORATION, INC.
By: /s/ Ken Stupi
-------------------------
Title: C.F.O.
----------------------
6.
<PAGE> 7
[WELLS FARGO LETTERHEAD]
September 30, 1998
Butterfield's Credit Corporation, Inc.
220 San Bruno Avenue
San Francisco, CA 94103
Gentlemen:
This letter amendment (this "Amendment") is to confirm the changes agreed
upon between Wells Fargo Bank, National Association ("Bank") and Butterfield's
Credit Corporation, Inc. ("Borrower") to the terms and conditions of that
certain letter agreement between Bank and Borrower dated as of November 25,
1996, as amended from time to time (the "Agreement"). For valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Bank and Borrower hereby agree that the Agreement shall be amended as follows to
reflect said changes.
1. The Agreement is hereby amended by deleting "September 30, 1998" as the
last day on which Bank will make advances under the Line of Credit, and by
substituting for said date "October 1, 1999," with such change to be effective
upon the execution and delivery to Bank of a promissory note substantially in
the form of Exhibit A attached hereto (which promissory note shall replace and
be deemed the Line of Credit Note defined in and made pursuant to the Agreement)
and all other contracts, instruments and documents required by Bank to evidence
such change.
2. Paragraph V.3. (a) and (b) is hereby deleted in its entirety, and the
following substituted therefor:
"(a) not later than 120 days after and as of the end of each
fiscal year, an audited financial statement of Borrower and guarantor
(combined financial statement acceptable), prepared by a certified
public accountant acceptable to bank, to include a reconciliation of
owner's equity, a balance sheet, income statement and cash flow;
<PAGE> 8
Butterfield's Credit Corporation, Inc.
September 30, 1998
Page 2
(b) not later than 30 days after and as of the end of each fiscal
quarter, a financial statement of Borrower and guarantor (combined
financial statement acceptable), prepared by Borrower and guarantor,
to include a reconciliation of owner's equity, balance sheet and
income statement; and"
3. Paragraph V.8.(a) is hereby deleted in its entirety, and the following
substituted therefor:
"(a) Tangible Net Worth not less than $2,500,000.00 on a combined
basis with Butterfield & Butterfield, Auctioneers Corp., determined as
of each fiscal year end, with "Tangible Net Worth" defined as the
aggregate of total stockholders' equity plus subordinated debt less
the aggregate of any treasury stock, intangible assets and obligations
due from stockholders, employees and/or affiliates."
4. The following is hereby added to the Agreement as Paragraph V.17:
"17. Year 2000 Compliance. Perform all acts reasonably necessary
to ensure that (a) Borrower and any business in which Borrower holds a
substantial interest, and (b) all customers, suppliers and vendors
that are material to Borrower's business, become Year 2000 Compliant
in a timely manner. Such acts shall include, without limitation,
performing a comprehensive review and assessment of all of Borrower's
systems and adopting a detailed plan, with itemized budget, for the
remediation, monitoring and testing of such systems. As used herein,
"Year 2000 Compliant" shall mean, in regard to any entity, that all
software, hardware, firmware, equipment, goods or systems utilized by
or material to the business operations or financial condition of such
entity, will properly
<PAGE> 9
Butterfield's Credit Corporation, Inc.
September 30, 1998
Page 3
perform date sensitive functions before, during and after the year
2000. Borrower shall, immediately upon request, provide to Bank such
certifications or other evidence of Borrower's compliance with the
terms hereof as Bank may from time to time require."
5. Except as specifically provided herein, all terms and conditions of the
Agreement remain in full force and effect, without waiver or modification. All
terms defined in the Agreement shall have the same meaning when used herein.
This Amendment and the Agreement shall be read together, as one document.
6. Borrower hereby remakes all representations and warranties contained in
the Agreement and reaffirms all covenants set forth therein. Borrower further
certifies that as of the date of Borrower's acknowledgment set forth below there
exists no default or defined event of default under the Agreement or any
promissory note or other contract, instrument or document executed in connection
therewith, nor any condition, act or event which with the giving of notice or
the passage of time or both would constitute such a default or defined event of
default.
Your acknowledgment of this Amendment shall constitute acceptance of the
foregoing terms and conditions.
Sincerely,
WELLS FARGO BANK,
NATIONAL ASSOCIATION
By:
--------------------------------
M. Kharkar
Vice President
<PAGE> 10
Butterfield's Credit Corporation, Inc.
September 30, 1998
Page 4
Acknowledged and accepted as of 9/25/98:
BUTTERFIELD'S CREDIT CORPORATION INC.
By: /s/ Ken Stupi
--------------------
Title: C.F.O.
-----------------
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Butterfield & Butterfield, Auctioneers Corp.
San Francisco, California
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement on Form SB-2 of our report dated April 10, 1998, except
for Note 1 which is as of _________, 1999, relating to the consolidated
financial statements of Butterfield & Butterfield, Auctioneers Corp. and
subsidiary which are contained in that Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ BDO SEIDMAN, LLP
San Francisco, California
February 11, 1999
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 SEP-30-1998
<EXCHANGE-RATE> 1 1
<CASH> 7,232,763 1,058,075
<SECURITIES> 0 0
<RECEIVABLES> 6,986,939 6,959,949
<ALLOWANCES> 456,012 462,310
<INVENTORY> 1,851,467 1,558,467
<CURRENT-ASSETS> 16,686,999 10,203,928
<PP&E> 4,440,428 4,843,396
<DEPRECIATION> 2,157,382 2,585,258
<TOTAL-ASSETS> 20,352,731 14,528,689
<CURRENT-LIABILITIES> 14,827,777 8,868,123
<BONDS> 0 0
0 0
0 0
<COMMON> 47,523 47,523
<OTHER-SE> 4,863,333 4,792,564
<TOTAL-LIABILITY-AND-EQUITY> 20,352,731 14,528,689
<SALES> 19,981,751 13,269,913
<TOTAL-REVENUES> 20,271,028 13,382,031
<CGS> 0 0
<TOTAL-COSTS> 16,377,610 12,562,419
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 57,542 67,414
<INCOME-PRETAX> 4,221,652 1,044,217
<INCOME-TAX> 39,881 14,986
<INCOME-CONTINUING> 4,181,771 1,029,231
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 4,181,771 1,029,231
<EPS-PRIMARY> 0.88<F1> 0.22<F1>
<EPS-DILUTED> 0.88<F1> 0.22<F1>
<FN>
<F1>REPRESENTS HISTORICAL EPS PRIOR TO TERMINATION OF S-CORPORATION STATUS
</FN>
</TABLE>
