UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 27,1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
--------- ------------
Commission File No. 0-24784
PINNACLE SYSTEMS, INC.
-----------------------------------------------------
(Exact name of Registrant as specified in its charter)
California 94-3003809
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
280 N. Bernardo Ave.
Mountain View, CA 94043
- --------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(415)526-1600
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 shares of common stock outstanding as of December 27, 1996 was
7,523,380.
<PAGE>
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1 - Condensed consolidated financial statements
Condensed consolidated balance sheets -
December 31, 1996 and June 30, 1996 3
Condensed consolidated statements of operations -
three months and six months ended 4
December 31, 1996 and 1995
Condensed consolidated statements of cash flows -
six months ended December 31, 1996 and 1995 5
Notes to condensed consolidated financial statements 6
ITEM 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II - OTHER INFORMATION
ITEM 6 - Exhibits and Reports on Form 8-K 12
Signatures 13
See accompanying notes to condensed consolidated financial statements.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
PINNACLE SYSTEMS, INC. AND SUBSIDARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<CAPTION>
December 31, June 30,
1996 1996
-------- --------
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 34,815 $ 27,846
Marketable securities 24,106 29,315
Accounts receivable, less allowance for doubtful
accounts and returns of $1,286 and $840 as of
December 31, 1996 and June 30, 1996,
respectively 6,131 7,526
Inventories 5,242 9,611
Deferred taxes -- 2,091
Prepaid expenses 424 311
-------- --------
Total current assets 70,718 76,700
Property and equipment, net 4,400 2,204
Marketable securities -- 3,973
Deferred taxes -- 1,154
Other assets 628 530
-------- --------
$ 75,746 $ 84,561
======== ========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 1,565 $ 1,495
Accrued expenses 2,093 2,621
Deferred revenue 248 247
-------- --------
Total current liabilities 3,906 4,363
-------- --------
Commitments
Shareholders' equity:
Common stock; authorized 15,000 shares; 7,523 and
7,468 issued and outstanding as of December 31, and
June 30, 1996, respectively 78,266 77,902
Deferred compensation, net (23) (34)
Retained earnings (deficit) (6,403) 2,330
-------- --------
Total shareholders' equity 71,840 80,198
-------- --------
$ 75,746 $ 84,561
======== ========
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
PINNACLE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED COLSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<CAPTION>
Three Six
Months Ended Months Ended
December 31, December 31,
------------------------ ------------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 5,345 $ 11,845 $ 16,787 $ 21,166
Cost of sales 7,328 6,139 13,324 10,950
-------- -------- -------- --------
Gross profit (loss) (1,983) 5,706 3,463 10,216
-------- -------- -------- --------
Operating expenses:
Engineering and product development 2,063 1,279 3,845 2,211
Sales and marketing 2,514 2,179 5,208 4,055
General and administrative 1,426 609 2,190 1,050
-------- -------- -------- --------
Total operating expenses 6,003 4,067 11,243 7,316
-------- -------- -------- --------
Operating income (loss) (7,986) 1,639 (7,780) 2,900
Interest income, net 729 927 1,492 1,608
-------- -------- -------- --------
Income (loss) before income taxes (7,257) 2,566 (6,288) 4,508
Income tax expense (2,087) (834) (2,445) (1,513)
-------- -------- -------- --------
Net income (loss) $ (9,344) $ 1,732 $ (8,733) $ 2,995
======== ======== ======== ========
Net income (loss) per share $ (1.25) $ 0.22 $ (1.17) $ 0.39
======== ======== ======== ========
Shares used to compute net income (loss) per share 7,505 7,911 7,489 7,603
======== ======== ======== ========
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
PINNACLE SYSTEMS, INC. AND SUBSIDARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands)
<CAPTION>
Six Months Ended December 31,
-----------------------------
1996 1995
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (8,733) $ 2,995
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 671 269
Increase of valuation allowance on deferred tax assets 3,245 --
Tax benefit from exercise of common stock options -- 1,565
Loss on disposal of property and equipment 448 --
Changes in operating assets and liabilities:
Accounts receivable 1,395 (1,380)
Inventories 4,369 (2,925)
Accounts payable 70 1,827
Accrued expenses (528) 492
Other (301) (215)
-------- --------
Net cash provided by operating activities 636 2,628
-------- --------
Cash flows investing activities:
Purchases of property and equipment (3,213) (670)
Purchase of marketable securities (14,726) (28,274)
Proceeds from maturity of marketable securities 23,908 4,000
-------- --------
Net cash provided by (used in) investing activities 5,969 (29,944)
-------- --------
Cash flow from financing activities:
Proceeds from issuance of common stock 364 44,268
-------- --------
Net cash provided by financing activities 364 44,268
-------- --------
Net increase in cash and cash equivalents 6,969 21,952
Cash and cash equivalents at beginning of period 27,846 12,626
-------- --------
Cash and cash equivalents at end of period $ 34,815 $ 34,578
======== ========
Supplemental disclosures of cash paid during the period:
Interest $ 9 $ 6
======== ========
Income taxes $ 330 $ 48
======== ========
<FN>
See accompanying notes to condensed consolidated financial statements.
</FN>
</TABLE>
<PAGE>
PINNACLE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)
1. General
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles. However, certain information or
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to the rules and regulations of the Securities and Exchange
Commission. The information furnished in this report reflects all adjustments
which, in the opinion of management, are necessary for a fair statement of the
consolidated financial position, results of operations and cash flows as of and
for the interim periods. Such adjustments consist of items of a normal recurring
nature. The condensed consolidated financial statements included herein should
be read in conjunction with the financial statements and notes thereto, which
include information as to significant accounting policies, for the fiscal year
ended June 30, 1996 included in the Company's Annual Report on Form 10-K as
filed with the Securities and Exchange Commission on September 17, 1996. Results
of operations for interim periods are not necessarily indicative of results for
the full year.
2. Significant Accounting Policies
Fiscal Year
Pinnacle Systems, Inc. and its subsidiaries (the Company) reports on a fiscal
year which ends on June 30. The Company's first three fiscal quarters end on the
last Friday in September, December, and March. For financial statement
presentation, the Company has indicated its fiscal quarters as ending on the
month-end.
Net Income Per Share
Net income per share is computed using the weighted average number of common
shares and dilutive common stock equivalents outstanding using the treasury
stock method.
3. Financial Instruments
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" (FAS 115). The Company adopted the provisions of FAS
115 for investments held as of or acquired after July 1, 1994. Under the
provisions of FAS 115, debt securities that the Company has both the positive
intent and ability to hold to maturity are carried at amortized cost. Presently,
the Company classifies all debt securities as held-to-maturity and carries them
at amortized cost. Interest income is recorded using an effective interest rate,
with the associated premium or discount amortized to "Interest income." The
adoption of FAS 115 did not have a material impact on the Company's consolidated
financial statements.
The fair value of marketable securities is substantially equal to their carrying
value as of December 31, 1996. All investments at December 31, 1996 were
classified as held-to-maturity. Such investments mature through December 1997.
4. Inventories
A summary of inventories follows:
December 31, June 30,
1996 1996
------ ------
Raw materials $3,089 $7,695
Work in process 1,382 405
Finished goods 771 1,511
------ ------
$5,242 $9,611
====== ======
Raw materials inventory represents purchased materials, components and
assemblies, including fully assembled circuit boards purchased from outside
vendors.
<PAGE>
PINNACLE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)
5. Customers and Credit Concentrations
During the three and six months ended December 31, 1996, Avid Technology Inc.
accounted for approximately 19.1% and 24.6%, respectively, of net sales,
compared to 46.0% and 40.6% for the comparable periods ending December 31, 1995.
No other customer accounted for more than 10% of sales.
Avid Technology Inc. accounted for approximately 12.3% and 36.7% of accounts
receivable at December 31, 1996 and June 30, 1996, respectively. Media 100, Inc.
(formerly Data Translation, Inc.) accounted for approximately 23.0% of accounts
receivable at December 31, 1996.
6. Related Parties
The Company and Bell Microproducts Inc. ("Bell") are parties to an agreement
("the Agreement") under which value-added turnkey services are performed by Bell
on behalf of the Company. Pursuant to the Agreement, Bell builds certain
products in accordance with the Company's specifications. A director of the
Company is also a director of Bell. During the three months ended December 31,
1996 and 1995, the Company purchased materials totaling $834 and $4,635,
respectively, from Bell pursuant to the Agreement. During the six months ended
December 31, 1996 and 1995, the Company purchased materials totaling $2,921 and
$7,984, respectively from Bell pursuant to the Agreement.
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Certain Forward-Looking Information
Certain statements in this Management's Discussions and Analysis are
forward-looking statements based on current expectations, and entail various
risks and uncertainties that could cause actual results to differ materially
from those expressed in such forward-looking statements. Such risks and
uncertainties are set forth below under "Overview" and "Significant Fluctuations
in Future Operating Results." These forward-looking statements include
statements in the paragraphs below relating to "Net Sales," the last sentences
of the paragraphs below relating to "Engineering and Product Development,"
"Sales and Marketing" and "Income Tax Expense," and the statements below in the
fourth, sixth, seventh and tenth paragraphs under "Overview," among others.
Overview
The Company designs, manufactures, markets and supports video
post-production tools for high quality real time video processing. The Company's
products are used to perform a variety of video manipulation functions,
including the addition of special effects, graphics and titles to multiple
streams of live or previously recorded video material. From the Company's
inception in 1986 until 1994, substantially all of the Company's revenues were
derived from the sale of products into the traditional video market.
With the introduction of Alladin in June 1994, the Company began sales
into the desktop video market. The Alladin product family provides real time
digital video manipulation capabilities for the desktop video market. Since the
introduction of Alladin, the Company's sales have been largely dependent on the
success of the Alladin. Alladin sales represented approximately 44.6% and 71.0%
of net sales for the three month periods ended December 31, 1996 and 1995,
respectively. Sales of Alladin declined significantly during the three months
ended December 31, 1996. This decline had a significant impact on the company's
overall sales for the period, and resulted from a decline in sales through both
the company's dealer channel and to OEM customers. See "Results of
Operations--Net Sales."
In June 1996, the Company commenced shipment of Genie, a new desktop
video product family. The Company is critically dependent upon the successful
market acceptance, manufacture, distribution and sale of Genie to increase
revenue and profitability in the future. Sales of Genie products represented
approximately 15.3% of net sales for the three months ended December 31, 1996.
As is typical with any new product introduction, quality and reliability
problems may arise and any such problems could result in reduced bookings,
manufacturing rework costs, delays in collecting accounts receivable, additional
service warranty costs and a limitation on market acceptance of the product. The
success of Genie will also require the Company to manage the introduction in
order to minimize disruption in customer's ordering patterns for Alladin. Sales
of Genie will also be dependent on the successful integration of Genie by
various original equipment manufacturers ("OEMs") into their non-linear editing
products. Any delay in the Company's ability to manufacture and ship Genie, the
failure of Genie to gain market acceptance, and the timing and success in which
Genie is integrated into non-linear OEM systems could adversely affect the
Company's business, operating results and financial condition, particularly on a
quarterly basis.
In June 1996, the Company acquired the Video Director product line from
Gold Disk, Inc. VideoDirector is low-cost video software package sold primarily
to home video enthusiasts. Pinnacle intends to develop a new family of products
that combine a subset of its video manipulation technology with VideoDirector
technology to enable home video enthusiasts to create professional-looking video
content. The introduction of the first such follow-on product, VideoDirector
Studio 200, was recently announced by the Company and initial commercial
shipments are currently expected to commence during the quarter ending March 31,
1997.
The sources of competition for home video market products are not yet
well defined. The Company expects that existing computer software manufacturers
and new market entrants will develop new products that may compete directly with
the Video Director derivative products. Increased competition could result in
lower prices, margins and market share than are currently anticipated in
designing and developing these products. In addition, the Company expects to
expend considerable resources to introduce and promote products in this home
video market category. There can be no assurance that the Company will be able
to compete successfully against current and future competitors in the home video
markets, and to the extent the Company is not successful with the development,
introduction and sale of products in this market segment, the Company's
business, operating results and financial condition could be adversely affected.
<PAGE>
The Company has been highly dependent on sales of Alladin and Genie
products through OEM's, in particular Avid Technology, Inc. ("Avid") and Media
100, Inc. ("Media 100"). Sales to Avid declined significantly from the year ago
period, and accounted for approximately 19.1% and 46.0% of net sales during the
three months ended December 31, 1996 and 1995, respectively. Though sales to
Media 100 were nominal this quarter, the company has signed an OEM agreement
with Media 100 and expects that sales to Media 100 will be an important source
of revenues in future quarters.
This concentration of net sales to a few OEM's subjects the Company to
a number of risks, in particular the risk that its operating results will vary
on a quarter to quarter basis as a result of variations in the ordering patterns
of the OEM customers. Variations in the timing of revenues can cause significant
fluctuations in quarterly results of operations. The Company's results of
operations have in the past and could in the future be materially adversely
affected by the failure of anticipated orders to materialize and by deferrals or
cancellations of orders as a result of changes in Avid and Media 100
requirements. For example, sales to Avid have decreased sequentially for each of
the last three quarters contributing to the overall decline in net sales for the
Company during those same periods. Although there can be no assurance that this
trend will not continue, the Company currently believes that sales to Avid in
the quarter ending March 31, 1997 will increase as compared to sales to Avid in
the quarter ended December 31, 1996. However, if the Company were to lose Avid
or Media 100 as a customer, or if orders from these customers were to further
decrease, the Company's business, operating results and financial condition
would be materially adversely affected. See "Results of Operations-Net Sales."
The Company currently has two product families designed to serve the
traditional market: Prizm and FlashFile. Prizm provides real time digital video
effects capabilities, compositing, 3D modeling and animation tools, and
FlashFile provides sophisticated still store library management capabilities
with optional titling, paint and video clips. The Company currently intends to
develop and market follow-on products for the traditional video market during
calendar 1997. The introduction of such products would have the same market
acceptance, distribution and sales risks as described for the Genie family. The
introduction of new traditional products could significantly slow or replace
sales of Prizm and FlashFile. If this were to occur prior to shipment of any new
products, the Company's business, operating results and financial condition
would be materially adversely affected.
The Company distributes and sells its products to end users through the
combination of independent domestic and international dealers, retail
distributors, OEMs and, to a lesser extent, a direct sales force. Sales to
dealers, distributors and OEMs are generally at a discount to the published list
prices. Generally, products sold to OEMs are integrated into systems sold by the
OEMs to their customers. The amount of discount, and consequently the Company's
gross profit, varies depending on the product and the channel of distribution
through which it is sold, the volume of product purchased and other factors. In
the United States, the Company supports the sale of desktop products with
independent sales representatives that earn commissions based on sales into
their region.
The Company incurred a significant loss for the quarter ended December
31, 1996, and currently expects to incur an operating loss in the quarter ending
March 31, 1997. The Company anticipates that an increase in OEM desktop and
Video Director product sales will likely lead to an overall increase in net
sales for the March 31, 1997 quarter as compared to the quarter just ended.
Operating expenses in total for the quarter ending March 31, 1997 are expected
to remain relatively consistent with the December 31, 1997 quarter. However,
operating expenses will most likely exceed total gross margins during the
quarter ending March 31, 1997, resulting in an operating loss for the quarter.
Results of Operations
Net Sales. The Company's net sales decreased by 54.9% to $5,345,000 in
the three months ended December 31, 1996 from $11,845,000 during the comparable
three months in the prior year. Net sales decreased by 20.7% to $16,787,000 in
the six months ended December 31, 1996 from $21,166,000 in the six months ended
December 31, 1995. The decrease in both periods was primarily attributable to a
decline in sales across all product lines, the most significant of which was a
decline in sales of desktop products to OEMs, in particular Avid. Sales of
desktop products to OEM customers during the three and six month periods ended
December 31, 1996 decreased approximately 77% and 30%, respectively, from the
comparable periods in the prior year. See "Overview" above. Sales outside of
North America were approximately 46.4% and 35.4% of net sales in the three
months ended December 31, 1996 and 1995, respectively and 39.4% and 36.7% in the
six months ended December 31, 1996 and 1995, respectively. The increase in sales
outside of North America in both periods was primarily attributable to the
decrease of sales to Avid's North American facility.
As previously discussed, sales to the Company's largest customers, Avid and
Media 100, declined from the first quarter of fiscal 1997 to the second quarter
of fiscal 1997. The Company believes that much of this trend is the result of
Avid and Media 100 having previously purchased enough product to satisfy their
needs for the quarter ended December 31, 1996. The Company believes that sales
to Avid and Media 100 will increase sequentially during the quarter ending March
31, 1997. To
<PAGE>
the extent that sales to these OEM customers do not increase sequentially, the
Company's business, operating results and financial condition will be materially
adversely effected.
Cost of Sales. Cost of sales consists primarily of costs related to the
acquisition of components and subassemblies, labor and overhead associated with
procurement, assembly and testing of finished products, warehousing, shipping
and warranty costs. During the quarter ending December 31, 1996, the Company
incurred a significant charge to cost of sales totaling $4,021,000 relating
primarily to inventory write downs in connection with the decline in sales
during the quarter. Excluding the charge, gross profit as a percentage of net
sales was 38.1% and 48.2% in the three months ended December 31, 1996 and 1995,
respectively, and 44.6% compared to 48.3% in the six months ended December 31,
1996 and 1995, respectively. The decrease in gross profit percentage is due to a
decreased manufacturing overhead absorption due to lower production volume and
higher manufacturing overhead costs related to the new facility in Mountain
View, California.
Engineering and Product Development. Engineering and product
development expenses increased 61.3% to $2,063,000 in the three months ended
December 31, 1996 from $1,279,000 during the comparable three months in the
prior year. The Company's engineering and product development expenses increased
73.9% to $3,845,000 in the six months ended December 31, 1996 from $2,211,000
during the comparable six months in the prior year. Engineering and product
development expenses as a percentage of net sales were 38.6% and 10.8% during
the three months ended December 31, 1996 and 1995, and 22.9% and 10.4% during
the six months ended December 31, 1996 and 1995, respectively. The increases in
each period resulted primarily from growth in the number of persons in the
Company's engineering design team. The Company is preparing to introduce several
new professional and consumer video products during calendar 1997 and the
Company expects to continue to allocate significant resources to engineering and
product development efforts.
Sales and Marketing. Sales and marketing expenses include compensation
and benefits for sales and marketing personnel, commissions paid to independent
sales representatives, trade show and advertising expenses and professional fees
for marketing services. Sales and marketing expenses increased by 15.4% to
$2,514,000 in the three months ended December 31, 1996 from $2,179,000 during
the comparable three months in the prior year. The Company's sales and marketing
expenses increased 28.4% to $5,208,000 in the six months ended December 31, 1996
from $4,055,000 during the comparable six months in the prior year. Sales and
marketing as a percentage of net sales were 47.0% and 18.4% for the three month
periods ending December 31, 1996 and 1995, and 31.0% and 19.2% for the six month
periods ending December 31, 1996 and 1995, respectively. The increase in sales
and marketing expenses was primarily attributable to increased expenditures
related to continued promotion of Alladin and Genie products, including
expenditures for trade shows, advertising creation and placement, professional
fees for marketing services and increases in the number of sales and marketing
personnel. The Company expects to allocate significant resources to sales and
marketing, particularly during the March 31, 1997 and June 30, 1997 quarters,
for the introduction of several new professional and consumer video products.
General and Administrative. General and administrative expenses
increased 134% to $1,426,000 in the three months ended December 31, 1996 from
$609,000 during the comparable three months in the prior year. General and
administrative expenditures increased 109% to $2,190,000 in the six months ended
December 31, 1996 from $1,050,000 during the comparable six months in the prior
year. As a percentage of net sales, general and administrative expenses were
26.7% and 5.1% during the three months ended December 31, 1996 and 1995 and
13.0% and 5.0% during the six months ended December 31, 1996 and 1995,
respectively. Included in general and administrative expenses for the three
months ended December 31, 1996 is approximately $700,000 relating to an increase
in the allowance for doubtful accounts and the disposal of leasehold
improvements, furniture and equipment, moving costs and rent overlap incurred as
a result of the move to the Company's new facility.
Interest Income (Expense), Net. In the three and six months ended
December 31, 1996, interest income, net was $729,000 and $1,492,000,
respectively, as compared to net interest income of $927,000 and $1,608,000 in
the comparable periods a year ago. The decrease was due to a decline in cash and
marketable securities as well as a decline in investment yields. All of the
Company's cash and marketable securities have maturities of less than one year.
Changes in the market interest rates will have an effect on interest income in
future periods.
Income Tax Expense. The Company recorded a provision for income taxes
of $2,087,000 and $834,000 for the three months ended December 31, 1996 and
1995, respectively. Income tax expense was $2,445,000 and $1,513,000 for the six
months ended December 31, 1996 and 1995, respectively. Included in income tax
expense for the three months and six months ended December 31, 1996 is a charge
of $3,245,000 resulting from the establishment of a valuation allowance against
the Company's deferred tax asset. The Company does not anticipate any tax
benefit or expense for the remaining two quarters in the fiscal year ending June
30, 1997.
<PAGE>
Significant Fluctuations in Quarterly Operating Results
The Company's quarterly operating results have in the past varied, and
are expected to vary significantly in the future as a result of a number of
factors, including the timing of significant orders from and shipments to
customers, in particular Avid and Media 100, the timing and market acceptance of
new products or technological advances by the Company and its competitors, the
mix of distribution channels through which the Company's products are sold,
changes in pricing policies by the Company and its competitors, the accuracy of
resellers' forecasts of end user demand, the ability of the Company to obtain
sufficient supplies of the major subassemblies used in its products from its
subcontractors, the ability of the Company and its subcontractors to obtain
sufficient supplies of sole or limited source components for the Company's
products, and general economic conditions both domestically and internationally.
The Company's expense levels are based, in part, on its expectations as to
future revenue and, as a result, net income would be disproportionately affected
by a reduction in net sales. The Company experiences significant fluctuations in
orders and sales, due mainly to reduced customer purchasing activity during the
summer months and the timing of major trade shows. The Company expects that its
operating results will fluctuate in the future as a result of these and other
factors, including changes in the rate of sales to OEM customers, in particular
Avid and Media 100, and the Company's success in developing, introducing and
shipping new products, in particular Genie and new products designed for the
consumer market. Due to these factors and the potential quarterly fluctuations
in operating results, the Company believes that quarter-to-quarter comparisons
of its results of operations are not necessarily meaningful and should not be
relied upon as indicators of future performance.
Liquidity and Capital Resources
The Company has financed its operations through private placements of
equity securities with aggregate net proceeds of approximately $6.9 million,
long-term debt, short-term bank borrowings and cash generated from operations.
In addition, the Company completed public offerings of common stock in November
1994 and July 1995 raising approximately $65.5 million, net of offering
expenses.
The Company's operating activities generated cash of $636,000 in the
six months ended December 31, 1996, compared to $2,628,000 for the same period
in 1995. The cash generated by operating activities during the six months ended
December 31, 1996 was the result of net decreases in the components of working
capital, primarily accounts receivable and inventory, partially offset by the
net loss of $8,733,000 as adjusted inventory write-downs of $4,021,000, an
increase in the valuation allowance on deferred tax assets of $3,245,000,
depreciation and amortization of $671,000, and a loss on disposal of property
and equipment of $448,000. The Company expects operations to consume a modest
amount of cash during the six months ending June 30, 1997 as a result of an
anticipated operating loss and an increase in working capital.
During the six months ended December 31, 1996, $3,213,000 was invested
in property and equipment, compared to $670,000 in the six months ended December
31, 1995. The increase over the prior year is primarily related to leasehold
improvements, furniture and equipment for the new Mountain View facility. See
"Overview." The Company expects to continue to purchase property and equipment,
however at a reduced rate following the completion of improvements to the
Mountain View facility. Such investing will be financed from working capital.
In January 1997, the Company's board of directors authorized a stock
repurchase program pursuant to which the Company may purchase up to 750,000
shares of its common stock on the open market.
As of December 31, 1996, the Company had working capital of
approximately $66.8 million, including $34.8 million in cash and cash
equivalents and $24.1 million in marketable securities. The Company believes
that the existing cash and cash equivalent balances as well as marketable
securities and anticipated cash flow from operations will be sufficient to
support the Company's working capital requirements for the foreseeable future.
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On October 24, 1996, the Company held an Annual Meeting of
Shareholders for which it solicited votes by proxy. The following is a brief
description of the matters voted upon at the meeting and a statement of the
number of votes cast for and against, and the number of abstentions. There were
no broker non-votes with respect to items 1 and 3 below.
1. To elect six directors to serve until the next Annual Meeting
of Shareholders and until their successors are elected.
VOTES
NOMINEE VOTES WITHHELD
------- ----- --------
Mark L. Sanders 5,867,402 14,738
Ajay Chopra 5,867,402 14,738
John Lewis 5,866,402 15,738
Nyal D. McMullin 5,867,202 14,938
Glenn E. Penisten 5,867,402 14,738
Charles J. Vaughan 5,867,402 14,738
<TABLE>
<CAPTION>
2. To approve the adoption of 1996 Stock Option Plan to reserve
370,000 shares for grant thereunder.
<S> <C> <C> <C>
FOR: 4,842,084 AGAINST: 926,302 ABSTAIN: 102,635 BROKER NON-VOTES: 11,119
</TABLE>
3. To confirm the appointment of KPMG Peat Marwick, LLP as
independent auditors of the Company for the fiscal period
ending June 30, 1997.
FOR: 5,875,939 AGAINST: 4,985 ABSTAIN: 4,762
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.20 Industrial Lease Agreement, dated November 19,
1996 between Registrant and CNC Grand Union
Limited
11.1 Statement of Computation of Net Income (Loss) Per
Share
27.1 Financial Data Schedule
(b) Reports on Form 8-K. No reports on Form 8-K were filed by the
Company during the quarter ended December 31, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PINNACLE SYSTEMS, INC.
Date: February 10, 1997 By: /s/Mark L. Sanders
-----------------------
Mark L. Sanders
President, Chief Executive Officer
and Director
Date: February 10, 1997 By: /s/Arthur D. Chadwick
--------------------------
Arthur D. Chadwick
Vice President, Finance and
Administration and
Chief Financial Officer
EXHIBIT 10.20
DATED 19th of November, 1996
CNC GRAND UNION LIMITED
-and-
PINNACLE SYSTEMS LIMITED
L E A S E
-re-
UNIT 7
THE GRAND UNION OFFICE PARK,
PACKET BOAT LANE,
COWLEY,
UXBRIDGE,
MIDDLESEX.
Messrs., Charsley Harrison,
8 Sheet Street,
Windsor,
Berkshire.
<PAGE>
T H I S L E A S E is made the 19th day of November 1996
B E T W E E N:-
(1) CNC GRAND UNION LIMITED whose registered office is at Unit 5
The Grand Union Office Park Packet Boat Lane Cowley Uxbridge
UB8 2GH ("the Landlord") and
(2) PINNACLE SYSTEMS LIMITED OF 7 Portland Business Centre Manor
House Lane Datchet Berkshire ("The Tenant)
1. DEFINITIONS
IN this Lease, where the context so requires or admits the
following expressions have the following meanings:-
1.1 "Adjoining Premises": the land and buildings edged blue on the
Plan
1.2 "Adjoining Property": all parts of the Estate (other than the
Demised Premises)
1.3 "the Building": the Demised Premises more particularly
described in the First Schedule hereto;
1.4 "Car Park": parts of the Estate set aside by the Landlord for
the parking of vehicles;
1.5 "Car Spaces": the 24 spaces forming part of the Car
Park allocated in accordance with principles of good estate
management from time to time by the Landlord for the exclusive
use of the Tenant and such spaces being so allocated as at
today's date shown for identification purposes only edged
brown hatched black on the Plan;
1.6 "the Certificate": the details of the charges properly and
reasonably incurred by the Landlord in the provision of the
Services as defined in clause 8;
1.7 "the Commencement Date" the 1st day of April 1996
1.8 "Common Areas": the service roads, service areas, service
bays, pedestrian areas, yards, forecourts and landscaped areas
and also the Car Park waste receptacles and any other
amenities on the Estate which are from time to time provided
or designated by the Landlord for common use by the tenants
and occupiers of the Estate and all persons expressly or by
implication authorised by them but excluding the Lettable
Areas;
1.9 "Conduits": pipes, down pipes, sewers, drains, soakaways,
channels, gullies, gutters, watercourses, conduits, ducts,
flues, wire, cables fibre optics and other conducting media of
whatsoever nature;
<PAGE>
1.10 "the Demised Premises": the Demised Premises as briefly
described in the First Schedule and each and every part
thereof and shall be deemed to include:-
1.10.1 all buildings now or hereafter erected thereon and in
particular but not by way of limitation, the roof,
foundations, external walls, internal load bearing walls and
the structural parts of the roof, ceilings and floors thereof;
1.10.2 all landlord's fixtures and fittings now or hereafter in or
upon the same including but not limited to (if any) window
frames, glass, window furniture, sash-cords, doors,
door-frames;
1.10.3 lifts, lift-shafts and machinery, boilers, central heating and
air-conditioning plant and all electrical and mechanical
plant, machinery, equipment and apparatus and the water and
sanitary apparatus solely serving the Demised Premises;
1.10.4 all Conduits in, upon, over or under and exclusively serving
the Demised Premises; and
1.10.5 all additions, alterations and improvements thereto;
Provided that the walls dividing the Demised Premises from any
other unit on the Estate shall be party walls
1.11 "Development": development as defined in Section 55 of the
Town and Country Planning Act 1990;
1.12 "the Estate": the Estate (of which the Demised Premises forms
part) briefly described in the Second Schedule and each and
every part thereof and all appurtenances belonging thereto,
including:-
1.12.1 all landlord's fixtures and fittings, plant, machinery
apparatus and equipment now or hereafter in or upon the same;
1.12.2 additions, alterations and improvements thereto within the
Estate;
1.13 "the Guarantor": includes in the case of an individual, the
personal representatives of any person who becomes a guarantor
for the purposes of Clause 4.26.2.2;
1.14 "Inherent Defect" means any defect in the demised premises or
the Estate or in anything installed in or on the Demised
Premises or the Estate which is attributable to:
1.14.1 defective design or
1.14.2 defective workmanship or materials
1.14.3 defective supervision of the construction of or the
installation of anything in or on the Demised Premises or the
property
<PAGE>
1.14.4. defective preparation of the site upon which the Demised
Premises or the estate are constructed
1.14.5. dampness or past dampness in the concrete oversight floor the
raised floor and raised floor stools on the ground floor of
the Demised Premises
1.14.6. dampness or past dampness in the raised metal cased floor and
metal stools on the first floor of the Demised Premises
1.15 "the Initial Rent": the sum of Sixty Six Thousand Six Hundred
and Twenty Five Pounds ((pound)66,625.00) such sum being
exclusive of V.A.T.
1.16 "the Insured Risks": fire (including subterranean fires)
earthquake subsidence landslip and heave bursting or
overflowing of water tanks, apparatus or pipes, terrorism riot
or civil commotion strikes labour or political disturbances or
damage by malicious persons, explosion (including explosion of
boilers and other heating apparatus) lightning thunderbolt
storm tempest flood and impact by any road vehicle railway
boat aircraft or other aerial device or articles dropped
therefrom and accidental damage to underground pipes and
cables and such other risks as the Landlord may in its
reasonable discretion from time to time determine subject to
such exclusions excesses and limitations as may reasonably be
imposed by the insurers;
1.17 "the Interest Rate": four per cent (4%) per annum above the
Base Rate for the time being of The Royal Bank of Scotland plc
or some other London clearing bank nominated from time to time
by the Landlord or, in the event of the Base Rate being
abolished, such other reasonable comparable rate of interest
as the Landlord shall from time to time reasonably determine;
1.18 "Initial Service Charge Payment": (pound) 1,474.20
1.19 "the Landlord": includes the estate owner for the time being
entitled to the reversion immediately expectant on the
determination of the Term;
1.20 "the Landlord's Surveyor": any person (being an associate or
fellow of the Royal Institution of Chartered Surveyors)
including an employee of the Landlord appointed by or acting
for the Landlord to perform the function of a surveyor for any
purpose of this Lease
1.21 "this Lease": this Lease and any document which has been made
supplemental hereto, or which is entered into pursuant to or
in accordance with the terms hereof
<PAGE>
1.22 "the Lettable Areas": those parts of the Estate leased or
intended to be leased to occupational tenants or designed to
be leased to occupational tenants and "the Other Lettable
Areas" shall mean the Lettable Areas excluding the Demised
Premises
1.23 "1954 Act": the Landlord and Tenant Act 1954 and any
subsequent legislation of a similar nature
1.24 "the Planning Acts": includes the Town and Country Planning
Act 1990 and any subsequent legislation of a similar nature
and any orders, regulations or directions issued or continued
in force under or by virtue of such Acts or legislation or any
statutory modification or re-enactment thereof or replacement
therefor for the time being in force
1.25 "the Plan": the plan attached to this Lease
1.26 "the President": the President for the time being of the Royal
Institution of Chartered Surveyors and includes the duly
appointed deputy of such President or any person authorised by
such President to make appointments on his behalf
1.27 "Retained Parts" all parts of the Estate which do not comprise
the Lettable Areas including but not limited to:-
1.27.1 The Common Areas;
1.27.2 office or other accommodation which may from time to time be
reserved on the Estate for Landlord's staff
1.27.3 any parts of the Estate reserved by the Landlord for the
housing of plant machinery and equipment or otherwise in
connection with or required for the provision of services
1.27.4 all Conduits in upon over or under or exclusively serving the
Estate except any that form part of the Lettable Areas
1.27.5 the main structure of all buildings on the Estate (except
those parts which are Lettable Areas)
1.27.6 all party structures boundary walls railings and fences and
all exterior parts of the Estate and all roads (until such
time as the same shall become maintainable at public expense)
and
1.27 the Car Park
1.28 "the Review Date" the fifth anniversary of the Commencement
Date
1.29 "the Service Charge": Seven point One One per cent (7.11%) of
the expenditure as referred to in the Seventh Schedule hereto
(subject to Clause 8.6)
<PAGE>
1.30 "the Service Charge Commencement Date"
1.31 "the Services": services relating to the Estate and more
particularly set out in the Seventh Schedule
1.32 "the Tenant": includes the Tenant's successors in title and
assigns and, in the case of an individual, includes his
personal representatives
1.33 "Term": the term of years granted by this Lease
1.34 "Utilities": water soil steam air electricity radio television
telegraphic telephone telecommunications and other services
and supplies of whatsoever nature
1.35 "Value Added Tax": value added tax under the Value Added Tax
Act 1994 or other imposition or levy of a like nature
1.36 "the Waste Receptacles": the receptacles for any waste, trade
empties, rubbish or refuse forming part of the Retained Parts
so designated in accordance with principles of good estate
management from time to time by the Landlord for use of the
Tenant
2. INTERPRETATION UNLESS there is something in the subject or
context inconsistent therewith:-
2.1 Words importing the singular number include the plural number
and vice versa and where there are two or more persons
included in the expression "the Landlord" "the Tenant" and/or
"the Guarantor" covenants expressed to be made by "the
Landlord" "the Tenant" and/or "the Guarantor" shall be deemed
to be made by such persons jointly and severally
2.2 References to any right exercisable by the Landlord shall
where the context so admits include the exercise of such right
by any superior lessor and all persons authorised by the
Landlord or any superior lessor including agents professional
advisers contractors workmen and others
2.3 Any reference to a statute or order in this Lease shall
include from time to time throughout the Term any statutory
extension or modification or re-enactment of such statute or
order and any regulations or orders made thereunder
2.4 Any covenant in this Lease by the Tenant not to do an act or
thing shall be deemed to include an obligation not to agree or
suffer any act or thing to be done and to use its best
endeavours to prevent such act or thing being done by another
person
2.5 Any reference in this Lease to parting with possession shall
be deemed to include
<PAGE>
sharing possession or parting with or sharing occupation or
holding the Demised Premises on trust for another
2.6 Any payments by the Tenant to the Landlord under this Lease
shall in addition (if applicable) bear Value Added Tax subject
to the Tenant first receiving a proper Value Added Tax invoice
addressed to the Tenant
2.7 The titles or headings appearing in this Lease and the front
cover and the index section of this Lease are for reference
and shall not affect its construction or its interpretation
2.8 References in this Lease to any Clause or Schedule without
further designation shall be construed as a reference to the
Clause of or Schedule to this Lease so numbered
2.9 It is intended that this Lease shall be executed as a Deed
3. DEMISE AND RENTS
3.1 THE Landlord DEMISES unto the Tenant the Demised Premises
TOGETHER WITH the rights and easements specified in the Third
Schedule EXCEPT AND RESERVING in favour of the Landlord and
all other persons now entitled or who may become entitled the
easements and rights specified in the Fourth Schedule SUBJECT
TO and where appropriate with the benefit of the matters
contained or referred to in the documents referred to in the
Sixth Schedule TO HOLD the Demised Premises unto the Tenant
for the term of TEN YEARS commencing on the 1st day of April
1996 Yielding and Paying unto the Landlord during the Term:
3.1.1 In respect of the period commencing on the 1st day of April
1996 until the Review Date the Initial Rent
3.1.2 For the period from the Review Date until the expiry of the
Term such yearly rent as shall become payable under and in
accordance with the provisions of the Eighth Schedule such
Sums to be paid quarterly in advance on the usual quarter days
the first of such payments or a proportion thereof to be made
on the 1st of May 1996 by standing order if required
3.2 From the Service Charge Commencement Date the due proportion
(to be fairly and properly determined by the Landlord's
Surveyor) of all sums (including the proper cost of valuations
for insurance purposes made no more frequently than once in
every three years) which the Landlord shall from time to time
pay for insuring the Estate against the Insured Risks and the
other matters referred to in Clauses 6.1.1, 6.1.3 and 6.1.4
and
<PAGE>
the whole of the sums which the Landlord shall from time to
time pay for insuring against loss of rent in accordance with
Clause 6.1.2 all such sums to be due and paid on demand
3.3 The monies referred to in Clause 4.2 to be paid within seven
days of demand and
3.4 From the Service Charge Commencement Date the Service Charge
to be paid within seven days of demand in accordance with
Clause 8.
4. TENANTS COVENANTS
THE Tenant COVENANTS with the Landlord as follows:-
4.1 Rent
To pay all rents from time to time reserved by this Lease
(whether formally demanded or not) without any deduction
counter claim or set off and in the manner stated in this
Lease (before and after any judgment)
4.2 Interest
If and when the Tenant shall fail to pay the rent or any other
monies due under this Lease on the due date (for the avoidance
of doubt including interest due from the Tenant to the
Landlord hereunder) to pay to the Landlord interest thereon at
the Interest Rate calculated from the due date to the date of
actual payment to the Landlord (before and after any judgment)
or acceptance by the Landlord in the event that the Landlord
shall have properly declined the rent due and owing on the
ground that to do so would have the effect of waiving a breach
of covenant by the Tenant or the Guarantor Provided that
interest shall only be payable by a Tenant who shall have
assigned this Lease from the date of demand therefor
4.3 Outgoings
To pay and discharge or indemnify the Landlord against all
existing and future rates, taxes, duties, charges,
impositions, outgoings and assessments whatsoever (whether
parliamentary, parochial, local or of any other description
(including the European Community) and whether or not of a
capital or non-recurring nature or of a wholly novel
character) including all charges for gas, water and
electricity consumed on the Demised Premises which now are or
may during the Term be assessed, charged or imposed upon or
payable in respect of the Demised Premises or any part of the
Demised Premises or upon the owner or occupier of them (except
(without prejudice to Clause
<PAGE>
2.6) tax payable by the Landlord in respect of rents and other
payments arising under this Lease or tax payable as a result
of any dealing with the reversion of this Lease)
4.4 Landlord's Costs
4.4.1 To pay and indemnify the Landlord or (as the case may be) any
superior lessor, any mortgagee (not being more than two) or
their respective professional advisers against all reasonable
costs and expenses properly incurred by them in connection
with:-
4.4.1.1 all applications by the Tenant for any consent required by
this Lease including cases where the application is withdrawn
or consent is refused (unless unreasonably)
4.4.1.2 any reasonable and proper proceedings under the Law of
Property Act 1925 Section 146 (whether or not any right of
re-entry or forfeiture has been waived by the Landlord or a
notice served under Law of Property Act 1925 Section 146 is
complied with by the Tenant or the Tenant has been relieved
under the provisions of the 1954 Act and notwithstanding
forfeiture is avoided otherwise than by relief granted by the
Court)
4.4.1.3 procuring the remedying of the breach of any covenant by the
Tenant including the recovery or attempted recovery of arrears
of rent or other sums due from the Tenant
4.4.1.4 abating a nuisance caused by the Tenant on the Demised
Premises and executing all such works as may be necessary for
abating such nuisance in obedience to a notice served by any
local or other authority as a result of any act or omission on
the part of the Tenant
4.4.1.5 any breach of covenant by the Tenant or notice requiring the
Tenant to remedy a breach of any of the Tenant's covenants
4.5 Repairs
4.5.1 From time to time and at all times during the Term to keep the
Demised Premises in good and substantial repair and condition
(damage by the Insured Risks excepted save to the extent that
payment of the insurance monies shall be withheld by reason of
any act neglect default of the Tenant or any undertenant or
any person under its or their control) Provided that the
Tenant shall not in any circumstances either directly or
through the Service Charge be responsible for carrying out or
bearing the cost of any works necessary to remedy any Inherent
Defect in the Demised Premises or to remedy any repairs and
redecorations caused by the Inherent Defect or to reinstate
the Demised Premises after the works remedying the Inherent
Defect
<PAGE>
If the Tenant shall in compliance with its obligations
hereunder carry out any works to remedy any Inherent Defect or
to remedy any want of repair which is attributable to any such
Inherent Defect and provided that the Tenant prior to carrying
out such works shall obtain the approval of the Landlord to
the nature extent and cost of the works such approval not to
be unreasonably witheld or delayed and complete such works to
the reasonable satisfaction of the Landlord the Landlord shall
pay or repay to the Tenant the costs and expenses of and
incidental to such works following production to the Landlord
of all relevant receipts and invoices or other reasonable
evidence of such costs and expenses provided that the Landlord
may upon receipt of details of the nature and extent of such
works elect to carry out the same itself and such shall be
carried out to the reasonable satisfaction of the Surveyor to
the Tenant
4.5.2 To replace from time to time any of the Landlord's fixtures
and fittings which may be or become in need of replacement
with new ones of similar kind and quality
4.6 Decorations
4.6.1 In the year 2001 and also in the last six months of the Term
(whether determined by effluxion of time or otherwise) (but
not twice in any period of 18 months) in a good and
workmanlike manner to prepare and decorate with two coats at
least of good quality paint or otherwise treat as appropriate
all interior parts of the Demised Premises required to be so
treated (the decoration in the last year of the Term if it
differs from the present colour or type to be in a colour and
type previously approved in writing by the Landlord such
approval not to be unreasonably withheld or delayed) and as
often as may be reasonably necessary to wash down all tiles
glazed bricks and similar washable surfaces
4.6.2 In the year 2001 and also in the last six months of the Term
(whether determined by effluxion of time or otherwise) but not
twice in any period of 18 months in a good and workmanlike
manner to prepare and decorate (with two coats at least of
good quality paint) or otherwise treat as appropriate all
exterior parts of the Demised Premises required to be so
treated (the decoration whenever it differs from the present
colour or type to be in a colour and type previously approved
in writing by the Landlord such approval not to be
unreasonably withheld or delayed) and as often as may be
reasonably necessary to wash down all tiles glazed bricks and
similar washable surfaces (if any)
4.7 Cleaning
<PAGE>
To keep the Demised Premises in a clean and tidy condition and
at least once in every month properly to clean both sides of
all windows and all window frames and all other glass in the
Demised Premises (including all the glass in the entrance
doors)
4.8 Floor Covering
To maintain and when necessary to replace the floor covering
now or from time to time laid in the Demised Premises with new
floor covering of no less quality and value and not to lay
down any other form of floor covering
4.9 Plant and Machinery
4.9.1 To keep all plant machinery apparatus and equipment solely
serving the Demised Premises properly maintained and in good
working order and condition and for that purpose:-
4.9.1.1 to employ such reputable contractors as may be approved in
writing by the Landlord such approval not to be unreasonably
withheld or delayed, to regularly inspect maintain and service
the same
4.9.1.2 to renew or replace all working and other parts as and when
necessary
4.9.1.3 to ensure by directions to the Tenant's staff and otherwise
that such plant and machinery is properly operated
4.9.2 Whenever reasonably required to produce to the Landlord copies
of contracts and other documentary evidence relating to the
maintenance of all plant machinery apparatus and equipment in
the Demised Premises
4.10 Overloading Floors and Services
Not to do anything which imposes an excessive load or strain
on the Demised Premises or which may cause structural damage
4.11 Conduits
Not by any act or default to do or permit or suffer to be done
anything whereby any Conduit in upon over or under the Demised
Premises may become choked obstructed or damaged or might be
or become a source of danger or might injure the Conduits or
the drainage system of the Demised Premises or any Adjoining
Property
4.12 Waste
Not to commit or permit or suffer to be committed any waste
whether permissive voluntary or ameliorating in or upon the
Demised Premises
<PAGE>
4.13 Disposal of Refuse
Not to deposit on any part of the Common Areas any trade
empties rubbish or refuse of any kind other than in the
repositories in the Waste Receptacles and not to burn any
rubbish or refuse on the Demised Premises
4.14 Yielding Up
Provided that no proceedings for a renewal of the Term are
pending consequent upon an application by the Tenant at the
expiration or sooner determination of the Term at the cost of
the Tenant to deliver up the Demised Premises (tenant's
fixtures fittings fascia or signs belonging to the Tenant
excepted) with vacant possession clean and in repair and
decorated as stated in this Lease having first replaced any
landlords fixtures and fittings which may be worn, missing or
damaged with new articles of a similar kind and quality and
having made good any damage resulting from the removal of any
tenant's fixtures fittings fascia or signs
4.15 User
Not to use or permit or suffer to be used the Demised Premises
or any part of the Demised Premises for any purpose whatsoever
other than:-
4.15.1 as high quality offices; and/or
4.15.2 for any other use within the meaning of Classes B1 of the Town
and Country Planning (Use Classes) Order 1987 (taking no
account of any amendment or re-enactment affecting such Order
after 1st January 1989)
4.16 Prohibited User
4.16.1 Not to use the Demised Premises or any part of the Demised
Premises for any public or political meeting public exhibition
or public entertainment show or spectacle of any kind nor for
any dangerous noisy noxious or offensive trade business or
occupation whatsoever nor for any illegal or immoral purpose
nor for residential or sleeping purposes
4.16.2 Not to use the Demised Premises or any part of the Demised
Premises for gambling betting gaming or wagering or as a
betting office or as a club or for the sale of alcoholic
drinks and not to play or use any musical instrument hi-fi
equipment or similar apparatus in such manner as to be audible
outside the Demised Premises and not to hold any auction on
the Demised Premises
<PAGE>
4.16.3 Not to place outside the Demised Premises or in the Common
Areas nor to expose from the windows of the Demised Premises
any articles goods or things of any kind
4.17 Nuisance
4.17.1 Not to do anything in or about the Demised Premises or the
Estate which may be or become a nuisance or which may cause
damage to the Landlord or the owners tenants or occupiers of
the Adjoining Property or which may prejudicially affect
depreciate or be injurious to the value tone or character of
the Estate
4.17.2 To ensure that any audible signal from any burglar alarm
fitted for the Demised Premises cuts out automatically no more
than 20 minutes after it has started to ring
4.18 Obstruction of Common Areas
Not to do anything whereby the Common Areas or other areas
over which the Tenant may have rights of access or use may be
damaged or the fair use thereof by others may be obstructed in
any manner whatsoever
4.19 Vehicles
4.19.1 Not to load or unload any goods arriving at or dispatched from
the Demised Premises in such a way that access to or egress
from other parts of the Estate or the Adjoining Property is
unreasonably obstructed
4.19.2 Not to permit any vehicles belonging to the Tenant or any
persons calling on the Demised Premises expressly or by
implication with the authority of the Tenant:-
4.19.2.1 To enter and leave the Demised Premises or the Estate except
at the vehicular access points constructed for that purpose;
or
4.19.2.2 to park on any road or other parts of the Estate except within
the Car Spaces
4.19.2.3 to travel at an excessive speed on the Estate
4.20 Not to keep goods of a dangerous nature etc
Not to keep or permit to be kept or deposit for sale or
otherwise in or upon the Demised Premises or deposit in the
Waste Receptacles any goods of a dangerous hazardous or
especially combustible nature (except under conditions of
storage and use strictly in accordance with the requirements
whether statutory or otherwise of the fire or other
appropriate authorities and of the Landlord's insurers) nor
any materials of any nature the keeping of which may
contravene any statute or local regulation or bye-law or
constitute a nuisance to the owners or occupiers of Adjoining
Property Provided that (save in case
<PAGE>
of a requirement of the insurers requiring immediate action)
the Tenant shall be given the opportunity of negotiating such
requirements with the insurers and if the insurers shall
decline to insure unless their requirements are met and such
insurance is not otherwise obtainable without such
requirements then the Tenant shall comply with such
requirements.
4.21 Fire Precaution and Equipment
4.21.1 To comply with the requirements and recommendations and to
supply and maintain in good condition at all times such fire
fighting equipment as shall be required or recommended by the
fire officer or authority and as shall be reasonably required
or recommended by the insurers of the Demised Premises and the
Landlord Provided that the Tenant shall be given the
opportunity of negotiating such requirements with the insurers
and if the insurers shall decline to insure unless their
requirements are met and such insurance is not otherwise
obtainable without such requirements then the Tenant shall
comply with such requirements
4.21.2 Not to obstruct the access to or means of working any fire
fighting and extinguishing appliances
4.22 Defective Premises
Forthwith upon becoming aware of the same to give written
notice to the Landlord of any defect in the Demised Premises
which might give rise to an obligation on the Landlord to do
or refrain from doing any act or thing so as to comply with
the duty of care imposed on the Landlord pursuant to the
Defective Premises Act 1972 and at all times to display and
maintain all notices which the Landlord may from time to time
reasonably require to be displayed in respect thereof at the
Demised Premises
4.23 Encroachments and easements
Not to obstruct any window light easement or way belonging to
the Demised Premises nor acknowledge that any light is enjoyed
by consent with any other person and to give immediate notice
to the Landlord if any easement right or encroachment
affecting the Demised Premises shall be made or attempted or
at the Landlord's request and the joint and equal cost of the
Landlord and Tenant to adopt such means as may be reasonably
required to prevent such easement right or encroachment
4.24 Alterations
<PAGE>
4.24.1 Not to erect any new building or new structure on the Demised
Premises or any part thereof nor to alter add to or change the
height elevation or external architectural or decorative
design or appearance of the Demised Premises nor to merge the
Demised Premises with any Adjoining Property
4.24.2 Not without the consent of the Landlord (such consent not to
be unreasonably withheld or delayed) to alter divide cut maim
injure or remove any of the principal or load-bearing walls
floors beams or columns of the Demised Premises nor to make
any other alterations or additions of a structural nature to
the Demised Premises provided that for the avoidance of doubt
and subject to the requirements of local and statutory
authorities no consent shall be required from the Landlord for
the making of non-structural internal alterations or additions
to the Demised Premises but the Tenant shall supply at its own
expense details of such alterations and\or additions provided
however that upon the determination of the Term (howsoever
determined) the Tenant will if required in writing by the
Landlord remove and/or reinstate any such alteration or
addition and make good the Demised Premises thereafter
4.24.3 Not to make any alterations or additions to the Landlord's
fixtures or to any of the Conduits without obtaining the prior
written consent of the Landlord such consent not to be
unreasonably withheld or delayed
4.24.4 Upon the determination of this Lease howsoever determined, the
Tenant shall reinstate to the reasonable satisfaction of the
Landlord's surveyor any wall structure or fabric (together
with ancillary works) separating the Demised Premises from the
Adjoining Premises
4.25 Signs and Advertisements
Not without the Landlord's written consent (such consent not
to be unreasonably withheld or delayed) to exhibit any sign
advertisement or notice outside the Demised Premises or inside
the Demised Premises so as to be seen from the outside or to
install any flag pole nor any outside television radio aerial
satellite dish or other form of receiving or transmission
device or window box on the Demised Premises (which if so
required by the Landlord shall be removed at the determination
of the Term and all damage thereby occasioned made good by the
Tenant)
4.26 Alienation
<PAGE>
4.26.1 The Tenant will not assign, underlet, mortgage, charge, agree
to underlet, share or part with the possession or occupation
of or permit any person or company to occupy the whole or any
part of the Premises save as hereinafter expressly set out
4.26.2 The Tenant will not assign the whole of the DemisedPremises
without first obtaining the Landlord's written consent which
(subject to the provisions set out below) shall not be
unreasonably withheld
4.26.3 Without prejudice to the generality of the preceding
sub-clause 4.26.2 and any other matter or circumstance which
may render reasonable the Landlord withholding its licence or
consent to an assignment of the Premises or any other
condition subject to which it may be reasonable to grant such
licence or consent the Landlord may withhold its licence or
consent to an assignment of the Premises in the circumstances
set out in sub-clauses 4.26.3.1 to 4.26.3.2 inclusive below or
such licence or consent may be granted subject to the
conditions set out in sub-clauses 4.26.3.3 to 4.26.3.7 subject
to the proposed assignee providing if required by the Landlord
a Rent Deposit for an amount equivalent to one half of the
annual rent passing at the time of the assignment upon the
terms (other than the amount of the Rent Deposit) of the Rent
Deposit Deed executed by the parties hereto contemporaneously
with this Deed
4.26.3.1 Where in the Landlord's reasonable opinion an assignment to
the proposed assignee would materially reduce the open market
value of the Landlord's interest by reason of the intended use
by the Assignee in either the Premises or the building of
which the Premises form part or where such use would
materially adversely affect the ability of the Landlord to
dispose of its reversionary interest in the Premises or its
interest in the building of which the Premises form part in
the open market
4.26.3.2 If at a time when an application for the Landlord's Licence or
consent to an assignment of the Premises is made there exists
any material breach of any of the covenants on the part of the
Tenant herein contained unless the Tenant shall (if the
Landlord so requires) remedy such breach of covenant to the
reasonable satisfaction of the Landlord before the Tenant
shall be permitted to complete the proposed assignment
4.26.3.3 That unless the Landlord requires the Asgginee to enter into a
Rent Deposit Deed the Tenant and the proposed assignee enter
into a Licence to Assign and an Authorised Guarantee Agreement
(as defined in Section 16 of the Landlord and Tenant
(Covenants)
<PAGE>
Act 1995) in the form set out in Schedule 5 hereto (mutatis
mutandis)
4.26.3.4 If the Landlord reasonably requires a surety for the proposed
assignee prior to completion of any assignment of the Premises
any such surety shall first (jointly and severally if more
than one) covenant as principal debtor with the Landlord
that:-
4.26.3.4.1 the proposed assignee will pay the rents reserved by this
Lease and will observe and perform the tenant's covenants in
this Lease
4.26.3.4.2 indemnify the Landlord against any losses resulting from the
act or default of the proposed assignee
4.26.3.4.3 if this Lease is disclaimed on the insolvency of the proposed
assignee it will, if the Landlord so requires, take a new
lease of the Premises on the same terms and conditions as this
Lease (mutatis mutandis) and for a term equal to the period of
the fixed term granted by this Lease which is unexpired at the
date of the disclaimer
4.26.3.5 That all the Landlord's reasonable and proper costs arising in
connection with the application for the Licence to Assign
(including without prejudice to the generality of the
foregoing solicitors' costs and surveyor's fees) together with
disbursements and Value Added Tax shall be paid by the Tenant
and it shall be reasonable for the Landlord to require before
considering any application for a Licence to Assign the
Premises an undertaking form the Tenant or the Tenant's
solicitors to pay such reasonable and proper costs whether or
not the Licence proceeds to completion
4.26.3.6 That if either the proposed assignee or the surety (if any) is
a company incorporated elsewhere than in Great Britain or is
an individual not resident in Great Britain (whether or not
with other individuals who may be so resident) the proposed
assignee (and surety if any) enters into a separate deed with
the Landlord which contains the following provisions:
4.26.3.7.1 an agreement by the parties that the rights and obligations of
the parties under the Lease and all documents supplemental
thereto shall be governed by the laws of England
4.36.3.7.2 an agreement on the part of the proposed assignee that any
legal action or proceedings against the proposed assignee with
respect to any matter arising under this Lease and any
document supplemental thereto may be brought in the English
Courts
4.26.3.7.3 the irrevocable and unconditional acceptance by the assignee
of the exclusive jurisdiction of the English Courts in
relation to anything arising under this Lease or any
<PAGE>
document supplemental thereto
4.26.3.7.4 an irrevocable appointment of an agent in England or Wales
authorised to accept service on the proposed assignee (or
surety as the case may be) in England or Wales of any notice
under this Lease or any document supplemental thereto or under
any statute and/or process in the jurisdiction in the English
Courts in any legal action or proceeding arising under this
Lease or any document supplemental thereto
4.26.3.7.5 an agreement by the proposed assignee (and surety if any) that
should the Landlord bring any judicial proceedings in relating
to any matter arising under this Lease or any document
supplemental thereto no immunity from such judicial
proceedings from attachment of its property or from execution
of judgement shall be claimed by the assignee or on the
assignee's behalf with respect to the property of the assignee
and any such immunity shall be waived by the assignee
4.26.3.7.6 an agreement by the proposed assignee (and surety if any) that
nothing in the foregoing provisions should affect the right to
serve process in any other manner permitted by law or to
commence any legal action or proceedings in any other
jurisdiction
4.26.3.7.7 an agreement by the proposed assignee (and surety if any) that
any order declaration or other decision of the English Courts
may be enforced in the duly constituted Court of the country
in which the assignee (being a company) is incorporated or
(being an individual) is resident or in the Courts of any
other country in which the proposed assignee (and surety if
any) has assets and an undertaking by the assignee (and surety
if any) to submit to the jurisdiction of such Courts
4.26.4 Not to underlet the whole of the Premises without (a)
obtaining the Landlord's consent (such consent not to be
unreasonably withheld) and (b) first procuring:-
4.26.4.1 that any underlease to be granted hereunder shall:
4.26.4.1.1 be granted without a fine or premium and at a rent not less
than the higher of the rent payable under this Lease at the
time of completion of the proposed underlease and the open
market rack rent for the Premises at the time of such
underlease
4.26.4.1.2 contain a condition for re-entry on breach of any covenant by
the undertenant
4.26.4.1.3 contain the same or greater restrictions mutatis mutandis as
to assignment underletting [mortgaging] charging or
underletting [parting with or sharing the possession or
occupation of] the [whole of the] Premises (and the same
provision mutatis mutandis for
<PAGE>
direct covenants and registration) as are in this Lease
4.2.6.4.1.4 contain a covenant by the undertenant to perform and observe
all the tenant's covenants and the other provisions contained
in this Lease (other than the payment of the rents) so far as
the same are applicable to the premises to be thereby demised
4.26.4.1.5 contain a covenant by the undertenant prohibiting the
undertenant from doing or suffering any act or thing upon or
in relation to the premises to be underlet inconsistent with
or in breach of the provisions of this Lease
4.26.4.1.6 be in a form previously approved by the Landlord (such
approval not to be unreasonably withheld or delayed)
4.26.4.2 a direct covenant by the prospective undertenant with the
Landlord to perform and observe all the tenant's covenants and
the other provisions contained in this Lease (other than the
payment or the rents) and the proposed underlease
4.26.4.3 if the Landlord shall reasonably so require an acceptable
guarantor for any person to whom the Premises are to be
underlet who shall execute and deliver to the Landlord a deed
containing direct covenants by such guarantor (or, if more
than one such guarantor, joint and several covenants) with the
Landlord (and any Superior Landlord) as principal debtor
4.26.4.3.1 that the proposed undertenant will observe and perform all the
tenant's covenants and other provision in this Lease (other
than payment of the rents) and the proposed underlease
4.26.4.3.2 to indemnify against any loss resulting from any breach by the
undertenant or in terms from time to time reasonably
determined by the Landlord Underletting of part (personal to
named tenant)
4.26.5 Subject to obtaining the Landlord's prior written consent and
subject to the following conditions the Tenant (here meaning
only Pinnacle Systems Limited) may sublet to a suitable tenant
part of the Premises
4.26.5.1 The sub tenancy shall not grant nor shall the sub-tenant be
allowed into possession until there has been produced to the
Landlord a copy of a Court Order excluding in respect of the
proposed subletting the provisions of Sections 24 - 28
inclusive of the Landlord and Tenant Act 1954
4.26.5.2 The sub-leasing shall contain an absolute bar upon any
assignment underletting or
<PAGE>
parting with possession of the whole or any part of the sublet
premises and also be subject to termination in the event inter
alia Blockbuster Entertainment Limited shall cease to be the
Tenant of the whole of the Premises for whatever reason
4,26,5.3 To include in such underlease covenants on the part of the
undertenant in the same terms (mutatis mutandis) as in this
Lease in so far only as the same relate to the sublet premises
4.27 Registration of Dispositions
Within 21 days of every assignment transfer assent underlease
mortgage charge or any other disposition whether mediate or
immediate of or relating to the Demised Premises to produce to
and leave with the Landlords solicitors a certified copy of
the deed instrument or other document evidencing or effecting
such disposition and on such occasion to pay to the Landlord's
solicitors a reasonable registration fee being not less than
(pound)30.00
4.28 Disclosure of Information
Upon making any application or request in connection with the
Demised Premises or this Lease to disclose to the Landlord
such information as the Landlord may reasonably require and
whenever the Landlord shall reasonably request to supply to
the Landlord full particulars of all occupations and
derivative interests in the Demised Premises however remote or
inferior
4.29 Statutory Notices
Within 14 days of receipt of the same (or sooner if requisite
having regard to the requirements of the notice or order in
question or the time limits stated therein) to produce to the
Landlord a true copy and any further particulars reasonably
required by the Landlord of any notice or order or proposal
for the same given to the Tenant and relevant to the Demised
Premises or the occupier thereof by any government department
or local or public authority and without delay to take all
necessary steps to comply with the notice or order as far as
the same is the responsi-bility of the Tenant and at the
request of the Landlord and at the joint and equal costs of
the Landlord and the Tenant to make or join with the Landlord
in making such objection or representation against or in
respect of any such notice order or proposal as the Landlord
shall reasonably deem expedient
<PAGE>
4.30 Compliance with Statutes
At the Tenant's own expense at all times during the Term to
observe and comply in all respects with the provisions and
requirements of the Offices Shops and Railway Premises Act
1963 the Factories Act 1961 and the Health and Safety at Work
etc Act 1974 and any and every statute now in force or which
may hereafter be in force and any other obligations imposed by
law relating to the Demised Premises or the user of the
Demised Premises
4.31 Compliance with Notices
4.31.1 Whenever the Landlord shall give written notice to the Tenant
of any wants of repair which are the responsibility of the
Tenant hereunder or breaches of Tenants covenant the Tenant
shall within 60 days of such notice or sooner if requisite
commence and thereafter diligently proceed to make good and
remedy the breach of covenant to the reasonable satisfaction
of the Landlord
4.31.2 If the Tenant shall fail within 30 days of such notice or as
soon as reasonably possible in the case of an emergency to
commence and then diligently and expeditiously to continue to
comply with such notice the Landlord may enter the Demised
Premises and carry out or cause to be carried out all or any
of the works referred to in such notice and all costs and
expenses thereby incurred shall be paid by the Tenant to the
Landlord on demand and in default of payment shall be
recoverable as rent in arrear
4.32 Rights of Entry
To permit the Landlord with all necessary workmen materials
and appliances at all reasonable times during the Term and
(except in cases of emergency) upon reasonable prior notice to
enter and (for as long as is necessary) remain upon the
Demised Premises for any of the following purposes:-
4.32.1 to view and examine the state and condition of the Demised
Premises and to take schedules or inventories of the
landlord's fixtures
4.32.2 to ensure that nothing has been done in the Demised Premises
that constitutes a breach of any of the covenants contained in
this Lease
4.32.3 to exercise any rights excepted and reserved by this Lease
4.32.4 for any other reasonable purpose connected with the interest
of the Landlord in the Demised Premises or the Estate
including but not limited to valuing or disposing of any
<PAGE>
interest of the Landlord;
the Landlord procuring that the persons so entering shall
cause as little disturbance to the Tenant and as little damage
as reasonably possible and forthwith making good any damage
caused
4.33 Planning
4.33.1 At all times during the Term to comply in all respects with
the provisions and requirements of the Planning Acts and all
consents permissions and conditions (if any) granted or
imposed or having effect thereunder so far as the same
respectively relate to or affect the Demised Premises or any
part of the Demised Premises or any operations works acts or
things already or to be carried out executed done or omitted
thereon or the use thereof for any purpose
4.33.2 At the expense of the Tenant to obtain from (as the case may
be) the local planning authority or the Secretary of State for
the Environment or such other authority as may from time to
time be appropriate all such consents and permissions (if any)
as may be required for the carrying out of any operations on
the Demised Premises or the institution or continuance on the
Demised Premises of any use which may constitute Development
but so that no application for planning permission shall be
made or any notice given to any authority prior to the
commencement or carrying out of any Development without the
prior written consent of the Landlord such consent not to be
unreasonably withheld or delayed Provided that for the purpose
of this Clause no consent from the Landlord shall be required
for a change of use of the Demised Premises if the use is
permitted by Clause 4.15 and/or for alterations permitted by
Clause 4.24
4.33.3 To pay and satisfy any charge or levy that may be imposed
under the Planning Acts in respect of the carrying out or
maintenance of any such operations or the institution of
continuance of any such user
4.33.4 Notwithstanding any consent which may be granted by the
Landlord under this Lease not to carry out or make any
alteration or addition to the Demised Premises or any change
of use (the alteration or change of use which is prohibited by
or for which the Landlord's consent is required to be obtained
under this Lease and for which a planning permission is to be
obtained) before a planning permission therefor has been
produced to the Landlord and acknowledged by it in writing as
satisfactory to it (such acknowledgement
<PAGE>
not to be unreasonably withheld) but so that the Landlord may
refuse so to express its satisfaction with any such planning
permission on the ground that the period thereof or anything
contained in it or omitted from it in the reasonable opinion
of the Landlord's Surveyor would be or be likely to be
prejudicial to the Landlord's interest in the Demised Premises
whether during the Term or following the determination or
expiration of the Term
4.33.5 In the event that the Tenant shall have commenced to implement
any part of any planning permission obtained by the Tenant
unless the Landlord shall otherwise direct to carry out before
the expiration or sooner determination of the Term any work
stipulated to be carried out to the Demised Premises by a date
subsequent to such expiration or sooner determination as
condition of any planning permission which may have been
granted to the Tenant on its application during the Term
4.33.6 Not without the prior written consent of the Landlord (such
consent not to be unreasonably withheld) to enter into any
agreement under Section 106 of the Town and Country Planning
Act 1990 or to serve any notice under Part VI of the Town and
Country Planning Act 1990
4.33.7 If and when called upon so to do to produce to the Landlord or
the Landlord's Surveyor all such plans documents and other
evidence as the Landlord may reasonably require in order to
satisfy itself that the provisions of Clause 4.33 have been
complied with in all respects
4.33.8 Not to serve any purchase notice under the Planning Acts
requiring any local or other authority to purchase the
Tenant's interest under this Lease without first offering to
surrender this Lease to the Landlord at the price which might
reasonably be expected to be obtained from the local or other
authority pursuant to such purchase notice such price in the
absence of agreement between the parties to be referred to the
decision of an independent surveyor experienced in the
valuation of office properties appointed by the President such
surveyor acting as an expert and not an arbitrator PROVIDED
THAT if such offer is not accepted by the Landlord within 30
days thereof then the Tenant may proceed with the service of
such purchase notice without further reference to the Landlord
4.33.9 If the Tenant shall receive any compensation with respect to
its interest under this Lease
<PAGE>
because of the restriction placed upon the user of the Demised
Premises under or by virtue of the Planning Acts then if and
when its interest under this Lease shall be determined (for
whatever reason) forthwith to make such provision as is just
and equitable for the Landlord to receive its due benefit from
such compensation
4.34 Reletting and Sale Notice
To permit the Landlord at all reasonable times to enter upon
the Demised Premises and affix and retain without interference
upon any suitable exterior parts of the Building:-
4.34.1 during the last 6 months of the Term notices for reletting the
same; and
4.34.2 at any time during the Term notices for selling the Landlord's
interest in the Demised Premises; and not to remove or obscure
such notices and to permit all persons with the written
authority of the Landlord to view the Demised Premises at all
reasonable hours in the daytime, upon prior appointment having
been made PROVIDED THAT the Landlord shall ensure that such
notice shall not obstruct the fenestration or the entrances or
exits of the Demised Premises
4.35 Indemnity
Save to the extent that any such actions claims and losses are
covered by any policy of insurance maintained by the Landlord
to keep the Landlord fully indemnified from and against all
actions claims and losses arising in any way directly or
indirectly out of the state of repair or use of the Demised
Premises or any breach of the Tenant's covenants contained in
this Lease or arising from any act neglect or default by the
Tenant any undertenant or their respective servants or agents
or any person on the Demised Premises with the actual or
implied authority of any of them
4.36 Taxation
Notwithstanding anything contained in this Lease not to do on
or in relation to the Demised Premises or any part of the
Demised Premises any act or thing (other than the payment of
the rents reserved by this Lease or which may arise consequent
upon the Landlord's reversionary interest in this Lease) which
shall render the Landlord liable for any tax levy charge or
other fiscal imposition of whatsoever nature and not to
dispose of or deal with this Lease in such a way that the
Landlord shall be or become liable for any such tax levy
charge or fiscal imposition
<PAGE>
4.36.2 If the Tenant shall fail to comply with the provisions of
Clause 4.36.1 the Tenant shall indemnify the Landlord against
all consequential liability for any tax levy charge or other
fiscal imposition of whatsoever nature including but not
limited to penalties and interest on overdue tax and penalties
for failure to give appropriate notices and information for
which the Landlord shall be liable as aforesaid and shall on
demand pay to the Landlord the amount of the tax levy charge
or fiscal imposition which in default of payment shall be
recoverable from the Tenant as rent in arrear
4.37 Covenants Relating to Reversion
Not to do or permit any act or thing which conflicts with the
covenants and provisions of the documents specified or
referred to in the Sixth Schedule (so far as they relate to
the Demised Premises)
4.38 Regulations for the Estate
To comply with all reasonable regulations made by the Landlord
from time to time and notified to the Tenant in writing for
the general management and security of the Estate the Common
Areas and other areas used or to be used in common with others
4.39 Value Added Tax
To pay in addition to all rents costs fees disbursements
expenses and other sums payable by the Tenant under this Lease
all Value Added Tax (or any similar tax imposed or substituted
therefor) which may from time to time be applicable thereto
except to the extent that the Landlord can recover the same
from H. M. Customs & Excise and in default of payment the same
shall be recoverable as rent in arrear
5. LANDLORD'S COVENANTS
THE Landlord COVENANTS with the Tenant as follows:-
5.1 Quiet Enjoyment
That the Tenant paying the rents reserved by this Lease and
performing and observing the covenants conditions and
agreements on the part of the Tenant contained in this Lease
shall and may peaceably hold and enjoy the Demised Premises
during the Term against the Landlord and all persons claiming
title through the Landlord or by title paramount
5.2 Provision of Services
Subject to the Tenant paying the Service Charge to provide the
following services in a
<PAGE>
good and workmanlike and economical manner using good quality
materials:-
5.2.1 So far as may be necessary for the use and enjoyment by the
Tenant of the Demised Premises and the Estate to keep the
Retained Parts in good repair and condition
5.2.2 To keep clean and maintained in a proper manner the Common
Areas and to keep the same lighted where appropriate at such
times as the Landlord reasonably shall decide
5.2.3 To employ such staff or contractors as the Landlord may in its
reasonable discretion deem desirable or necessary to enable it
to provide all or any of the services on the Estate and for
the general management and security of the Estate
5.2.4 To repair and maintain those parts of the Retained Parts which
are not built upon and to keep the same clear of all rubbish
and free from weeds and to provide and maintain at the
Landlord's reasonable discretion such plants shrubs trees or
garden or grassed areas as may be appropriate and to keep the
same planted free from weeds and the grass cut
5.2.5 The matters referred to in the Seventh Schedule hereto
5.3 Inherent Defect
The Landlord shall at its own expense make good all Inherent
Defect and wants of repair and redecoration resulting
therefrom in the Demised Premises as soon as reasonably
practicable after the same shall come to the Landlord's
attention
5.4 Name Lending Provision
5.4.1 In the event of a Tenant being responsible to repair or to
contribute to the repair of the Demised Premises under the
provisions of this Lease the Landlord will make available to
the Tenant such of the procedures set out in sub-clause 5.4.2
below as the Tenant may reasonably request in writing for the
purposes of enforcing for the benefit of the Tenant the
Landlord's remedies against third parties involved with or in
any connected with the design and construction of the Demised
Premises ("the Third Parties")
5.4.2.1 The use by the Tenant of the Landlord's name for the purposes
of claiming against the Third Parties in any legal proceedings
or Alternative Dispute Resolution whether in Arbitration or
the High Court or any other forum in England;
5.4.2.2 The assignment (for the purpose only of enforcing such
remedies) of the Landlord's contractual and other rights
against the Third Parties in respect of the repairs, subject
as appropriate to reassignment when such purposes have been
achieved
5.4.2.3 the enforcement by the Landlord (including where appropriate
the commencement and
<PAGE>
prosecution of proceedings) of the benefit of its rights
against the Third Parties for the benefit of the Tenant
5.4.3 Subject to the conditions of sub-clauses 5.4.4 and 5.4.5
below, the Tenant will indemnify and keep indemnified the
Landlord against any and all liability damages costs losses
and/or expenses of whatever nature which the Landlord incurs
either directly or indirectly as a result of the operation of
sub-clauses 5.4.1 and 5.4.2 including but without prejudice to
the generality of the foregoing any award as to liability
and/or costs
5.4.4 Where any counterclaim is brought against the Landlord as a
part of proceedings under sub-clause 5.4.2 above the indemnity
in sub-clause 5.4.3 above shall not extend to liability
damages costs losses and/or expenses forming part of or
arising as a result of the counterclaim. If any counterclaim
is raised to proceedings commenced pursuant to sub-clause
5.4.2.1 above the Tenant shall give written notice of such
Counterclaim to the Landlord forthwith after receipt of the
same, and those matters will be defended fully in accordance
with the Landlord's wishes and at the Landlord's expense
5.4.5 It is a condition precedent to the Tenant's liability to
indemnify under sub-clause 5.4.3 above that where the Landlord
incurs any liabilities damages costs losses and/or expenses in
respect of which he is to be indemnified by the Tenant he
shall notify the Tenant at its Registered Office in writing
6. INSURANCE
6.1 Landlord to insure the Estate
The Landlord shall insure and keep insured:-
6.1.1 the Estate (including plate or toughened glass forming part of
the Demised Premises) subject to such exclusions excesses
limitations and requirements as may be imposed by the insurers
in the full reinstatement cost of the Estate against loss or
damage by the Insured Risks including architects quantity
surveyors and other professional fees and other incidental
expenses the cost of shoring up demolition and site clearance
and similar expenses together with Value Added Tax (or any
similar or substituted tax) if applicable on all of the
foregoing (with the interest of the Tenant noted on the policy
or policies and with the insurer waiving rights of
subrogation) Provided that the Tenant shall be given the
opportunity of negotiating such exclusions excesses
limitations and/or requirements with the insurers and if the
insurers shall decline to insure unless such
<PAGE>
exclusions excesses limitations and/or requirements are
imposed and such insurance is not otherwise obtainable without
such exclusions excesses limitations and/or requirements then
the Tenant shall accept such exclusions excesses limitations
and/or requirements
6.1.2 the loss of rent from time to time payable or reasonably
estimated by the Landlord's Surveyor to be payable under this
Lease for 3 years
6.1.3 explosion of any engineering and electrical plant and
machinery to the extent that the same is not covered by Clause
6.1.1 and
6.1.4 property owner's liability and such other normal insurances as
the Landlord may from time to time reasonably deem necessary
to effect
6.2 Notice by Tenant
The Tenant shall give notice to the Landlord upon the
happening of any event or thing which might effect any
insurance policy relating to the Demised Premises or the
Estate taken out by the Landlord in performance of its
obligations under this clause
6.3 Suspension of rent
If the Demised Premises or the Estate or any part thereof
shall at any time be destroyed or damaged by any of the
Insured Risks so as to render the Demised Premises unfit for
occupation or use (and save to the extent that the insurance
shall not have been vitiated or payment of the policy monies
refused in whole or in part by reason of some act or default
of the Tenant or any undertenant or any person under its or
their control) then the rent reserved by Clauses 3.1, 3.2 and
3.4 or a fair proportion thereof according to the nature and
extent of the damage sustained shall be suspended until the
Demised Premises or the Estate or the part destroyed or
damaged shall be again rendered fit for use and occupation or
until the expiration of 3 years from the date of destruction
or damage (whichever shall first occur) and any dispute
regarding the suspension of rent shall be referred to a single
arbitrator or to be appointed in default of agreement upon the
application of either party by or on behalf of the President
in accordance with the provisions of the Arbitration Acts 1950
to 1979
6.4 Destruction of the Estate
If the Estate or any part thereof is destroyed or damaged by
any of the Insured Risks so as to render the Demised Premises
unfit for use and occupation or inaccessible then:-
<PAGE>
6.4.1 save to the extent that payment of the insurance monies shall
be refused in whole or in part by reason of any act or default
of the Tenant or any undertenant or any person under its or
their control and
6.4.2 subject to the Landlord being able to obtain any necessary
planning permission and all other necessary licences approvals
and consents in respect of which the Landlord shall use its
reasonable endeavours to obtain but shall not be obliged to
institute any appeals and
6.4.3 subject to the necessary labour and materials remaining
available in respect of which the Landlord shall use its
reasonable endeavours to obtain as soon as practicable the
Landlord shall with all reasonable expedition lay out the
proceeds of such insurance other than any in respect of loss
of rent and the Service Charge in the rebuilding and
reinstatement of the premises so destroyed or damaged
substantially as the same were prior to any such destruction
or damage and shall complete such rebuilding and reinstatement
as soon as reasonably practicable making up any shortfall in
the insurance moneys out of the Landlord's own moneys
6.5 Where reinstatement is prevented
If for any reason whatsoever outside the Landlord's control
the Landlord is prevented from rebuilding or reinstating the
Demised Premises or the Estate the Landlord shall be relieved
from such obligation and shall be solely entitled to all the
insurance monies and if such rebuilding and reinstatement
shall continue to be so prevented for two years and nine
months after the date of the destruction or damage the
Landlord or (if such rebuilding and reinstatement shall be
prevented for two years and nine months after the date of the
destruction or damage for whatever reason) the Tenant may at
any time after the expiry of such two years and nine months by
three months' written notice given to the other determine this
demise but without prejudice to any claim by either party
against the other in respect of any antecedent breach of
covenant
6.6 Payment of insurance monies refused
If the payment of any insurance monies is refused as a result
of some act or default of the Tenant or any undertenant or any
person under its or their control the Tenant shall pay to the
Landlord on demand the amount so refused with interest thereon
at the Interest Rate
<PAGE>
6.7 Benefit of other insurance
If the Tenant shall become entitled to the benefit of any
insurance on the Demised Premises which is not effected or
maintained in pursuance of the obligations herein contained
then the Tenant shall apply all monies received from such
insurance (in so far as the same shall extend) in making good
the loss or damage in respect of which the same shall have
been received
6.8 Insurance becoming void
The Tenant shall not (by act or omission) do or permit to be
done anything that could cause any policy of insurance taken
out by the Landlord hereunder to become void or voidable
wholly or in part nor anything whereby any additional
insurance premiums may become payable (unless the Tenant shall
notify the Landlord upon becoming aware of the same or shall
have previously notified the Landlord and shall have agreed to
pay the increased premiums) and the Tenant shall on demand
make payment to the Landlord of all expenses incurred by the
Landlord in renewing any such policy and of any increased
insurance premiums all such payment being added to the rents
reserved by this Lease and recoverable as rent
6.9 Requirements of insurers
The Tenant shall at all times comply with all the requirements
of the insurers so far as such requirements are communicated
to the Tenant Provided that (save in case of a requirement of
the insurers requiring immediate action) the Tenant shall be
given the opportunity of negotiating such requirements with
the insurers and if the insurers shall decline to insure
unless their requirements are met and such insurance is not
otherwise obtainable without such requirements then the Tenant
shall comply with such requirements
6.10 Landlord to produce evidence of insurance
At the request and reasonable cost of the Tenant the Landlord
shall provide to the Tenant reasonable evidence from the
insurers of the terms of any insurance policy and the fact
that the policy is subsisting and in effect provided that the
Tenant shall be entitled to one copy of the insurance policy
in each year without charge
7. PROVISOS
7.1 Forfeiture
<PAGE>
WITHOUT prejudice to any other right remedy or power contained
in this Lease or otherwise applicable to the Landlord:
7.1.1 if the rent reserved by this Lease or by any part of this
Lease shall be unpaid for 14 days after such rent becoming
payable or
7.1.2 if there shall be a breach of any of the Tenant's covenants
contained in this Lease or
7.1.3 if the Tenant being a company takes any corporate action or in
respect of which other steps are taken or legal proceedings
are commenced or recommenced for its winding up (which
proceedings are not dismissed or otherwise stayed within 14
days) dissolution administration or re-organisation (other
than for the purposes of a solvent re-organisation or
reconstruction and which results in no material adverse change
in the status or financial position of the Guarantor) or for
the appointment of a Receiver Administrator Administrative
Receiver Trustee or similar officer of it or of any or all of
its revenue
7.1.4 if the Tenant and/or the Guarantor (if any) (being an
individual) or if more than one individual then any one of
them) shall become bankrupt or shall have a Receiving Order
made against him or an Interim Order under the Insolvency Act
1986 made against him or
7.1.5 if the Tenant and/or the Guarantor (if any) shall make any
assignment for the benefit of creditors or make any
arrangements with creditors for the liquidation of debts by
composition or otherwise or shall suffer any distress or
execution to be levied on the Demised Premises then and in any
such case the Landlord may at any time thereafter re-enter the
Demised Premises or any part of the Demised Premises in the
name of the whole and thereupon the Term shall absolutely
cease and determine but without prejudice to any rights or
remedies which may then have accrued to the Landlord against
the Tenant in respect of any antecedent breach of any of the
covenants contained in this Lease
7.2 No implied easements
Nothing contained in this Lease shall impliedly confer upon or
grant to the Tenant any easement right or privilege other than
those expressly granted (if any) by this Lease
7.3 Exclusion of warranty as to user
7.3.1 The Tenant acknowledges that the Lease has not been entered
into in reliance wholly or partly upon any statement or
representation made by or on behalf of the Landlord save
<PAGE>
insofar as any such statement or representation is expressly
set out in this Lease or has been made by the Landlord's
solicitors by or on behalf of the Landlord in any written
reply to any enquiry from the Tenant's solicitors by or on
behalf of the Tenant before the date of entry in this Lease
7.3.2 Nothing contained in this Lease or in any consent or approval
granted by the Landlord under this Lease shall imply or
warrant that the Demised Premises may be used under the
Planning Acts for the purpose herein authorised or for any
purpose subsequently authorised by this Lease
7.4 Covenants relating to Adjoining Property
Nothing contained in or implied by this Lease shall give the
Tenant the benefit of or the right to enforce or to prevent
the release or modification of any covenant agreement or
condition entered into by any tenant of the Landlord in
respect of any property not comprised in this Lease
7.5 Effect of waiver
Each of the Tenant's covenants shall remain in full force both
at law and in equity notwithstanding that the Landlord shall
have waived or released temporarily any such covenant or
waived or released temporarily or permanently revocably or
irrevocably similar covenant or similar covenants affecting
other property belong-ing to the Landlord
7.6 Service of Notices
Any notice under this Lease shall comply with the provisions
of the Law of Property Act 1925 Section 196 save that if it
was sent by post and would in the ordinary course be delivered
on a Saturday Sunday Christmas Day Good Friday statutory bank
holiday or other public holiday (none of which is a working
day for the purposes of this Clause 7.6) it shall be deemed to
be served on the next following working day
7.7 Disputes with adjoining occupiers
Any dispute arising between the Tenant and the tenants or
occupiers of the Estate as to any easement quasi-easement
right privilege or Conduit in connection with the Demised
Premises or the Estate or as to party or other walls shall be
fairly and reasonably determined by the Landlord
7.8 Failure by the Landlord to provide services
<PAGE>
The Landlord shall not in any event be liable to the Tenant in
respect of any failure of the Landlord to perform any of the
services referred to in this Lease whether express or implied
unless the Landlord has had notice thereof and the Landlord
has failed within a reasonable time to remedy the same
7.9 Exclusion of the Landlord's liability
7.9.1 The Landlord shall not in any circumstances incur any
liability for any of the following matters if they are outside
the control of the Landlord provided the Landlord has not been
negligent namely failure or interruption in any of the
services provided by the Landlord or for any inconvenience or
injury to person or property arising from such failure or
interruption due to mechanical breakdown failure or
malfunction overhauling maintenance repair or replacement
strikes labour disputes or shortages but the Landlord shall
use its reasonable endeavours to cause the service in question
to be reinstated with the minimum of delay
7.9.2 Any liability of the Landlord under this Lease shall cease
with regard to any act or omission after the transfer of the
freehold estate in the Estate and shall cease with regard to
any act or omission occurring before such transfer unless
proceedings (including but not limited to arbitration
proceedings) in respect thereof shall be instituted within
eighteen months from the date of such transfer
7.10 Submission to Jurisdiction
This Lease shall be governed by and construed in accordance
with English Law and the Landlord the Tenant and Guarantor
hereby submit to the exclusive jurisdiction of the English
courts
7.11 Recovery of Monies as Rent
If the Tenant shall make default in paying any sum referred to
in Clause 3 (whether formally demanded or not) such sums shall
be recoverable as if rent in arrears AND the power of the
Landlord to distrain upon the Demised Premises for rent in
arrear (including any such last mentioned sum) shall extend to
and include any Tenants fixtures and fittings not otherwise
distrainable
7.12 Landlord's Surveyor and Accountant
In any matter relating to the provisions of this Lease the
Landlord shall procure that the Landlord's Surveyor and the
Accountant (as hereinafter defined) shall act reasonably
<PAGE>
7.13 Covenants Relating to Reversions
Without prejudice to clause 4.37 to observe and perform all
obligations imposed upon the Landlord by the covenants and
provisions of the documents specified or referred to in the
Sixth Schedule (so far as they relate to the Estate)
7.14 Post Expiry Provision
In the event that the Tenant shall not have vacated the
Demised Premises upon expiry of the Term the covenants
conditions restrictions and obligations on behalf of the
Landlord and the Tenant shall remain in full force and effect
Inherent Defects
7.15 Notwithstanding the provisions of Clause 8 the Landlord shall
not recover or seek to recover from the Tenant any Service
Charge or other payment pursuant to this Lease in respect of
any cost incurred by the Landlord in or incidental to the
remedying of any Inherent Defect in the Estate or of any want
of repair attributable to such Inherent Defect
8. SERVICE CHARGE
8.1 In this Lease, where the context so requires or admits, the
following expressions shall have the following meanings:-
8.1.1 "Expenditure" means:-
8.1.1.1 the aggregate of all costs, fees, expenses and outgoings
whatsoever (including Value Added Tax thereon if applicable
except insofar as the landlord can recover the same from H. M.
Customs & Excise) reasonably and properly incurred by the
Landlord in complying with its covenants in clause 5.2 and in
respect of the items set out in the Seventh Schedule (whether
or not the Landlord is obliged by this Lease to incur the
same);
8.1.1.2 such sums as the Landlord shall, in its reasonable discretion
properly exercised in accordance with the principles of good
estate management, consider desirable to set aside from time
to time for the purpose of providing for periodically
recurring items of expenditure, whether recurring at regular
or irregular intervals; or
8.1.1.3 such provision for anticipated expenditure in respect of any
of the services to be provided by the Landlord or any of the
items referred to in the Seventh Schedule as the Landlord
shall, in its reasonable discretion properly exercised in
accordance with principles of good estate management, consider
desirable in the circumstances;
<PAGE>
8.1.2 "Financial Year" means the period from the First day of
January in every year to the Thirty first day of December of
that year or such other period as the Landlord may, in its
absolute discretion, from time to time reasonably determine;
8.1.3 "Accountant" means any person (being a qualified chartered
accountant in a professional capacity) appointed by the
Landlord (including but not limited to an employee of the
Landlord) to perform the function of an accountant in relation
to the Expenditure.
8.2. Expenditure Account
The Landlord shall, as soon as practicable after the end of
each Financial Year, prepare an account showing the
Expenditure for that Financial Year and containing a fair and
accurate summary of the various items comprising the
Expenditure and, upon such account being certified by the
Accountant (a copy of which shall be supplied to the Tenant),
the same shall be conclusive evidence (save for any manifest
error therein), for the purposes of this Lease, of all matters
of fact referred to in such account.
8.3. Dates of Payment
On each of the four usual quarter days in every year during
the Term, the Tenant shall pay to the Landlord without any
deduction whatsoever such a sum ("the Advance Payment") in
advance on account of the Service Charge for the Financial
Year then current as the Landlord shall, from time to time,
specify as being, in its absolute discretion properly
exercised, a fair and reasonable assessment of one-quarter of
the likely Service Charge for that particular Financial Year
provided that the Advance Payment for the period from the
Service Charge Commencement Date to the next following quarter
day shall be the Initial Service Charge Payment and made on
the date hereof
8.4. Proportions of Service Charge
If the Service Charge for any Financial Year shall:-
8.4.1 exceed the Advance Payment for that Financial Year, the excess
shall be paid by the Tenant to the Landlord within 7 days of
demand; or
8.4.2 be less than the Advance Payment for that Financial Year, the
overpayment shall be credited to the Tenant against the next
quarterly payment of the Service Charge except in the final
year of the term when any overpayment shall be returned to the
Tenant forthwith
<PAGE>
8.5. Landlord's Omissions
Any omission by the Landlord to include in any Financial Year
a sum expended or a liability incurred in that Financial Year
shall not preclude the Landlord from including such sum or the
amount of such liability in any subsequent Financial Year, as
the Landlord shall reasonably determine.
8.6 Landlord's Review
8.6.1 the Landlord shall be at liberty at any time to review the
heads of cost expenditure charge or allowances included in the
Services referred to in the Seventh Schedule as it shall in
its absolute discretion consider reasonably appropriate in the
interests of good estate management and vary the existing
items included in the Service Charge to add thereto any items
of cost expenditure charge depreciation or other allowance
provision for future anticipated expenditure on or replacement
of any installation plant machinery equipment of apparatus or
rental value of any parts of the Estate used in connection
with the provision of the Services not previously included
therein and from and after the relevant date of such review
such variations to or additional items of cost expenditure
charge allowance provision or value shall be notified to the
Tenant in writing and shall be included in the calculation of
the Service Charge PROVIDED THAT in no event shall the
Services referred to in Clauses 5.2.1 5.2.2. or 5.2.4 be
varied
8.6.2 Any expenses which are properly recoverable by the Landlord
otherwise than as a part of the Service Charge from any other
owner tenant or occupier of the Estate shall not be included
in the calculation of the Service Charge
8.6.3 Where the Tenant provides any of the Services for the benefit
of the Demised Premises and the Landlord agrees that such
provision is in substitution for the obligation of the
Landlord hereunder in respect thereof then whilst the Tenant
provides the same to the Demised Premises there shall be
omitted from the calculation of the Service Charge all items
of charge for such of the Services as the Tenant so provides
8.7. Cost of Supplying Documents
Any costs charges or expenses (including value added or other
tax thereon) reasonably and properly incurred by the Landlord
in preparing or supplying copies of the regulations governing
the adminstration of the Estate or in doing works for the
improvement of the Demised Premises or providing services
shall be deemed to have
<PAGE>
been properly incurred by the Landlord (as appropriate) in
pursuance of its obligations under this Clause notwithstanding
the absence of any specific covenant on the part of the
Landlord relating thereto
8.8. Additions to Services
The Landlord may, at its reasonable discretion, withhold, add
to, extend, vary or make any alterations to any of the
Services from time to time if the Landlord shall reasonably
deem it desirable to do so for the more efficient management,
security and operation of the Estate, or for the comfort of
the tenants on the Estate PROVIDED THAT in no event shall the
Services referred to in Clauses 5.2.1 5.2.2 or 5.2.4 be varied
8.9. Continuation of Services
The provisions of this clause shall continue to apply
notwithstanding the expiration or sooner determination of the
Term but only in respect of the period down to such expiration
or sooner determination, the Service Charge for that Financial
Year being apportioned for the said period on a daily basis.
9. Exclusion from the Landlord & Tenant Act 1954
Having been authorised to do so by an Order of the Lambeth
County Court (no ) made on the day of 1996 under the provision
of the Landlord and Tenant Act 1954 section 38(4) the parties
agree that the provisions of the Landlord and Tenant Act 1954
sections 24 to 28 (inclusive) shall be excluded in relation to
the tenancy created by this Lease
10. Tenants right to determine
The Tenant may determine this Lease on the fifth anniversary
of commencement by giving to the Landlord not less than six
months' prior written notice so to do (time being of the
essence) and upon payment of the sum of Twenty Thousand Pounds
(with VAT at the appropriate rate in addition) such payment to
be made simultaneously with the serving of such Notice
whereupon this Lease shall determine but without prejudice to
any antecedent breaches as at the date hereof
IN WITNESS whereof the parties to this Deed have caused their Common Seals to be
hereunto affixed the day and year first above written
<PAGE>
THE SCHEDULES above referred to
THE FIRST SCHEDULE
Description of the Demised Premises
ALL THAT piece or parcel of land forming part of the Estate with the buildings
erected thereon or on part thereof and known as Unit 7 The Grand Union Office
Park Packet Boat Lane Cowley Uxbridge in the London Borough of Hillingdon shown
for identification purposes only edged red on the Plan
<PAGE>
THE SECOND SCHEDULE
Description of the Estate
ALL THAT piece or parcel of land known as The Grand Union Office Park being on
the North Side of Packet Boat Lane Cowley Uxbridge in the London Borough of
Hillingdon as the same is registered at H M Land Registry with Title Absolute
under Title Number MX6587
<PAGE>
THE THIRD SCHEDULE
Rights and Easements granted
1. The right for the Tenant and all persons expressly or by
implication authorised by the Tenant (in common with the
Landlord and all other persons now entitled or who may become
entitled) but subject to any existing or future regulations
reasonably made by the Landlord:-
1.1 to use the Common Areas for all proper purposes in connection
with the use and enjoyment of the Demised Premises
1.2 to use the service roads on the Estate with or without
vehicles (until the same are adopted as public highways) for
the purposes only of obtaining access to and egress from the
Demised Premises
2. to use the Car Spaces
3. the free and uninterrupted passage and running and use of the
Utilities (subject to temporary interruption for necessary
repair necessary alteration or necessary replacement) to and
from the Demised Premises through the Conduits which are now
laid or (within a period of 80 years from the date hereof)
shall be laid in under or through other parts of the Estate so
far as any of the same are necessary for the reasonable use
and enjoyment of the Demised Premises
4. of support and protection for the benefit of the Demised
Premises as is now enjoyed from all other parts of the Estate
5. to use the repositories in the Waste Receptacles for the
deposit by the Tenant of all rubbish and refuse for collection
by the local authority or such contractor as the Landlord may
reasonably determine
6. The right at all reasonable times upon reasonable prior notice
(or in cases of emergency) when no notice shall be required to
enter the Adjoining Property in order to:-
6.1 inspect cleanse maintain and repair and (when necessary)
connect remove renew relay and replace with others the
Conduits and any other services serving the Demised Premises
6.2 execute repairs and decorations to the Demised Premises
<PAGE>
PROVIDED THAT the Tenant shall cause as little disturbance and
inconvenience as possible and shall make good without delay
any damage thereby caused
7. The right to have the Tenant's name included on the Estate
signboard
<PAGE>
THE FOURTH SCHEDULE
Exceptions and reservations
The following rights and easements are excepted and reserved out of the Demised
Premises to the Landlord and any superior landlord of the Estate and of the
Adjoining Property and all other persons authorised by the Landlord or any
superior landlord or having the like rights and easements:-
1. the free and uninterrupted passage and running of the
Utilities through the Conduits which are now or may at any
time be in under or passing through or over the Demised
Premises
2. at all reasonable times upon reasonable prior notice (or in
cases of emergency (when no notice shall be required)) the
right to enter the Demised Premises in order to
2.1 inspect cleanse maintain and repair and when necessary connect
remove lay renew relay and replace with others and when
necessary alter or execute any works to or in connection with
the Conduits
2.2 execute repairs and decorations and any necessary alterations
and any other necessary works to the Adjoining Property which
cannot be carried out without access to the Demised Premises
or to do anything whatsoever which the Landlord may do under
this Lease Provided that the Landlord or the person exercising
the foregoing rights shall cause as little disturbance and
inconvenience as possible and shall make good without delay
any damage thereby caused
3. The rights of light air support protection and shelter now or
hereafter belonging to or enjoyed by the Estate or the
Adjoining Property
4. Full right and liberty at any time hereafter to carry out or
permit the Development of any Adjoining Property or any part
thereof Provided that (1) the person exercising such rights
may not obstruct affect or interfere with the amenity or
access to the Demised Premises or the passage of light and air
to the Demised Premises and (2) the person exercising such
rights shall do so in such manner as will cause as little
damage and interference as reasonably possible and the
Landlord shall forthwith make good any damage (3) the Tenant's
future use enjoyment and occupation of the Demised Premises
<PAGE>
is not materially affected or prejudiced (4) the Landlord may
temporarily obstruct or interfere with such amenity or access
during the course of such development upon provision of
suitable alternative facilities
5. The right to affix and hereafter maintain upon the Demised
Premises but not so as to interfere with the business of the
occupier of the Demised Premises lighting equipment reasonably
necessary for the purpose of illuminating the Common Areas
<PAGE>
THE FIFTH SCHEDULE
[ ] AUTHORISED GUARANTEE AGREEMENT (Long Form)
This Deed is made the [ ] day of [ ] 199[ ]
Between:-
[ ] "the Landlord" (1)
[ ] "the Guarantor" (2)
[ ] "the Assignee" (3)
NOW THIS DEED WITNESSETH AS FOLLOWS:
1. In this Deed the following words and
expressions have the meanings ascribed to
them:
1.1 "The Lease" a lease dated the day of and
made between:
(1)
(2)
(3)
1.2 "The Act" the Landlord and Tenant
(Covenants) Act 1995
1.3 The definition and provisions as to
interpretation in the Lease shall apply in
this Deed where the context so admits
2. IN CONSIDERATION of the consent of the
Landlord to the assignment of the Lease to
the Assignee the Guarantor as sole or
principal debtor covenants with the Landlord
that until the determination of the Term or
until the Assignee is released by virtue of
the Act from the covenants contained in the
Lease (whichever shall be earlier):
2.1 The Assignee will pay the rents reserved and
observe and perform the covenants conditions
and agreements contained in the Lease and on
the part of the tenant thereunder to be
observed and performed as well after as
before any disclaimer of the Lease by any
liquidator or trustee in bankruptcy or by
the Crown
2.2 If the Assignee (being an individual) shall
become bankrupt or (being a company) shall
enter into liquidation and if a trustee in
bankruptcy of the Assignee or a liquidator
of the Assignee (as the case may be) shall
disclaim the Lease or if it shall be
forfeited or if the Lease shall vest
<PAGE>
bona vacantia the Landlord may within three
months after such disclaimer or forfeiture
or vesting by notice in writing require the
Guarantor to take a lease of the Demised
Premises for a term equal to the residue of
the term granted by the Lease immediately
before such disclaimer or forfeiture or
vesting on the same terms as the lease (such
lease to take effect from the date of such
disclaimer or forfeiture or vesting at rents
corresponding with those payable under the
Lease in respect of the period immediately
before such disclaimer or forfeiture or
vesting but subject to review at the same
times as those at which reviews would have
occurred had the Lease remained in
existence) and the Guarantor will take up
such lease and execute and deliver to the
Landlord a counterpart of it and will pay
the Landlord's proper costs and expenses of
and incidental to its grant If the Landlord
does not require the Guarantor to take a
lease of the Demised Premises and if the
Guarantor does not take an Overriding Lease
under Section 19 of the Act the Guarantor
will nevertheless upon demand pay to the
Landlord a sum equal to the rents and other
payments that would have been payable under
the lease but for the disclaimer or
forfeiture until the expiration of 12 months
from such disclaimer
2.4 Anything done omitted or agreed by the
Assignee is done omitted or agreed with the
concurrence of the Guarantor
2.5 The Guarantor shall not be entitled to
participate in any security held by the
Landlord in respect of the Assignee's
obligations to the Landlord under the Lease
until the obligations on the part of the
Guarantor or of the Assignee under the Lease
shall have been performed or discharged in
full
2.6 The Guarantor will be liable to the Landlord
as sole or principal debtor or covenantor
for all obligations on the part of the
tenant contained in the Lease and will not
be released or discharged by time or
indulgence being given to or any arrangement
or alteration of terms being made with the
Assignee or any other person or by any
release or dealing by the
<PAGE>
Landlord or by any act omission or thing
whatsoever whether with or without the
express or implied consent of the Guarantor
whereby the Guarantor as a guarantor only
might have been released or discharged
3. THE Guarantor and the Assignee acknowledge
that this Deed is an Authorised Guarantee
Agreement within the meaning of the Act
4. IF any provision of this Deed is held to be
void or unenforceable by any Court of
competent jurisdiction such provision shall
be severed from the remainder which shall
continue to be valid and binding and of full
force and effect
5. THIS Deed is made without prejudice to
5.1 any other guarantee surety or security which
the Landlord may have or take in respect of
the tenant's covenants or conditions in the
Lease
IN WITNESS whereof the parties hereto have executed the deed
and delivered it on the day and year first before written
<PAGE>
THE SIXTH SCHEDULE
Matters and/or deeds and documents containing matters
to which the Demised Premises are subject
The exceptions reservations covenants stipulations and
provisions contained or referred to in Title number MX6587 as
the same is registered at H M Land Registry with Title
Absolute
<PAGE>
THE SEVENTH SCHEDULE
Items of Expenditure as referred to in Clause 8
1. When necessary renewing repairing resurfacing maintaining
rebuilding and cleansing all roadways car parks pavements open
areas sewers drains pipes and watercourses which are now or
may be at any time during the period of 80 years from the date
hereof constructed laid or installed in under or upon the
Common Areas or adjoining and neighbouring land and available
in under or upon the Common Areas or adjoining and
neighbouring land and available for use of occupiers of the
Estate until the same or any of them are adopted by the Local
Authority and repaired at public expense
2. When necessary making repairing maintaining rebuilding
cleansing and upkeep of all ways roads pavements sewers drains
pipes watercourses and party walls structures party fences
walls or other conveniences which may belong to or be used for
the Common Areas in common with other premises near or
adjoining the Common Areas (whether paid by the Landlord or
incurred by the Landlord as a contribution)
3. Maintaining the cultivated area of the canal bank on the south
side of the Grand Union Canal adjacent to the Estate
4. When necessary providing and maintaining apparatus or
facilities provided for the general benefit or use of tenants
or occupiers of the Estate 5. Maintaining repairing and
renewing as necessary the street lighting and security and
other lighting on the Common Areas
6. Providing such reasonable signage as the Landlord shall in its
absolute discretion deem advisable giving the Tenant's name
and Unit number at the entrance to the Estate and further
providing reasonable signage at the entrance to the Building
in a form agreed between the Landlord and the Tenant
7. At such times as the Landlord shall in its absolute discretion
consider to be necessary (but not more than once in any one
period of three years) in a good and workmanlike manner to
prepare and decorate with two coats at least of good quality
paint or otherwise treat as appropriate all external wood
metal stucco and cement work and other exterior
<PAGE>
parts of any Common Areas required to be so treated and as
often as may be reasonably necessary properly to wash down
clean restore repoint and make good and wherever appropriate
to treat with suitable preservative all stonework brickwork
concrete and other finishes
8. The repair and maintenance of any part of the Estate which
does not comprise part of the Lettable Areas
9. The payment of the full amount (without deductions of any
agency or other commission paid or allowed to the Landlord on
such amount or otherwise which the Landlord shall be entitled
to retain for its own benefit free of any obligation to bring
the same into account under these presents) of every premium
payable or other payment incurred by the Landlord from time to
time in effecting and maintaining insurance of the Common
Areas and of the Landlord against property owners and third
party liabilities (including those arising under the Defective
Premises Act 1972) in respect of the Estate and its
obligations hereunder
10. Taking all steps reasonably deemed desirable or expedient by
the Landlord for complying with and for making representations
against or otherwise contesting the instance of the provisions
of any legislation or orders or statutory requirements
thereunder concerning town planning public health highways
streets drainage or other matters relating or alleged to
relate to the Estate for which parties are not directly liable
11. The payment of all charges assessments and other proper
outgoings (if any) relating to the Common Areas (other than
tax payable by the Landlord on its income from the Estate or
on any dealing with its interest in the Estate)
12. Providing fire fighting equipment and appliances for the
Common Areas including the cost of repair and maintenance of
the same
13. Installing repair and maintenance of security cameras
(together with video recorder backup) throughout the Estate
14. Enforcing or attempting to enforce against any third party
tenant or occupier of the Estate the observance of any
covenant or agreement regulating that tenant's or occupier's
occupation of the Estate or any part thereof the
non-observance of which is or may be detrimental both to the
Landlord and/or any other third party owners and to the owners
tenants or occupiers of the Estate
<PAGE>
15. The payment of any compensation or damages to owners tenants
or occupiers of parts of the Estate in respect of the
Landlord's right of access to carry out works or provide the
Services other than compensation or damages payable as a
result of the act neglect or default of the Landlord or as may
be covered by insurance
16. Employing staff either directly or indirectly for the
performance of duties in connection with the maintenance
and/or security of the Estate and the provision of the
Services thereto and all incidental expenditure in relation to
such employment including (but without limiting the generality
of such provision) for the payment of statutory and such other
insurance health pension welfare and other payments
contributions and premiums industrial training levies
redundancy and similar or ancillary payments which the
Landlord may be required by statute or otherwise to pay or may
in its absolute discretion deem reasonably desirable or
reasonably necessary in respect of such staff and uniforms
working clothes tools appliances cleaning and other materials
bins receptacles and other equipment for the proper
performance of their duties
17. The management of the Estate by the Landlord or by any
management company or agents reasonably or properly appointed
therefore and staff employed in connection thereith and the
payment of
(i) the management fee attributable to the
Demised Premises which shall include the
proper fees and expenses of the Landlord's
Surveyor
(ii) all fees and costs incurred in respect of
the Certificate and of accounts kept and
audits made for the purpose thereof
PROVIDED THAT in no event shall the Tenant be liable for the
payment of fees for the collection of rent or fees calculated
by reference to the amount of the rent payable under this
Lease
18. The oil electricity or other fuel required for the plant
serving the Estate and the electricity for providing Services
to or for the Estate
19. Supplying copies of the Regulations to the owners and
occupiers of the Estate together with all amendments and
additions made thereto from time to time
20. Arrangements with the local authority or any other contractor
for the storage and disposal of refuse on the Estate
21. The maintenance and upkeep of landscaped areas including
replanting where necessary
<PAGE>
and trimming and lopping trees and shrubs from time to time
22. Allowances for the replacement (assessed upon a reasonable and
proper basis) of plants pipes apparatus and fittings referred
to above such amount so charged for individual items being
credited or allowed in account against the costs of the
subsequent replacement or renewal of such separate items
23. Items properly attributable to the maintenance of the Estate
and the provision of services not specifically dealt with
under the above paragraphs but which the Landlord considers to
be for the general benefit of the Estate in accordance with
the principles of good estate management
24. The actual cost to the Landlord by way of interest commission
banking charges or otherwise of borrowing any necessary sums
in connection with the provisions of this Schedule as a whole
<PAGE>
THE EIGHTH SCHEDULE
Rent Reviews
1. Definitions
In this Schedule the following expressions shall bear the
following meanings:-
1.1 "Open Market Rent": the clear yearly rack rent at which the
Demised Premises might reasonably be expected to be let at the
Review Date by a willing landlord to a willing tenant with
vacant possession and without any premium or any other
consideration for the grant thereof for a term of years equal
to the residue of the Term remaining unexpired on the Review
Date and otherwise on the terms and conditions and subject to
the covenants and provisions contained in this Lease (other
than the amount of rent payable under this Lease but including
these provisions for the review of rent)
1.1.1 and making the following assumptions (if not facts) at the
Review Date:-
1.1.1.1 that the Demised Premises comprise a nett lettable area of
5125 square feet
1.1.1.2 that the Demised Premises are fit for and fitted out and
equipped for immediate occupation and use and are suitable for
the use permitted by clause 4.15 of the whole of the Demised
Premises and that no rent free period fitting out period or
other allowance has been given to the Tenant at the
commencement of this Lease
1.1.1.3 that no work has been carried out to the Demised Premises
which has diminished the rental value of the Demised Premises
and that if the Demised Premises or the Retained Parts have
been destroyed or damaged they have been fully restored
1.1.1.4 that the Demised Premises are in a good state of repair and
decorative condition
1.1.1.5 that all the covenants on the part of the Tenant and the
Landlord contained in this Lease have been fully performed and
observed
1.1.1.6 that all Value Added Tax payable by the Tenant to the Landlord
under this Lease is recoverable by the Tenant in full or would
be recoverable by any/every prospective willing tenant
1.1.1.7 that notwithstanding the Demised Premises may have been
altered so that they have been combined with the Adjoining
Premises such combination shall be deemed to be ignored
1.1.2 but disregarding the following matters:-
1.1.2.1 any effect on rent of the fact that the Tenant any undertenant
or their respective predecessors in title have been in
occupation of the Demised Premises or any part
<PAGE>
thereof
1.1.2.2 any goodwill attached to the Demised Premises by reason of the
carrying on at the Demised Premises of the business of the
Tenant any undertenant or their respective predecessors in
title in their respective business
1.1.2.3 any increase in rental value of the Demised Premises
attributable to the existence at the Review Date of any
improvement to the Demised Premises carried out after the date
of this Lease and carried out otherwise than in pursuance of
an obligation to the Landlord or its predecessors in title
(save for any obligation imposed by statute) by the Tenant any
undertenant or their respective predecessors in title
1.1.2.4 the destruction of or any damage to the Demised Premises by
way of the Insured Risks
1.1.2.5 any conditions contained in any planning permission obtained
by the Landlord which may adversely affect the rental value of
the Demised Premises
1.1.2.6 any effect on rent of the Rent Restrictions
1.1.2.7 any inability of the Tenant to recover Value Added Tax
1.2 "the Surveyor:" an independent chartered surveyor of not less
than 10 years standing who is experienced in the valuation and
leasing of property similar to the Demised Premises and is
acquainted with the market in the area in which the Demised
Premises are located appointed from time to time to determine
the Open Market Rent pursuant to the provisions of this
Schedule
1.3 "Rent Restrictions": the restrictions imposed by any statute
for the control of rent in force on the Review Date or on the
date on which any increased rent is ascertained in accordance
with this Schedule and which operate to impose any limitation
(whether in time or amount) on the collection of an increase
in the rent first reserved by this Lease or any part thereof
2. Upwards only rent review
The rents reserved pursuant to Clause 3.1 (a) of this Lease
shall be reviewed on the Review Date in accordance with the
provisions of this Schedule and from and including the Review
Date such rent shall be equal to the higher of either such
rent payable immediately before the Review Date or the Open
Market Rent on the Review Date as agreed or determined
pursuant to the provisions of this Schedule
3. Agreement or determination of the reviewed rent
<PAGE>
The Open Market Rent at the Review Date may be agreed in
writing at any time between the Landlord and the Tenant but if
for any reason (whether through failure or omission to agree
or negotiate or to initiate any negotiation) the Landlord and
the Tenant have not so agreed within three months of the
Review Date then either the Landlord or the Tenant may
(whether before or after the Review Date) by notice in writing
to the other party require the Open Market Rent to be
determined by the Surveyor
4. Appointment of Surveyor
In default of agreement between the Landlord and the Tenant
upon the appointment jointly of the Surveyor the Surveyor
shall be appointed by the President on the written application
of either the Landlord or the Tenant who shall be at liberty
to make such application not earlier than 3 months before or
at any time after the Review Date
5. Functions of the Surveyor
5.1 The Surveyor shall as an expert invite the Landlord and the
Tenant to submit to him within such time limits (not being
less than 15 working days) as he shall consider appropriate a
valuation accompanied if desired by a statement of reasons and
such representations and cross-representations as to the
amount of the Open Market Rent with such supporting evidence
as they may respectively wish
5.2 within 60 days of his appointment or within such extended
period as the Landlord and the Tenant shall jointly agree in
writing give to each of them written notice of the amount of
the Open Market Rent as determined by him
6. Costs of reference to Surveyor
The costs (which shall include but shall not be limited to
professional fees disbursements application fees and Value
Added Tax) of any reference to the Surveyor shall be in the
award of the Surveyor and failing such award the costs shall
be payable by the parties in equal shares
7. Appointment of new Surveyor
If the Surveyor shall fail to give notice of his determination
within the time aforesaid or if he shall die or shall be
unwilling to act or shall become incapable of acting or if for
any other reason he is unable to act then either the Landlord
or the Tenant may request the President to discharge the
Surveyor and appoint another surveyor in his place which
procedure may be repeated as many times as necessary
<PAGE>
8. Interim payments pending determination
If by the Review Date the amount of the reviewed rent has not
been agreed or determined as aforesaid (the date of agreement
or determination being herein called "the Determination Date")
then in respect of the period of time (herein called "the
Interim Period") beginning with the Review Date and ending on
the day before the Quarter Day following the Determination
Date the Tenant shall pay to the Landlord rent at the yearly
rate payable immediately before the Review Date and on the
Determination Date the Tenant shall pay to the Landlord on
demand the amount by which the reviewed rent exceeds the rent
actually paid during the Interim Period (apportioned on a
daily basis) together with interest thereon at the Base Rate
for the time being of the Royal Bank of Scotland plc from the
relevant Quarter Day for payment thereof to the date of actual
payment
9. Rent Restrictions
9.1 On each and every occasion during the Term that Rent
Restrictions shall prevent or prohibit either wholly or
partially:-
9.1.1 the operation of the above provisions for review of the rent
or
9.1.2 the normal collection and retention by the Landlord of any
increase in the rent of any instalment or part thereof
9.2 then and in each such case respectively:-
9.2.1 the operation of such provisions for review of the rent shall
be postponed to take effect on the first date or dates
thereafter upon which such operation may occur
9.2.2 the collection of any increase or increases in the rent shall
be postponed to take effect on the first date or dates
thereafter that such increase or increases may be collected
and/or retained in whole or in part and on as many occasions
as shall be required to ensure the collection of the whole
increase and until the Rent Restrictions shall be relaxed
either partially or wholly the rent first hereby reserved
shall be the maximum sum from time to time permitted by the
Rent Restrictions as may be applicable
10. Memoranda of reviewed rent
As soon as the amount of any reviewed rent has been agreed or
determined memoranda thereof shall be prepared by the Landlord
or its solicitors and thereupon shall be signed by or on
behalf of the Landlord and the Tenant and annexed to this
Lease and the
<PAGE>
counterpart thereof and the parties shall bear their own costs
in respect thereof
11. Time not of the essence
For the purpose of this Schedule and for the avoidance of
doubt time shall not be of the essence
THE COMMON SEAL OF CNC GRAND )
UNION LIMITED was affixed to )
this Deed in the presence of: )
Director
Secretary
THE COMMON SEAL OF PINNACLE )
SYSTEMS LIMITED was affixed to this )
Deed in the presence of: )
Director
Secretary
<TABLE>
PINNACLE SYSTEMS, INC. AND SUBSIDIARY
Exhibit 11.1 - Statement of Computation of Net Income (Loss) Per Share
(In thousands, except per share data)
<CAPTION>
Three Six
Months Ended Months Ended
December 31, December 31,
----------------------- -----------------------
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Weighted average shares of common stock outstanding 7,505 7,273 7,489 6,950
Weighted average common stock equivalent shares -- 638 -- 653
------- ------- ------- -------
Shares used to compute net income (loss) per share 7,505 7,911 7,489 7,603
======= ======= ======= =======
Net income (loss) used in per share calculation $(9,344) $ 1,732 $(8,733) $ 2,995
======= ======= ======= =======
Net income (loss) per share $ (1.25) $ 0.22 $ (1.17) $ 0.39
======= ======= ======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> SEP-28-1996
<PERIOD-END> DEC-27-1996
<CASH> 34,815,000
<SECURITIES> 24,106,000
<RECEIVABLES> 6,131,000
<ALLOWANCES> 1,286,000
<INVENTORY> 5,242,000
<CURRENT-ASSETS> 70,718,000
<PP&E> 5,675,000
<DEPRECIATION> 1,275,000
<TOTAL-ASSETS> 75,746,000
<CURRENT-LIABILITIES> 3,906,000
<BONDS> 0
<COMMON> 78,266,000
0
0
<OTHER-SE> (6,426,000)
<TOTAL-LIABILITY-AND-EQUITY> 75,746,000
<SALES> 5,345,000
<TOTAL-REVENUES> 5,345,000
<CGS> 7,328,000
<TOTAL-COSTS> 7,328,000
<OTHER-EXPENSES> 6,003,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 729,000
<INCOME-PRETAX> (7,257,000)
<INCOME-TAX> 2,087,000
<INCOME-CONTINUING> (9,344,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,344,000)
<EPS-PRIMARY> (1.25)
<EPS-DILUTED> (1.25)
</TABLE>
