U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 1996
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
Commission file No. 0-13167
TM CENTURY, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 73-1220394
(State of incorporation) (IRS Employer Identification No.)
2002 Academy, Dallas, Texas 75234
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (214) 247-8850
Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No___
The number of issuer's shares of Common Stock outstanding as of July
31, 1996 was 2,537,193.
Transitional Small Business Disclosure Format (check one): Yes___ No_X_
<PAGE>
<TABLE>
TM CENTURY, INC.
Balance Sheets
June 30, 1996 (Unaudited) and September 30, 1995
ASSETS June 30, 1996 Sept 30, 1995
<CAPTION>
<S> <C> <C>
CURRENT ASSETS
Cash $ 327,885 $ 245,812
Accounts and notes receivable
less allowances of $120,000 and 663,374 915,798
$112,000, respectively
Inventories, net 1,477,931 1,654,197
Federal income taxes receivable - 132,220
Deferred federal income taxes 159,425 166,063
Prepaid expenses 48,331 22,976
TOTAL CURRENT ASSETS 2,676,946 3,137,066
PROPERTY AND EQUIPMENT 2,292,799 1,878,452
Less accumulated depreciation (1,140,022) (1,016,452)
NET PROPERTY AND EQUIPMENT 1,152,777 862,000
INVENTORIES - NONCURRENT, net 413,524 587,217
OTHER ASSETS 15,388 16,388
TOTAL $4,258,635 $4,602,671
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 90,187 $ 205,082
Current portion of obligation
under capital lease 121,303 -
Accrued expenses 155,072 201,456
Customer deposits 24,078 151,502
TOTAL CURRENT LIABILITIES 390,640 558,040
OBLIGATION UNDER CAPITAL LEASE 279,215 -
CUSTOMER DEPOSITS - noncurrent 157,261 204,093
DEFERRED FEDERAL INCOME TAXES 63,421 75,510
TOTAL LIABILITIES 890,537 837,643
STOCKHOLDERS' EQUITY
Common stock, $.01 par value; authorized
7,500,000 shares; 2,970,481 shares issued 29,705 29,705
Paid-in capital 2,275,272 2,275,272
Treasury stock - at cost, 433,288 shares (1,250,316) (1,250,316)
Retained earnings 2,313,437 2,710,367
TOTAL STOCKHOLDERS' EQUITY 3,368,098 3,765,028
TOTAL $4,258,635 $4,602,671
</TABLE>
<PAGE>
<TABLE>
TM CENTURY, INC.
Statements of Operations and Retained Earnings (Unaudited)
For the Three Months Ended June 30, 1996 and 1995
<CAPTION> 1996 1995
<S> <C> <C>
REVENUES $1,583,184 $1,899,776
Less Commissions 298,589 363,322
NET REVENUES 1,284,595 1,536,454
COSTS AND EXPENSES:
Production, programming and technical costs 762,376 946,086
General and administrative 646,034 673,055
Selling 79,671 112,742
Depreciation 62,095 50,831
TOTAL 1,550,176 1,782,714
OPERATING LOSS (265,581) (246,260)
OTHER INCOME (EXPENSES):
Interest income 3,922 6,713
Interest expense (1,624) -
Other (40,836) (9,000)
TOTAL (38,538) (2,287)
LOSS BEFORE INCOME TAXES (304,119) (248,547)
INCOME TAX (BENEFIT) PROVISION:
Current - (73,450)
Deferred 17,556 10,205
TOTAL 17,556 (63,245)
NET LOSS ($ 321,675) ($ 185,302)
RETAINED EARNINGS, BEGINNING OF PERIOD 2,635,112 3,071,090
RETAINED EARNINGS, END OF PERIOD $2,313,437 $2,885,788
NET LOSS PER COMMON SHARE ($0.13) ($0.07)
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 2,537,193 2,537,193
</TABLE>
<PAGE>
<TABLE>
TM CENTURY, INC.
Statements of Operations and Retained Earnings (Unaudited)
For the Nine Months Ended June 30, 1996 and 1995
<CAPTION>
1996 1995
<S> <S> <S>
REVENUES $5,062,216 $6,368,224
Less Commissions 936,995 1,128,535
NET REVENUES 4,125,221 5,239,689
COSTS AND EXPENSES:
Production, programming and technical costs 2,224,828 3,104,179
General and administrative 1,834,859 2,082,450
Selling 270,234 468,867
Depreciation 160,470 151,590
TOTAL 4,490,391 5,807,086
OPERATING LOSS (365,170) (567,397)
OTHER INCOME (EXPENSES):
Interest income 8,579 14,567
Interest expense (1,691) -
Other (40,836) (32,922)
TOTAL (33,948) (18,355)
LOSS BEFORE INCOME TAXES (399,118) (585,752)
INCOME TAX (BENEFIT) PROVISION:
Current - (182,915)
Deferred (2,188) 8,920
TOTAL (2,188) (173,995)
NET LOSS ($ 396,930) ($ 411,757)
RETAINED EARNINGS, BEGINNING OF PERIOD 2,710,367 3,297,545
RETAINED EARNINGS, END OF PERIOD $2,313,437 $2,885,788
NET LOSS PER COMMON SHARE ($0.16) ($0.16)
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 2,537,193 2,537,193
</TABLE>
<PAGE>
<TABLE>
TM CENTURY, INC.
Statements of Cash Flows (Unaudited)
For the Nine Months Ended June 30, 1996 and 1995
<CAPTION>
1996 1995
<S> <C> <C>
OPERATING ACTIVITIES:
Net Loss ($396,930) ($411,757)
Adjustments to reconcile net income
to net cash provided by
(used in) operations:
Depreciation 160,470 151,590
Amortization 287,677 372,705
Deferred income taxes (5,451) (32,645)
Provision for doubtful accounts 60,000 35,000
Loss on disposition of property
and equipment 40,836 -
Write-off of inventory 29,935 -
Payments received on installment
receivables - 12,600
Changes in operating assets and liabilities:
Accounts receivable 188,000 (116,253)
Inventories 17,157 (526,124)
Prepaid expenses and other assets (24,355) 19,796
Accounts payable and accrued expenses (161,279) 203,755
Federal income taxes receivable/payable 132,220 (47,406)
Customer deposits (174,256) (120,234)
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES 154,024 (458,973)
INVESTING ACTIVITIES:
Purchase of U.S. Treasury Securities - (294,423)
Proceeds from sale of U.S. Treasury Securities - 294,423
Principal payments on
capital lease obligation (25,630) -
Purchases of property and equipment (50,744) (210,764)
Principal payments received
on notes receivable 4,423 12,953
NET CASH USED IN INVESTING ACTIVITIES (71,951) (197,811)
FINANCING ACTIVITIES:
Fractional shares paid to stockholders - (1)
NET CASH USED IN FINANCING ACTIVITIES - (1)
INCREASE (DECREASE) IN CASH 82,073 (656,785)
CASH AT BEGINNING OF PERIOD 245,812 746,912
CASH AT END OF PERIOD $327,885 $90,127
Supplemental disclosures:
Cash paid for interest $1,624 -
Noncash investing and financing activities:
Capital lease obligation incurred $426,149 -
</TABLE>
<PAGE>
NOTES TO INTERIM FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1995
1. BASIS OF PRESENTATION
The interim financial statements of TM Century, Inc. (the Company)
at June 30, 1996, and for the three and nine months ended June 30,
1996 and 1995, are unaudited, but include all adjustments (consisting
only of normal recurring adjustments) which the Company considers
necessary for a fair presentation. The September 30, 1995 balance
sheet was derived from the balance sheet included in the Company's
audited financial statements as filed on Form 10-KSB for the year
ended September 30, 1995. Certain amounts previously reported in
prior interim financial statements have been reclassified to conform
to the 1996 presentation.
The accompanying unaudited interim financial statements are for
interim periods and do not include all disclosures normally provided
in annual financial statements, and should be read in conjunction with
the Company's audited financial statements. The accompanying
unaudited interim financial statements for the three and nine months
ended June 30, 1996 are not necessarily indicative of the results
which can be expected for the entire fiscal year.
2. STOCK OPTION PLAN
On December 3, 1991, the Board of Directors approved a Long Term
Incentive Plan (the Plan) which provides for grants of Incentive
Stock Options to selected employees and for grants of Nonqualified
Stock Options to any persons who in the opinion of the Board of
Directors perform significant services on behalf of the Company. Each
member of the Compensation Committee who is not an employee or full-
time consultant of the Company is automatically granted in December of
each year, commencing in 1991, for five years (but only for so long as
he or she remains a member of the Compensation Committee), a
Nonqualified Stock Option for 2,500 shares. The maximum number of
shares which may be issued pursuant to the exercise of options under
the Plan was 187,500 shares. Effective October 28, 1993, the Board of
Directors approved an amendment to the Plan which increased the total
number of shares which may be issued to 250,000 shares of common
stock.
The option price of Incentive Stock Options is not less that the fair
market value of the common stock at the date of grant. All
outstanding Incentive Stock Options vest over a period of five years
from the date of grant.
The option price of outstanding Nonqualified Stock Options is $1.20
per share. All outstanding Nonqualified Stock Options are 20% vested
upon grant, 50% vested after year one, and 100% vested after two
years.
<PAGE>
Option information for the quarter ended June 30, 1996:
<TABLE>
<CAPTION>
At June 30, 1996 Option Price Number of
per Share Shares
<S> <C> <C>
Options outstanding:
Incentive $1.0625 - $2.50 210,000
Nonqualified $1.20 25,000
Options exercisable:
Incentive $1.0625 - $2.50 84,375
Nonqualified $1.20 18,500
Options granted during the quarter: 25,000
Options exercised during the quarter: None
</TABLE>
3. INCOME TAXES
Deferred income taxes are provided, when applicable, on temporary
differences between the recognition of income and expense for tax and
for financial accounting purposes in accordance with Statement of
Financial Accounting Standards No. 109 (SFAS 109). Temporary
differences which give rise to deferred taxes include basis
differences of property and equipment, accelerated tax depreciation in
excess of book depreciation, and valuation allowances provided in
excess of amounts deductible for tax purposes. Under the provisions
of SFAS 109, recognition of deferred tax assets is permitted for such
amounts which can be carried forward to future periods. The Company
has recorded a deferred tax asset of approximately $160,000 reflecting
the benefit of aproximately $350,000 in net operating losses which
is available for carryforward until 2008. Realization is dependent
on generating sufficient taxable income prior to expiration of
the loss carryforwards. Although realization is not assured, management
believes it is more likely than not that all of the deferred tax asset
will be realized. The amount of the deferred tax asset considered
realizable, however, could be reduced in the near term if estimates of
future taxable income during the carryforward period are reduced.
4. RENEWAL OF LINE OF CREDIT
Effective February 28, 1996, the Company renewed its $300,000
revolving line of credit (the Line of Credit) for a one-year term.
Borrowings under the Line of Credit bear a fluctuating interest rate
of prime plus 1.5%, payable monthly, and the Company provides a
negative pledge on all accounts receivable, contract rights, and
inventory of the Company. The Line of Credit, which bears a
commitment fee of .5% per annum, is renewable annually, subject to the
consent of both parties. No borrowings were drawn under the Line of
Credit during the nine months ended June 30, 1996. In conjunction
with the Company's leasing arrangement discussed below, a letter of
credit in the amount of $200,000 was issued which reduces the
availability under the Company's Line of Credit to $100,000.
<PAGE>
5. EDS AGREEMENT
On February 9, 1996 the Company entered into a five year marketing
agreement with Electronic Data Systems Corporation (EDS), which
provides the Company with the exclusive right to distribute and
sublicense the EDS CoSTAR(TM) hard disk audio storage and retrieval
system to radio stations within the United States and its territories.
The CoSTAR(TM) system is a collection of integrated software applications
that allows a broadcaster to digitally record and edit material for
distribution within a facility on a local area network (LAN) or to
remote sites via a wide area network (WAN). The growing trend to
multi-station facilities and the expansion of broadcast groups allow
broadcasters to take advantage of the cost savings of consolidation
and the marketing opportunities of multimedia technologies. The
agreement provides exclusive distribution rights to the Company
through December 31, 2000, subject to meeting certain annual
performance goals. The Company also anticipates entering into service
agreements with end users of the CoSTAR(TM) system. The CoSTAR(TM) system
is not expected to impact revenues until fiscal year ending September
30, 1997 due to further development needs and support systems.
Developments necessary to market the product have been started by EDS.
6. LEASES
In May 1996 the Company entered into a capital lease agreement for
the financing of the upgrade of its computer hardware and software
systems. Costs financed on the project as of June 30, 1996 were
approximately $400,000. The total cost of the project is estimated at
$500,000 and is anticipated to be completed by the end of the next
fiscal year. The lease is backed by a $200,000 letter of credit which
must be renewed annually subject to the renewal of the Company's Line
of Credit. The requirement under the lease of the letter of credit
will be reviewed on an annual basis. The lease has a term of three
years and contains an option to purchase the equipment at its fair
market value or renew the lease at its fair market rental value at the
end of the initial term. Property leased under the capital lease is
included in property and equipment and amortized over the life of the
lease. Amortization of the lease of approximately $12,000 for the
nine months ended June 30, 1996 is included in depreciation expense.
<PAGE>
Future minimum lease payments under the lease as of June 30, 1996 are
as follows:
<TABLE>
<CAPTION>
<S> <C>
Fiscal
1996 39,038
1997 155,204
1998 155,204
1999 90,536
Total minimum lease payments 439,982
Less amount representing
interest (39,463)
Net present value of minimum
lease payments $400,519
</TABLE>
TM CENTURY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
TM Century, Inc. is primarily engaged in the creation, production,
marketing, and worldwide distribution of compact disc music libraries,
production libraries, station identification jingles, computer
software used in music scheduling, specialized computer equipment and
software, and compact disc players for radio stations.
LIQUIDITY AND CAPITAL RESOURCES
The Company relies upon current sales of music libraries, jingles, and
specialized computer equipment and software on terms of cash upon
delivery for operating liquidity. Liquidity is also provided by
monthly revenues under three-year contracts for production libraries
and under weekly music service contracts having one month to three-
year terms. The Company is obligated to provide music updates
throughout the contract terms for its weekly music service contracts.
Sales of music libraries, jingles, and specialized computer equipment
and software and the payments under production library and weekly
music service contracts will provide, in the opinion of management,
adequate liquidity to meet operating requirements at least through the
end of fiscal year 1996.
<PAGE>
During the nine months ended June 30, 1996, the Company made capital
expenditures of $32,000 for the purchase of property and equipment and
incurred product development costs of $112,000 for software
development, new music libraries, and music library updates. Funds
for operating needs, new product development, and capital expenditures
for the period were provided from cash reserves. The Company's
expenditures for property, equipment, and development of new products
are discretionary. In May 1996 the Company entered into a lease
agreement for the financing of an upgrade of its computer hardware and
software systems, which is anticipated to be completed by the end of
the next fiscal year. The cost of the project is estimated at
$500,000, of which approximately $400,000 has been financed as of June
30, 1996. The term of the lease is three years and the lease is
backed by a letter of credit in the amount of $200,000. The letter of
credit reduces the availability under the Company's revolving Line of
Credit from $300,000 to $100,000. Management anticipates that cash
flow from operations and cash reserves will be sufficient to meet
these capital requirements.
The Company's revolving Line of Credit with a bank provides a negative
pledge on all accounts receivable, contract rights, and inventory of
the Company. Borrowings under the Line of Credit bear a fluctuating
interest rate of prime plus 1.5%, payable monthly. The Line of
Credit, which bears a commitment fee of 0.5% per annum, is renewable
annually, subject to the consent of both parties. The Line of Credit
was renewed effective February 28, 1996. No borrowings were drawn
under the Line of Credit during the quarter.
RESULTS OF CONTINUING OPERATIONS
Comparison of the Three Month Periods Ended June 30, 1996 and 1995
Revenues declined approximately 18% in the three month period ended
June 30, 1996 as compared to the same period for the previous year.
The decrease was due primarily to a decline in compact disc music
library sales prices and volume and declines in production library and
software sales volume.
As the compact disc music library market matures, sales of compact
discs are generated primarily from changes in music formats rather
than from conversions to compact disc music delivery technology.
Management believes that the decline in compact disc music library
revenues may continue as the compact disc music library market has
reached a substantial level of maturity in the United States, which is
the market from which the Company derives most of its music library
revenues. A decline in revenues from music library sales may result
in a proportionately greater decline in operating income because music
libraries provide higher margins than the Company's other products.
The decrease in production library revenue resulted primarily from the
expiration of three-year contracts entered into by the Company with
customers in prior years. The decrease in revenues resulted from a
reduced demand for new contracts and the nonrenewal of expired
contracts in the United States. Although production library revenues
may continue to decline as additional three-year contracts expire,
management believes that production libraries will continue to
generate a significant portion of overall revenues from sales of new
products as well as existing products. Renewals and new sales growth
are subject to customer acceptance of the new products.
<PAGE>
The decline in software revenue was due to the change in the software
supplier and the difficulty in transitioning customers to a new
software. During January 1996, the Company's agreement with its
previous supplier of computer software used by customers in
programming music play sequences and for automated music playback
systems was terminated. Negotiations with another supplier were
finalized in the second quarter of fiscal year 1996. Due to the
difficulty in transitioning customers to a new software, revenues from
software sales are expected to be below 1995 levels for the remainder
of fiscal year 1996. Revenues of computer software comprised 7% of
revenues during fiscal year 1995.
Production, programming and technical costs decreased as the result of
restructuring and cost reduction measures which were initiated during
the second quarter of fiscal year 1995. This included a reduction of
personnel and other cost cutting measures as well as the
discontinuation of unprofitable product lines.
General and administrative costs also decreased as a result of these
restructuring and cost reduction measures.
Selling costs decreased due to decreases in advertising and promotion
expenses.
Other expenses increased for a provision on the loss on the
disposition of equipment retired as a result of the upgrade of the
Company's computer hardware and software systems.
Comparison of the Nine Month Periods Ended June 30, 1996 and 1995
Revenues declined approximately 21% in the nine month period ended
June 30, 1996 as compared to the same period for the previous year.
The decrease was due primarily to a decline in compact disc music
library sales volume and prices and declines in production library,
and specialized computer equipment and software sales volume. Refer
to discussion above concerning compact disc music libraries and
production libraries for the three month period ended June 30, 1996.
Management believes that the decline in specialized computer equipment
sales was due primarily to a restructuring of the marketing staff in
the first quarter of fiscal 1996 to create a separate technical sales
department and to the training time devoted by the technical sales
force to the new EDS CoSTAR(TM) hard disc audio storage and retrieval
system. Sales of weekly music services increased during the period
partially offsetting the overall decrease in music library revenues.
Production, programming and technical costs decreased as the result of
the restructuring and cost reduction measures discussed above for the
three month period ended June 30, 1996.
Selling costs decreased due to decreases in advertising and promotion
expenses as well as convention and convention-related advertising
expenses incurred in October of the prior year.
<PAGE>
General and administrative costs decreased as a result of the
restructuring and cost reduction measures discussed above and
compensation, legal and other professional fees associated with the
resignation of a director and officer of the Company in November,
1994.
PART II. OTHER INFORMATION
Item 1. Legal proceedings - Not applicable.
Item 2. Changes in securities - Not applicable.
Item 3. Defaults upon senior securities - Not applicable.
Item 4. Submission of matters to a vote of security holders - Not
applicable.
Item 5. Other information - Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10. Material Contracts:
(a) Letter Amendment Agreement and Letter of Credit Supplement
Agreement to Loan and Security Agreement and Term Note by and
between Merrill Lynch Business Financial Services Inc. and TM
Century, Inc. dated April 22, 1996 and April 18, 1996; and Letter
of Credit Agreement by and between Merrill Lynch Business
Financial Services Inc., The Northern Trust Company, and TM
Century, Inc. dated April 30, 1996.
(b) Master Lease Agreement by and between USL Capital Corporation
and TM Century, Inc. dated May 2, 1996.
(c) Employment Agreement between TM Century, Inc. and R. David
Graupner dated May 6, 1996.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the three
month period ending June 30, 1996.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: August 14, 1996
TM CENTURY, INC.
BY:/s/Janette L. Williams
Janette L. Williams
Chief Accounting Officer
(Principal Accounting Officer)
BY:/s/Neil W. Sargent
Neil W. Sargent
Chief Executive Officer
(Principal Executive Officer)
Private Client Group
Merrill Lynch Business
Financial Services Inc
33 West Monroe Street
22nd Floor
Merrill Lynch Chicago, Illinois 60603 312/269-1385
FAX 312/201-0210
April 22, 1996
TM Century, Inc.
2002 Academy
Dallas, TX 75234-9220
Re: Amendment to Loan Documents
Dear Jeanette:
This Letter Agreement will serve to confirm certain agreements of
Merrill Lynch Business Financial Services Inc. ("MLBFS") and TM
Century, Inc. ("Customer'') with respect to: (i) that certain WORKING
CAPITAL MANAGEMENT ACCOUNT AGREEMENT AND RELATED WCMA NOTE NO. 586-
07R66 between MLBFS and Customer (including any previous amendments
and extensions thereof), and (ii) all other agreements between MLBFS
and Customer in connection therewith (collectively, the "Loan
Documents"). Capitalized terms used herein and not defined herein
shall have the meaning set forth in the Loan Documents.
Subject to the terms hereof, effective as of the "Effective Date", the
Loan Documents are hereby amended as follows:
1 .Subject to the terms of the Loan Documents (including the Letter of
Credit Supplement included therein), MLBFS has approved letter of
credit availability for Customer under the WCMA Line of Credit,
limited to the lesser of: (i) $200,000.00 or (ii) the then remaining
availability under Customer's WCMA Line of Credit. Each letter of
credit will be issued by a corresponding bank after approval both by
MLBFS and that bank as to the terms of the requested letter of credit
and execution by Customer of all documents required by MLBFS and that
bank. Each letter of credit will be subject to the approval of MLBFS
and the issuing bank, and when issued will reduce the remaining
availability under Customer's WCMA Line of Credit by the amount of
such letter of credit and its related fees. In connection with said
letter of credit availability, Customer acknowledges and agrees:
(a) Concurrently with its acceptance hereof, Customer will pay to
MLBFS by check a non-refundable Letter of Credit Commitment Fee in the
amount of $500.00.
(b) All other fees will be charged in accordance with the terms of the
Letter of Credit Supplement included in the Loan Documents.
(c) No letter of credit expiry date shall extend beyond the Maturity
Date.
<PAGE>
Additional fees may apply under certain circumstances. All fees
(except for the Letter of Credit Commitment Fee) will be charged to
Customer's WCMA Account at the applicable time. Please be advised,
generally a letter of credit takes a minimum of 72 hours to be issued
from the date the required documents are returned and accepted by
MLBFS.
TM Century, Inc.
April 22, 1996
Page No. 2
Except as expressly amended hereby, the Loan Documents shall continue
in full force and effect upon all of their terms and conditions.
Customer acknowledges, warrants and agrees, as a primary inducement to
MLBFS to enter into this Agreement, that: (i) no default or Event of
Default has occurred and is continuing under the Loan Documents; (ii)
each of the warranties of Customer in the Loan Documents are true and
correct as of the date hereof and shall be deemed remade as of the
date hereof; (iii) Customer does not have any claim against MLBFS or
any of its affiliates arising out of or in connection with the Loan
Documents or any other matter whatsoever, and (iv) Customer does not
have any defense to payment of any amounts owing, or any right of
counterclaim for any reason under, the Loan Documents.
The amendments and agreements in this Letter Agreement will become
effective on the date (the "Effective Date") upon which: (i) Customer
shall have executed and returned the duplicate copy of this Letter
Agreement and the other document enclosed herewith; (ii) an officer of
MLBFS shall have reviewed and approved this Letter Agreement and said
other document as being consistent in all respects with the original
internal authorization hereof; and (iii) to the extent applicable,
MLBFS shall have entered such amendments and agreements in its
computer system (which MLBFS agrees to do promptly after the receipt
of such executed duplicate copy and other document). Notwithstanding
the foregoing. if for any reason other than the sole fault of MLBFS
the Effective Date shall not occur within 14 days from the date of
this Letter Agreement, then all of said amendments and agreements
herein will, at the sole option of MLBFS, be void.
Very truly yours,
Merrill Lynch Business Financial Services Inc.
By: (Signature)
Peter Christopoulos
Credit Analyst
Accepted:
TM Century, Inc.
Printed Name: Neil Sargent
Title: President/CEO
<PAGE>
Merrill Lynch
No. 586-07R66
LETTER OF CREDIT SUPPLEMENT
This LETTER OF CREDIT SUPPLEMENT ("Supplement") is hereby made a part
of that certain WORKING CAPITAL MANAGEMENT ACCOUNT AGREEMENT AND
RELATED WCMA NOTE AND SECURITY AGREEMENT NO. 586-07R66 (the "Loan
Agreement") between MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC.
("MLBFS") and TM CENTURY, INC ("Customer').
In connection with Customer's WCMA Line of Credit under the Loan
Agreement, Customer may from time to time apply for the opening of
letters of credit by an Issuing Bank, subject in each case to the
consent and approval of MLBFS. This Supplement sets forth the
understandings between MLBFS and Customer with respect to any and all
such letters of credit.
Accordingly, and in consideration of the mutual covenants of the
parties hereinafter set forth, MLBFS and Customer hereby agree as
follows:
1. DEFINITIONS.
(a) Specific Terms. In addition to terms defined elsewhere in the Loan
Agreement or in any exhibit or amendment thereto or document
incorporated therein (which terms shall have the same meaning herein),
when used herein, the following terms shall have the following
meanings:
(i) "Application" shall mean the applicable Issuing Bank's document or
documents used to apply for and request, with MLBFS' prior approval, a
Credit to be issued by such Issuing Bank under this Supplement and the
applicable CLC Agreement.
(ii) "Business Day" means any day upon which the applicable Issuing
Bank's principal office is open for the conduct of substantially all
of its banking functions.
(iii) "CLC Agreement" means that agreement which Customer enters into
with the applicable Issuing Bank in consideration of such Issuing
Bank's role in connection with the Letter of Credit Arrangement under
the WCMA Program.
(iv) "Credit" means a letter of credit authorized and agreed to by the
applicable Issuing Bank from time to time to be issued on Customers
behalf and which is issued by such Issuing Bank at Customer's request
with MLBFS' consent while this Supplement and the applicable CLC
Agreement are in effect.
(v) "Document" means not only documents of title, but also all other
papers, securities, invoices, certificates, letters, notices,
receipts, telegrams, telex or telephonic transmissions, facsimiles,
computer data printouts and any other tangible expression of words or
data, whether transmitted or delivered by written, electromagnetic or
other means.
<PAGE>
(vi) "Draft" means any bill of exchange or acceptance, whether payable
at sight or at a future time. If a Credit provides for presentation of
Documents without Drafts, references herein to Drafts, acceptances,
Documents relative thereto or payments or acceptances thereof, shall
refer to Documents presented for payment against or acceptances of
such Documents, and all rights and obligations hereunder shall be the
same as though Drafts had accompanied such Documents.
(vii) "Issuing Bank" refers as of the date hereof to Mellon Bank
(East) National Association ("Mellon") or The Northern Trust Company
("Northern") or Bank of America Illinois (formerly known as
Continental Bank, N.A.) ("Bank of America'3, as applicable, and
"Issuing Banks" refers as of the date hereof to Mellon, Northern and
Bank of America, collectively. MLBFS reserves the right without notice
to or the consent of Customer to<PAGE>
designate any other or additional financial institutions as an Issuing
Bank, and upon any such designation by MLBFS, such other or additional
financial institutions shall be included in the definition of issuing
Bank and Issuing Banks for all purposes hereof.
(viii) "Letter of Credit Arrangement" shall mean the arrangement made
between MLBFS and each Issuing Bank with respect to the issuance of
Credits in connection with the WCMA Program.
(b) Other Terms. Except as otherwise provided herein or in the Loan
Agreement, other terms herein shall
have the meaning assigned to them by the "Uniform Customs and Practice
for Documentary Credits"
(1983 Revision) International Chamber of Commerce Publication No. 500.
2. APPLICATIONS FOR THE ISSUANCE OF CREDITS.
Each Application executed by Customer shall constitute a certification
by Customer that all representations and warranties made by Customer
in this Supplement, the applicable CLC Agreement and in the Loan
Agreement are true and correct as of the date of such Application.
Upon receipt of an Application, MLBFS may elect, but shall not be
required, to request that an Issuing Bank issue or amend a Credit in
connection with MLBFS' Letter of Credit Arrangement in response
thereto. In no event, however, shall (i) the aggregate amount
outstanding under all such Credits exceed $200,000.00, or (ii) the
expiration date of any Credit extend beyond the Maturity Date of the
WCMA Line of Credit. Amendments to any Application and requests to
amend any Credit issued shall be in accordance with the procedures of
the applicable Issuing Bank and MLBFS governing such amendments.
Customer expressly acknowledges and agrees that in order to make
Applications or request amendments by certain means permitted by the
procedures of the applicable Issuing Bank and MLBFS (including, but
not limited to, microcomputer transmissions), Customer may be required
to execute one or more additional agreements governing the rights and
duties of Customer, the Issuing Bank and/or MLBFS with respect
thereto. Customer further acknowledges and agrees that upon the
issuance of each Credit, the WCMA Line of Credit under the Loan
Agreement will be reduced by the amount of such Credit so long as such
Credit remains outstanding.
<PAGE>
3. PAYMENT OBLIGATIONS.
(a) Customer unconditionally agrees to pay to MLBFS: (i) as to any
Drafts or claims drawn under or made in connection with any Credit,
all amounts paid or payable by MLBFS under, pursuant to or in
connection with such Credit; (ii) all fees and charges of MLBFS in
connection with such Credit and/or Application, which fees and charges
shall be in such amount or at such rate as MLBFS shall determine in
its sole discretion; and (iii) any and all expenses, obligations or
charges paid or incurred by MLBFS, the applicable Issuing Bank or any
of its correspondents in connection with such Credit, this Supplement
and/or the applicable CLC Agreement. A schedule of the current fees,
charges and limitations applicable to this Supplement and any Credit
issued pursuant hereto is set forth on Exhibit A attached hereto and
hereby made a part hereof. The Commitment Fee referred to on said
Exhibit A shall apply only with respect to the period between the date
hereof and the current Maturity Date of the WCMA Line of Credit. In
the event of any renewal of the WCMA Line of Credit, an additional
Commitment Fee shall be payable in the amount then determined by
MLBFS. The acceptance of any Commitment Fee by MLBFS shall not in any
event obligate MLBFS to consent to the issuance of any Credit or
particular number of Credits. No fees or charges shall be refundable
under any circumstances.
(b) Provided that no Event of Default shall then have occurred and is
continuing, within a reasonable time after the presentation of any
Drafts or other third party claims in connection with any Credit,
MLBFS will increase the WCMA Line of Credit by an amount equal to the
lesser of: (i) the aggregate amount of such Drafts or claims, or (ii)
the amount by which the WCMA Line of Credit was previously reduced on
account of such Credit.
(c) Without limiting in any way Customer's obligations to pay MLBFS
any amounts due pursuant to or in connection with any Credit, this
Supplement or the applicable CLC Agreement, Customer hereby
irrevocably authorizes MLBFS to pay on Customers behalf any and all
amounts due pursuant to or in connection with any Credit or this
Supplement or the applicable CLC Agreement, upon the demand of the
applicable Issuing Bank for payment.
(d) In order to make such payments to the applicable Issuing Bank on
Customers behalf, or MLBFS for the fees and charges referred to
above or other sums payable, Customer hereby irrevocably authorizes
MLBFS to: (i) debit Customers WCMA Account, electronically, by draft,
and/or by any other means that MLBFS may in its sole discretion deem
appropriate, and Customer understands and agrees that such debit may,
without limitation, cause the redemption of any and all of Customer's
shares in a CMA money market fund and/or the withdrawal of any and all
of its deposits maintained in any ISA arrangement and Customer
irrevocably authorizes Merrill Lynch, Pierce, Fenner & Smith
Incorporated to redeem and/or withdraw such fund shares and/or
deposits to pay the amounts to MLBFS; and (ii} should an insufficient
amount of or no cash, CMA money market fund shares and/or ISA balances
be available in Customers WCMA Account, advance funds from Customers
WCMA Line of Credit on account thereof; all without notice to or any
separate consent of Customer.
<PAGE>
(e) All payments to which MLBFS is entitled shall be made to MLBFS by
Customer free and clear of and without deduction for any present and
future foreign taxes, exchange regulation charges or other levies,
deductions or withholdings of any kind, and shall be made in United
States currency.
4. EXAMINATION OF CREDITS, INSTRUMENTS AND DOCUMENTS: DISCREPANCIES.
(a) Customer shall promptly examine a copy of each Credit (and any
amendments thereto) sent to it by MLBFS and/or an Issuing Bank and all
other instruments and documents (or copies thereof) delivered to it
from time to time by MLBFS and/or such Issuing Bank in connection
therewith, and Customer shall, within one Business Day of its receipt
thereof, notify MLBFS and such Issuing Bank by telecommunication or
other expeditious means of communication of any discrepancy,
irregularity or claim of non-compliance with the instructions set
forth in the appropriate Application or amendment request. Customer
shall be conclusively deemed to have waived any claim against MLBFS
and such Issuing Bank and its correspondents in connection with such
Credit unless it notifies MLBFS and such Issuing Bank in accordance
with the term of the previous sentence.
(b) In the event that MLBFS and/or the applicable Issuing Bank
notifies Customer as to any discrepancy between any instrument or
document presented under any Credit and the requirements of such
Credit, Customer shall, within one Business Day of its receipt of such
notice (:or such shorter interval as circumstances may require and of
which the applicable Issuing Bank shall advise Customer), notify MLBFS
by telecommunication or other expeditious means of communication as to
Customers acceptance or non-acceptance thereof. Customer shall also
notify such Issuing Bank of all such instances in accordance with
terms of the applicable CLC Agreement. Customer shall be conclusively
deemed to waive any claim of improper honor or dishonor of any Credit,
or of improper payment therefor, if it fails to so notify MLBFS and
such Issuing Bank within the time and in the manner required herein.
5. COMPLIANCE WITH LEGAL REQUIREMENTS.
Customer shall procure all licenses and comply with all formalities
necessary for the import, export and shipping of any property in
connection with any Credit and shall comply with all applicable
domestic and foreign laws, orders and regulations (including those
relating to exchange). Upon MLBFS' request, Customer shall promptly
furnish MLBFS and the Issuing Bank with certificates evidencing such
compliance. Customer hereby certifies and warrants to MLBFS on a
continuing basis that: (i) no transactions with respect to any
property shipped in connection with any Credit are or will be
prohibited under any United States or foreign law, order or
regulation, and (ii) each shipment covered by any Credit or regulation
and any Documents required thereunder, shall fully conform to all
applicable United States and foreign laws, orders and regulations.
<PAGE>
6. LIMITATIONS.
(a) Customer agrees that neither MLBFS, the applicable Issuing Bank,
nor any of its correspondents shall be responsible for, and Customers
obligation to pay and/or reimburse MLBFS shall not be affected by: (i)
acts or omissions of any other person, including, without limitation,
any beneficiary or assignee of any Credit, and any correspondent,
agent or sub-agent; (ii) the existence, character, nature, quality,
quantity, condition, packing value or delivery of goods purporting to
be represented by Documents; (iii) the validity, sufficiency,
genuiness or collectibility of Documents (including insurance) or
instruments, or of any endorsements thereon; (iv) any irregularity in
connection with shipment, including, without limitation, any default
or fraud by the shipper or others, the time, place, manner or order of
shipment, non-shipment of goods or partial or incomplete shipments,
failure to arrive or delay in arrival of goods or Documents, or
failure to give notice of shipment or arrival of goods or Documents;
(v) breach of contract between Customer and any Credit beneficiary or
other party; (vi) consequences of compliance with laws, orders,
regulations or customs in effect in places of negotiation or payment
of any Credit; (vii) failure of Drafts or other payment demands to
bear reference or adequate reference to any Credit; (viii) failure of
any negotiating bank to comply with MLBFS' directions, (ix) failure of
any party to surrender or take up any Credit, (x) failure of any party
to note the amount of any Draft or payment demand on the reverse side
of any Credit, or forward Documents apart from Drafts as required by
the terms of any Credit (each of which requirements may be waived by
the applicable Issuing Bank even if included in any Credit); (xi)
errors, omissions, interruptions or delays in transmission or delivery
of any messages, however sent and whether plain or in code or cipher,
or errors in translation or interpretation of technical or other
terms; or (xii) without limiting the foregoing, any other act or
omission not done or omitted in bad faith.
(b) MLBFS shall have no duty to inquire into: (i) the existence of any
disputes or controversies between Customer and the beneficiary of any
Credit or any other person, 'including without limitation the
applicable Issuing Bank and/or its correspondents, or (ii) the truth,
accuracy or occurrence of any fact or event referred to in any
certificate or other Document presented under or in connection with
any Credit. MLBFS' sole obligation shall be limited to honoring
requests for payment by the applicable Issuing Bank made under and in
compliance with any Credit notwithstanding: (A) any assistance which
MLBFS may have rendered in connection with the preparation of the
wording of the Credit or any certificate or other Documents required
to be presented thereunder, or (B) any awareness or knowledge which
MLBFS may have concerning any transaction giving rise to any Credit.
<PAGE>
7. INDEMNIFICATION AND INCREASED COSTS.
(a) Customer agrees to indemnify and hold MLBFS, the applicable
Issuing Bank and its correspondents and their respective officers,
agents, directors, successors and assigns harmless from and against
any and all claims, losses, liabilities and expenses (including
reasonable attorneys' fees) resulting from or incurred in connection
with this Supplement, any Application and/or any Credit, and, without
limiting the foregoing, Customer agrees to bear and pay all reasonable
expenses of every kind for the enforcement of any of MLBFS' and/or the
applicable Issuing Bank's rights herein mentioned or of any claim or
demand by MLBFS and/or the applicable Issuing Bank against Customer;
excluding, however, from said indemnity any such claims, liabilities,
etc. arising directly out of the willful wrongful act or active gross
negligence of MLBFS or the Issuing Bank. If any attorney is used at
any time or from time to time to enforce any of said obligations or
this Supplement or to represent MLBFS and/or such Issuing Bank in any
legal proceeding concerning any Credit (including, without limitation,
any attempt by Customer to enjoin or delay MLBFS' payment for the
honor of a draft or payment demand under any Credit), MLBFS' and such
Issuing Bank's reasonable attorneys' fees shaft be added thereto.
(b) If any law or regulation, any change in any law or regulation, or
any interpretation thereof by any court or administrative or
governmental authority charged or claiming to be charged with the
administration thereof, or any change in generally accepted accounting
principles applicable to MLBFS and/or the applicable Issuing Bank,
shall: (i) impose, modify or make applicable any reserve, special
deposit or similar requirement against any Credits issued by such
Issuing Bank or with respect to this Supplement or the applicable CLC
Agreement, the Credit or any related Document or any transactions
hereunder or thereunder, or {ii) impose on MLBFS and/or the applicable
Issuing Bank any other condition regarding this
Supplement, the applicable CLC Agreement, the Credit or any related
Document, or (iii) subject MLBFS and/or the applicable Issuing Bank to
any tax, charge, fee, deduction or withholding of any kind whatsoever
and the result of any such event or any similar measure, shall be to
increase the cost to MLBFS or to such Issuing Bank with respect to
issuing or maintaining any Credit or to reduce the amount of principal
of, interest on, or any fee or compensation receivable by MLBFS and/or
such Issuing Bank in respect of any Credit or this Supplement,
Customer shall promptly pay to MLBFS or such Issuing Bank, upon
demand, and from time to time upon receipt from MLBFS and/or such
Issuing Bank of a certificate as to such increased cost, completed as
of the effective date of such change of interpretation, all additional
amounts which are necessary to compensate MLBFS and/or such Issuing
Bank for such increased cost. A certificate from MLBFS or the
applicable Issuing Bank as to increased costs shall show the manner of
calculation and shall be conclusive (absent manifest error) as to the
amount thereof, In addition, without limiting the foregoing, if any
such change in applicable law or regulations, or interpretation
thereof or in generally accepted accounting principles should occur,
but such change or interpretation does not increase any cost or reduce
any fee or compensation, Customer nevertheless agrees to pay to MLBFS
a fee which will adequately compensate MLBFS, in its' reasonable
judgment, for any adverse non-monetary impact on MLBFS.
<PAGE>
8. INSURANCE.
Customer shall keep all property shipped in connection with any Credit
insured in such amounts, against such risks, upon such terms and with
such insurers as may be required by MLBFS from time to time, and shall
furnish to MLBFS on request a certificate or other evidence
satisfactory to MLBFS of such insurance. Customer understands and
agrees that any insurance required to be obtained pursuant to this
Section is and shall be deemed supplemental to any required by or
obtained in favor of the applicable Issuing Bank.
9. RESERVATION OF RIGHTS OF MLBFS. MLBFS RESERVES THE RIGHT AT ANY
TIME WITHOUT NOTICE TO OR THE CONSENT OF CUSTOMER TO: (i) TERMINATE OR
MODIFY IN ANY MANNER ITS LETTER OF CREDIT ARRANGEMENT WITH ANY ISSUING
BANK, (ii) TERMINATE ITS LETTER OF CREDIT PROGRAM, (iii) REFUSE WITH
OR WITHOUT CAUSE TO APPROVE ANY REQUEST OR REQUESTS OF CUSTOMER FOR
ISSUANCE OR AMENDMENT OF A CREDIT AND (iv) TERMINATE OR AMEND THIS
SUPPLEMENT AND CUSTOMER'S RIGHTS HEREUNDER.
10. MISCELLANEOUS.
(a) Customer shall furnish MLBFS with a list of persons authorized to
act for Customer in connection with this Supplement, any Application
or any Credit issued pursuant to this Supplement. MLBFS shall be
authorized and entitled to rely upon any written or tele-transmitted
Application or other communication or any message or conversation by
telephone received or purporting to be received from one of such
persons or any other person reasonably believed by MLBFS to be duly
authorized to act for Customer hereunder.
(b) Customer shall not assign any of its rights and/or obligations
hereunder unless the prior written consent of each of MLBFS and the
applicable Issuing Bank is obtained. Customer acknowledges and agrees
that MLBFS may freely assign or delegate any of its rights and duties
hereunder, or in connection with any Credit, to any entity without
notice to or the consent of Customer.
(c) No delay on the part of MLBFS and/or the applicable Issuing Bank,
or on the part of any assignee, in exercising any power or right
hereunder shall operate as a waiver of any power or right; nor shall
any single or partial exercise of any power or right hereunder
preclude other or further exercise thereof, or the exercise of any
other power or right. The rights and remedies herein expressly
specified are cumulative and not exclusive of any other rights or
remedies which MLBFS and/or the applicable Issuing Bank or any of
their assigns may otherwise have or would have under applicable law.
(d) This Supplement shall be interpreted, construed and enforced
according to the laws of the State of Illinois, and may be enforced in
any jurisdiction in which the Loan Agreement may be enforced.
(e) MLBFS is hereby irrevocably authorized, but not obligated, to
obtain and receive any and all communications and/or material of any
nature whatsoever relating to Credits or in connection with
Customer's participation in MLBFS' Letter of Credit Arrangement,
including, without limitation, any and all communications from or to
the applicable Issuing Bank.
<PAGE>
(f) All notices and other communications required or permitted
hereunder shall be given and shall become effective in the manner and
at the time set forth in the Loan Agreement.
(g) If Customer shall fail to do any act or thing it has covenanted to
do under this Supplement or the applicable CLC Agreement or if any
representation or warranty on the part of Customer contained in this
Supplement or the CLC Agreement shall be breached, MLBFS may, in its
sole discretion, after 5 days written notice is sent to Customer, do
the same or cause it to be done or remedy any such breach, and may
expend its funds for such purpose; and any and all amounts so expended
by MLBFS shall be repayable to MLBFS by Customer immediately upon
MLBFS' demand therefor, with interest at the Interest Rate described
in the Loan Agreement during the period from and including the date
funds are so expended by MLBFS to the date of repayment, and any such
amounts due and owing MLBFS shall be additional Obligations of
Customer to MLBFS secured hereunder and under the Loan Agreement.
(h) Customer agrees to do such further acts and things and to execute
and deliver to MLBFS such additional agreements, instruments and
documents as MLBFS may reasonably require or deem advisable to carry
into effect the purposes of this Supplement, or to confirm unto MLBFS
its rights, powers and remedies under this Supplement.
(i) This Supplement shall be governed by and interpreted under the
laws of the State of Illinois, and may be enforced by MLBFS in any
jurisdiction where the Loan Agreement may be enforced.
(j) Whenever possible, each provision of this Supplement shall be
interpreted is such manner as to be effective and valid under
applicable law. Any provision of this Supplement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective only to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of this
Supplement or affecting the validity or enforceability of such
provision in any other jurisdiction.
(k) This Supplement is an Additional Agreement under the Loan
Agreement, constitutes the entire understanding and represents the
full and final agreement between the parties with respect to the
subject matter hereof, and may not be contradicted by evidence of
prior written agreements or prior, contemporaneous or subsequent oral
agreements of the parties. There are no unwritten oral agreements
between the parties.
IN WITNESS WHEREOF, this Supplement has been executed as of April 18,
1996.
TM CENTURY, INC
By: (Signatures)
Neil Sargent Janette Williams
President/CEO Chief Accounting Officer
Accepted at Chicago, Illinois:
MERRILL LYNCH BUSINESS FINANCIAL
SERVICES INC.
By: (Signature)
Peter Christopoulos
<PAGE>
EXHIBIT A
ATTACHED TO AND HEREBY MADE A PART OF THAT CERTAIN LETTER OF CREDIT
SUPPLEMENT TO WORKING CAPITAL MANAGEMENT ACCOUNT AGREEMENT AND RELATED
WCMA NOTE AND SECURITY AGREEMENT NO. 5116-07R66 BETWEEN MERRILL LYNCH
BUSINESS FINANCIAL SERVICES INC. AND TM CENTURY, INC.
Stand-By Letters of Credit:
Commitment Fee: Issuance Fee: Amendment Fee: Stand-By Commission:
Cancellation Fees Negotiation Fees: Cable Fees:
Commitment Fee: 1/4% flat
Issuance Fee: $200 each
Amendment Fee: $150 each
Stand-by-Commission: 1.0% flat, or $1,000, whichever is higher
Cancellation Fees: $150.00
Negotiation Fees: 1/2% flat or $500 minimum per draw
Cable Fees: $50 each
The Northern Trust Company
P.O. Box
50 South La Salle Street, L-4
Chicago, Illinois 60675
S.W.I.F.T. ADDRESS: CN0RUS44
Telex: TRT/FTCC 824183 MCI 6871719
Telephone: (412) 630-6000
IRREVOCABLE LETTER OF CREDIT
Letter of Credit No. S264513 Date: May 02, 1996
Beneficiary Applicant
USL Capital Corporation TM Century, Inc.
Business Equipment Financing 2002 Academy
733 Front Street Dallas, TX 75234-9220
USL CAPITAL
MASTER LEASE AGREEMENT
Lessor: USL CAPITAL CORPORATION Lessee: TM Century, Inc.
Address: 733 Front Street Address: 2002 Academy
San Francisco, California 94111 Dallas, TX 75234
TERMS AND CONDITIONS OF LEASE
The undersigned Lessee hereby requests Lessor to purchase the personal
property described in any Equipment Schedule hereunder (herein called
"Equipment") from supplier listed in any Equipment Schedule hereunder
(herein called "Vendor" and/or "Manufacture", as applicable) and to
lease the Equipment to Lessee on the terms and conditions of the lease
set forth below.
Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor,
the Equipment upon the following terms and conditions:
1. NO WARRANTIES BY LESSOR. Lessee has selected the Equipment and may
have entered into certain purchase, licensing, or maintenance agreements
with the Vendor and/or Manufacturer (herein referred to as an "Acquisition
Agreement") covering the Equipment as further described in Paragraph 26
hereof. If Lessee has entered into any Acquisition Agreement, each
agreement shall provide for certain rights and obligations of the parties
thereto with respect to the Equipment, and Lessee shall perform all of the
obligations set forth in each Acquisition Agreement as if this lease
did not exist. LESSOR MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO ANY
MATTER WHATSOEVER, INCLUDING THE CONDITION OF THE EQUIPMENT, ITS
MERCHANTABILITY OR ITS FITNESS FOR ANY PARTICULAR PURPOSE, AND, AS TO
LESSOR, LESSEE LEASES THE EQUIPMENT "AS IS." LES-SOR SHALL HAVE NO
LIABILITY FOR ANY LOSS, DAMAGE OR EXPENSE OF ANY KIND .WHATSOEVER
RELATING THERETO, INCLUDING WITH-OUT LIMITATION ANY SPECIAL, INDIRECT,
INCIDENTAL OR CONSE-QUENTIAL DAMAGES OF ANY CHARACTER.
2. CLAIMS AGAINST VENDOR AND/OR MANUFACTURER. If the Equipment is not
properly installed, does not operate as represented or warranted by
Vendor and/or Manufacturer, or is unsatisfactory for any reason, Lessee
shall make any claim on account thereof solely against Vendor and/or
Manufacturer pursuant to the Acquisition Agreement, if any, and shall,
nevertheless, pay Lessor all rent payable under this lease. All
warranties from Vendor and/or Manufacturer are, to the extent they are
assignable, hereby assigned to Lessee for the term of the lease or
until an Event of Default occurs hereunder, for Lessee's exercise at
Lessee's expense. Lessee may directly inquire with Vendor and/or
Manufacturer to receive an accurate and complete statement of such
warranties, including any disclaimers or limitations of such warranties
or of any remedies with respect thereto.
3. VENDOR NOT AN AGENT. Lessee understands and agrees that neither
Vendor, nor any sales representative or other agent of Vendor, is an
agent of Lessor. Sales representatives or agents of Vendor, and persons
that are not employed by Lessor (including brokers and agents) are not
authorized to waive or alter any term or condition of this lease, and
no representation as to the Equipment or any other matter by Vendor or
any other person that is not employed by Lessor (including brokers and
agents) shall in any way affect Lessee's duty to pay the rent and
perform its other obligations as set forth in this lease.
<PAGE>
4. NON-CANCELLABLE LEASE. This lease and any Equipment
Schedule hereto cannot be cancelled or terminated except as expressly
provided herein. Lessee agrees that its obligation to pay all rent and
other sums payable hereunder and the rights of Lessor in and to such
rent are absolute and unconditional and are not subject to any
abatement, reduction, setoff, defense, counterclaim or recoupment due
or alleged to be due to, or by reason of, any past, present or future
claims which Lessee may have against Lessor, any assignee, any
Manufacturer or Vendor, or against any person for any reason
whatsoever.
5. ORDERING EQUIPMENT. Lessee shall arrange for delivery of the
Equipment so that it can be accepted in accordance with Paragraph 6
hereof within 90 days after the date on which Lessor accepts Lessee's
offer to enter into this lease with respect to any Equipment Schedule
or by such other date as may be set forth in an Equipment Schedule or
Commitment Letter issued by Lessor as the Commitment Expiration Date.
Unless otherwise specified on the Equipment Schedule, Lessee shall be
responsible for all transportation, packing, installation, testing and
other charges in connection with the delivery, installation and use of
the Equipment. Lessee hereby authorizes Lessor to insert in any
Equipment Schedule hereunder the serial numbers and other
identification data of Equipment when determined by Lessor.
6. ACCEPTANCE. Lessee acknowledges that for purposes of receiving or
accepting the Equipment from Vendor, Lessee is acting on Lessor's
behalf. Upon delivery of the Equipment to Lessee and Lessee's
inspection thereof, Lessee shall furnish Lessor a written statement (a)
acknowledging receipt of Equipment in good condition and repair and (b)
accepting it as satisfactory in all respects for the purposes of this
lease (the "Certificate of Acceptance"). Unless otherwise set forth in
the applicable Equipment Schedule, the first day of the month following
receipt and acceptance of the Equipment covered by an Equipment
Schedule shall be the Rent Commencement Date therefor. However, should
Lessee have a previous lease with Lessor which is active at the time of
acceptance of the Equipment under the Equipment Schedule and said lease
and the current Equipment Schedule hereunder shall have the same
invoice address then the Rent Commencement Date shall occur in the
month immediately following acceptance of the Equipment on the rent
payment due date established with Lessee for said previous active
lease. Lessor is authorized to fill in on any Equipment Schedule
hereunder the Rent Commencement Date in accordance with the foregoing.
7. TERMINATION BY LESSOR. If, by the Commitment Expiration Date, the
Equipment described in any Equipment Schedule has not been delivered to
Lessee and accepted by Lessee as provided in Paragraph 6 hereof, or if
other conditions of Lessor's Commitment Letter, if any, have not been
met, then Lessor may, at its option, terminate this lease and its
obligations hereunder with respect to such Equipment Schedule at any
time after the Commitment Expiration Date. Lessor shall give Lessee
written notice whether or not it elects to exercise such option within
10 days after Lessor's receipt of Lessee's written request for such
notice.
8. TERM. The term of this lease shall be comprised of an Interim Term
and an Initial Term. The Interim Term shall commence on the date the
Certificate of Acceptance is executed by Lessee (the "Acceptance Date")
and terminate on the Rent Commencement Date. The Initial Term of the
Lease shall begin on the Rent Commencement Date, and shall terminate on
the later of (i) the last day of the last month of the Initial Term (as
that Term is set forth in the applicable Equipment Schedule hereto) or
(ii) the date Lessee fulfills all Lessee's obligations hereunder.
<PAGE>
9. RENTAL. The rental amount payable to Lessor by Lessee for the
Equipment will be set forth in the Equipment Schedule(s) ("Rental
Amount"). As the first rent payment for the Equipment, Lessee shall pay
Lessor in immediately available funds on the Rent Commencement Date the
sum of, (i) the Rental Amount, and (ii) Interim Rent in an amount equal
to 1/30th of the Rental Amount times the number of days from and
including the Acceptance Date through but excluding the Rent
Commencement Date, and subsequent rent payments shall be due on the
same day of each calendar period as indicated on the Equipment Schedule
for the balance of the Initial Term. Rent payments shall be due whether
or not Lessee has received any notice that such payments are due. All
rent payments shall be paid to Lessor at its address set forth on the
Equipment Schedule or as otherwise directed by Lessor in writing. 10.
RENEWAL. If no default shall have occurred and be continuing, Lessee
shall be entitled to renew the lease with respect to all, but not less
than all, of the Equipment covered by an Equipment Schedule for a
minimum 12 montheriod at an amount equal to the fair market rental
value thereof, in use and operational, in the condition required by the
lease, payable on a periodic basis, as mutually agreed by Lessor and
Lessee ("Renewal Rent"). Lessee must give Lessor written notice of its
intention to exercise said option, which notice must be received by
Lessor at least 90 days before expiration of the Initial Term. The
first installment of the Renewal Rent shall be due at expiration of the
Initial Term of the lease. Should Lessee fail to comply with the
provisions described above covering Renewal, upon expiration of the
Initial Term, the term of the lease shall be automatically extended for
a term of 3 months. Thereafter, the term of the lease will be extended
for subsequent full month periods, on a month to month basis, until
Lessee has given at least 90 days written notice terminating the lease.
Such termination will take effect upon completion of all Lessee's
obligations under the lease (including payment of all periodic rental
payments due during such 90 day period, as provided in Paragraph 9 of
the lease). At any time after the expiration of the Initial Term, if
the lease has been automatically extended as set forth herein, Lessor
reserves the right to terminate the lease by 30 days written notice to
Lessee.
11. LOCATION; INSPECTION; LABELS. The Equipment shall be delivered to
and shall not be removed without Lessor's prior written consent from
the "Equipment Location" shown on the related Equipment Schedule, or if
none is specified, Lessee's billing address shown on the Equipment
Schedule. Lessor shall have the right to inspect the Equipment at any
reasonable time. If Lessor supplies Lessee with labels stating that the
Equipment is owned by Lessor, Lessee shall affix such labels to and
keep them in a prominent place on the Equipment.
12. REPAIRS; USE; ALTERATIONS. Lessee, at its own cost and expense,
shall keep the Equipment in good repair and working order, in the same
condition as when delivered to Lessee, reasonable wear and tear
excepted, and in accordance with the manufacturer's recommended
specifications; shall use the Equipment lawfully; shall not alter the
Equipment without Lessor's prior written consent, shall use the
Equipment in compliance with any existing Manufacturer's service and
warranty requirements and any insurance policies applicable to the
Equipment and shall furnish all parts and servicing required therefor.
<PAGE>
All parts, repairs, additions, alterations and attachments placed on or
incorporated into the Equipment which cannot be removed without damage
to the Equipment shall immediately become part of the Equipment and
shall be the property of the Lessor. Lessee will obtain and maintain
all permits, licenses and registrations necessary to lawfully operate
the facility where the Equip-ment is located. Lessee shall comply with
all applicable environmental and industrial hygiene laws, rules and
regulations (including but not limited to federal, state, and local
environmental protection, occupational, health and safety or similar
laws, ordinances and restrictions). Lessee shall, not later than 5 days
after the occurrence of any event, provide Lessor with copies of any
report of such event that is required to be filed with governmental
agencies regulating environmental claims. Lessee shall immediately
notify Lessor in writing of any existing, pending or threatened
investigation, inquiry, claim or action by any governmental authority
in connection with any law, rule or regulation relating to industrial
hygiene or environmental conditions that could affect the Equipment.
13. MAINTENANCE. If the Equipment is such that Lessee is not normally
capable of maintaining it, Lessee, at its expense, shall enter into and
maintain in full force and effect throughout the Initial Term, and any
renewal term, Vendor and/or Manufacturer's standard maintenance
contract, and shall comply with all its obligations thereunder. An
alternate source of maintenance may be used with Lessor's prior written
consent. Such consent shall be granted if, in Lessor's reasonable
opinion, the Equipment will be maintained in an equivalent state of
good repair, condition and working order.
14. SURRENDER. Provided that Lessee does not exercise the purchase
option as set forth in Paragraph 28 hereof, upon the expiration of the
Initial Term, or any renewal term, or upon demand by Lessor made
pursuant to Paragraph 22 of the lease, Lessee, at its expense, shall
return all, but not less than all, of the Equipment by delivering it to
such place or on board such carrier, packed for shipping, as Lessor may
specify. Lessee agrees that the Equipment, when returned, shall be in
the same condition as when delivered to Lessee, reasonable wear and
tear excepted, and in a condition which will permit Lessor to be
eligible for Manufacturer's standard maintenance contract without
incurring any expense to repair or rehabilitate such Equipment. Lessee
shall be liable for reasonable and necessary expenses to place the
Equipment in such condition. Lessee shall remain liable for the
condition of the Equipment until it is received and accepted at the
destination designated by Lessor as set forth above. If any items of
Equipment are missing or damaged when returned, such occurrence shall
be treated as an event of Loss or Damage with respect to such missing
or damaged items and shall be subject to the terms specified in
Paragraph 15 below. Lessee shall provide Lessor with a Letter of
Maintainability from the Manufacturer of the Equipment, which letter
shall state that the Equipment will be eligible for the Manufacturer's
standard maintenance contract when sold or leased to a third party.
Lessee shall give Lessor prior written notice that it is returning the
Equipment as provided above, and such notice must be received by Lessor
at least 90 days prior to such return. Should Lessee fail to comply
with the provisions described above covering surrender, upon expiration
of the Initial Term, the term of the lease shall be automatically
extended for a term of 3 months. Thereafter, the term of the lease
will be extended for subsequent full month periods, on a month to
month basis, until Lessee has given at least 90 days written notice
terminating the lease. Such termination will take effect upon
<PAGE>
completion of all Lessee's obligations under the lease (including
payment of all periodic rental payments due during such 90 day
period, as provided in Paragraph 9 of the lease).
15. LOSS OR DAMAGE. Lessee shall bear the entire risk of loss, theft,
destruction of or damage to the Equipment or any item thereof (herein
"Loss or Damage") from any cause whatsoever. No Loss or Damage shall
relieve Lessee of the obligation to pay rent or of any other obligation
under this lease. In the event of Loss or Damage, Lessee, at the option
of Lessor, shall: (a) place the same in good condition and repair; (b)
replace the same with like equipment acceptable to Lessor in good
condition and repair with clear title thereto in Lessor; or (c) pay to
Lessor the total of the following amounts: (i) the total rent and other
amounts due and owing at the time of such payment, plus (i i) an amount
calculated by Lessor which is the present value at 5% per annum simple
interest discount of all rent and other amounts payable by Lessee with
respect to said item from date of such payment to date of expiration of
its Initial Term, plus (iii) the "reversionary value" of the Equipment,
which shall be determined by Lessor as the total cost of the Equipment
less 60% of the total rent (net of sales/use taxes, if any) required to
be paid pursuant to Paragraph 9. Upon Lessor's receipt of such payment,
Lessee and/or Lessee's insurer shall be entitled to Lessor's interest
in said item, for salvage purposes, in its then condition and location,
"as-is", without any warranty, express or implied.
16. INSURANCE.
Lessee shall provide, maintain and pay for (a) all risk property
insurance against the loss or theft of or damage to the Equipment, for
the full replacement value thereof, naming Lessor as a loss payee, and
(b) commercial general liability insurance (and if Lessee is a doctor,
hospital or other health care provider, medical malpractice insurance).
All such policies shall name Lessor as an additional insured and shall
have combined single limits in amounts acceptable to Lessor. All such
insurance policies shall be endorsed to be primary and non-contributory
to any policies maintained by Lessor. In addition, Lessee shall cause
Lessor to be named as an additional insured on any excess or umbrella
policies purchased by Lessee. A copy of each paid-up policy evidencing
such insurance (appropriately authenticated by the insurer) or a
certificate of the insurer providing such coverage proving that such
policies have been issued, providing the coverage required hereunder
shall be delivered to Lessor prior to the Rent Commencement Date. All
insurance shall be placed with companies satisfactory to Lessor and
shall contain the insurer's agreement to give 30 days written notice to
Lessor before cancellation or any material change of any policy of
insurance.
17. TAXES. Lessee shall reimburse to Lessor (or pay directly if, but
only if, instructed by Lessor) all charges and taxes (local, state and
federal) which may now or hereafter be imposed or levied upon the sale,
purchase, ownership, leasing, possession or use of the Equipment;
excluding, however, all income taxes levied on (a) any rental payments
made to Lessor hereunder, (b) any payment made to Lessor in connection
with Loss or Damage to the Equipment under Paragraph 15 hereof, or (c)
any payment made to Lessor in connection with Lessee's exercise of its
purchase option under Paragraph 28 hereof.
18. LESSOR'S PAYMENT. If Lessee fails to provide or maintain said
insurance, to pay said taxes, charges and fees, or to discharge any
levies, liens and encumbrances created by Lessee, Lessor shall have the
right, but shall not be obligated, to obtain such insurance, pay such
taxes. charges and fees, or effect such discharge. In that event,
Lessee shall remit to Lessor the cost thereof with the next rent
payment.
<PAGE>
19. INDEMNITY. (a) General Indemnity. Lessee shall indemnify Lessor
against and hold Lessor harmless from any and all claims, actions,
damages, costs, expenses including reasonable attorneys' fees,
obligations, liabilities and liens (including any of the foregoing
arising or imposed under the doctrines of "strict liability" or
"product liability" and including without limitation the cost of any
fines, remedial action, damage to the environment and cleanup and the
fees and costs of consultants and experts), arising out of the
manufacture, purchase, lease, ownership, possession, operation,
condition, return or use of the Equipment, or by operation of law,
excluding however, any of the foregoing resulting from the sole
negligence or willful misconduct of Lessor. Lessee agrees that upon
written notice by Lessor of the assertion of such a claim, action,
damage, obligation, liability or lien, Lessee shall assume full
responsibility for the defense thereof. Lessee's choice of counsel
shall be mutually acceptable to both Lessee and Lessor. This indemnity
also extends to any environmental claims arising out of or relating to
prior acts or omissions of any party whatsoever. The provisions of this
paragraph shall survive termination of this lease with respect to
events occurring prior to such termination.
(b) Tax Indemnity. Lessee acknowledges that Lessor shall be entitled to
all tax benefits of ownership with respect to the Equipment (the "Tax
Benefits"), including but not limited to, (i) the accelerated cost
recovery deductions determined in accordance with Section 168(b)(1) of
the Internal Revenue Code of 1986 for the Equipment based on the
original cost of the Equipment to Lessor (ii) deductions for interest
on any indebtedness incurred by Lessor to finance the Equipment and
(iii) sourcing of income and losses attributable to this lease to the
United States. Lessee represents that the Equipment shall be
depreciable for tax purposes utilizing the MACRS Recovery Period as set
forth in the Equipment Schedule, with such depreciation commencing as
of the date of Equipment acceptance by Lessee as set forth on the
Certificate of Acceptance. Lessee agrees to take no action inconsistent
with the foregoing or any action which would result in the loss,
disallowance or unavailability to Lessor of all or any part of the Tax
Benefits. Lessee hereby indemnifies and holds harmless Lessor and its
assigns from and against (i) the loss, disallowance, unavailability or
recapture of all or any part of the Tax Benefits resulting from any
action, statement, misrepresentation or breach of warranty or covenant
by Lessee of any nature whatsoever including but not limited to the
breach of any representations, warranties or covenants contained in
this paragraph, plus (ii) all interest, penalties, fines or additions
to tax resulting from such loss, disallowance, unavailability or
recapture, plus (iii) all taxes required to be paid by Lessor upon
receipt of the indemnity set forth in this paragraph. Any payments made
by Lessee to reimburse Lessor for lost Tax Benefits shall be calculated
(i) on the assumption that Lessor is subject to the maximum Federal
Corporate Income Tax with respect to each year and that all Tax
Benefits are currently utilized, and (if) without regard to whether
Lessor or any members of a consolidated group of which Lessor is also a
member is then subject to any increase in tax as a result of the loss
of Tax Benefits. For the purposes of this paragraph, "Lessor" includes
for all tax purposes the consolidated taxpayer group of which Lessor is
a part.
(c) Payment. The amounts payable pursuant to this Paragraph 19 shall be
payable upon demand of Lessor, accompanied by a statement describing in
<PAGE>
reasonable detail such claim, action, damage, cost, expense, fee,
obligation, liability, lien or tax and setting forth the computation of
the amount so payable, which computation shall be binding and
conclusive upon Lessee, absent manifest error. The indemnities and
assumptions of liabilities and obligations contained in this Paragraph
19 shall continue in full force and effect not with-standing the
expiration or other termination of this lease.
20. ASSIGNMENT. Without Lessor's prior written consent, Lessee shall
not assign, transfer, pledge, hypothecate or otherwise dispose-of this
lease, the Equipment, or any interest therein. Lessee's interest in
this lease may not be assigned or transferred by operation of law
without Lessor's prior written consent, which will not be unreasonably
withheld. Without Lessor's prior written consent, Lessee shall not
sublet or lend the Equipment or permit it to be used by anyone other
than Lessee or Lessee's employees. Lessor may assign this lease in
whole or in part without notice to Lessee. If Lessee is given notice of
such assignment it agrees to acknowledge receipt thereof in writing.
Each such assignee shall have all of the rights, but none of the
obligations, of Lessor under this lease. Lessee shall not assert
against assignee any defense, counterclaim or offset that Lessee may
have against Lessor. Not with-standing any such assignment, Lessor
warrants that Lessee shall quietly enjoy use of the Equipment subject
to the terms and conditions of this lease so long as Lessee is not in
default hereunder. Subject to the foregoing, this lease inures to the
benefit of and is binding upon the successors and assigns of the
parties hereto.
21. DELINQUENT PAYMENTS. (a) Service Charge. Since it would be
impractical or extremely difficult to fix Lessor's actual damages for
collecting and accounting for a late payment, if any payment to Lessor
required herein (including, but not limited to, rental, renewal, tax,
purchase and other amounts) is not paid on or before its due date,
Lessee shall pay to Lessor an amount equal to 5% of any such late
payment. (b) Interest. Lessee shall also pay interest on any such late
payment from the due date thereof until the date paid at the lesser of
18% per annum or the maximum rate allowed by law.
22. DEFAULT; REMEDIES. Any of the following shall constitute an Event
of Default: If a) Lessee fails to pay when due any rent or other amount
required herein to be paid by Lessee, or b) Lessee makes an assignment
for the benefit of creditors, whether voluntary or involuntary, or c) a
petition is filed by or against Lessee under any bankruptcy, insolvency
or similar legislation, or d) Lessee violates or fails to perform any
provision of either this lease or any Acquisition Agreement, or
violates or fails to perform any covenant or repre~ sentation made by
Lessee herein, or e) Lessee makes a bulk transfer of furniture,
furnishings, fixtures or other equipment or inventory, or f) Lessee
ceases doing business as a going concern or there is a change in the
legal structure of ownership of Lessee, or a consolidation or merger of
Lessee into or with another entity, which results, in the opinion of
Lessor, in a material adverse change in Lessee's ability to perform its
obligations under the lease, or g) any representation or warranty made
by Lessee in this lease or in any other document or agreement furnished
by Lessee to Lessor shall prove to have been false or misleading in any
material respect when made or when deemed to have been made. An Event
of Default with respect to any Equipment Schedule shall constitute an
Event of Default for all Equipment Schedules. Lessee shall promptly
notify Lessor of the occurrence of any Event of Default.
If an Event of Default occurs, Lessor shall have the right to
<PAGE>
exercise any one or more of the following remedies in order to protect
the interests and reasonably expected profits and bargains of Lessor:
a) Lessor may terminate this lease with respect to all or any part of
the Equipment, b) Lessor may recover from Lessee all rent and other
amounts then due and as they shall thereafter become due hereunder, c)
Lessor may take possession of any or all items of Equipment, wherever
the same may be located, without demand or notice, without any court
order or other process of law and without liability to Lessee for any
damages occasioned by such taking of possession, and any such taking of
possession shall not constitute a termination of this lease, d) Lessor
may recover from Lessee, with respect to any and all items of
Equipment, and with or without repossessing the Equipment the sum of
(1) the total amount due and owing to Lessor at the time of such
default, plus (2) an amount calculated by Lessor which is the present
value at 5% per annum simple interest discount of all rent and other
amounts payable by Lessee with respect to said item(s) from date of
such payment to date of expiration of its Initial Term, plus (3) the
"reversionary value" of the Equipment, which shall be determined by
Lessor as the total cost of the Equipment less 60% of the total rent
(net of sales/use taxes, if any) required to be paid pursuant to
Paragraph 9, and which the parties agree is a reasonable estimate of
such value; and upon the payment of all amounts described in clauses
(1), (2) and (3) above, Lessee will become entitled to the Equipment AS
IS, WHERE IS, without warranty whatsoever; provided, however, that if
Lessor has repossessed or accepted the surrender of the Equipment,
Lessor shall sell, lease or otherwise dispose of the Equipment in a
commercially reasonable manner, with or without notice and on public or
private bid, and apply the net proceeds thereof (after deducting all
expenses, including attorneys' fees incurred in connection therewith),
to the sum of (1), (2) and (3) above, and e) Lessor may pursue any
other remedy available at law or in equity, including but not limited
to seeking damages or specific performance and/or obtaining an
injunction.
No right or remedy herein conferred upon or reserved to Lessor is
exclusive of any right or remedy herein or by law or equity provided or
permitted; but each shall be cumulative of every other right or remedy
given hereunder or now or hereafter existing at law or in equity or by
statute or otherwise, and may be enforced concurrently therewith or
from time to time, but Lessor shall not be entitled to recover a
greater amount in damages than Lessor could have gained by receipt of
Lessee's full, timely and complete performance of its obligations
pursuant to the terms of this lease plus accrued delinquent payments
under Paragraph 21.
23. LESSOR'S EXPENSE. Lessee shall pay Lessor all costs and expenses,
including reasonable attorneys' fees and the fees of collection
agencies, incurred by Lessor in enforcing any of the terms, conditions,
or provisions hereof or in protecting Lessor's rights herein. Lessee's
obligation hereunder includes all such costs and expenses expended by
Lessor (a) prior to filing of an action, (b) in connection with an
action which is dismissed, and (c) in the enforcement of any judgment.
Lessee's obligation to pay Lessor's attorneys' fees incurred in
enforcing any judgment is a separate obligation of Lessee, severable
from Lessee's other obligations hereunder, which obligation will
survive such judgment and will not be deemed to have been merged into
such judgment.
24. OWNERSHIP; PERSONAL PROPERTY. The Equipment shall at all times
remain the property of Lessor and Lessee shall have no right, title or
<PAGE>
interest therein or thereto except as expressly set forth in this lease
and the Equipment shall at all times be and remain personal property
notwithstanding that the Equipment or any part thereof may now be, or
hereafter become, in any manner, affixed or attached to real property
or any improvements thereon.
25. NOTICES. Service of all notices under this lease shall be
sufficient if given personally or mailed to the respective party at its
address set forth on any Equipment Schedule, or at such address as
either party may provide in writing from time to time. Any such notice
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered
into on this May 6, 1996 by and between TM Century, Inc., a Delaware
corporation (the "Company") and R. David Graupner (the "Employee").
WITNESSETH:
RECITALS:
1. Company is engaged in the business of providing products and
services to radio stations and other companies and to the television
and film industries.
2. Company desires to employ Employee and Employee desires
employment with the Company upon the following terms and conditions.
AGREEMENTS:
ARTICLE 1
EMPLOYMENT AND TERM
1.01 Employment. The Company hereby employs the Employee, and the
Employee accepts employment with the Company, to serve the Company as
Vice President/Operations and in any additional position to which he
may hereafter be appointed by the President during the Employment
Term. Employee acknowledges and agrees that (i) the employment
relationship created between the Employee and the Company is a
contractual relationship; (ii) the Company's right to terminate this
Agreement is subject to the terms on this Agreement; and (iii) the
employment relationship is created by this Agreement is not an "at-
will" relationship.<PAGE>
1.02 Employment Term. Employee's employment hereunder shall be for
a term of three years commencing on May 6, 1996 unless earlier
terminated pursuant to Article 5 hereof. The term "Employment Term"
shall mean the term stated herein.
ARTICLE 2
DUTIES OF EMPLOYEE
2.01 Duties. The Company hereby employs the Employee as Vice
President/Operations of the Company, and the Executive hereby accepts
such employment with the Company in such capacity, and to perform such
other reasonable duties and services for the Company and its
Affiliates (as defined in Section 4.08) as shall be assigned to him
from time to time by the President of the Company (the "Services").
Except for travel required from time to time in connection with the
performance of his duties under this Agreement, as Vice
President/Operations of the Corporation, the Employee and the Company
agree that his duties shall be performable at the Company's
headquarters.
<PAGE>
2.02 Attention to Duties. During the Employment Term the Employee
shall devote his entire productive time, ability, attention, and best
efforts to the business of the Company. The Employee shall not
directly or indirectly render any services of a business, commercial,
or professional nature to any other person or organization, whether
for compensation or otherwise, without the prior written consent of
Company.
ARTICLE 3
COMPENSATION
3.01 Base Salary. As compensation for services hereunder and in
consideration for the protective covenants set forth in Article 4
hereof, the Employee shall be paid an annual salary of $100,000,
payable in twenty-four (24) equal installments, in accordance with the
Company's customary payroll procedures. At the end of each fiscal year
and at such other times as they determine in their sole discretion the
Board of Directors or the Compensation Committee of the Board of
Directors will review the Employee's salary and other compensation and
determine whether any salary increase or increase in other
compensation is appropriate. Nothing contained herein will, however,
be construed to require the Company to increase the Employee's salary
or other compensation.
3.02 Bonus. The Company has a bonus plan which provides for bonus
awards based on the profitability of the Company, and the Employee
shall be eligible to participate in the plan.
3.03 Other Benefits. During the Employment Term the Company shall
provide Employee with the same insurance and other benefits that the
Company makes available to other similarly situated employees in
accordance with the Company's policies as they exist from time to
time.
3.04 Vacation and Sick Pay. The Employee shall be entitled to an
annual paid vacation of fifteen (15) business days with full pay, Such
vacation shall be taken at a time selected by the Employee and
approved by the Company. In addition, the Employee shall be entitled
to ten (10) business days per year as sick leave or personal business
days with full pay. Vacation time, sick leave and personal business
days may be accumulated and used by January 15th of the year following
the year in which such days were earned, but if not used by January
15th of the calendar year following the year in which they were
earned, they shall be deemed to have been waived by the Employee.
3.05 Holidays. The Employee shall be entitled to a holiday with
full pay on New Year's Day, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, Christmas Day, and such other days as the Company
shall from time to time determine.
3.06 Business Expenses. The Employee is authorized to incur
reasonable and necessary business expenses in the performance of the
Employee's duties under this Agreement, including expenditures for
travel and entertainment. The Company will reimburse the Employee from
time to time for all such business expenses, provided that the
Employee presents to the Company:
<PAGE>
(a) A statement of expense in which the Employee recorded at or near the
time each expenditure was made:
&
(i) the amount of the expenditure;
(ii) the time, place and type of entertainment and travel or other
expense;
(iii) the reason for the expenditure and the nature of the business
benefit derived or
expected to be derived as a result of the expenditure;
(iv) the name, occupation, address and any other pertinent information
concerning each person who is entertained, sufficient to establish
the business relationship to the Company; and
(b) Documentary evidence, such as receipts or paid bills, that state
sufficient information to establish the amount, date, place and
essential character of the expenditure for each expenditure.
(c) If such statement of expense is not presented to the Company within 60
days of such expense the Company will have no obligation to reimburse
said expense.
ARTICLE 4
PROTECTIVE COVENANTS
4.01 General. Employee expressly acknowledges and agrees that he
has been and will be given access to and become familiar with Trade
Secrets (as defined in Section 4.03) developed at the Company's
expense, which are valuable, unique, and essential to the performance
of Employee's duties hereunder, as well as being essential to the
overall continued success and business goodwill of the company.
Employee expressly acknowledges and agrees that the Trade Secrets are
proprietary and confidential, and if any of the Trade Secrets were
imparted to or become known by any person(s) engaging in a business in
any way competitive with that of the Company's, such would result in
hardship, loss, irreparable injury and damage to the Company, the
measurement thereof would be difficult, if not impossible, to
determine. Accordingly, Employee expressly agrees that (i) the Company
has a legitimate interest in protecting the Trade Secrets and its
business goodwill, (ii) it is necessary for the Company to protect its
business from such hardship, loss, irreparable injury and damage,
(iii) the following covenants are a reasonable means by which to
accomplish that purpose, and (iv) any intentional violation of any of
the protective covenants contained herein shall constitute a breach of
trust and represent grounds for immediate dismissal and for
appropriate legal action for damages, enforcement and/or injunction
4.02 Noncompetition. Employee covenants that, during the term of
this Agreement and for a period of one (1) year immediately thereafter
(the "Limitation Period"), irrespective of which party terminates this
Agreement and whether such termination is for cause or otherwise, he
will not directly or indirectly, either as an employee, employer,
consultant, agent, principal, partner, stockholder (other than
ownership of securities of publicly held corporations of which
Employee owns less than one percent (1%) of any class of outstanding
<PAGE>
securities), corporate officer, director, investor, or financier or in
any other individual or representative capacity, directly or
indirectly:
(a) Engage or participate in any business within the Prohibited Area, as
hereinafter defined, that is in competition in any manner whatsoever
with the Company's business and the products or services offered by
the Company in such areas, without the prior written consent of the
Company. For purposes of this subsection & the term "Prohibited Area"
means the United States and any foreign country in which the Company's
products or services are sold at the time this Agreement is
terminated.
(b) Solicit or attempt to solicit, any of the Company's past, present or
prospective (as of the termination of this Agreement) investors,
customers, or suppliers, in any manner which is competitive with the
Company's business as it is operated as of the termination of
Employee's employment hereunder;
(c) Induce, or attempt to induce, any employee of the Company to
terminate his employment or hire away or attempt to hire away,
any employee of the Company;
(d) Induce, or attempt to induce, any present or future supply or service
resource (including investment and other financing resources) to
withdraw, curtail, or cancel the furnishing of supplies or services
(including investment and other financing resources) to the Company;
or
(e) Engage in any act or activity which would interfere with or harm
any business relationship the Company may have with any investor,
customer, employee, principal or supplier.
4.03 Trade Secrets. It is understood that during the course of his
employment hereunder, the Employee will have access to and become
familiar with certain proprietary and confidential information of the
Company (the "Trade Secrets"), which includes, by way of illustration
and not by way of limitation:
(a) Lists containing the names of past, present and prospective
customers, employees, principals, and suppliers;
(b) The past, present and prospective methods, procedures and techniques
utilized in identifying prospective markets, customers, and suppliers
and in soliciting the business thereof;
(c) The past, present and prospective methods, procedures and techniques
used in the operations of the Company's business, including marketing
plans and objectives and the methods, procedures and techniques
utilized in selling, pricing, applying and delivering the Company's
products and services; and,
(d) Compilations of information, records, and processes which are owned or
developed by the Company and/or which are used in the operation of the
business of the Company, including, without limitation, electronically
stored information.
<PAGE>
Trade Secrets do not include information which (i) at the time it
is disclosed by the Employee was already known to the public; or (ii)
is required to be disclosed by a court order.<PAGE>
Employee acknowledges that the Trade Secrets give the Company an
advantage over its competitors, and that the same is not available to
or known by the Company's competitors or the general public. Employee
further acknowledges that the Company has devoted substantial time,
money, and effort in the development of the Trade Secrets and in
maintaining the proprietary and confidential nature thereof. Employee
further acknowledges his position with the Company is one of the
highest trust and confidence by reason of Employee's knowledge of,
access to, and contact with the Trade Secrets. Employee agrees to use
his best efforts and exercise utmost diligence to protect and
safeguard the Trade Secrets. Employee covenants that, during the term
of this Agreement and for the Limitation Period regardless of which
party terminates this Agreement and whether such termination is for
cause, he will not intentionally disclose, disseminate or distribute
to another, nor induce any other person to disclose, disseminate or
distribute, any
Trade Secrets of the Company, directly or indirectly, either for
Employee's own benefit or for the benefit of another, whether or not
acquired, learned, obtained or developed by Employee alone or in
conjunction with others, nor will Employee use or cause to be used in
Trade Secrets in any way except as is required in the course of his
employment with the Company. For the purposes of this section, any
disclosure, dissemination or distribution of any Trade Secrets caused
by the Employee's gross negligence shall be deemed to be made
intentionally. Employee acknowledges and covenants that all Trade
Secrets relating to the business of the Company, whether prepared by
Employee or otherwise coming into his possession, shall remain the
exclusive property of the Company. Employee further covenants that all
memoranda, notes, records, drawings or other documents made, compiled,
acquired or received by Employee during the term of this Agreement and
in his possession or under his control at the termination of his
employment hereunder, concerning any corporate activity, including,
but not limited to, techniques and applications developed by the
Company, management techniques, names of investors and customers,
marketing and sales techniques, and product and service pricing
information, shall together with all copies, be delivered, in good
condition, to the Company immediately upon Employee's termination
(whether or not so requested by the Company), or at any time upon the
Company's request.
4.04 Extension of Limitation Period. The parties acknowledge that
if Employee violates any of the protective covenants hereunder and the
Company brings legal action for injunctive or other relief hereunder,
the Company shall, as a result of the time involved in obtaining the
relief, be deprived of the benefit of the full Limitation Period of
these protective covenants. Accordingly, the Limitation Period shall
be deemed to have the full duration of the period stated therein,
computed from the date relief is granted, but reduced by the time
between the period when the restriction began to run at the
termination of Employee's employment hereunder and the date of the
first violation of the covenant by Employee.
<PAGE>
4.05 Survival of Protective Covenants. Each covenant on the part of
Employee contained in this Article 4 shall be construed as an
agreement independent of any other provision of this Agreement and
shall survive the termination of this Agreement. The existence of any
claim or cause of action of Employee against the Company, whether
predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by the Company of such covenant.
4.06 Remedies for Breach. Employee acknowledges that the legal
remedies for breach of the protective covenants hereunder are
inadequate and therefore agrees that, in addition to all of the
remedies available to the Employee in the event of a breach or a
threatened breach of any covenant contained in this Article 4, the
Company may:
(a) Obtain temporary, preliminary, and permanent injunctions against
any and all such actions; and
(b) Seek to recover from Employee monetary damages to the Company arising
from such breach or threatened breach and all costs and expenses
(including attorneys' fees) incurred by the Company in the enforcement
of such protective covenants.
4.07 Intent of Parties.. Employee recognizes and agrees that this
Agreement is necessary and essential to protect the business of the
Company and to realize and derive all the benefits, rights, and
expectations of conducting the Company's business; that the area and
duration of the protective
covenants herein are in all things reasonable; and that good and
valuable consideration exists for Employee's agreement to be bound by
such protective covenants.
4.08 Affiliates of the Company. The protective covenants in the
Article 4 shall also benefit the business and Trade Secrets of the
Company's Affiliates (as hereinafter defined) and these covenants
shall be enforceable against Employer by each of such Affiliates as
third party beneficiaries. An "Affiliate" of the Company is any person
or entity that directly, or indirectly through one or may
intermediaries, controls or is controlled by, or is under common
control with, the Company.
ARTICLE 5
TERMINATION OF EMPLOYMENT
5.01 Resignation of Employee. In the event of the termination of
this Agreement prior to the completion of any term of employment
specified above by the voluntary resignation of the Employee, the
Employee shall be entitled to:
(a) his base salary earned prior to the date of termination as
provided for in Section 3.01 of this Agreement computed pro rata
up to and including the date of termination or resignation;
(b) accrued but unused vacation, sick leave and personal business
days; and
(c) nothing more.
<PAGE>
Employee expressly waives and releases any other or future right to
damages or additional compensation relating to termination of
Employee's employment pursuant to this Section 5.01.
5.02 Termination by Reason of Death or Disability of Employee.
(a) Upon the death of the Employee, the Employment Term shall
automatically terminate on the last day of the month in which
the death of Employee occurs.
(b) If Employee is determined to be Disabled (as hereinafter defined) then
the Company may, upon thirty (30) days written notice to Employee,
terminate Employee's employment hereunder, but in addition to the
benefits described in Section 5.02(c) below, Employee shall continue
to be eligible to receive any benefits to which he may be entitled
under the terms of the long-term disability coverage provided by the
Company. For the purposes of this Agreement, the "Disability" of
Employee shall mean any incapacity or inability to perform Employee's
normal or assigned duties to the Company, in either case due to injury
or illness (physical or mental), for a period of at least forty-five
(45) days out of any sixty (60) consecutive day period.
(c) Upon termination of employment pursuant to Section 5.02 (a) or (b)
of the Employee or his estate shall be entitled to receive:
(i) The base salary that the Employee was then receiving through the
date of termination as provided above;.
(ii) All bonuses earned through the date of termination, paid in
accordance with the terms of the bonus plan pursuant to which
the bonus was earned; and
(iii) Accrued by unused vacation and sick leave pay.
5.03 Termination by the Company for Cause. Subject to any
opportunity to cure on the part of Employee, the Company may for Cause
(as hereinafter defined) terminate Employee's employment hereunder
upon written notice specifying the particulars of the Cause. "Cause"
shall mean:
(a) Any intentional material breach by the Employee of any of the terms
and conditions of this Agreement, and for the purposes of this
section, any breach caused by the Employee's gross negligence shall be
deemed to be intentional;
(b) A breach of the Employee's fiduciary duties to the Company;
(c) Misappropriation of any material amount of the Company's assets;
(d) A plea of guilty or no contest to, or conviction of, a felony or a
serious misdemeanor, which would materially and adversely affect the
reputation of the Company or the utility of the Employee's services to
the Company in its business;
(e) A plea of guilty or no contest to, or is convicted of, a crime
involving moral turpitude;
<PAGE>
(f) Any conduct inimical to the best interests of the Company or any
dishonest, unethical, fraudulent, disloyal, or felonious act committed
or engaged in by Employee in respect of his duties to the Company
which would materially and adversely affect the reputation of the
Company or the utility of his services to the Company in its business;
(g) Employee's habitual negligence or nonfeasance in the performance
of his duties hereunder; or
(h) The inability of the Employee to pay his debts as they become
due, or the making of an assignment for the benefit of the
creditors.
With respect to any of the events specified in (a), (b), (f), and (g)
above, the Company will provide Employee with written notice thereof
and a ten (10) day opportunity to cure such matter to the satisfaction
of the Company. Termination of Employee shall not affect any of the
Company's other rights and remedies at law, in equity, or under this
Agreement.
In the event of the termination of this Agreement for any of the
reasons set forth in this Section 5.03 the Employee shall be entitled
to receive:
(a) his base salary earned prior to the date of termination as
provided in Section 3.01 of this Agreement computed pro rata up
to an including the date of termination;
(b) accrued but unused vacation, sick leave and personal business
days; and
(c) nothing more.
Employee expressly waives and releases any other or future right to
damages or additional compensation relating to termination of
Employee's employment pursuant to this Section 5.03.
5.04 Termination on Grounds Other Than for Cause, Death or
Disability. Should the Employee's employment hereunder be terminated
by the Company on grounds other than for cause, disability,
resignation or death, the Employee shall be entitled to receive, as
the Employee's sole remedy and as liquidated damages:
(a) the base salary that the Employee was then receiving for six
months following date of termination of employment, paid as set
forth in Section 3.01 above; and
(b) any bonuses earned throughout the date of termination, paid in
accordance with the terms of the bonus plan pursuant to which any
bonus may have been earned. The Employees share of any annual cash
bonus pool shall be computed pro rata based on the actual number of
days during the year the Employee was employed by the Company;
provided, however, nothing herein shall be construed to require the
Company to calculate or pay any bonus prior to the regularly scheduled
time for making such calculation or payment.
<PAGE>
(c) accrued but unused vacation and sick leave pay;
(d) professional "out placement services" at a cost not to exceed
"$5,000 from the out-placement consulting company of the Employee's
choice;
(e) ten days to exercise any stock options that have vested under the
terms of any Company Stock Option Plan in which the Employee is
then participating;
(g) life insurance benefits to six months and monthly payments for six
months equal to the monthly premium required by the Employee to
maintain his health insurance benefits pursuant to the Consolidated
Omnibus Budget Reconciliation Act of 1985 ("COBRA") under the
Company's group health insurance plan.
If the Employee is terminated by the Company other than for Cause
the Employee agrees to use his best efforts to locate other full time
employment. If the Employee obtains full time employment during the
period between his termination by the Company other than for Cause and
the end of the term of employment set forth in Section 1.02 above at a
salary that is greater than or equal to that set forth in Section 3.01
above the Company's obligations to make payments to the Employee under
this Section 5.04 shall immediately and forever cease. If the Employee
obtains full time employment during the period between his termination
by the Company other than for Cause and the end of the term of
employment set forth in Section 1.02 above at a salary level that is
less than that set forth in Section 3.01 above, the Company's
obligations to make payments under Section 5.04(a) above shall
immediately and forever be reduced to the difference between the
salary set forth in Section 3.01 above and the salary which the
employee receives from such other employment. If the Employee obtains
part time employment during the period between his termination by the
Company other than for Cause and the end of the term of employment set
forth in Section 1.02 above the Company's obligations to make payments
under Section 5.94(a) above shall be reduced to the difference between
the salary set forth in Section 3.01 above and all salary or wages
received by the Employee from time to time from such part time
employment. Employee hereby expressly waives and releases
any other or further right to damages or additional compensation
relating to termination of Employee's employment hereunder.
ARTICLE 6
INVENTIONS
Employee agrees that all processes, procedures, programs,
discoveries, formulae, improvements, technologies, designs, inventions
(collectively, 'Inventions"), including new contributions,
developments, ideas, and discoveries, whether or not patentable or
copyrightable, conceived, developed, invented, or made solely by
Employee, or jointly with others, during the Employment "Term shall be
conclusively deemed "work for hire" and is property of, and belong to,
the Company. In connection therewith, Employee shall:
<PAGE>
(a) Promptly disclose all such Inventions to the Company
(b) Assign to the Company, without additional compensation, all patent,
copyright, trademark, tradename, servicemark and other rights to such
Inventions, whether or not patentable, copyrightable or otherwise
protectable including all substitute, continuation-in-part, and
reissue applications, patents of addition or reissue applications,
patents of addition or confirmation relative thereto, for the United
States of America and foreign countries and sign all documents and
instruments necessary to carry out the foregoing;
(c) Give testimony in support of inventorship; provided, however, that if
such testimony is required after termination of the Employee's
employment with the Company the Company shall pay the Employee a fee
of $100 per hour for the time spent by the Employee in giving such
testimony and reasonable expenses incurred by the Employee in
connection with giving such testimony; and
(d) Use his best efforts to cooperate with the Company, and take such
further actions as Employee may request, in order to protect and
otherwise perfect Employee's rights to such Inventions.
Furthermore, if any Invention is described in a patent or copyright
application where it is disclosed to third parties, directly or
indirectly, by Employee within one (1) year after the termination of
employment by the Company, is presumed that the Invention was
conceived or made during the period of Employee's employment by the
Company. Employee agrees not to assert, and otherwise hereby waives,
any rights to any Invention as having been made or acquired prior to
the date of this Agreement, except for Inventions, if any, disclosed
to the Company in writing prior to the date hereof.
ARTICLE 7
ASSIGNMENT OF CONTRACT
7.01 Assignment by the Company. Employee understands and agrees
that the Company may assign all of its rights and delegate all of its
duties under this Agreement upon notice to Employee.
7.02 Assignment by Employee. Employee understands that this
Agreement is personal to him and that he may not assign his rights or
delegate his duties under this Agreement, or any portion thereof, to
any other person or entity without the prior written approval of the
Company.
ARTICLE 8
GENERAL PROVISIONS
8.01 Indemnification. Employee shall indemnify and hold each of the
Company and its Affiliates harmless against any and all cost, losses,
claims, and damages, including, the legal fees, costs, expenses, and
disbursements, incurred, in investigating, preparing, or defending any
<PAGE>
suit, investigation or proceeding as and when incurred by the Company
or any of its Affiliates, which are directly or indirectly, caused by,
relating to, based upon arising out of, or in connection with any
intentional breach of the covenants by Employee set forth in Section
2.02, Article 4, Article 6 or the occurrence of any event described in
Section 5.03. For the purposes of this Section, any breach caused by
the gross negligence of the Employee shall be deemed to be
intentional.
Provisions of this Section 8.01 shall survive the termination of this
Agreement.
8.02 Attorneys' Fees and Costs. If any action at law or in equity
is necessary to enforce or interpret any of the rights or obligations
under this Agreement, the prevailing party shall be entitled to
reasonable attorneys' fees, costs, and necessary disbursements in
addition to any other relief to which the prevailing party may be
entitled.
8.03 Miscellaneous.
(a) Amendments or Modifications. This Agreement may be amended or
modified from time to time but only by a written instrument
executed by all parties hereto.
(b) Notices. Notices and other communications provided for herein shall be
in writing and shall be delivered or mailed (or in a case of
telegraphic communication, delivered by telegram, telex, or facsimile
transmission, or other form of telegraphic communication), as follows:
If To: The Company
TM Century, Inc.
2002 Academy
Dallas, TX 75234
Attn: Nell Sargent, President/CEO
If To: The Employee
R. David Graupner
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