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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
(Mark One)
[ X ] ANNUAL REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the fiscal year ended December 31,1997
[ ] TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from
__________________ to __________________
Commission file number 0-17591
KALEIDOSCOPE MEDIA GROUP, INC.
(Exact name of small business issuer in its charter)
Delaware 93-0957030
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
345 Park Avenue South, New York, New York 10010
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (212) 779-6600
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past
12 months (or for such shorter period that the issuer was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes...X... No........
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained herein, and no disclosure will be
contained, to the best of issuer's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]
Issuer's revenues for the year ended December 31, 1997 are
$2,741,352.
The aggregate market value of the voting and non-voting common stock
held by nonaffiliates of the issuer is $27,742,969 (as of March 31, 1998).
The number of shares outstanding of the issuer's common stock is
28,827,082 (as of March 31, 1998).
DOCUMENTS INCORPORATED BY REFERENCE
Transitional Small Business Disclosure Format: Yes........ No...X...
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PART I
Item 1. Description of Business
Corporate History
Kaleidoscope Media Group, Inc. (the Company), then called BNN
Corporation (BNN) and a publicly traded corporation without operations,
acquired all of the outstanding shares of Kaleidoscope Media Group, Inc., a
private corporation (now called HSPSMM, Inc. and referred to herein as HSPS),
on October 22, 1996. The transaction was effected by issuing shares of common
stock of the Company in an amount that resulted in the original HSPS
shareholders receiving approximately 40.3% of the then outstanding shares of
the Company. For financial reporting purposes, the transaction was recorded as
a recapitalization of HSPS. HSPS is the continuing, surviving entity for
accounting purposes, but the Company is the continuing entity for legal
purposes. On December 3, 1997, the Company, a Nevada corporation, was
reincorporated in the State of Delaware under its present name.
HSPS was formed on May 3, 1996 by the issuance of approximately 59.8%
of its outstanding shares (equivalent to 5,685,688 shares of common stock of
the Company) for approximately 91% of the outstanding shares of SeaGull
Entertainment, Inc., (SeaGull) and the issuance of approximately 40.2% of its
outstanding shares (equivalent to 3,814,312 shares of common stock of the
Company) for the all of the outstanding shares of two affiliated corporations
(People & Properties, Inc. (P&P) and Kaleidoscope Entertainment, Inc. (KE),
collectively referred to as the Kaleidoscope Sports Group (KSG)). For
financial reporting purposes, this transaction was recorded as a purchase of
HSPS by SeaGull. In 1996, SeaGull acquired as treasury stock, the remaining 9%
of its outstanding shares not then owned by HSPS.
Until May 1997, the Company was engaged, through its Sports Division
(principally consisting of KSG's business activities) in sports and event
marketing including the development, production and distribution of sports
programming and the representation of sports properties and the rights
associated with those properties. This division had several properties
developed by P&P and through P&P managed PGA tour events sponsored by the
Buick Motors Division of General Motors and provided other marketing and event
management services for Buick. After consideration of the desires of P&Ps
principal client, the Company consummated in May 1997 an agreement with the
Interpublic Group of Companies, Inc. (IPG) for the formation of a new venture,
Kaleidoscope Sports and Entertainment LLC (KS&E). Pursuant to this agreement,
the Company sold to IPG 51% of its interest in KS&E, which contains all of the
sports, entertainment event marketing assets formerly held by P&P. All of the
operations previously conducted by the KSG division (except those conducted by
KE) are now conducted through KS&E. The personnel of KSG, including Ray Volpe,
a director of the Company, are now employed by KS&E. In August 1997, IPG
exercised its option to purchase the remaining 49% of KS&E. The total purchase
price received by the Company was $6,000,000. The Company has written off the
existing goodwill associated with the sports properties of P&P transferred to
KS&E in the amount of $2,386,115. The Company is still engaged in the business
of exploiting various sports projects.
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Introduction
The Company is a diversified entertainment, sports and direct
marketing company that operates, through subsidiaries, under three divisions.
The Entertainment Division (principally consisting of SeaGulls
business activities) is primarily engaged in the business of developing,
producing and distributing (domestically and internationally) entertainment
properties and exploiting the related licensing and merchandising
opportunities. It also provides consulting services in the development of
specialty television programming and is involved in the acquisition and
distribution of entertainment library properties.
In 1997 the Entertainment Division began production of its new
made-for-television movie Merlin: The Magic Begins based on that legendary
character. The title role has been cast with Jason Connery (son of Sean
Connery) and Deborah Moore (daughter of Roger Moore). This movie was delivered
in March 1998 and was fully financed by the Company. The Company expects that
this movie will be distributed for broadcast internationally in 1998 and in
the United States in 1999.
In 1997, the Company began pre-production on its Team Xtreme series,
which represents a multi-national co-production with partners in France,
Germany and Canada. Team Xtreme is a weekly one-hour dramatic action series
with an ensemble cast of youthful extreme sports enthusiasts that lead the
audience through engaging plots complete with danger, drama, intrigue and
passion, all against a backdrop of extreme sports such as skysurfing, mountain
climbing and snow boarding. The Company expects that the series will be
distributed for broadcast in the Fall of 1998 in the U.S.
and other territories.
In December 1997, the Company, through its Entertainment Division,
obtained rights from the Beachport Entertainment Corp. to distribute ice
skating specials. The Ice Fantasies Collection consists of six specials with
an all-star cast of world-class skaters such as Brian Boitano, Oksana Baiul,
Elvis Stojko, Michelle Kwan, Viktor Petrenko, Nancy Kerrigan and others.
In December 1997, the Company obtained the worldwide distribution
rights to a new 22 one- hour dramatic action TV series entitled D.R.E.A.M.
Team. Three agents, all supermodels, are part of a covert group code name
D.R.E.A.M. whose sole purpose is to infiltrate and diffuse volatile
situations, from counter-espionage to international criminals and terrorists.
Under the cover of their photo-shoots, the supermodels work together with an
ex-CIA agent whose intelligence and espionage background set the stage for
action and adventure.
In February 1998, the Company acquired Redrock Managements Library
for worldwide distribution of a package of specials, documentaries, movies and
mini-series. These programs enhance and expand the Companys current library of
series and specials programming.
The Company recently acquired the rights to a new childrens
television property and toy line entitled Micronauts. The Company expects that
the television property to be introduced in the Fall of 1998 as a two-hour
movie and/or five half-hour mini-series. The Company also expects that the
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toy line will begin limited distribution in the Fall of 1998 and worldwide
distribution in 1999. The movie and series are based on the popular 1970s
Marvel comic book and toy line of the same name.
In 1996 SeaGull entered into a joint venture agreement with Keller
Entertainment, Inc. under the name Keller Siegel Entertainment (the Tarzan
Joint Venture). The Tarzan Joint Venture produced and distributed a two-hour
movie pilot and 20 episodes of the Tarzan: The Epic Adventures syndicated
television series domestically in 1996 and internationally in 1997. Beginning
in the Fall of 1997, the Tarzan: The Epic Adventures series was renewed for
another season without any new production, but previously produced half-hours
(made into hours) were syndicated for the U.S. market only. The Tarzan Joint
Venture continues to maintain the license from Edgar Rice Burroughs for the
live-action rights to Tarzan. The Tarzan Joint Venture intends to produce and
distribute a new program entitled The New Adventures of Young Tarzan via a
movie pilot in 1998 and a series in 1999.
In March 1997, the Company, through its Sports Division, and Sports
Marketing, Inc. reached an agreement to create a joint venture to develop,
produce and distribute boxing tournaments both domestically and
internationally. The two companies collaborated on Boxcino, a series of round
robin boxing matches featuring fighters from eight Latin American countries.
The quarter- and semi-finals aired on ESPN2 in May and July 1997,
respectively, and the finals in each weight class aired on ESPN in September
1997. The Company expects to continue this franchise as well as to stage other
boxing matches in 1998. As a result, the joint venture has signed contracts
with the winners and finalists in each weight category making eight new boxers
ranked in the top 10 nationally.
The Company also has the worldwide distribution rights to two daily
fitness series (Crunch and Cyberfit) currently being broadcast on ESPN2 and
available for distribution in territories outside the United States. The
Company believes that Crunch and Cyberfit are two of ESPN2s highest rated
fitness series because of their high energy and employment of state of the art
fitness techniques.
The Sports Division retained from its sale of certain sports
properties to KS&E its sports franchise in boxing (Boxcino) and fitness
(Crunch and Cyberfit) as well as distribution rights to golf, air racing and
other properties developed by the Sports Division. KS&E and the Company have
reached an agreement in principle to form a joint venture to develop sports
properties as well as the creation of ad sales operations.
The Direct Marketing Division was initiated in January 1997 when the
Company entered into a joint venture agreement with HSN Direct to form
Hollywood Connection LLC (HC LLC). HC LLC produced and distributed Hollywood
Discoveries, a one-hour daily shopping program, which was broadcast in the
United States by over-the-air broadcasters and cable and satellite systems.
Hollywood Discoveries is designed to provide home shopping programming using
stage, screen, television, music and sports personalities to market
merchandise via taped programming in the domestic and international markets.
The program met with moderate success in the United States. The current plan
for the international market, which is expected to launch in 1998, is to offer
a weekly best of episode(s) and/or format rights to broadcast entities, with
product fulfillment to be
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handled by the various international companies associated with HSN Direct.
As start-ups, both Boxcino and Hollywood Discoveries required
significant investments in Company resources and the Company anticipates that
they will not generate profits until 1998 and 1999.
The principal executive offices of the Company are located at 345
Park Avenue South, New York, New York and its telephone number is (212)
779-6601.
Business Strategy
The Company believes that the diverse nature of its operations is an
important factor in being able to exploit business opportunities as they arise
and in minimizing the Company's reliance on any one segment of the sports and
entertainment industry.
With respect to its television operations, the Company focuses
primarily on production and distribution of television products. The Company
attempts to use strategic partnerships and pre-sales of distribution rights to
finance production budgets once the Company has identified television
properties to develop and produce. In addition, the Company emphasizes
cost-effective production techniques and the pre-sale of advertising time and
foreign distribution agreements by its television syndication operations to
further attempt to limit or cover the costs of production. This strategy is
important in maximizing the Company's profit from its television production
operations and minimizing the risk of loss of capital. The Company believes
that its expertise in both television production and domestic and foreign
syndication is an important factor in its ability to successfully compete in
this area.
The Company's distribution strategy is to become a leader in the
international distribution of television properties in three categories: (i)
one hour action dramas; (ii) children programming; and (iii) individual sports
programming. In furtherance of achieving its strategic goals, the Company is
seeking to expand its television operations through the acquisition of
distribution and other representation rights to entertainment properties.
Entertainment Division
The Company produces and distributes television programming to
domestic and international television stations, cable television networks and
home video markets and sells commercial time to advertisers. In addition, the
Company acquires rights to distribution programming owned by third parties.
Programming Produced and Distributed by the Company
In 1997, the Company began production of its new made-for-television
movie Merlin: The Magic Begins based on that legendary character. The title
role has been cast with Jason Connery (son of Sean Connery) and Deborah Moore
(daughter of Roger Moore). The movie was delivered in March 1998 and was fully
financed by the Company. The Company expects to receive pre-sales
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for international licenses in excess of $1,000,000 and to clear the movie for
domestic distribution in late 1998 or early 1999. The acceptance of this movie
by buyers will determine the viability of a series in 1999.
In 1997, the Company began pre-production on its Team Xtreme series,
which represents a multi-national co-production with partners in France,
Germany and Canada. Team Xtreme is a weekly one-hour dramatic action series
with an ensemble cast of youthful extreme sports enthusiasts that lead the
audience through engaging plots complete with danger, drama, intrigue and
passion, all against a backdrop of extreme sports such as skysurfing, mountain
climbing and snow boarding. The Company expects that the series will be
distributed for broadcast in the Fall of 1998 in the U.S.
and other territories.
In December 1997, the Company, through its Entertainment Division,
obtained rights from the Beachport Entertainment Corp. to distribute ice
skating specials. The Ice Fantasies Collection consists of six specials with
an all-star cast of world-class skaters such as Brian Boitano, Oksana Baiul,
Elvis Stojko, Michelle Kwan, Viktor Petrenko, Nancy Kerrigan and others. The
Company has received considerable interest from buyers to stage additional ice
skating specials as live events at international venues.
In December 1997, the Company obtained the worldwide distribution
rights to a new 22 one- hour dramatic action TV series entitled D.R.E.A.M.
Team. Three agents, all supermodels, are part of a covert group code name
D.R.E.A.M. whose sole purpose is to infiltrate and diffuse volatile
situations, from counter-espionage to international criminals and terrorists.
Under the cover of their photo-shoots, the supermodels work together with an
ex-CIA agent whose intelligence and espionage background set the stage for
action and adventure.
In February 1998, the Company acquired Redrock Managements Library
for worldwide distribution of a package of specials, documentaries, movies and
mini-series. These programs enhance and expand the Companys current library of
series and specials programming.
The Company recently acquired the rights to a new childrens
television property and toy line entitled Micronauts. The Company expects that
the television property to be introduced in the Fall of 1998 as a two-hour
movie and/or five half-hour mini-series. The Company also expects that the toy
line will begin limited distribution in the Fall of 1998 and worldwide
distribution in 1999. The movie and series are based on the popular 1970s
Marvel comic book and toy line of the same name.
In 1996 SeaGull entered into a joint venture agreement with Keller
Entertainment, Inc. under the name Keller Siegel Entertainment (the Joint
Venture). The Joint Venture produced and distributed a two-hour movie pilot
and 20 episodes of the Tarzan: The Epic Adventures syndicated television
series domestically in 1996 and internationally in 1997. Beginning in the Fall
of 1997, the Tarzan: The Epic Adventures series was renewed for another season
without any new production, but previously produced half-hours (made into
hours) were syndicated for the U.S. market only. The Joint Venture continues
to maintain the license from Edgar Rice Burroughs for the live-action rights
to Tarzan. The Joint Venture intends to produce and distribute a new program
entitled The New Adventures of Young Tarzan via a movie pilot in 1998 and a
series in 1999. In order to
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generate additional awareness in the project, an international search for the
Young Tarzan will be conducted in order to find a new talent for the lead
role.
The Television Market
The entertainment industry is an approximately $30 billion per year
industry which is presently undergoing strategic changes as new technologies
proliferate in both the development and production of projects and in the
electronic distribution of entertainment programming. The development and
growth of the 500 channel cable system, DBS (Direct Broadcast Satellite), Pay
Cable, home video, CD-ROMs and other interactive multimedia are creating many
more opportunities for the distribution of entertainment programming to the
consumer, while at the same time reducing the overall market share for any one
program. Even with these changes, management believes that the creative
content of the programming will continue to drive the market share.
Consequently, management believes there is, and is likely to continue to be, a
growing demand for quality content-based entertainment products that can be
produced more efficiently.
The United States television market is served by network affiliated
stations, independent stations and cable TV operators. During prime time hours
(primarily 8 P.M. to 11 P.M. in the Eastern and Pacific time zones and 7 P.M.
to 10 P.M. in the Central and Mountain time zones), network affiliates
primarily broadcast programming produced for the network. In non-prime time,
network affiliates telecast network programming, off-network programming
(reruns), first run programming (programming produced for distribution on a
syndicated basis) and local programming produced by the local stations
themselves. Independent television stations, during both prime and non-prime
time, produce their own programs, telecast off-network programs or acquire
first-run programs from independent producers or syndicators. A syndicator is
generally a company that sells programming to independent television stations
and network affiliates. Programming acquired by stations on a syndicated basis
is generally acquired either for cash license fees or an exchange for
commercial advertising time within the program which is retained by the
syndicator for sale (barter) or for a combination of cash and barter.
The international television market continues to grow as the
continued growth and development of international television distribution
channels increases the demand for quality programming. International sales of
programming are made to television distributors on a cash basis. An initial
cash down payment is made upon the agreement of the international channel to
display the programming. The balance of the cash licensing fee is generally
paid upon the delivery of the programming. Sales of advertising time are
retained by the international television network.
Television Production
The production of a program for first-run syndication begins with the
development of a creative concept. Depending on the type of programming, the
producer will develop a format and, in some instances, a pilot. The format and
the pilot, if any, will be presented by the program's syndicator to
representatives of various television stations around the world, in some
instances accompanied by sales promotion materials created by the producer or
syndicator. Frequently, in order to attract television stations to license
programming for exhibition for the upcoming fall television
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season, a producer or syndicator will present its programming at the annual
meeting of the National Association of Television Programming Executives
(primarily a domestic programming exhibition) and at M.I.P. (primarily a
foreign programming exhibition), generally held in January and April,
respectively, of each year. Because the size of the viewing audience of a
program for a station can be affected by the popularity of the programming
that precedes and follows it on the station, syndicators generally attempt to
sell their programs to the station in a given market area with the highest
ratings and to arrange for the program to be broadcast in the most favorable
time period and programming environment possible. If a television station
elects to license a program, it generally will license one year's worth of
such programming, subject to that programming being produced.
The development of programming for first-run syndication may require
significant expenditures before the programming is first broadcast. Depending
on the type of programming, the initial license fees paid by television
stations for the right to broadcast such programming may be less than the
costs of developing, producing, marketing and distributing such programming.
The Company's strategy is to attempt to use strategic partners to fund the
costs of the programming development significantly reduces the Company's
financial risk in program development. This strategy may also, however, limit
the Company's returns on successful programming. Additionally, the Company
pre-sells the foreign distribution rights to programming to further cover
programming development costs.
The ultimate commercial success of a first-run program will depend on
the program's ratings (including the demographics of its audience), which are
a reflection of the program's popularity with viewers. As a program's ratings
improve, the value of the advertising time during that program and the amount
which can be charged to television stations for licensing that program
generally increase. A program's ratings may improve as a result of its being
moved to a more favorable time period or licensed by a greater number of, or
more successful, stations, i. e., stations with better overall ratings.
Promotional efforts by stations on which a program is broadcast can also help
to improve a program's ratings. The demographic composition of a program's
audience and the popularity of the program scheduled in the time period
immediately preceding the time period in which the program is broadcast are
additional factors that can affect a program's ratings. Finally, the
distributor's direct consumer marketing efforts for a program can
substantially affect that program's ratings. The Company seeks to maximize the
strength of its programming by negotiating desirable time slots, selecting
optimal stations, and demanding effective consumer marketing efforts in its
syndication clearance efforts.
Television Distribution
Barter syndication is the process whereby a syndicator obtains
commitments (clearances) from television stations to broadcast a program at a
certain time; retains advertising time in the program in lieu of receiving a
cash licensing fee and sells such retained advertising time for its own
account to national advertisers at rates based on projected ratings and viewer
demographics. From time to time, certain stations may require cash
consideration from the Company, in addition to programming, in exchange for
advertising time. By placing the program with televisions stations throughout
the United States, the syndicator creates an ad hoc network of stations that
have agreed to carry the program. The creation of the ad hoc network of
stations, normally representing a
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penetration of at least 70% of the total United States television households
(calculated by means of a generally recognized system as measured by A.C.
Nielsen), enables the syndicator to sell the commercial inventory to sponsors
desiring national coverage. The rates charged by a syndicator for advertising
time are generally at a lower cost per thousand viewers than those which
national advertisers are normally charged by the networks for similar
demographics.
Fees paid by national advertisers for barter advertising are
established on the basis of household audience ratings or, more frequently, on
the basis for delivery of a certain demographic category of the viewing
audience, but may vary depending on the conditions in the general market for
television advertising. The desired household rating or demographic delivery,
as the case may be, is negotiated in advance with the advertiser or its
representative. In general, if the television program does not deliver at
least the agreed-upon audience, the distributor is obligated to make available
additional advertising time on the same program or other programs at no
additional cost or to refund that portion of the advertising fee attributable
to the failure to deliver the agreed-upon audience.
Cable Network Licenses
Television programming can be licensed for telecast by cable
networks, such as the ESPN Lifetime, USA and Arts & Entertainment basic cable
networks and the Disney and HBO pay cable networks. The production and
distribution of programming for initial exhibition on cable networks is
similar to that for broadcast networks, although the license fees paid by
cable networks are typically considerably lower than those paid by the
broadcast networks.
International Television Production and Distribution
Revenues from the distribution of U.S. television programs to foreign
markets have increased significantly in recent years. Development in the
European television industry, such as the present trend towards increasing the
number of privately owned channels and greater channel capacity, may cause
foreign sales to become a more important component of the distribution of
programs produced in the United States.
Programming Acquisitions
In order to increase its supply of television programming for
distribution, the Company is currently considering potential acquisitions of
the right to distribute various television series and other programming in the
worldwide television market. These new programs, if acquired, will require
substantial operating and capital commitments on the part of the Company.
In general, the Company earns a fee for distributing programs for
others based on a percentage of the license fees paid by television stations
for the right to broadcast particular programs. In certain domestic cases, all
or a portion of such license fee may be payable in television advertising
time. The advertising time is then sold by the Company to national
advertisers.
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In addition to United States television broadcast rights, the Company
also acquires, where available on acceptable terms, world-wide broadcast
television and non-standard television distribution rights (such as cable and
videocassette rights) to the programs it distributes. These acquisitions are
typically on a long-term exclusive basis, often between three and twelve
years, in some cases with various renewal options, and may provide that the
Company has the right to undertake production of the program in the event the
producer fails to deliver the contracted programming. As an example, the
Company has retained the rights for the worldwide videocassette distribution
of the Tarzan: The Epic Adventures series being produced by the Company. The
Company has entered into an agreement with Buena Vista Home Video, a
subsidiary of Disney for the worldwide videotape distribution of Tarzan: The
Epic Adventures.
The development of new material or properties for television, sports
and new multimedia productions is essential to the future growth of the
Company. The Company may obtain new properties from three sources: (i)
acquisition of existing properties; (ii) co-development of new properties; and
(iii) development of new properties internally. When acquiring existing
properties, the Company may pay a nominal fee for an option against a more
substantial purchase price. This option usually enables the Company to develop
the property on its own during the option period before committing to its
acquisition. Securing an option also enhances the Company's ability to obtain
financing or a production commitment before actually buying the property.
Option periods customarily run for a minimum of one year and contain
provisions that enable the Company to extend the option for additional
periods. Terms of options vary significantly and are dependent upon, among
other factors, the credibility and prior success of the writer/owner of the
property, the level of revenues or profits that the Company estimates can be
received from the exploitation of the property, and the estimated cost of
further development and production of the property. Agreements relating to
these projects often provide for additional payments to writers/owners upon
their sale, production and/or distribution. Certain agreements also provide
for participation, at various percentage levels, and or profits from these
projects.
In some cases, where the Company already has a working relationship
with outside creative personnel, the Company will agree to co-develop a
property. Generally, the Company will set up a corporation or similar entity
under which it will develop and possibly produce the property. Otherwise the
Company will enter into an agreement to co-develop the property with the owner
or creator. Like options, the terms of the Company's co-development agreements
can vary significantly.
During the development phase of a project, commitments are sought
from external sources such as the major entertainment studios, distributors,
broadcast networks, production companies and corporate sponsors. As indicated,
it is not the practice of the Company to expend substantial sums of its own in
the development process unless it has reason to believe that there is a strong
likelihood of a financing or production commitment for the project from such
external sources.
Revenue Sources
Worldwide revenues from the Company's television programming business
are derived from distribution fees consisting of cash fees or barter from the
sale of retained advertising time. Revenues may also be derived from fees for
selling advertising time, executive producer fees and other arrangements. Fees
may be received by the Company directly and indirectly from the Company's
partnerships and Joint Venture.
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In most cases, the Company's distribution revenues are based on a
percentage of the net revenues derived from the sale of advertiser
sponsorships or on cash license fees. Generally, the Company advances all
distribution costs of items such as advertising, promotion, tape shipping and
tape duplication and recovers such expenses from the program revenues. In some
instances, these expenses are assumed by the Company as part of its
distribution fee. The Company's fee for distribution is generally between 30%
and 40% of net revenues. However, each fee arrangement is separately
negotiated and may be subject to variation. The sums in excess of the
Company's fees and expenses and profit positions (where applicable) are
remitted to the producers of the programs which in certain cases may also be
the Company. See "The Television Market" above. Its fee for advertiser sales
representation is generally between 5% and 10% of net revenues.
Sales of Advertising
Revenues and fees for advertising time in the United States are
established on the basis of a certain assumed level of audience ratings and,
in some cases, an assumed demographic make-up of the viewing audience. While
it is in the interest of the Company to establish as high an assumed rating
and as favorable demographic make up as possible, there can be no assurance in
advance that the actual rating or demographic make-up of a particular program
will support the fee initially charged for advertising time on such program.
If the television program does not achieve the assumed rating or demographic
make up (as deter-mined by A.C. Nielsen or similar ratings services), the
Company may be obligated to offer the advertiser additional time (make goods)
on the same program or on other programs to fulfill any short fall in the
actual rating or demographic assumptions. Alternatively, the Company may be
obligated to refund a portion of the advertising fee. Make goods are the
predominant means whereby the Company satisfies such obligations to
advertisers.
Among the sponsors that regularly purchase participation in the
Company's programs are: General Motors, Proctor & Gamble, Kraft/General Foods,
Hershey and Bristol Meyers. Sales are made through the Company's sales force
and through advertising agencies representing the sponsors. The Company's
barter syndication licenses granted by the Company provide that the Company
retains a negotiated amount of commercial time per program (usually 7 minutes
per hour or 50% of the total commercial time) for sale to national
advertisers, with the remaining commercial time retained by the station for
local sale. Generally, the Company's fee for sales of advertising time is
between 5% and 10% of net revenues.
Sports Division
The Company is engaged in the acquisition, production, marketing and
management of sporting event properties. The Company derives revenues from
sporting events principally by distributing the television programming of the
events. See "Revenue Sources" above.
Sporting Events Marketed by the Company
In March 1997, the Company and Sports Marketing, Inc. reached an
agreement to create a joint venture to develop, produce and distribute boxing
tournaments both domestically and
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internationally. The two companies collaborated on Boxcino, a series of round
robin boxing matches featuring fighters from eight Latin American countries.
The quarter- and semi-finals aired on ESPN2 in May and July 1997,
respectively, and the finals in each weight class aired on ESPN in September
1997. The Company expects to continue this franchise as well as to stage other
boxing matches in 1998. As a result, the joint venture has signed contracts
with the winners and finalists in each weight category making eight new boxers
ranked in the top 10 nationally. The Company believes that boxing will be a
major source of revenues in the future.
The Company also has the worldwide distribution rights to two daily
fitness series (Crunch and Cyberfit) currently being broadcast on ESPN2 and
available for distribution in territories outside the United States. The
Company believes that Crunch and Cyberfit are two of ESPN2s highest rated
fitness series because of their high energy and employment of state of the art
fitness techniques.
Until May 1997, the Company was engaged, through its Sports Division
(principally consisting of KSG's business activities) in sports and event
marketing. KE was involved in the development, production and distribution of
sports programming. P&P was primarily engaged in the business of sports and
event marketing. Those responsibilities included event management, sponsor and
event representation, event related sales promotions, event related media and
publicity, advertising and sponsorship sales and specialty publishing. P&P had
also created and developed several event marketing properties. P&P managed PGA
tour events sponsored by the Buick Motors Division of General Motors and
provides other marketing and event management services for Buick. In addition,
KSG had represented sports properties and the rights associated with those
properties. That representation included the negotiation of rights fees and
the negotiation and the development of licensing and merchandising
opportunities in connection with those properties.
After consideration of the desires of P&Ps principal client, the
Company consummated in May 1997 an agreement with the Interpublic Group of
Companies, Inc. (IPG) for the formation of a new venture, Kaleidoscope Sports
and Entertainment LLC (KS&E). Pursuant to this agreement, the Company sold to
IPG 51% of its interest in KS&E, which contains all of the sports,
entertainment event marketing assets formerly held by P&P. All of the
operations previously conducted by the KSG division (except those conducted by
KE) are now conducted through KS&E. The personnel of KSG, including Ray Volpe,
a director of the Company, are now employed by KS&E. In August 1997, IPG
exercised its option to purchase the remaining 49% of KS&E. The total purchase
price received by the Company was $6,000,000. The Company has written off the
existing goodwill associated with the sports properties of P&P transferred to
KS&E in the amount of $2,386,115. The Company is still engaged in the business
of exploiting various sports projects through its subsidiary, KE.
The Company through KE retained its sports franchise in boxing
(Boxcino) and fitness (Crunch and Cyberfit) as well as distribution rights to
golf, air racing and other properties developed by the Sports Division. KS&E
and the Company have reached an agreement in principle to form a joint venture
to develop sports properties as well as the creation of an ad sales portion.
The Company intends to become involved with other sports properties,
which could include skiing and auto racing.
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The Sports Marketplace
The sports industry is a multi-billion dollar per year industry which
is constantly changing. The diversity of the sports industry is overwhelming.
Professional sports leagues in baseball, football, basketball and hockey often
receive the most attention in the professional sports marketplace. However,
sports such as tennis, golf and auto racing also receive a significant amount
of media and advertising attention in the United States.
The sports marketplace today accommodates many different levels and
types of sports. The sports marketplace is primarily divided into two levels
of competitions, amateur and professional. Amateur sports include high school,
college, Olympic and recreational activities. The professional level includes
the major sports leagues and other sports tours and leagues in which athletes
are compensated for their services.
The amateur and the professional sports marketplaces are continuing
their development in the international and domestic marketplace. Recent
international efforts by the National Basketball Association, the National
Football League and the National Hockey League have demonstrated the increased
globalization of the sports leagues previously based in North America. In
addition, the 1994 World Cup Soccer Championship was held in the United States
and in April 1996 Major League Soccer introduced a new professional soccer
league in the United States.
This globalization and increased activity in the sports marketplace
together with the expansion of the television marketplace have combined to
create a new era and many new challenges for sports advertisers, broadcasters
and leagues. In addition, technology and innovation have introduced new sports
to the marketplace including in-line skating, snowboarding and beach
volleyball. With these and other new sports come new professional and amateur
leagues and events. This proliferation of sports has also increased the
advertising dollars dedicated to the sports marketplace, the number of
advertisers involved in sports marketing and the opportunity for sports
marketing companies to develop new products, services and relationships.
Direct Marketing Division
The Direct Marketing Division was initiated in January 1997 when the
Company entered into a joint venture agreement with HSN Direct to form
Hollywood Connection LLC (HC LLC). HC LLC produced and distributed Hollywood
Discoveries, a one-hour daily shopping program, which was broadcast in the
United States by over-the-air broadcasters and cable and satellite systems.
Hollywood Discoveries is designed to provide home shopping programming using
stage, screen, television, music and sports personalities to market
merchandise via taped programming in the domestic and international markets.
The program met with moderate success in the United States. The current plan
for the international market, which is expected to launch in 1998, is to offer
a weekly best of episode(s) and/or format rights to broadcast entities, with
product fulfillment to be handled by the various international companies
associated with HSN Direct.
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Competition
Competition in the production and distribution of television
programming is intense. The Company's programming competes with other
first-run programming, network reruns and programs produced by local
television stations. The Company competes with many other companies that have
been acquiring, producing and distributing programs for a longer period of
time than the Company, and most of these companies have greater financial
resources than those of the Company. These competitors include large
television and film studios such as Paramount Communications Inc., Columbia
Pictures Television, 20th Century Fox Film Corp., MCA Inc., and Warner Bros.
Inc., as well as other television distribution companies such as King World
Productions, Inc., All-American Television Inc. and Viacom International, Inc.
The Company also competes with other companies for the sale of television
advertising time, including Tribune Broadcasting Co./Entertainment Co., Viacom
International, Inc., All-American and King World.
The Company's success is highly dependent upon such various
unpredictable factors as the viewing preferences of television audiences.
Public taste is unpredictable and a shift in demand could cause the Company's
programming to lose its appeal. Television programming also competes for
audiences with many other forms of entertainment and leisure time activities,
some of which include new areas of technology (e.g., video games and home
video), the impact of which on the Company's operations cannot be predicted.
Competition in the sports consulting and sports event management
business is also intense. The Company competes with other sports marketing
companies as well as certain advertising agencies that have begun to develop
sports marketing and promotion divisions. The Company's competitors include
International Management Group, Advantage International, and DMBB as well as
other sports marketing and advertising companies that may have greater
financial resources than those of the Company.
The direct marketing business is highly competitive. The Company also
competes for consumer expenditures with other forms of retail businesses,
including department, discount, warehouse and specialty stores, mail order and
other catalog companies and direct sellers. The television home shopping
industry is highly competitive and is dominated by two companies, QVC Network,
Inc. and Home Shopping Network, Inc. The Company believes that the number of
new entrants into the television home shopping industry will continue to
increase.
One of the ways the Company can ensure that it maintains certain
ownership interests in its properties, both in the rights to sell ancillary
products and by participating in the direct profitability associated with the
broadcast of the program, is to enter into license fee arrangements with third
parties such as networks or distributors. Under this arrangement, the
licensor, in this case the Company, assumes a greater financial risk as the
costs to produce the program may exceed the negotiated license fee. This type
of arrangement generally gives the network or distributor the right
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to broadcast on domestic television for a defined period of time. The licensor
would retain the rights to exploit ancillary markets, including foreign
distribution of the program. While the Company has not historically deficit
financed productions and generally would not agree to do so, for selected
properties it may agree to such a licensing arrangement to improve its
ownership interest. In these cases, the Company would assume greater financial
risk on the production which could result in losses to the Company if the
project failed or if the Company's production costs exceeded the licensing
fees and revenues generated from ancillary markets.
Principal Customers
During the year ended December 31, 1996 and 1997, approximately 45%
and 21%, respectively, of the Company's net revenues were derived from
services provided to General Motors and its affiliates. The Company did not
incur any net revenues from services provided to General Motors and affiliates
after the sale of a significant portion of the Companys Sports Division. No
other customer accounted for more than 10% of the Companys net revenues during
the year ended December 31, 1997. Net revenues derived from one U.S. sports
association amounted to approximately 10% of the Company's net revenues during
the year ended December 31, 1996. The services provided to these two customers
were included in the operations sold to KS&E.
Employees
At December 31, 1997, the Company employed 18 full-time persons, of
whom 4 were engaged in sales and marketing 14 in management, finance and
administration. The Company has no collective bargaining agreement with its
employees and believes that its relationship with its employees is good.
Item 2. Description of Property
The Company's principal executive offices are located at 345 Park
Avenue South, New York, New York and consist of approximately 20,000 square
feet under a lease that expires in 2002. The base rent for such space is
currently $441,160 per year, which base rental will increase to $463,218 per
year. All base rent is subject to adjustments. Approximately 42% and 38% of
such space (an aggregate of 80%) is sublet to KS&E and other parties,
respectively, at a prorata portion of the rent.
The Company leases approximately 5,862 square feet of office space in
Los Angeles, California under a lease that expires in 2000, subject to one
five year option. The annual base rent for such space is $123,102. All base
rent is subject to adjustments. Commencing January 1, 1998, the Company
subleased approximately two-thirds of such space for an annual rental of
$81,250.
Item 3. Legal Proceedings
On June 21, 1996, an action, entitled International Sports Marketing,
Inc. v. Saatchi & Saatchi, et al. was filed in the Wayne County Circuit Court
against two of the Company's inactive
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subsidiaries and other unrelated parties seeking to enforce a default judgment
of $21,000,000 entered in 1995 for a prior action in 1988. The subsidiaries
have vigorously defended themselves in this litigation. Management believes
that the claim lacks merit. Furthermore, management believes that if any
subsidiary were found liable for a judgment, its subsidiaries would be able to
obtain indemnification from the prior owner of the former affiliate's
business, a major advertising agency. In a recent decision, the court found no
liability for plaintiffs claim against the subsidiaries and at the same time
found that the advertising agency may be liable to the plaintiff pursuant to
aforesaid indemnity agreement. The plaintiff and the advertising agency have
submitted arguments to reargue and the Company believes they intend to appeal
in any event. While no assurance can be given, based in the foregoing,
management believes that the litigation will not have a material effect on the
Company's financial position.
On July 22, 1997, several alleged creditors filed an involuntary
petition in bankruptcy in the U.S. Bankruptcy Court, Central District of
California against SeaGull Entertainment, Inc. d/b/a/ The Hollywood
Connection, and d/b/a Hollywood Connection LLC. SeaGull Entertainment, Inc.
has denied that it was insolvent. The Companys motion for summary judgment for
dismissing the case was granted on February 9. 1998.
On December 19, 1997, the Company filed an action in the United
States District Court Southern District of New York entitled Kaleidoscope
Media Group, Inc. v. Entertainment Solutions, Inc., James K. Isenhour, Andrew
S. Varni. The complaint seeks damages for breach of contract and fraudulent
inducement of contract, among other claims, arising out of a venture that the
Company entered into with defendants to promote a sports tournament of Latin
American boxing in 1997 called Boxcino. The Company seeks damages of at least
$500,000 plus punitive damages in the action. Defendants James Isenhour and
Entertainment Solutions, Inc. have answered the complaint, asserting various
affirmative defenses and two counterclaims, for breach of contract and quantum
meruit, seeking damages of not less than $250,000. The Company believes it has
valid and meritorious defenses to the counterclaims, that the counterclaims
are otherwise invalid, and the Company has prepared an appropriate reply. The
third defendant, Andrew Varni, has not yet to date appeared in the action or
answered the complaint. The parties are engaged in discovery at this time.
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders held on December 2, 1997,
several matters were presented to and voted upon by the Company's stockholders
as follows:
1. Election of five directors for the ensuing year:
Henry Siegel For: 13,906,248 Withheld: 0
Ray Volpe For: 13,406,248 Withheld: 500,000
Paul Siegel For: 13,906,248 Withheld: 0
Martin Miller For: 13,906,248 Withheld: 0
Jean Chalopin For: 13,906,248 Withheld: 0
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2. A proposal to approve the Companys 1996 Stock Option Plan:
For: 13,406,248 Withheld: 0 Abstain: 500,000
3. A proposal to adopt an Agreement and Plan of Merger between the
Company, then a Nevada corporation under the name BNN Corporation, and a
wholly-owned subsidiary of the Company named Kaleidoscope Media Group, Inc., a
Delaware corporation (the Delaware Company), pursuant to which (i) the
Company's state of incorporation would be changed from Nevada to Delaware,
(ii) all of the outstanding shares of the Company would be converted into an
equal number of similar shares of the Delaware Company and (iii) certain
changes in the Company's Certificate of Incorporation would be effectuated
including changing the name of the Corporation and creating blank check
preferred stock.
For: 13,406,248 Withheld: 0 Abstain: 500,000
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PART II
Item 5. Market for Common Equity and Related Stockholder Matters
The Company's common stock (the Common Stock) is quoted on the OTC
Bulletin Board under the symbol KMGG and is traded on the Frankfurt Stock
Exchange and the Berlin Stock Exchange under the symbol BNN.
Set forth below are the approximate high and low bids for the Common
Stock on the OTC Bulletin Board as published by the National Quotation Bureau,
Inc. Such quotations reflect interdealer prices without retail mark-up,
mark-down or commissions, and may not reflect actual transactions.
Common Stock
------------------------------------
High Low
---------------- ----------------
1997
Fourth Quarter $ .94 $ .42
Third Quarter 1.22 .75
Second Quarter 2.22 .88
First Quarter 2.56 .50
1996
Fourth Quarter $ 3.75 $1.00
Third Quarter 7.25 3.97
Second Quarter 6.00 .38
First Quarter 1.50 .34
As of March 31, 1998, there were approximately 237 recordholders of
the Common Stock.
During 1997, the Company issued 2,340,000 shares of Common Stock in
consideration of $585,000 to six persons pursuant to Section 4(a) under the
Securities Act of 1933, as amended (the "Securities Act"). In addition, the
Company issued 130,000 shares of Common Stock upon conversion of notes
pursuant to Section 3(a)(9) under the Securities Act.
The Company plans to retain any future earnings for use in its
business and, accordingly, the Company does not anticipate paying dividends in
the foreseeable future to the holders of the Common Stock. Payment of
dividends is within the discretion of the Company's Board of Directors (the
Board of Directors) and will depend, among other factors, upon the Company's
earnings, financial condition and capital requirements.
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Item. 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The consolidated financial statements provided in this annual report
for the fiscal year ended December 31, 1997 include the financial statements
of SeaGull for twelve months, the financial statements of the Company for
twelve months, the combined financial statements of KSG for three months,
twelve months of the Tarzan Joint Venture as an equity investment and four and
one-half months of KS&E as an equity investment. These periods of reporting
reflect various months of full ownership or partial ownership in the current
fiscal year and are consistent with the reporting method utilized for the
prior fiscal year. The comparative results reported for the fiscal year ended
December 31, 1996 include the financial statements of SeaGull for twelve
months, the financial statements of the Company for two months, the combined
financial statements of KSG for eight months and twelve months of the Joint
Venture as an equity investment.
Reference is made to Note 2 of the Companys Consolidated Financial
Statements for a discussion of significant accounting policies, including
revenue recognition.
Forward Looking Statements
The following statements and certain other statements contained in
this annual report on Form 10-KSB are based on current expectations. Such
statements are forward looking statements that involve a number of risks and
uncertainties. Factors that could cause actual results to differ materially
include the following (i) general economic conditions, (ii) competitive market
influences, (iii) audience appeal and critical reviews of its television
programs and (iv) the ability to identify, acquire the rights to, and to
develop quality properties.
Results of Operations
Year Ended December 31, 1997 as Compared with Year Ended
December 31, 1996
Net revenues consist of total billings (less any agency fees and
media costs) and accruals for earned fees. Net revenues decreased by
$4,121,967, or 60%, to $2,741,392 in 1997 from $6,863,359 in 1996. This
decrease is due principally to the loss in net revenues resulting from the
sale, effective 1, 1997, of a significant portion of the Companys Sports
Division (the KS&E Sale). Net revenues from the remaining portion of its
Sports Division as well as its Entertainment Division decreased slightly in
1997 as compared to net revenues from such divisions in 1996 primarily because
properties developed in 1997 were not ready for distribution in 1997. The
Companys Direct Marketing Division, which was initiated in January 1997,
generated net revenues of $311,274 for 1997.
Amortization of program costs (costs to produce, market and
distribute a broadcast or film property) was $681,670 in 1997 compared to zero
in 1996. This increase was due to the Company's 1997 launch of "Boxcino,"
"Hollywood Discoveries" and some smaller properties. In 1996, the Company had
no direct ownership of revenue producing programming that had related program
cost inventory.
The Company, in late 1996 and early 1997, issued warrants in
conjunction with borrowing money pursuant to certain notes payable. The
warrants were valued at $532,451, which amount is being amortized as a cost
during the outstanding period of the notes. For 1997, $227,889 of this amount
was expensed and included in amortization of program costs while the balance
was included in capitalized program costs at December 31, 1997.
Other direct project costs include costs necessary to create, market
and manage a sporting event, costs relating to the sale of goods by the Direct
Marketing Division and costs related to film production work on a contract
basis. Direct project costs decreased by $2,365,878, or 63%, to $1,381,833 in
1997 from $ 3,747,711 in 1996. This percentage decrease was slightly greater
than the percentage decrease in net revenues due primarily to lower margins of
the properties that were
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included in the KS&E Sale. Revenues from these properties were included for
three months in 1997 and for eight months in 1996. This percentage decrease
would have been greater as a result of the KS&E Sale if it has not been for the
low margins of the Direct Marketing Division, which was in its start-up year.
Gross profit decreased by $2,437,759, or 82%, to $677,889 in 1997
from $3,115,648 in 1996. This decrease was much greater than the decrease in
net revenues because of the modest losses by "Boxcino" and the Direct Market
Division in their start-up operations.
Although "Tarzan: The Epic Adventures" is distributed by the Joint
Venture, the Company has incurred certain production costs that are not part
of the costs of the Joint Venture. Amortization of the program costs relating
to the Joint Venture decreased by $32,455, or 10%, to $291,427 from $323,882
in 1996. This decrease was due to the release of most of the episodes of
"Tarzan: The Epic Adventures" in 1996. The decline in amortization of the
program costs relating to the Joint Venture in 1997 was not as great as the
decline in the Joint Venture's revenues because management's estimate of the
ultimate revenues from the first season of "Tarzan: The Epic Adventures" was
revised downward.
Salaries and benefits decreased by $329,825, or 18%, to $1,513,578 in
1997 from $1,843,403 in 1996. This decrease is due substantially to the
reduction in personnel resulting from the KS&E Sale. Certain of the personnel
remained on the Companys payroll until December 31, 1997.
General and administrative expenses decreased by $194,320, or 12%, to
$1,453,777 in 1997 from $1,648,097 in 1996. This decrease is due substantially
to the KS&E Sale offset partially by significant fees related to professional
services including the legal fees incurred in the Companys defense of the
International Sports Marketing case and the bankruptcy case.
Amortization of goodwill decreased by $44,512, or 37%, to $77,164 in
1997 from $121,676 in 1996. This decrease is due to the allocation of a
significant portion of goodwill related to the KS&E Sale. This was partially
offset by the fact that amortization of goodwill in 1996 occurred only during
the last eight months of the year.
Interest expense decreased by $20,045, or 100%, to zero in 1997 from
$20,045 in 1996. This decrease is due to the capitalization of all interest
cost in 1997 since it was treated as a project cost.
Losses from operations (before equity in income of joint venture and
income on sale of assets) increased by $1,816,602, or 216%, from a loss of
$841,455 in 1996 to a loss of $2,658,057 in 1997. This increase was a result
of the factors described above, primarily the loss of net revenues resulting
from the KS&E Sale. The Sports Division contributed operating income of
$793,401 in 1996 compared to a loss of $619,584 in 1997. The operations of
that portion of the Sports Division that was not sold as well as the Direct
Marketing Division required increased salaries and general and administrative
expenses partially to oversee Boxcino and Hollywood Discoveries, which are
start-ups. As start-ups, both Boxcino and Hollywood Discoveries required
significant investments in Company resources and the Company anticipates that
they will not generate profits until 1998 and 1999. The Company also incurred
additional costs in seeking new properties for development and in obtaining
additional sources of capital.
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Companys equity in the income of its joint ventures decreased by
$954,479, or 75%, to $317,721 in 1997 from $1,272,200 in 1996. This decrease
is due substantially to a $1,204,100 decrease in the Companys equity in the
income of the Joint Venture. The Joint Ventures only revenue producing project
to date has been Tarzan: The Epic Adventures which earned most of its revenues
in 1996 when it was first released. Managements estimate of the ultimate
revenues from Tarzan: The Epic Adventures have been revised downward. The
$1,204,100 decrease was partially offset by the Companys $249,621 equity in
the income of KS&E during the period April 1, 1997 through August 15, 1997
when the Company had a 49% interest.
In 1997, the Company realized a gain of $3,512,836 from the sale in
two transactions of a significant portion of its Sports Division. In one
transaction consummated on May 5, 1997, but effective as of April 1, 1997, the
Company, after consideration of the desires of P&Ps principal client, formed a
new subsidiary, KS&E, transferred all the assets held by P&P, as well as
certain personnel, to KS&E, sold a 51% interest in KS&E to IPG and granted IPG
an option to purchase the balance of KS&E. In the second transaction, which
was consummated on August 15, 1997, IPG exercised its option to purchase the
remaining 49% interest in KS&E. The Company received $6,000,000 in gross
proceeds from these two transactions. The Company allocated $2,386,115 of
goodwill to the properties transferred and incurred $101,049 of costs directly
attributable to the transactions, resulting in a net gain for financial
statement purposes of $3,512,836. Before taxes, the transactions generated
cash in the amount of $5,898,951 to the Company. Although the Company gave up
the potential for substantial revenue in making the sale, management believes
that the infusion of cash was both necessary to provide general liquidity and
to enable the Company to make substantial investments in new programming.
Income before income taxes increased by $741,755, or 172%, to
$1,172,500 in 1997 from $430,745 in 1996. This increase was a result of the
factors described above, primarily the gain of $3,512,836 from the KS&E Sale.
This was partially offset by the increased loss from operations and decreased
equity in income of joint ventures as described above.
The provision for income tax expense was $1,452,594 in 1997 as
compared to $194,790 in 1996. The income tax expense for 1997 does not bear
the expected relationship between pretax income and the federal corporate tax
rate of 34% because of (a) the effect of state and local income taxes as
described below and (b) the amortization of goodwill, the write-off of
goodwill associated with the KS&E Sale in the amount of $2,386,115 as
described below and certain other expenses are not deductible for income tax
purposes.
The goodwill of $2,386,115, which was written-off in connection with
the KS&E Sale, had been originally created, for financial reporting purposes,
in the tax free transaction in which SeaGull had acquired KSG. As a result of
the tax free nature of that transaction, the goodwill was not recognized for
tax purposes. Consequently, the Company will have to report $5,899,951
($6,000,000 of proceeds less $101,049 of direct costs) as the gain in the 1997
income tax returns. For federal income tax purposes, this gain is offset on
the Companys consolidated tax return by net operating loss carryforwards
(NOLs), as well as the current operating losses, resulting in no federal tax
payment due. The Companys subsidiary, P&P, is required to record the sale for
state and local income tax purposes. However, P&P can only offset the gain
with a limited amount of NOLs and as a result will have to pay approximately
$751,000 in 1997 state and local income taxes. In addition
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to the Companys accrual of these tax payments, the Company is required to
record deferred income tax expenses because the utilization of the NOLs in
offsetting a portion of the gain from the sale of KS&E reduces the future
income tax benefits that would otherwise be available.
The Company's net loss amounted to $280,094, or $0.01 per share, for
the year ended December 31, 1997, as compared to net income of $235,955, or
$0.02 per share, for the year ended December 31, 1996, respectively. This
decrease in net income and earnings per share is primarily attributable to the
factors discussed above.
Net Operating Loss Carryforwards
At December 31, 1997, NOLs of the Company amounted to approximately
$121,000 for federal income tax purposes. The NOLs are not available for state
income tax purposes. The NOLs begin to expire starting in 2011. The Companys
subsidiaries file separate income tax returns in various states and
localities. The losses of one subsidiary cannot be used to offset the losses
of another subsidiary for state purposes. Certain of the Companys subsidiaries
have substantial NOLs available for state and local income tax purposes. In
addition, one of the Company's subsidiary has approximately $175,000 of NOLs
that can only be used to offset future taxable income (for federal and certain
state purposes) of the specific subsidiary to which they pertain. These NOLs
are further limited by the operation of Section 382 of the Internal Revenue
Code. The subsidiary is only allowed to use a maximum of approximately $27,000
of these carryforwards each year.
Liquidity and Capital Resources
Net cash used in operating activities was $984,388 in 1997 compared
with $657,658 in 1996. The increase in cash used operating activities was
primarily the result of the $1,816,602 increase in the operating loss
described above offset by noncash charges for deprecation and amortization and
the conservation of cash through the increase of various operating
liabilities.
Net cash provided by investing activities in 1997 was $1,232,965
compared to the use of net cash in investing activities of $1,182,474 in 1996.
This change was primarily due to proceeds of $6,000,000 from the sale of a
portion of the Sports Division in 1997, offset by a $3,760,208 increase in
expenditures for programs costs from $1,247,069 to $4,907,329.
Net cash used in financing activities amounted to $150,322 for the
year ended December 31, 1997 as compared to $1,854,925 provided by financing
activities for the same period in 1996. The decrease in cash provided by
financing activities was primarily the result of a decrease in the receipt of
cash for equity transactions in 1997 and a $906,159 repayment of debt in 1997.
As of December 31, 1997, the Company had cash of $252,260 compared
with $154,006 as of December 31, 1996. Operating activities generated a net
cash outflow of $984,388. The principle source of cash during 1997 was from
the sale of KS&E which generated net cash in the amount of
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$5,898,951. This cash inflow, along with $869,451 raised through the sale of
equity securities, was able to provide the Company the ability to invest an
additional $4,907,329 in program costs, to repay notes payable in the net
amount of $916,159 and to repay principal on capitalized lease obligations in
the amount of $33,745.
During the year ended December 31, 1997, the Company received no
material cash from its 50% participation in the Joint Venture that produced
and distributed the first season of Tarzan: The Epic Adventures. This resulted
principally from the obligations of the Joint Venture to its lender to
subordinate payments to others, including the equity partners of the Joint
Venture, until the loan was repaid in full. Although repayment of the
production loan was completed in the third quarter, the Joint Venture is
completing repayment of obligations to vendors in South Africa where the
episodes were filmed. Additionally, obligations to launch the second season of
Tarzan, which consists of previous half-hour shows made into one-hour shows
resulting in no additional production costs, required that receipts be
reinvested in the Joint Venture, rather than distributed to the equity
partners. Additionally, the Joint Ventures assets consist principally of (i)
accounts receivable, are generally not currently due, and (ii) capitalized
program costs, which are supported by future anticipated income.
The launch of Hollywood Discoveries and Boxcino and the production of
Merlin: The Magic Begins required significant Company investments while
proceeds from operations were negligible. The Boxcino matches were in Costa
Rica, Miami and Baton Rouge and approximately $1,000,000 in costs included the
logistics of flying Latin American fighters to a single location and preparing
multiple bouts for broadcast.
Development, production, and broadcast costs of Hollywood Discoveries
required a total investment of approximately $1,300,000 through December 31,
1997. As discussed under Description of Business, Hollywood Discoveries
program met with moderate success in the United States and as a result
advertising and direct sale of products to viewers was below expectations. In
addition, the Company had anticipated the receipt on $500,000 in operating
funds from Hollywood Inc. as a joint venture participant in this project. The
Company only received $20,000.
Production of Merlin: The Magic Begins has required an investment of
approximately $1,000,000 through December 31, 1997. The two hour movie was
delivered in March 1998, at which point license fees from Merlin: The Magic
Begins began to be received. At the same time, a portion of the capitalized
costs will be recognized as expenses.
The Company anticipates that Hollywood Discoveries, Boxcino and
Merlin: The Magic Begins will not generate profits until 1998 and 1999.
Management believes that as additional entertainment properties are
released to the market, cash flows from these properties will improve the
overall Company cash situation significantly. Although each new project going
into production will require additional financial resources, management
expects that financing from venture partners and funding from sponsorships and
pre- sales of programming will provide a significant portion of these needs
22
<PAGE>
At December 31, 1997, the Company had working capital of $801,603 as
compared to working capital of $1,321,349 at December 31, 1996.
As a result of the operating and programming requirements, management
is continuing to explore initiatives to ensure adequate interim cash
resources. The Company is seeking to obtain necessary funding from (a) equity
financing; (b) arrangements for profit participation in individual projects
and (c) marketing or advertising tie-ins to programs and is exploring other
joint venture relationships that will share the burden of program investment.
Inflation
The Company believes that the relatively moderate rates of inflation
in recent years have not had a significant impact on its net revenues or its
profitability.
Item 7. Financial Statements
Reference is made to pages F-1 through F-29 comprising a portion of
this Annual Report on Form 10-KSB.
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
There have been no changes in accountants due to disagreements on
accounting and financial disclosure during the 24 months prior to December 31,
1997.
23
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
- --------------------------- --------- -----------------------------------------------
<S> <C> <C>
Henry Siegel 56 Chief Executive Officer, Chairman of the Board
Paul Siegel 56 President and Director
Irving Greenman 62 Chief Financial Officer, Secretary
Ray Volpe 57 Director
Martin Miller 57 Director
Jean Chalopin 47 Director
Martin Gloor 43 Director
</TABLE>
Henry Siegel has been Chairman of the Board, Chief Executive Officer
and Director of the Company since 1995 and has been an officer of SeaGull, a
subsidiary of the Company, since that company's inception in 1994. Mr. Siegel
began his career at Grey Advertising and in 1974 was placed in charge of its
media operation, managing all areas of media planning, research and execution.
In 1976, Mr. Siegel founded Lexington Broadcasting Services (LBS), where he
pioneered the concept of barter syndication (advertiser-supported television).
As Chairman and chief executive officer of LBS, he launched numerous
successful television series, including Fame and Baywatch. In 1988, Mr.
Siegel, with Warburg, Pincus Capital Company, purchased Grey Advertising's
interest in LBS. LBS entered into bankruptcy in 1991 and emerged from
bankruptcy in 1993, soon after merging with All American Communications in
1992. In July 1994, Mr. Siegel formed SeaGull.
Paul Siegel has been a director of the Company since 1995, the
President of the Company as of January 1, 1997 and an officer of SeaGull since
its inception in 1994. In 1964, Mr. Siegel started work at S&S, a direct
marketing firm which manufactured and distributed toy and craft products. Mr.
Siegel left S&S in 1982 to establish another direct marketing toy and hobby
company known as Creative Crafts. In 1994, Mr. Siegel changed the name of his
company to Creative Discovery and expanded the product line to include
educational software products. Paul Siegel joined his brother Henry Siegel at
LBS in 1986 to serve as Executive Vice President. LBS entered into bankruptcy
in 1992 and emerged from bankruptcy in 1993. LBS was merged with AAC in 1992,
and Mr. Siegel served as Executive Vice President of its All-American
Television subdivision of until he left in 1994 to form SeaGull.
24
<PAGE>
Irving Greenman has been Chief Financial Officer and Secretary of the
Company since January 1998. For ten years prior thereto Mr. Greenman was Chief
Financial Officer for Medica Media and Healthcare International, both
companies being in the healthcare field. Mr. Greenman is a New York and
Florida Certified Public Accountant.
Ray Volpe has been a director of the Company since 1995. Mr. Volpe
had served as President and co-Chief Executive Officer of the Company since
its inception in 1995 but resigned such positions in May 1997 to become the
Chief Executive Officer of KS&E which operates certain former businesses
conducted by the Sports Division of the Company. Mr. Volpe, who began his
career at Doyle Dane Bernbach in 1964, was the Executive Vice President of the
National Hockey League and the first commissioner of the Ladies Professional
Golf Association. In 1981, Mr. Volpe and his partner, Don Ohlmeyer formed
Ohlmeyer Communications Company, a sports and entertainment subsidiary of
Nabisco Brands Inc., where, from 1981 to 1990, Mr. Volpe worked as an
independent television producer and media consultant, representing
manufacturers, televisions networks, major syndicators and advertising
agencies engaged in entertainment and sports programming. Mr. Volpe has been
the Chief Executive Officer of HSPS since 1990. During the period from August
1994 through June 1995, while HSPS was owned by Ventura, Mr. Volpe was
President, Co-Chief Executive Officer and a Director of Ventura.
Martin Miller has been a director of the Company since February 1995.
Mr. Miller , for the past five years, has been a manager of corporate finance
for Millport Ltd., presently a Bahamian based investment advisor of foreign
investors.
Jean Chalopin has been a director of the Company since March 1997.
Mr. Chalopin has founded and operated several entities engaged in television
production and syndication and other entertainment activities individually
producing and writing many television programs. Since 1987 Mr. Chalopin has
been chief executive officer of JetLag Productions, Inc., a Los Angeles based
entertainment company, and since 1986 Mr. Chalopin has been chief executive
officer of JCC, a Paris based entertainment company. Both entities are engaged
in the development of television, film and multimedia projects for the U.S.
market and world-wide syndication. From 1987 to 1996 he was chief executive
officer of C&D Group, which was sold in 1996 with a library of more than 1500
half-hour episodes. From 1971 through 1986 he was chief executive officer of
the DIC Group, a European based production and distribution company, which was
sold in 1986. From 1982 through 1986 he was also chief executive officer of
DIC Enterprises, a Los Angeles based production company, which was sold in
1986. He and his entities have produced many well known services such as The
Hitchhiker and The Saint and animation works such as Inspector Gadget and
Heathcliff among others.
Martin Gloor has been a director of the Company since February 1998.
Since mid 1994, Mr. Gloor has been an independent consultant for financial and
fiscal matters. Prior thereto, he was a partner with Price Waterhouse in
Lugano, Switzerland, responsible for Audit and Business Advisory Services and
Corporate Finance. Since 1990, Mr. Gloor has been Chairman of Polvideo, a
television producing company in Riazzino, Switzerland.
Executive officers serve at the discretion of the Board of Directors.
25
<PAGE>
Henry Siegel and Paul Siegel are brothers.
Item 10. Executive Compensation
The following table sets forth information concerning compensation
paid or accrued by the Company or its subsidiaries for services rendered
during the fiscal years ended December 31, 1995, 1996 and 1997 to the
Company's Chief Executive Officer and to each executive officer whose
compensation exceeded $100,000 during its fiscal year ended December 31, 1997:
Summary Compensation Table
Annual
Compensation
---------------------
Name and
Principal Position Year Salary
- -------------------------------- -------- ---------------------
Henry Siegel 1997 $350,000
Chief Executive Officer 1996 $125,000
Paul Siegel 1997 $275,000
President 1996 $125,000
Bernard Bushkin * 1997 $137,500
Chief Financial Officer 1996 $ 70,112
- -------------
* Effective December 31, 1997, Mr. Buskin resigned his employment with the
Company to join KS&E.
The following table sets forth all grants of stock options to each of
the named executive officers of the Company during the fiscal year ended
December 31, 1997.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Number of Shares of Per Cent of Total
Common Stock Options Granted to
Underlying Options Employees in Fiscal
Name Granted Year Exercise Price Expiration Date
- --------------------- ------------------------ --------------------- ----------------------- -----------------------
<S> <C> <C> <C> <C>
Henry Siegel 0 --- --- ---
Paul Siegel 0 --- --- ---
Bernard Bushkin 100,000 12% $0.62 January 1, 2002
</TABLE>
The following table sets forth information as to options exercised by
each of the named executives during the fiscal year ended December 31, 1997
and the value of in-the-money options held by such executives at December 31,
1997.
Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values
26
<PAGE>
<TABLE>
<CAPTION>
Number of
Shares of
Common Stock Number of Shares of Common Stock
Acquired on Value Underlying Unexercised Options at Value of In-the-Money Options at
Name Exercise Realized 12/31/97 12/31/97 *
- ---------------- ---------------- -------------- -------------------------------------- -----------------------------------
Exercisable Unexercisable Exercisable Unexercisable
---------------- ----------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Henry Siegel 0 --- --- --- --- ---
Paul Siegel 0 --- --- --- --- ---
Bernard Bushkin 0 --- 33,333 66,667 0 0
</TABLE>
- ------------
* Value is based on the excess of the closing bid price of the Common
Stock as of December 31, 1997 (approximately $0.47 per share) over the
option price of the in-the-money options.
Employment Agreements
The Company entered into employment agreements as of January 1, 1997
with Henry Siegel, Chief Executive Officer of the Company, and Paul Siegel,
President of the Company. Each agreement has a three-year term which renews
for an additional year on each anniversary of the agreement, and provides for
an annual base compensation of $350,000, with annual increases subsequent to
the three year term in an amount to be determined by the Board of Directors..
In addition, Henry Siegel and Paul Siegel are each entitled to such bonuses as
may be awarded by the Board of Directors in its discretion. Each agreement
also provides for the payment of benefits, including an automobile allowance.
In the event of the death or total disability of either executive, the Company
has agreed to pay his estate or the executive the unpaid portion of his annual
base compensation, but in no event less than six months base compensation. The
agreement also contains a non-competition provision covering the term of the
agreement plus two years following termination or expiration of the agreement.
Stock Option Plan
The Company has adopted a 1996 Stock Option Plan (the 1996 Plan) for
officers, employees and consultants of the Company or any of its subsidiaries
and other entities in which the Company has an interest. The 1996 Plan
provides for the granting of options which are intended to qualify either as
incentive stock options (the Incentive Stock Options) within the meaning of
Section 422 of the Internal Revenue Code of 1986 or as options which are not
intended to meet the requirements of such section (the Nonstatutory Stock
Options and collectively with the Incentive Stock Options, the Options). As of
December 31, 1997, Options to purchase 835,000 shares of Common Stock had been
granted.
The 1996 is administered by the Board of Directors or a committee of
the Board of Directors (the Administrator). The Administrator has
discretionary authority (subject to certain restrictions) to determine, among
other things, the individuals to whom and the times at which the Options will
27
<PAGE>
be granted; the number of shares of Common Stock underlying the Options; and
the exercise price and the vesting periods of the Options.
The Options are evidenced by a written agreement containing the above
terms and such other terms and conditions consistent with the 1996 Plan as the
Administrator may impose. The exercise price of Incentive Stock Options may
not be less than 100% of the fair market value of the Common Stock at the date
of grant (110% in the case of Incentive Stock Options granted to holders of
10% of the voting power of the Company's capital stock). The aggregate fair
market value of Common Stock (determined at time of option grant) with respect
to which Incentive Stock Options become exercisable for the first time in any
year cannot exceed $100,000. Each Option, unless sooner terminated, shall
expire no later than five years from the date of the grant, as the
Administrator may determine.
The 1996 Plan (but not Options previously granted thereunder) shall
terminate on December 2001. Subject to certain limitations, the 1996 Plan may
be amended or terminated at an earlier date by the Board of Directors or by a
majority of the outstanding shares entitled to vote thereon.
Compensation of Directors
Directors who are not employed by the Company will be paid a fee of
$100 for each Board of Directors meeting attended and $100 for each committee
meeting attended. All directors are reimbursed for expenses incurred on behalf
of the Company.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding
beneficial ownership of the Common Stock as of March 31, 1998 by (i) each
stockholder known by the Company to be the beneficial owner of more than 5% of
the outstanding Common Stock, (ii) each director of the Company, (iii) each
executive officer named in the Summary Compensation Table above and (iv) all
directors and executive officers as a group. Except as otherwise indicated,
the Company believes that the beneficial owners of the Common Stock listed
below, based on information furnished by such owners, have sole investment and
voting power with respect to such shares, subject to community property laws
where applicable.
28
<PAGE>
<TABLE>
<CAPTION>
Number of Shares
Name and address of Beneficial Beneficially Owned Percentage of Class
Owner
- -------------------------------------------- ----------------------------------- ------------------------------------
<S> <C> <C>
Henry Siegel 3,055,000 11%
345 Park Avenue South
New York, New York 10010
Paul Siegel. 3,055,000 11%
1990 South Boundy Drive
Suite 700
Los Angeles, California 90025
Ray Volpe 3,055,000 11%
345 Park Avenue South
New York, New York 10010
Martin Miller 0 (1) 0%
57 The Circle
Glen Head, New York 11545
Jean Chalopin 0 (2) 0%
26/28 Avenue Hoche
75008 Paris, France
Martin Gloor 0 0%
Via Sirana 54
C.P. 128
6814 Lamone
Lagano, Switzerland
*
Bernard Buskin 100,000
345 Park Avenue South
New York, New York 10010
All directors and executive 9,165,000 32%
officers as a group (7
persons)
</TABLE>
- ------------
* Less than 1%
29
<PAGE>
(1) Does not include 90,000 shares owned by Mr. Millers wife. Mr. Miller
disclaims beneficial ownership of such shares.
(2) Does not include 500,000 shares that are held by Deltec Panamerica Trust
Company Limited, (Deltec), Deltec House, P.O. Box 3229, Nassau N.P. The
Bahamas. Mr. Chalopin is a director of Deltec.
Item 12. Certain Relationships and Related Transactions
On October 22, 1996, the Company acquired all the outstanding shares
of HSPS pursuant to a Plan and Agreement of Reorganization among the Company
and all of the shareholders of HSPS (the Acquisition Agreement). Pursuant to
the Acquisition Agreement, the Company issued 9,500,000 shares of Common Stock
to the shareholders of HSPS. Henry Siegel, Paul Siegel and Ray Volpe,
directors and shareholders of the Company, each were principal shareholders of
HSPS before the acquisition. Each received 2,555,364 shares of Common Stock
upon completion of the acquisition. Henry Siegel, Paul Siegel and Ray Volpe
each owned 3,055,364 shares of Common Stock upon completion of the
acquisition.
The Acquisition Agreement provides for an adjustment in the number of
shares of the Company issued to the former holders of its operating
subsidiaries in certain circumstances. The amount of such adjustment, if any,
is dependent upon the market price of the Companys shares on April 15, 1998
and the Companys pretax income for 1997. The Company believes that an
adjustment may not be appropriate due to the sale of KSG during 1997. The
Company also has a preliminary understanding with holders of two thirds of the
rights to receive additional shares pursuant to which these persons will
accept warrants in lieu of shares. The Company can not now determine the
number of shares, if any, which may be issued.
Pursuant to an agreement, dated as of April 1, 1997, between the
Company and By-The-Way Corporation (BTW), a corporation wholly-owned by Ray
Volpe, a director of the Company, BTW granted to the Company in perpetuity the
right at any time to develop, produce, distribute, market, license or
otherwise exploit (the "Exploitation Rights") all entertainment properties
(other than properties licensed to KS&E) in consideration of an option payment
consisting of $112,500 previously advanced and additional payments to be made
by the Company to BTW of $150,00 per year. Such option payment will be offset
against fees or amounts payable by the Company for any Exploitation Rights
granted to the Company by BTW. During the year ended December 31, 1997, the
Company paid BTW $162,631, including $50,131 for advances against assets to be
acquired.
Commencing in April 1997, KS&E sublet approximately 42% of the
Companys office space in New York City for a prorata share of the rent. In
addition, KS&E pays the Company 42% of certain overhead that it utilizes in
New York City. During the fiscal year ended December 31, 1997, the Company
received approximately $220,859 from KS&E for such rent and overhead. Ray
Volpe, a director of the Company, is Chief Executive Officer of KS&E.
The Company received loans, represented by 8% one year notes, in the
principle amount of $412,217 and $600,000 during the years ended December 31,
1997 and 1996, respectively, from
30
<PAGE>
foreign clients of Millport Ltd. (the Millport Clients), a Bahamian domiciled
investment advisor. All of such loans were repaid as of December 31, 1997. As
additional consideration for granting these loans to the Company, the Millport
Clients have received two year warrants to purchase an aggregate of 4,048,866
shares of Common Stock at $.25 per share. Millport Clients also have purchased
a total of 4,732,220 shares of Common Stock from the Company for an aggregate
of $2,484,415. In addition, some of the Millport Clients have purchased shares
of Common Stock in the open market. Martin Miller is a director of the Company
and a director of corporate finance of Millport Ltd. The Millport Clients are
not affiliates of Mr. Miller or Millport Ltd.
In March 1997, the Company issued 500,000 shares of Common Stock to
Deltec Panamerica Trust Company Limited, (Deltec), for $.25 per share, an
aggregate of $125,000. Mr. Chalopin is a director of Deltec.
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
<S> <C>
2.01 Plan and Agreement of Reorganization, dated as of October 22, 1996, among the Company and
the shareholders of HSPS (1)
3.01 Certificate of Incorporation of the Company
3.02 By-Laws of the Company
4.01 Specimen Certificate representing the Common Stock, par value $.001 per share
10.01* 1996 Stock Option Plan.(2)
10.02* Employment Agreement entered into between the Company and Henry Siegel
10.03* Employment Agreement entered into between the Company and Paul Siegel
10.04 Lease dated June 5, 1992 by and between Kaleidoscope Holdings Inc. and Park Avenue
South/Amory, Inc.
10.05 Lease dated May 31, 1995 by and between SeaGull Entertainment, Inc. and KGK Enterprises,
Inc. and the First Amendment thereto, dated June 13, 1996
10.06 Joint Venture Agreement, dated as of October 1, 1995, between SeaGull Entertainment, Inc.
and Keller Entertainment Group, Inc.
10.07 Amended and Restated Limited Liability Company Agreement, dated as of April 30, 1997,
among the Company, Interpublic Group of Companies, Inc., 345 Park Avenue PAS Sports,
Inc. and People & Properties, Inc. (3)
10.08 Agreement dated as of August 20, 1997, among, Interpublic Group of Companies, Inc., 345
PAS Sports, Inc., and People & Properties, Inc. (4)
10.09 Vendor Agreement, dated December 18, 1996, between the Company and HSN Direct Int.
LTD. and addendum thereto, dated March 31, 1997
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.10 Joint Venture Agreement, dated as of June 1995, between the Company and Sports Marketing,
Inc.
10.11 Agreement dated as of April 1, 1997 between the Company and By-The-Way Corporation.
21.01 Subsidiaries of the Company
27.01 Financial Data Schedule
</TABLE>
- ------------
* Management contract or compensatory plan or arrangement.
(1) Such Exhibit was filed with the Company's Current Report, dated October
22, 1996, and is incorporated herein by reference
(2) Such Exhibit was filed with the Company's Proxy Statement for the Annual
Meeting held on December 2, 1997 and is incorporated herein by
reference.
(3) Such Exhibit was filed with the Company's Current Report, dated May 5,
1997, and is incorporated herein by reference.
(4) Such Exhibit was filed with the Company's Current Report, dated August
20, 1997, and is incorporated herein by reference.
(b) Reports on Form 8-K
None
32
<PAGE>
KALEIDOSCOPE MEDIA GROUP, INC.
(Formerly BNN Corporation)
AND SUBSIDIARIES
FINANCIAL STATEMENTS WITH
INDEPENDENT AUDITORS' REPORT
DECEMBER 31, 1997 AND 1996
<PAGE>
C O N T E N T S
Page
INDEPENDENT AUDITORS' REPORT F-2
FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS F-3-4
CONSOLIDATED STATEMENTS OF OPERATIONS F-5
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY F-6
CONSOLIDATED STATEMENTS OF CASH FLOWS F-7-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-9-28
SUPPLEMENTAL INFORMATION (UNAUDITED)
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 F-29
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Kaleidoscope Media Group, Inc.
We have audited the accompanying consolidated balance sheets of Kaleidoscope
Media Group, Inc. (formerly BNN Corporation) and subsidiaries as of December
31, 1997 and 1996, and the related consolidated statements of operations,
stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Kaleidoscope Media Group, Inc. (formerly BNN Corporation) and subsidiaries as
of December 31, 1997 and 1996, and the results of their operations and their
cash flows for the years then ended in conformity with generally accepted
accounting principles.
New York, NY
April 14, 1998
F-2
<PAGE>
KALEIDOSCOPE MEDIA GROUP, INC.
(formerly BNN Corporation)
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31,
----------------------------------
1997 1996
-------------- --------------
Restated
<S> <C> <C>
CURRENT ASSETS
Cash $ 252,260 $ 154,006
Accounts receivable, less allowance for doubtful accounts
of $116,539 and $-0- in 1997 and 1996, respectively 746,681 976,345
Expenditures billable to clients - 317,719
Notes receivable, less allowance for bad debt of $50,000
in 1997 - -
Loans receivableofficers and shareholders - 107,031
Program cost inventory - current portion,
net of accumulated amortization 2,876,975 355,725
Deferred income taxes 266,000 313,700
Other current assets 129,153 117,998
-------------- --------------
Total Current Assets 4,271,069 2,342,524
PROGRAM COST INVENTORY, less current portion,
net of accumulated amortization 2,287,892 567,461
LOANS AND ADVANCES RECEIVABLE
- OFFICERS AND SHAREHOLDERS 36,300 -
PROPERTY AND EQUIPMENT, at cost, less accumulated
depreciation 82,782 136,408
INVESTMENT IN JOINT VENTURE 1,376,500 1,134,600
DEFERRED INCOME TAXES 356,600 1,045,300
GOODWILL, net of accumulated amortization 831,414 3,317,994
OTHER ASSETS 24,116 21,116
-------------- --------------
$ 9,266,673 $ 8,565,403
============== ==============
</TABLE>
See notes to financial statements.
F-3
<PAGE>
KALEIDOSCOPE MEDIA GROUP, INC.
(formerly BNN Corporation)
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31,
----------------------------------
1997 1996
-------------- --------------
Restated
<S> <C> <C>
CURRENT LIABILITIES
Cash overdrafts $ 194,148 $ -
Notes payable, current portion 40,000 866,159
Accounts payable and accrued liabilities 1,656,384 1,733,664
Income taxes payable 839,496 166,921
Capitalized lease obligationcurrent portion - 30,843
Option agreement payable-current portion 150,000 -
Deferred rentcurrent portion 42,405 39,780
Deferred income and client advances 697,033 578,506
-------------- --------------
Total Current Liabilities 3,619,466 3,415,873
CAPITALIZED LEASE OBLIGATION, less current portion - 2,902
NOTES PAYABLE, less current portion - 80,000
OPTION AGREEMENT PAYABLE, less current portion 37,500 -
DEFERRED RENT, less current portion 277,134 323,412
-------------- --------------
Total Liabilities 3,934,100 3,822,187
-------------- --------------
STOCKHOLDERS' EQUITY
Common stock, $0.001 par value, 100,000,000 shares authorized and
26,027,082 shares issued in 1997, and $0.01 par value, 50,000,000
shares authorized and 23,557,082
shares issued in 1996 26,027 146,731
Preferred stock, $0.001 par value, 15,000,000
shares authorized and none issued in 1997 - -
Additional paid-in-capital 6,197,661 5,207,506
Accumulated deficit (891,115) (611,021)
Stock subscriptions receivable less
allowance for doubtful accounts
of $438,075 in 1997 and 1996 - -
Treasury stock 529,000 shares in 1997 and 1996
at cost - -
-------------- --------------
Total Stockholders' Equity 5,332,573 4,743,216
-------------- --------------
Total Liabilities and Stockholders' Equity $ 9,266,673 $ 8,565,403
============== ==============
</TABLE>
See notes to financial statements.
F-4
<PAGE>
KALEIDOSCOPE MEDIA GROUP, INC.
(formerly BNN Corporation)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended
December 31,
---------------------------------
1997 1996
-------------- -------------
<S> <C> <C>
NET REVENUE $ 2,741,392 $ 6,863,359
DIRECT PROJECT COSTS
Amortization of program costs 681,670 -
Other direct project costs 1,381,833 3,747,711
-------------- -------------
Total Direct Project Costs 2,063,503 3,747,711
-------------- -------------
GROSS PROFIT 677,889 3,115,648
-------------- -------------
EXPENSES
Amortization of program costs relating to joint venture 291,427 323,882
Salaries and benefits 1,513,578 1,843,403
General and administrative 1,453,777 1,648,097
Amortization of goodwill 77,164 121,676
Interest - 20,045
-------------- -------------
Total Expenses 3,335,946 3,957,103
-------------- -------------
OPERATING LOSS (2,658,057) (841,455)
GAIN ON SALE OF ASSETS 3,512,836 -
-------------- -------------
INCOME (LOSS) BEFORE EQUITY IN INCOME OF JOINT VENTURES
AND INCOME TAXES 854,779 (841,455)
EQUITY IN INCOME OF JOINT VENTURES 317,721 1,272,200
-------------- -------------
INCOME BEFORE INCOME TAXES 1,172,500 430,745
INCOME TAX EXPENSE 1,452,594 194,790
-------------- -------------
NET INCOME (LOSS) $ (280,094) $ 235,955
-------------- -------------
BASIC EARNINGS (LOSS) PER SHARE $ (0.01) $ 0.02
============== =============
DILUTED EARNINGS (LOSS) PER SHARE $ (0.01) $ 0.02
============== =============
</TABLE>
See notes to financial statements.
F-5
<PAGE>
KALEIDOSCOPE MEDIA GROUP, INC.
(formerly BNN Corporation)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional
Shares Common Paid-in Accumulated
Issued Stock Capital Deficit Total
------ ----- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance-January 1, 1996 6,247,868 $ 12 375,988 (846,976) (470,976)
Reacquisition of shares in
legal settlement (562,180) - - - -
Issuance of shares for
acquisition of Kaleidoscope
Group 3,814,312 38,143 2,861,857 - 2,900,000
KMG recapitalization 14,057,082 108,576 1,721,661 - 1,830,237
Issuance of warrants (Note 3) - - 248,000 - 248,000
Net income - - - 235,955 235,955
---------- ------------ --------------- ------------- ---------------
Balance-December 31, 1996 (restated) 23,557,082 146,731 5,207,506 (611,021) 4,743,216
Issuance of shares 2,470,000 24,700 560,300 - 585,000
Issuance of warrants (Note 14) - - 284,451 - 284,451
Adjustment of par value upon
reincorporation of KMG - (145,404) 145,404 - -
Net loss - - - (280,094) (280,094)
---------- ------------ --------------- ------------- ---------------
BalanceDecember 31, 1997 26,027,082 $ 26,027 $ 6,197,661 $ (891,115) $ 5,332,573
========== ============ =============== ============= ===============
</TABLE>
529,000 shares of treasury stock were recognized in the KMG recapitalization
without a cost assigned. 500,000 of these shares represent shares issued to
SeaGull Entertainment prior to the recapitalization which are accounted for as
treasury stock in the consolidated financial statements.
See notes to financial statements.
F-6
<PAGE>
KALEIDOSCOPE MEDIA GROUP, INC.
(formerly BNN Corporation)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended
December 31,
----------------------------
1997 1996
--------- ----------
Restated
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (280,094) $ 235,955
Adjustment to reconcile net income (loss)
to net cash used in operating activities:
Amortization and depreciation 1,098,749 492,425
Equity in income of joint venture (317,721) (1,272,200)
Fee income from joint venture recorded as an increase
in the investment (186,300) -
Deferred income tax expense 736,400 14,000
Deferred rent (43,653) (27,214)
Gain from sale of assets (3,512,836) -
Change in assets and liabilities, net of effects, in 1996, from
purchase of KG:
Accounts receivable 60,664 (148,422)
Expenditures billable to clients 228,071 122,931
Other current assets 68,714 251,028
Other assets (3,000) (4,952)
Cash overdraft 194,148 -
Accounts payable and accrued liabilities 12,368 128,411
Payable to KG prior to acquisition - 201,939
Income taxes payable 672,575 150,195
Deferred income and client advances 287,527 (801,754)
--------- ----------
Net Cash Used in Operating Activities (984,388) (657,658)
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Distributions from joint venture 285,422 137,600
Advances and loans to officers and shareholders (49,218) (41,428)
Expenditures for program costs (4,907,329) (1,247,069)
Acquisition of property and equipment (17,547) (31,577)
Proceeds from sale of property and equipment 22,685 -
Payment of expenses relating to the sale of assets (101,049) -
Proceeds from sale of assets 6,000,000 -
--------- ----------
Net Cash Provided by (Used in) Investing Activities 1,232,964 (1,182,474)
========= ==========
</TABLE>
See notes to financial statements.
F-7
<PAGE>
KALEIDOSCOPE MEDIA GROUP, INC.
(formerly BNN Corporation)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
Year Ended
December 31,
--------------------------------
1997 1996
------------- ------------
Restated
CASH FLOWS FROM FINANCING ACTIVITIES
<S> <C> <C>
Net cash acquired in stock purchase of Kaleidoscope Group - 248,210
Proceeds of loans from BNN prior to recapitalization transaction - 1,336,018
Payment of costs relating to BNN recapitalization transaction - (93,781)
Deferred offering costs (79,869) -
Repayments of loans payable - shareholders - (38,470)
Proceeds from notes payable 582,766 352,000
Repayments of notes payable (1,488,925) (175,811)
Principal payments on capitalized lease obligations (33,745) (21,241)
Issuance of common stock 585,000 -
Issuance of warrants 284,451 248,000
------------- ------------
Net Cash Provided by (Used in) Financing Activities (150,322) 1,854,925
------------- ------------
INCREASE IN CASH 98,254 14,793
CASH
Beginning of year 154,006 139,213
------------- ------------
End of year $ 252,260 $ 154,006
============= ============
</TABLE>
See notes to financial statements.
F-8
<PAGE>
KALEIDOSCOPE MEDIA GROUP, INC.
(formerly BNN Corporation)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
On October 22,1996 Kaleidoscope Media Group, Inc. ("KMG"), which
changed its name from BNN Corporation in December 1997 (upon
reincorporating as a Delaware corporation - it had been a Nevada
corporation) and was a publicly traded corporation without significant
operations, acquired all of the outstanding shares of HSPSMM, Inc.
("HSPS") which changed its name from Kaleidoscope Media Group, Inc. in
November 1997. The transaction was effected by issuing additional KMG
shares in an amount that resulted in the original HSPS shareholders
receiving approximately 40.3% of the outstanding shares of BNN. The
original HSPS shareholders owned additional shares of KMG from before
the October 22, 1996 transaction. After the consummation of the
transaction, they owned approximately 47% of the outstanding shares, and
with the other 53% scattered, had effective control.
For financial reporting purposes, the transaction was recorded
as a recapitalization of HSPS. HSPS is the continuing, surviving, entity
for accounting purposes, but adopted the capital structure of KMG which
is the continuing entity for legal purposes. All references to shares of
common stock have been restated to reflect the equivalent number of KMG
shares.
To clarify the corporate names discussed above, the parent
company, formerly called BNN Corporation, has adopted the name of the
former subsidiary, Kaleidoscope Media Group, Inc. which in turn changed
its name to HSPSMM, Inc. All references in these financial statements to
KMG refer to the "new" KMG; all references to HSPS refer to the "old"
KMG.
HSPS was formed in May of 1996, at which time it issued
5,685,688 common shares to acquire approximately 91% of the outstanding
shares of SeaGull Entertainment, Inc. ("SeaGull") and 3,814,312 common
shares to acquire 100%of the outstanding stock of the Kaleidoscope Group
("KG"), a marketing and consulting company engaged primarily in sports
and event marketing. Since, as a result of the transaction, stockholders
of SeaGull owned a majority of the common stock of HSPS, the acquisition
of Seagull by HSPS was accounted for as a recapitalization of SeaGull.
Accordingly, the historical financial statements are those of SeaGull.
The acquisition of KG was accounted for as a purchase of KG by SeaGull.
The shares issued to acquire KG were assigned a value of $2,900,000,
based upon the fair value of KG's net assets. At the date of
acquisition, KG had a stockholders' deficit of approximately $539,670,
resulting in the recording of goodwill of $3,439,670. The goodwill is
being amortized using the straight line method over a period of twenty
years, and amounted to $121,676 for the year ended December 31, 1996.
KG's results of operations are included in the consolidated financial
statements from May 3, 1996. The following unaudited pro forma
information presents a summary of consolidated results of operations as
if the KG purchase had occurred at the beginning of 1995 with pro forma
adjustments to give effect to amortization of goodwill, certain other
adjustments and related income tax effects.
1996
Net revenues $ 8,632,183
Net income 134,682
Net income per share .01
The pro forma financial information is not necessarily
indicative of the operating results that would have occurred had the KG
acquisition been consummated as of January 1, 1996, nor are they
necessarily indicative of future operating results.
Kaleidoscope Media Group, Inc. and subsidiaries (the "Company")
operates three divisions:
F-9
<PAGE>
KALEIDOSCOPE MEDIA GROUP, INC.
(formerly BNN Corporation)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1997
1. ORGANIZATION AND DESCRIPTION OF BUSINESS (Continued)
The Entertainment Division (principally consisting of SeaGull's
business activities) is primarily engaged in the business of the
development, production and domestic and international distribution of
entertainment properties and exploiting the related licensing and
merchandising opportunities. It also provides consulting services in the
development of specialty television programming and is involved in the
acquisition and distribution of entertainment library properties.
The Sports Division (principally consisting of KG's business
activities) is primarily engaged in sports and event marketing and
consulting including event management, sponsor and event representation,
event related sales promotions, event related media and publicity,
advertising and sponsorship sales and specialty publishing. Most of the
Company's projects in these areas are sports related. As more fully
described in Note 4, a substantial portion of the sports division's
properties and operations were sold during 1997.
The Direct Marketing Division was initiated in January, 1997 and
is engaged in the production of home shopping programming.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the
accounts and transactions of KMG and its wholly owned
subsidiaries. All material intercompany accounts and
transactions have been eliminated. KMG's investment in its 50%
owned joint venture is accounted for on the equity method.
Accordingly, KMG's share of the earnings of the joint venture
are included in the consolidated statement of operations.
Program Cost Inventory
Program cost inventory is stated at the lower of
amortized cost or estimated realizable value. Television
production and participation costs are amortized based on the
ratio of the current period's gross revenues to estimated total
gross revenues from all sources (the "ultimate" revenue) on an
individual production basis. Estimates of total gross revenues
can, and usually do, change significantly due to the level of
market acceptance of television products. In addition, because
of uncertainties inherent in the process of estimating costs,
estimates of the ultimate costs of episodic television
programming can change significantly in the near term.
Accordingly, the estimates of ultimate revenue and costs are
reviewed periodically and are adjusted upward or downward as
additional information is learned. Amortization expense is
consequently adjusted. Such adjustments could have a material
effect on results of operations in future periods.
In the case of episodic television programming, the
Company considers each season to be a single product for the
estimation of ultimate revenues and costs.
Interest is capitalized as part of program cost
inventory when it is incurred during the same time period as the
expenditures for the program costs. During the year ended
December 31, 1997, $651,198 of interest cost was capitalized as
part of program cost inventory.
F-10
<PAGE>
KALEIDOSCOPE MEDIA GROUP, INC.
(formerly BNN Corporation)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1997
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenue Recognition
Revenue from the licensing or distribution of a
television program is recognized when the licensee of the
program has the legal right to exhibit or broadcast the program
and the program is deliverable to the licensee.
Revenue from the barter syndication of television
programming (the sale of television programming in exchange for
advertising time) is recognized when the program has been
licensed, the licensee has the legal right to broadcast the
program, the program is deliverable to the licensee,
noncancelable contracts have been signed with both the station
and the purchaser of the advertising time and appropriate
allowances can be estimated for rating shortfalls ("make
goods"). The estimation process has inherent uncertainties.
Accordingly, management's estimate of the allowance for rating
shortfalls may change in the near term. Such changes could have
a material effect on results of operations in future periods.
Revenue is recognized from Company-owned events when the
event takes place. Revenue from consulting and management of
events owned by others is recognized over the period during
which the services are rendered. Revenue from sponsorship sales
and representation for a specific event is recognized when the
event occurs. Revenue from sponsorship sales and representation
for organizations or an ongoing series of events is recognized
as the organization or owner of the events is entitled to bill
the sponsor. Television production revenue is recognized upon
completion of the production.
Expenditures Billable to Clients
Expenditures billable to clients represent direct costs
incurred by the Company, in connection with its various
contracts, that are either specifically billable to the clients
under the contracts, or relate to contracts for which the fees
have not yet been billed or earned. Payroll and related costs,
including those relating to specific client work, are expensed
as incurred.
Deferred Revenue
Deferred revenue represents amounts received from or
billed to clients in accordance with certain contracts prior to
the Company's completion of the earning process in accordance
with its revenue recognition policy. Upon completion of the
earning process, the amounts are included in revenue.
Depreciation
Property and equipment are stated at cost and are
depreciated on straight-line and accelerated methods over the
estimated useful lives indicated in Note 10. Leasehold
improvements are amortized over the term of the lease.
F-11
<PAGE>
KALEIDOSCOPE MEDIA GROUP, INC.
(formerly BNN Corporation)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1997
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Goodwill
The excess of the acquisition price of KG over the net
value of specifically identified assets and liabilities at the
acquisition date was recognized as goodwill. At the date of the
sale of assets to IPG (see Note 4) the goodwill was allocated
between the properties sold and the properties retained. The
goodwill is being amortized on a straight-line basis over twenty
years. The Company reviews the recoverability of goodwill on an
annual basis primarily on an analysis of undiscounted projected
cash flows from the related operations.
Cash Overdrafts
KMG and the various subsidiaries maintain most of their
cash balances in the same bank but in separate accounts owned by
the different corporations. The Company's practice has generally
been to view the group of accounts at the same bank as one
balance and to move funds from one account to another, with the
bank's cooperation, as funds are needed to pay checks as
presented. Because there is no legal right of offset of one
subsidiary's positive balance with another's overdraft balance,
generally accepted accounting principles require that the
overdraft balances be shown separately as a liability.
Incentive Stock Option Plan
Stock-based compensation is recognized using the
intrinsic value method under which compensation cost for stock
options is measured as the excess, if any, of the quoted market
price of the Company's stock at the measurement date over the
exercise price. For disclosure purposes, pro-forma net income
and earnings per share are provided as if the fair value method
had been applied.
Use of Estimates
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the balance sheet dates and
the reported amounts of revenues and expenses during the years
then ended. Actual results could differ from those estimates.
Earnings (Loss) Per Common Share
Basic earnings (loss) per common share is based upon the
weighted average number of common shares outstanding during the
year. Diluted earnings (loss) per common share includes the
effects of potential dilution that would occur if securities
(such as warrants) or other contracts (such as options) to issue
common stock were exercised or converted into common stock. Such
instruments that are convertible into common stock are excluded
from the computation in periods in which they have an
anti-dilutive effect.
F-12
<PAGE>
KALEIDOSCOPE MEDIA GROUP, INC.
(formerly BNN Corporation)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1997
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Inclusion of the contingent shares potentially issuable
as a result of the KMG transaction (see Note 6) would have an
anti-dilutive effect on earnings (loss) per share. As a result
it was not used in the earnings per share calculation.
Income Taxes
Income tax expense (benefit) consists of income taxes
currently due or refundable arising from the period's operations
as adjusted by the deferred tax expense (benefit). The deferred
tax expense (benefit) arises from those changes in the Company's
deferred tax assets and liabilities relating to operations.
Deferred tax assets and liabilities result from temporary
differences between the amounts of assets and liabilities
recorded on the financial statements and the amounts recorded
for income tax purposes. Deferred tax assets also result from
certain income tax attributes existing at the balance sheet date
that can provide future income tax benefits including net
operating loss carryforwards which can be used to offset future
taxable income. The deferred tax assets and liabilities are
calculated based on the currently enacted tax rates that apply
to the periods that the temporary differences are expected to
reverse or the tax attributes are expected to be utilized.
Deferred tax assets are reduced by a valuation allowance when,
in the opinion of management, it is likely that some portion or
all of the deferred tax assets will not be realized.
SeaGull, with the consent of its shareholders, had
elected under Section 1362 of the Internal Revenue Code and
certain applicable state statutes, not to be taxed as a
corporation, but rather to have the shareholders report their
share of the corporation's earnings on their individual tax
returns. Certain limited state and local income taxes applied.
For this reason no federal and only limited state and local
income taxes were provided in the financial statements through
May 2, 1996. The election terminated on May 3, 1996, when
SeaGull became a subsidiary of HSPS.
Beginning May 3, 1996, the Company has filed
consolidated federal income tax returns including all the
subsidiaries (i.e., they are taxed as if they were one company).
KMG and each of the subsidiaries files separate state and local
income tax returns in the jurisdictions where they are subject
to tax. Accordingly, when one subsidiary has taxable income, the
tax losses of another subsidiary cannot be used to offset that
subsidiary's taxable income for state or local purposes. State
and local taxes must be paid even though the consolidated entity
has a loss.
3. PRIOR PERIOD ADJUSTMENT
As described in Note 14, in November 1996, warrants were issued
in conjunction with the issuance of notes in exchange for cash. Proper
accounting for the transaction is to allocate the proceeds received
between the note payable and the warrants. The 1996 financial statements
as originally reported, effectively allocated the entire $600,000
proceeds to the notes. The 1996 financial statements have been restated
to reflect $248,000 of the proceeds as the portion allocated to the
warrants. The result of this restatement is that additional
paid-in-capital and stockholders' equity at December 31, 1996 have been
increased by $248,000 with a corresponding decrease in notes payable and
current liabilities. The statement of cash flows for the year ended
December 31, 1996 has also been restated to reflect this change. There
was no material effect on the statement of operations for the year ended
December 31, 1996 so that statement has not been restated.
F-13
<PAGE>
KALEIDOSCOPE MEDIA GROUP, INC.
(formerly BNN Corporation)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1997
4. SALE OF ASSETS
In May, 1997 the Company consummated an agreement, effective
April 1, 1997, with the Interpublic Group of Companies ("IPG") for the
formation of a new venture, Kaleidoscope Sports & Entertainment LLC
("KS&E"). Pursuant to the agreement, the Company formed KS&E as a
wholly-owned subsidiary, contributed a substantial portion of its sports
properties and operations to KS&E and then sold a 51% interest in KS&E
to IPG. IPG also acquired an option to buy the remaining 49% interest.
IPG paid $2,400,000 and assumed an obligation to make certain contingent
payments to the Company if income targets were met by KS&E during the
ensuing three years.
In August, 1997 IPG exercised its option to buy the remaining
49% of KS&E and also obtain a release of its obligation to make
contingent payments pursuant to the original transaction. In the August
transaction, IPG paid an additional $3,600,000 making the total purchase
price for KS&E $6,000,000. The Company's carrying value of the assets
sold was $2,386,115 consisting principally of goodwill. The Company also
incurred $101,049 of expenses directly relating to the sale, resulting in
a net gain of $3,512,836.
After the sale to IPG, the Company retained several of its
sports related properties and intends to become involved in additional
sports projects, possibly in conjunction with KS&E.
5. MAJOR CUSTOMERS
During the years ended December 31, 1997 and 1996, approximately
21% and 45% of the Company's revenue was derived from services provided
to one U.S. automobile company. Accounts receivable from this client
amounted to $274,123 at December 31, 1996. Revenue derived from one U.S.
sports association amounted to approximately 10% of the Company's
revenue in the year ended December 31, 1996. Accounts receivable from
this client amounted to $133,200 at December 31, 1996. The revenue from
these two customers was earned in the sports division operations
acquired in the KG transaction on May 3, 1996. The contracts and
relationships with these customers were part of the assets contributed
to the KS&E joint venture (Note 4) which was eventually sold.
6. KMG TRANSACTION/RECAPITALIZATION
As described in Note 1, KMG acquired HSPS on October 22, 1996,
in a transaction recorded as a recapitalization of HSPS. The transaction
was recorded as an issuance of 13,528,082 shares (14,057,082, less
529,000 treasury shares) in exchange for the cancellation of a
$1,336,018 payable to KMG, that had resulted from cash previously
advanced, and a $588,000 deferred tax asset. The amount recorded as the
capital contribution was reduced by $93,781 of related costs. In
September, 1997 an additional 130,000 shares were issued to settle the
claims of certain individuals who claimed to have rights to shares of
KMG arising from transactions with KMG prior to its legal acquisition of
HSPS. Because this was a contingency existing at the time of the
transaction, no accounting loss was recorded upon the issuance of the
shares.
F-14
<PAGE>
KALEIDOSCOPE MEDIA GROUP, INC.
(formerly BNN Corporation)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1997
6. KMG TRANSACTION/RECAPITALIZATION (Continued)
As part of the acquisition of HSPS, KMG agreed to a "Market
Value Adjustment" under which HSPS will grant additional shares to the
former HSPS shareholders to the extent that the original 9,500,000
shares are worth less than $50,000,000 on the sixteenth (16th) business
day following the filing of the Company's Form 10K for 1997. The number
of additional shares will be the number whose aggregate market value
equals the difference between $50,000,000 and the aggregate market value
of the original 9,500,000 shares. The adjustment will only apply if
certain income targets are met for 1997. There is provision for partial
application of the adjustment at reduced income levels.
7. PROGRAM COST INVENTORY
Program cost inventory consisted of the following:
December 31,
1997 1996
-------------- -----------
Released, less accumulated amortization $ 1,730,942 $ 508,179
In-process 3,433,925 415,007
-------------- -----------
5,164,867 923,186
Less: Current portion (2,876,975) (355,725)
-------------- -----------
Noncurrent portion $ 2,287,892 $ 567,461
============== ===========
8. BY-THE-WAY AGREEMENT
Included in program cost inventory at December 31, 1997 is
$412,500 consisting of $225,000 of payments made to, and $187,500 of
additional obligations incurred to, By-The-Way Corporation ("BTW"), a
corporation wholly owned by Ray Volpe, a director of the Company and
owner of approximately 12% of the Company's outstanding common stock at
December 31, 1997. These advances were made pursuant to a contract
between the Company and BTW, dated April 1, 1997, whereby the Company
will advance $12,500 per month for the period April 1, 1997 through
March 31, 1999 and will also apply $112,500 of loans made prior to April
1, 1997. These payments give the Company, in perpetuity, the right to
acquire, and a right of first refusal with respect to, all entertainment
properties licensed or owned by BTW during the ten years ending March 31,
2007. If the Company should acquire a property, it can apply the advances
made against any amounts due. The Company has recorded these advances as
an asset because management has estimated that it is probable that the
advances made as of December 31, 1997 will be used to acquire some of
the properties and the value of the properties so acquired will equal or
exceed the carrying amount. Due to the inherent uncertainty as to
whether the advances will be used to acquire properties of sufficient
value, it is at least reasonably possible that this estimate will change
in the near term and that some or all of the advances will be
written-off and charged as a reduction of income.
F-15
<PAGE>
KALEIDOSCOPE MEDIA GROUP, INC.
(formerly BNN Corporation)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1997
9. LOANS AND ADVANCES RECEIVABLE - OFFICERS AND SHAREHOLDERS
These loans and advances to officers and shareholders do not bear
interest and have no definite due date.
10. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
Estimated Useful
December 31, Life in Years
------------ -------------
1997 1996
<S> <C> <C> <C>
Automobile $ 51,543 $ 51,543 5
Furniture and fixtures 58,299 51,471 7
Computers and office equipment 78,339 100,138
---------- ---------- 5
188,181 203,152
Less: accumulated depreciation (105,399) (66,744)
---------- ----------
$ 82,782 $ 136,408
========== ==========
</TABLE>
Depreciation expense was $48,488 and $46,866 for the years ended
December 31, 1997 and 1996, respectively.
11. INVESTMENT IN JOINT VENTURES
Keller-Siegel Entertainment LLC
The Company has a 50% ownership interest in Keller-Siegel
Entertainment LLC ("KSE"). KSE produces Tarzan: The Epic Adventures, an
hour long action adventure television series that first aired in
September, 1996. Revenue is derived from both domestic and foreign
sources. Significant domestic revenue is derived from barter
syndication. Summarized financial information of KSE as of December 31,
and the years then ended are as follows:
F-16
<PAGE>
KALEIDOSCOPE MEDIA GROUP, INC.
(formerly BNN Corporation)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1997
11. INVESTMENT IN JOINT VENTURES (Continued)
December 31,
------------------------------
1997 1996
----------- -------------
Assets $ 5,770,000 $ 11,762,000
Liabilities (3,017,000) (9,493,000)
----------- -------------
Members capital $ 2,753,000 $ 2,269,000
=========== =============
Revenue $ 5,570,000 $ 8,303,000
Net income $ 136,000 $ 2,544,000
Company's equity in net income $ 68,000 $ 1,272,000
The Company is the domestic distributor of Tarzan: The Epic
Adventures. During the years ended December 31, 1997 and 1996, the
Company earned $40,000 and $130,000, respectively, of distribution fees
(relating to $800,000 and $2,600,000 of KSE advertising revenues) and
$186,300 and $210,000 of executive producer fees from KSE which are
included in revenue in the statement of operations.
The determination of the revenue of KSE for 1996 involves an
estimate by management of allowances for ratings shortfalls for
noncancelable advertising contracts in force at year end for barter
syndication as described under the revenue recognition policy described
in Note 2. Determination of KSE's net income involves the amortization
of program cost inventory in the same manner as described in Note 2. The
estimation process has inherent uncertainties. Accordingly, management's
estimates of total gross revenues, ultimate costs and the allowance for
rating shortfalls may change. Such changes could have a material effect
on results of operations in future periods.
Both the Company and the other 50% owner of KSE provide
production, marketing and administrative services to KSE, the cost of
which exceeds the reimbursements received from KSE. Certain of these
production and marketing costs related to Tarzan: The Epic Adventures
have been capitalized by the Company as program cost inventory. The
amortization of this program cost inventory, as well as the KSE share of
administrative and noncapitalizable marketing costs are recognized as
expenses in the statement of operations.
The production costs for the two part premiere episode along
with certain pre-release marketing costs were funded by STI
Entertainment ("STI") under an agreement by which STI was to fund the
production costs for the entire season's episodes in exchange for
significant gross profit participation. STI refused to supply the
funding for the remaining episodes. As a result, KSE incurred
significant costs in arranging for alternate financing. During 1997, STI
asserted a claim for an accounting contending that they were due monies
for the premiere episode. Management vigorously contests this claim,
contending that STI materially breached its contract with KSE, which
material breach excused any further performance of KSE thereunder, and
also contending that KSE has been damaged in an
F-17
<PAGE>
KALEIDOSCOPE MEDIA GROUP, INC.
(formerly BNN Corporation)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1997
11. INVESTMENT IN JOINT VENTURES (Continued)
amount exceeding $2,800,000. A complaint has been filed by KSE against
STI and others seeking damages for breach of contract and to declare
that KSE is excused from all future performance under the contract.
Management and STI are now engaged in settlement discussions. Despite
management's belief that it has a strong case for the damages claim
against STI and against STI's claim for profit participation, due to the
uncertainties inherent in litigation, it is at least reasonably possible
that a material liability could result, although the amount cannot be
estimated.
Kaleidoscope Sports & Entertainment LLC
From the April 1, 1997 effective date of the sale to IPG
(consummated in May of 1997) through the sale of the remaining interest
in August of 1997, the Company held a 49% interest in KS&E. Its equity
share of the net income of KS&E for that period was $249,621. During
this period the expenses reported by the Company for salaries and
benefits and for general and administrative were net of reimbursements
by KS&E amounting to $372,441 and $44,000, respectively.
12. CAPITALIZED LEASE OBLIGATION
The Company was obligated under a capitalized lease requiring
payments of $2,919 per month, including interest at 7.2%, through
January 1998. The final payment under this lease was made in December
1997.
13. NOTES PAYABLE
<TABLE>
<CAPTION>
December 31,
------------------------------------
1997 1996
-------------- --------------
<S> <C> <C>
Note payable arising from the settlement of
certain disputes relating to a $500,000 loan
described below. Payable in monthly installments
of $30,000 without interest. $ - $ 139,220
Note payable arising from the settlement of certain disputes
relating to a $500,000 loan described below. The note was
repaid in 1997 with interest at a bank's prime rate. The note
was secured by certain of the Company's receivables plus
shares representing a 4.5% interest in the
Company's SeaGull Subsidiary. - 200,000
Note payable to an entity controlled by the Company's Chairman
and Co-CEO. The principal balance was due August 31, 1996.
Interest had been accrued at 3% above a bank's prime rate. The
effective rate on this note was 11.5% at December 31, 1996.
The note was secured by the accounts receivable from, and
contracts with, the
Company's automobile corporation client. - 200,000
</TABLE>
F-18
<PAGE>
KALEIDOSCOPE MEDIA GROUP, INC.
(formerly BNN Corporation)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1997
13. NOTES PAYABLE (Continued)
<TABLE>
<CAPTION>
December 31,
------------------------------------
1997 1996
-------------- --------------
<S> <C> <C>
Note payable to a bank in monthly installments of $1,422,
including interest at 8.89% per annum, through November 1997.
The loan is secured by the Company's automobile and is
guaranteed by
the Company's Chairman (who is a shareholder). - 14,969
Note payable to the former parent of KG (See Note 16). 40,000 40,000
Notes payable to clients of Millport, Ltd. (See Note 14).
Due on demand in the face amount of $600,000 with interest
at 8% per annum. These notes were discounted from face
to reflect warrants issued to the holders
- 352,000
40,000 946,189
Less: current portion (40,000) (866,189)
------- --------
$ - $ 80,000
=========== ==============
</TABLE>
14. MILLPORT TRANSACTIONS
In November, 1996 and during the first quarter of 1997 the
Company issued notes (with face amounts of $600,000 and $412,217,
respectively) payable on demand, bearing interest at 8% per annum, to
foreign clients of Millport Ltd. (the "Millport Clients"), a Bahamian
domiciled investment advisor. As additional consideration for granting
the loans to the Company, the Millport Clients were given two year
warrants to purchase an aggregate of 4,048,866 shares of Common Stock at
$.25 per share. Pursuant to generally accepted accounting principles,
the proceeds received from the Millport Clients, which equalled the
principal amounts on the notes, were allocated between the warrants and
the notes based on their relative estimated fair values.
Of the $600,000 received in 1996, $248,000 was deemed to be the
proceeds of issuing the warrants and $352,000 the proceeds of the notes.
Of the $412,217 received in the first quarter of 1997, $284,451 was
deemed to be the proceeds of the warrants and $127,766 the proceeds of
the notes. The implied discount on the notes payable was amortized as a
cost over the period from the receipt of the proceeds to the repayment
of the notes. Substantially all of the notes were repaid at face value
by May of 1997 when the Company had available funds.
Millport Clients also have purchased a total of 4,732,220 shares
of Common Stock from the Company. In addition, some of the Millport
Clients have purchased shares of Common Stock in the open market. Martin
Miller, a director of the Company is a director of corporate finance of
Millport Ltd. Mr. Miller represents that the Millport Clients are not
affiliates of Mr. Miller or Millport Ltd.
F-19
<PAGE>
KALEIDOSCOPE MEDIA GROUP, INC.
15. COMMITMENTS
The Company leases the space for its principal office in New
York, NY under an agreement expiring in June 2002. The Company is also
obligated under operating lease agreements for certain office equipment.
The Company is also the lessee of office space, located in Los Angeles,
California, under a lease also expiring in June 2002 and is the lessee
of office space, located in Miami, Florida, under a lease expiring
December 1999. The office leases provide for future escalation based on
certain cost increases.
As of December 31, 1997, the total commitments for future
rentals were as follows:
1998 $ 716,136
1999 668,228
2000 605,203
2001 613,378
2002 466,845
-----------
$ 3,069,824
===========
Rent expense was $551,042 and $343,889 for the years ended
December 31, 1997 and 1996 respectively. This was partially offset by
sublease income of $434,844 and $196,715, respectively.
The Company entered into employment agreements as of January 1,
1997 with Henry Siegel, Chief Executive Officer of the Company, and Paul
Siegel, President of the Company. Each agreement has a three-year term
which renews for an additional year on each anniversary of the
agreement, and provides for an annual base compensation of $350,000,
with annual increases subsequent to the three year term in an amount to
be determined by the Board of Directors. In addition, Henry Siegel and
Paul Siegel are each entitled to such bonuses as may be awarded by the
Board of Directors in its discretion. Each agreement also provides for
the payment of benefits, including an automobile allowance. In the event
of the death or total disability of either executive, the Company has
agreed to pay his estate or the executive the unpaid portion of his
annual base compensation, but in no event less than six months base
compensation. The agreement also contains a non-competition provision
covering the term of the agreement plus two years following termination
or expiration of the agreement.
16. CONTINGENCIES
On June 21, 1996, a suit was filed against two of the Company's
subsidiaries and other unrelated parties in the amount of $21,000,000
alleging that they are successors to the alleged liability for a default
judgement entered against a former affiliate of the subsidiaries in
April, 1995 for an alleged action taking place in 1988. The subsidiaries
have vigorously defended themselves in this litigation. Management
believes that the claim against the former affiliate lacks merit and
that, in any case, its subsidiaries have no responsibility for the debts
of the former affiliate. Furthermore, management believes that if any
judgement were to be entered against the subsidiaries it would be able
to obtain indemnification from the prior owner of the former affiliate's
business, a major advertising agency. In a recent decision, the court
dismissed plaintiff's claim against the subsidiaries and at the same
time found that the advertising agency may be liable to the plaintiff
pursuant to aforesaid indemnity agreement. The plaintiff and the
advertising agency have submitted arguments to reargue and the Company
believes they intend to appeal in any event. While management believes,
based on the foregoing, that the litigation will not have a material
effect on the Company's financial position, it is at least reasonably
possible that a material liability could result, although the amount
cannot be estimated.
At the time of the May, 1996 acquisition of KG (see Note 1), KG
had a note payable (jointly and severally with a former affiliate that
is now insolvent) to a former parent company in the amount of $225,000.
KG was contesting its liability under this note because of various
claims against the former parent. In accounting for the acquisition, the
Company valued the liability at $40,000 based on a signed settlement
agreement with the former parent's bankruptcy trustee. Subsequent to the
issuance of the 1996 financial statements, the settlement was rejected
by the creditors of the former parent. No efforts
F-20
<PAGE>
KALEIDOSCOPE MEDIA GROUP, INC.
(formerly BNN Corporation)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1997
16. CONTINGENCIES (Continued)
have been made by the former parent's bankruptcy estate to collect this
debt, the Company still intends to assert its counterclaims if the
matter is litigated. No adjustment has been made to the original $40,000
valuation assigned to the debt. It is, however, at least reasonably
possible that the Company would be required to pay the full $225,000,
resulting in a loss of $185,000.
In December, 1997, the Company filed an action seeking damages
for breach of contract and fraudulent inducement of contract, among
other claims, arising out of a venture that the Company entered into,
with the defendants in the action to promote a Latin American boxing
tournament. The Company seeks damages of at least $500,000 plus punitive
damages in the action. Two of the defendants have answered the
complaint, asserting various affirmative defenses and two counterclaims
seeking damages of not less than $250,000. A third defendant has not yet
responded to the complaint. It is not possible to make an assessment of
the probable outcome of this litigation but it is at least reasonably
possible that a material gain or loss could result.
Certain former independent contractors, related to each other,
who performed services for the Company, have expressed a belief that
they have valid claims against the Company amounting to up to $500,000.
It is not known whether these former independent contractors will press
their claims. If they do, management intends to contest each case
vigorously and to file substantial counterclaims.
Other contingencies include an action for an alleged unpaid
bonus of $25,000 and claims for approximately $89,000 arising from a
sporting event managed by KG in early 1996. Management believes that the
claims are not valid and no liabilities have been recorded for these
amounts as management believes that no loss is probable. It is, however,
reasonably possible that the Company will have to pay these claims.
17. INCOME TAXES
The provision for income taxes for the year ended December 31,
1997 consists of the following components:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1997 1996
----------- -----------
<S> <C> <C>
Current
Federal $ - $ -
State 716,194 180,790
716,194 180,790
Deferred
Federal 931,800 303,000
State (195,400) 13,000
736,400 316,000
Benefit of change from "S"
to "C" Corporation - (302,000)
----------- -----------
736,400 14,000
----------- -----------
$ 1,452,594 $ 194,790
=========== ===========
</TABLE>
F-21
<PAGE>
KALEIDOSCOPE MEDIA GROUP, INC.
(formerly BNN Corporation)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1997
17. INCOME TAXES (Continued)
The income tax expense for the year, exclusive of the benefit
from the change in tax status, does not bear the expected relationship
between pretax income and the federal corporate income tax rate of 34%
because of the effect of state and local income taxes and the fact that
the company's amortization of goodwill and certain other expenses are
not deductible for income tax purposes.
The reconciliations between the actual and expected federal tax
are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996
-------------- --------------
<S> <C> <C>
Federal corporate tax rate of 34% applied to pretax
income $ 398,650 $ 146,453
State and local income taxes, net of federal benefit 343,724 127,901
Effect of non-deductible goodwill amortization 26,180 41,370
Effect of other nondeductible expenses 19,389 28,612
Effect of excess of carrying amount of goodwill sold
over the tax basis 811,335 -
Effect of change in previous year's income tax estimates (146,684) -
S Corp. deductions prior to May 3, 1996, for which
the Company received no federal benefit. - 152,454
Federal benefit of change from
S to C corporation. - (302,000)
-------------- --------------
$ 1,452,594 $ 194,790
============== ==============
</TABLE>
F-22
<PAGE>
KALEIDOSCOPE MEDIA GROUP, INC.
(formerly BNN Corporation)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1997
17. INCOME TAXES (Continued)
Deferred income taxes as reported on the balance sheet consists
of:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1997 1996
------------- ------------
<S> <C> <C>
Deferred tax assets $ 818,600 $ 1,447,000
Deferred tax liabilities (154,900) (88,000)
Valuation allowance (41,100) -
------------- ------------
$ 622,600 $ 1,359,000
============= =============
Deferred tax asset balances arise principally because of the following:
Year Ended
December 31,
-----------------------------
1997 1996
------------- ------------
Net operating loss carryforwards $ 491,100 $ 905,000
Start-up costs capitalized for income
tax purposes but not on the financial
statements 116,300 226,000
Deferred rent 99,200 155,000
Liability assumed in KG acquisition, not yet
recognized as an expense for tax purposes - 34,000
Expenses accrued by subsidiary that is
taxed on the cash basis 65,000 127,000
Other 5,900 -
------------- ------------
$ 777,500 $ 1,447,000
============= =============
Deferred tax liability balances arise principally because of the following:
Revenue earned but not received by the
subsidiary taxed on the cash basis $ 104,900 $ 38,000
KG liabilities assumed in the acquisition,
recorded at fair values lower than
their tax basis. 50,000 50,000
------------- ------------
$ 154,900 $ 88,000
============= =============
$ 622,600 $ 1,359,000
============= =============
</TABLE>
As of December 31, 1997, the Company had net operating loss
("NOL") carryforwards of approximately $121,000 available to offset
future federal taxable income; the carryforwards are not available for
state income tax purposes. These carryforwards begin to expire in 2011.
In addition, one of the Company's subsidiaries has approximately
$175,000 of NOL carryforwards that can only be used to offset the future
taxable income (for federal and certain state purposes) of the specific
subsidiaries to which they pertain. These carryforwards are further
limited by the operation of Section 382 of the Internal Revenue Code.
The subsidiary only allowed to use a
F-23
<PAGE>
KALEIDOSCOPE MEDIA GROUP, INC.
(formerly BNN Corporation)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1997
17. INCOME TAXES (Continued)
maximum of approximately $28,000 of these carryforwards each year.
Additional portions of the carryforwards can, however, be used to offset
certain gains on the disposition of assets. Certain of the Company's
subsidiaries also have substantial NOL carryforwards available to offset
state and local taxable income.
As shown above, the company has recorded a deferred tax asset of
$491,100 reflecting the benefit of the NOL carryforwards. Realization is
dependent on generating sufficient taxable income prior to expiration of
the NOL carryforwards. Although realization is not assured, management
believes it is more likely than not that all of the deferred tax asset
will be realized. The amount of the deferred tax asset considered
realizable, however, could be reduced in the near term if estimates of
future taxable income during the carryforward period are reduced.
18. CAPITAL STRUCTURE
In addition to the Millport warrants described in Note 14, all
of which were still outstanding at December 31, 1997 and the outstanding
stock options described in Note 19, the Company issued 1,500,000
warrants to one of the Company's directors on March 6, 1997. Each
warrant gave the holder the right to buy one share of common stock at
$0.60 at any date through March 5, 1998. These warrants, were issued in
conjunction with 500,000 shares of common stock sold to the director.
The total price paid for the stock and warrants was $125,000. The
warrants were still outstanding at December 31, 1997 but expired on
March 5, 1998.
19. STOCK OPTIONS
In December, 1997 the shareholders authorized the implementation
of an Incentive Stock Option plan which granted employees 835,000
options. The options vest one-third each on January 2, 1997, 1998 and
1999. The 1997 options, although vesting retroactively to January, 1997
were not effective until the shareholder approval. Each option entitles
the holder to purchase one share of Common Stock at $.62. Each option
can be exercised at any time over a five year period.
There were no stock options during 1996. Stock option activity
during 1997 was as follows:
Balance at
December 31, 1996 -
Granted 835,000
Exercised -
Forfeited (6,667)
Expired -
-------
Balance at
December 31, 1997 828,333
=======
F-24
<PAGE>
KALEIDOSCOPE MEDIA GROUP, INC.
(formerly BNN Corporation)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1997
19. STOCK OPTIONS (Continued)
As described in Note 2, the Company accounted for the granting
of stock options under the intrinsic value method and, accordingly, no
compensation cost has been recognized for stock options in the financial
statements. Had the Company determined compensation cost based on the
fair value at the grant date for its stock options, the Company's net
loss would have been increased to the pro forma amounts indicated below:
Net loss:
As reported $ (280,094)
Pro forma $ (439,120)
Net loss per share:
As reported $ (0.01)
Pro forma $ (0.02)
20. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, Disclosures
about Fair Value of Financial Instruments ("SFAS 107") requires entities
to disclose the fair values of financial instruments except when it is
not practicable to do so. Under SFAS 107, it is not practicable to make
this disclosure when the costs of formulating the estimated values
exceed the benefit when considering how meaningful the information would
be to financial statement users.
The Company's financial instruments, and the related amounts
recorded on the balance sheet, to which SFAS 107 would be applied
include the following:
Carrying Amount
---------------
Year Ended
December 31,
------------
1997 1996
----------- -----------
Asset:
Cash $ 252,260 $ 154,006
Notes receivable - -
Loans and advances receivableofficers
and shareholders 36,300 107,031
Liabilities:
Cash overdraft 194,148 -
Notes payable 40,000 1,194,159
F-25
<PAGE>
KALEIDOSCOPE MEDIA GROUP, INC.
(formerly BNN Corporation)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1997
20. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
As a result of the difficulties presented in the valuation of
the loans receivable and payable from the officers and shareholders
because of their related party nature, estimating the fair value of
these financial instruments is not considered practicable. The fair
values of the cash, notes receivable, cash overdraft and notes payable
do not differ materially from their carrying amounts.
None of the above are derivative financial instruments and none
are held for trading purposes.
21. SUPPLEMENTAL STATEMENT OF CASH FLOWS DISCLOSURE
Interest and Income Taxes Paid
Cash payments for the following were:
December 31,
------------------------------
1997 1996
------------- -------------
Interest $ - $ 27,335
============= =============
Income Taxes $ 43,618 $ 30,595
============= =============
Non-Cash Financing Transactions
The following assets were contributed to and liabilities
assumed by KS&E in connection with its formation and partial
sale in May, 1997:
Assets contributed to KS&E
Accounts receivable $ 169,000
Other current assets 89,648
Liabilities assumed by KS&E
Accounts payable and accrued liabilities 169,000
Deferred income and client advances 89,648
In addition to the assets and liabilities actually
contributed to KS&E, goodwill amounting to $2,409,416 was
allocated to the Company's investment in KS&E. Of this amount
$23,301 was amortized as part of the Company's equity in the
income of KS&E and remaining $2,386,115 represented the cost
basis of the assets the sold.
As described in Note 8, $112,300 of advances to Ray
Volpe were applied to program cost inventory in 1997. Also
pursuant to the agreement, an additional $187,500 of capitalized
program costs were incurred by recording the future amounts due
under the By-the-Way agreement.
In connection with the Company's May, 1996 acquisition
of KG, assets were acquired and liabilities assumed as follows:
F-26
<PAGE>
KALEIDOSCOPE MEDIA GROUP, INC.
(formerly BNN Corporation)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1997
21. SUPPLEMENTAL STATEMENT OF CASH FLOWS DISCLOSURE (Continued)
Fair value of assets acquired
Noncash current assets $ 1,524,861
Property and equipment 98,693
Other noncurrent assets 813,552
Goodwill 3,427,306
5,864,412
------------
Less: liabilities assumed (3,414,561)
------------
Excess of noncash assets assumed over
liabilities assumed 2,449,851
Elimination of Payable to KG 201,939
Net cash acquired 248,210
------------
Stock issued $ 2,900,000
============
$12,364 of costs paid and capitalized in 1995 were
transferred to goodwill as part of the cost of the KG
acquisition.
As described in Note 6, on October 22, 1996, the company
issued stock in exchange for the cancellation of a $1,336,018
loan payable and the receipt of a $588,000 deferred tax asset.
22. SEGMENT INFORMATION
As described in Note 1, the Company's operations have been
classified into two segments, the Entertainment Division and the Sports
Division. Summarized information by business segment for 1997 is as
follows:
<TABLE>
<CAPTION>
Direct
Entertainment Sports Marketing Other Total
------------- ------ --------- ----- -----
<S> <C> <C> <C> <C> <C>
Revenue $ 633,916 $ 1,784,946 $ 311,274 $ 11,256 $ 2,741,392
Operating income (loss) $ (1,474,012) $ (619,684) $ (379,736) $ (184,625) $ (2,658,057)
Gain on sale of assets - 3,512,836 - - 3,512,836
Equity in income of joint ventures 68,100 249,621 - - 317,721
-------------- -------------- -------------- ------------ -------------
Pretax income (loss) $ (1,405,912) $ 3,142,773 $ (379,736) $ (184,625) $ 1,172,500
============== ============== ============== ============ =============
Total identifiable assets $ 3,549,415 $ 2,403,919 $ 1,142,320 $ 171,919 $ 7,267,573
============== ============== ============== ============ =============
Depreciation and amortization $ 339,955 $ 438,523 $ 296,798 $ 23,473 $ 1,098,749
============== ============== ============== ============ =============
Capital expenditures $ 2,759,610 $ 1,203,381 $ 1,263,190 $ 6,144 $ 5,232,325
============== ============== ============== ============ =============
</TABLE>
F-27
<PAGE>
KALEIDOSCOPE MEDIA GROUP, INC.
(formerly BNN Corporation)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1997
22. SEGMENT INFORMATION (Continued)
Summarized information by business segment for 1996 is as
follows:
<TABLE>
<CAPTION>
Interest
Entertainment Sports and Other Total
------------- ------ --------- -----
<S> <C> <C> <C> <C>
Revenue $ 677,343 $ 5,959,429 $ 226,587 $ 6,863,359
Operating income (loss) $ (1,605,476) $ 793,401 $ (29,380) $ (841,455)
Equity in income of joint ventures 1,272,200 - - 1,272,200
--------------- --------------- ------------ -------------
Pretax income (loss) $ (333,276) $ 793,401 $ (29,380) $ 430,745
=============== =============== ============ =============
Total identifiable assets $ 1,494,597 $ 4,503,458 $ 107,784 $ 6,105,839
=============== =============== ============ =============
Depreciation and amortization $ 351,964 $ 137,965 $ 2,496 $ 492,425
=============== =============== ============ =============
Capital expenditures $ 1,300,849 $ 38,620 $ 9,688 $ 1,349,157
=============== =============== ============ =============
</TABLE>
23. SUBSEQUENT EVENTS
During the first quarter of 1998, the Company issued 3,435,000
shares of common stock for $1,809,000, net of offering costs.
24. PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The accompanying unaudited pro forma condensed statement of
operations of Kaleidoscope Media Group, Inc. Corporation and
subsidiaries for the year ended December 31, 1997 gives effect to the
transfer of certain customer relationships and personnel to KS&E and the
eventual sale of KS&E (see Notes 1 and 4) as if they had occurred on
December 31, 1996.
The pro forma financial information is not necessarily
indicative of the operating results that would have occurred had the
KS&E transactions been consummated as of December 31, 1996, nor are they
necessarily indicative of future operating results.
F-28
<PAGE>
KALEIDOSCOPE MEDIA GROUP, INC.
(formerly BNN Corporation)
AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Actual Adjustments Pro Forma
------ ----------- ---------
<S> <C> <C> <C>
NET REVENUE $ 2,741,392 (3) (1,582,939) $ 1,158,453
------------- -------------
DIRECT PROJECT COSTS
Amortization of program costs 681,670 681,670
Other direct project costs 1,381,833 (3) (765,526) 616,307
------------- -------------
Total Direct Project Costs 2,063,503 1,297,977
------------- -------------
GROSS PROFIT 677,889 (139,524)
------------- -------------
EXPENSES
Amortization of program costs - relating
to joint venture 291,421 291,421
Salaries and benefits 1,513,578 (4) (510,155) 1,003,423
General and administrative 1,453,777 (5) (533,840) 919,937
Amortization of goodwill 77,164 (6) (31,607) 45,557
------------- -------------
Total Expenses 3,335,946 2,260,338
------------- -------------
OPERATING LOSS (2,658,057) (2,399,868)
GAIN ON SALE OF ASSETS 3,512,836 (1) (3,512,836) -
INCOME (LOSS) BEFORE EQUITY IN INCOME OF
JOINT VENTURE AND INCOME TAXES 854,779 (2,399,868)
EQUITY IN INCOME OF JOINT VENTURE 317,721 (2) (249,621) 68,100
------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES 1,172,500 (2,331,768)
INCOME TAX EXPENSE (BENEFIT) 1,452,594 (7) (2,721,995) (1,269,401)
------------- -------------
NET LOSS $ (280,094) $ (1,062,367)
============= =============
BASIC LOSS PER COMMON SHARE $ (0.01) $ (0.04)
============= =============
</TABLE>
(1) Gain on sale of certain sports division assets
(2) Equity in income of KS&E
(3) Pre-transfer revenue and direct costs from customer relationships
transferred to KS&E
(4) Pre-transfer salaries and benefits for personnel transferred to
KS&E
(5) Allocation of pre-transfer overhead (not-including general
corporate) allocated to assets and personnel transferred to KS&E
(6) Pre-transfer amortization of goodwill allocated to assets and
personnel transferred to KS&E
(7) Income tax effect of the above
F-29
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of
New York, State of New York, on the 15th day of April, 1998.
KALEIDOSCOPE MEDIA GROUP, INC.
By: /s/ Henry Siegel
-----------------------------------
Henry Siegel
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
Signatures Capacity Date
- ------------------------------ -------------------------------------------- -----------------------
/s/ Henry Siegel
- ------------------------------ Chief Executive Officer, Director April 15, 1998
Henry Siegel (Principal Executive Officer)
/s/ Paul Siegel
- ------------------------------ President, Director April 15, 1998
Paul Siegel
/s/ Irving Greenman
- ------------------------------ Chief Financial Officer (Principal Financial April 15, 1998
Irving Greenman Officer and Principal Accounting Officer)
/s/ Ray Volpe
- ------------------------------ Director April 15, 1998
Ray Volpe
/s/ Martin Miller
- ------------------------------ Director April 15, 1998
Martin Miller
/s/ Jean Chalopin
- ------------------------------ Director
Jean Chalopin
/s/ Martin Gloor
- ------------------------------ Director April 15, 1998
Martin Gloor
</TABLE>
<PAGE>
EXHIBITS INDEX
<TABLE>
<CAPTION>
<S> <C>
2.01 Plan and Agreement of Reorganization, dated as of October 22, 1996, among the Company and
the shareholders of HSPS (1)
3.01 Certificate of Incorporation of the Company
3.02 By-Laws of the Company
4.01 Specimen Certificate representing the Common Stock, par value $.01 per share
10.01* 1996 Stock Option Plan.(2)
10.02* Employment Agreement entered into between the Company and Henry Siegel
10.03* Employment Agreement entered into between the Company and Paul Siegel
10.04 Lease dated June 5, 1992 by and between Kaleidoscope Holdings Inc. and Park Avenue
South/Amory, Inc.
10.05 Lease dated May 31, 1995 by and between SeaGull Entertainment, Inc. and KGK Enterprises,
Inc. and the First Amendment thereto, dated June 13, 1996
10.06 Joint Venture Agreement, dated as of October 1, 1995, between SeaGull Entertainment, Inc.
and Keller Entertainment Group, Inc.
10.07 Amended and Restated Limited Liability Company Agreement, dated as of April 30, 1997,
among the Company, Interpublic Group of Companies, Inc., 345 Park Avenue PAS Sports,
Inc. and People & Properties, Inc. (3)
10.08 Agreement dated as of August 20, 1997, among, Interpublic Group of Companies, Inc., 345
PAS Sports, Inc., and People & Properties, Inc. (4)
10.09 Vendor Agreement, dated December 18, 1996, between the Company and HSN Direct Int.
LTD. and addendum thereto, dated March 31, 1997
10.10 Joint Venture Agreement, dated as of June 1995, between the Company and Sports Marketing,
Inc.
10.11 Agreement dated as of April 1, 1997 between the Company and By-The-Way Corporation.
21.01 Subsidiaries of the Company
27.01 Financial Data Schedule
</TABLE>
- ------------
* Management contract or compensatory plan or arrangement.
(1) Such Exhibit was filed with the Company's Current Report, dated October
22, 1996, and is incorporated herein by reference
(2) Such Exhibit was filed with the Company's Proxy Statement for the Annual
Meeting held on December 2, 1997 and is incorporated herein by
reference.
(3) Such Exhibit was filed with the Company's Current Report, dated May 5,
1997, and is incorporated herein by reference.
(4) Such Exhibit was filed with the Company's Current Report, dated August
20, 1997, and is incorporated herein by reference.
<PAGE>
CERTIFICATE OF INCORPORATION
OF
KALEIDOSCOPE MEDIA GROUP, INC.
The undersigned, being of legal age, in order to form a corporation
under and pursuant to the laws of the State of Delaware, does hereby set forth
as follows:
FIRST: The name of the corporation is Kaleidoscope Media Group, Inc.
SECOND: The address of the initial registered and principal office of
the Corporation in this state is c/o United Corporate Services, Inc., 15 East
North Street, in the City of Dover, County of Kent, State of Delaware 19901
and the name of the registered agent at said address is United Corporate
Services, Inc.
THIRD: The purpose of the corporation is to engage in any lawful act
or activity for which corporations may be organized under the corporation laws
of the State of Delaware.
FOURTH: (a) The corporation shall be authorized to issue the
following shares:
Class Number of Shares Par Value
----- ---------------- ---------
Common Stock 100,000,000 $.001
Preferred Stock 15,000,000 $.001
(b) The Board of Directors is hereby empowered to authorize by
resolution or resolutions from time to time the issuance of one or more
classes or series of Preferred Stock and to fix the voting powers, full or
limited or no voting powers, and such designations, powers, preferences and
relative, participating, optional or other rights, if any, and the
qualifications, limitations or restrictions thereof, if any, with respect to
each such class or series of Preferred Stock (including, without limitation,
liquidation preferences, dividend rates, conversion rights and redemption
provisions), and the number of shares constituting each such class or series,
and to increase or decrease the number of shares of any such class or series
to the extent permitted by the Delaware General Corporation Law.
FIFTH: The name and address of the incorporator are as follows:
Michael D. DiGiovanna, Parker Duryee Rosoff & Haft, 529 Fifth Avenue, 8th
Floor, New York, New York 10017.
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SIXTH: a) The Corporation shall, to the full extent permitted by
Section 145 of the Delaware General Corporation law, as amended, from time to
time, indemnify all persons whom it may indemnify pursuant thereto.
b) No director shall be liable to the corporation or any of
its stockholders for monetary damages for breach of fiduciary duty as a
director, except with respect to (1) a breach of the director's duty of
loyalty to the corporation or its stockholders, (2) acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (3) liability under Section 174 of the Delaware General Corporation Law
or (4) a transaction from which the director derived an improper personal
benefit, it being the intention of the foregoing provision to eliminate the
liability of the corporation's directors to the corporation or its
stockholders to the fullest extent permitted by Section 102(b)(7) of the
Delaware General Corporation Law, as amended from time to time. The
corporation shall indemnify to the fullest extent permitted by Sections
102(b)(7) of the Delaware General Corporation Law, as amended from time to
time, each person that such Sections grant the corporation the power to
indemnify.
c) Each person who was or is made a party or is threatened to
be made a party to or is involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (hereinafter a "proceeding"),
by reason of the fact that he or she, or a person of whom he or she is the
legal representative, is or was a director or officer of the Corporation, or
is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation or of a partnership, joint venture,
trust or other enterprise, including service with respect to employee benefit
plans, whether the basis of such proceeding is alleged action in an official
capacity as a director, officer, employee or agent or in any other capacity
while serving as a director, officer, employee or agent, shall be indemnified
and held harmless by the Corporation to the fullest extent authorized by the
Delaware General Corporation Law, as the same exists or may hereafter be
amended (but, in the case of any such amendment, only to the extent that such
amendment permits the Corporation to provide broader indemnification rights
than said law permitted the Corporation to provide prior to such amendment),
against all expense, liability and loss (including attorneys' fees, judgments,
fines, ERISA excise taxes or penalties and amounts paid or to be paid in
settlement) reasonably incurred or suffered by such person in connection
therewith and such indemnification shall continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of his or her heirs, executors and administrators; provided, however,
that, except as provided in paragraph d) hereof, the Corporation shall
indemnify any such person seeking indemnification in connection with a
proceeding (or part thereof) initiated by such person only if such proceeding
(or part thereof) was authorized by the Board of Directors of the Corporation.
The right to indemnification conferred in this Paragraph SIXTH shall be a
contract right and shall include the right to be paid by the Corporation the
expenses incurred in defending any such proceeding in advance of its final
disposition; provided, however, that if the Delaware General Corporation Law
requires, the payment of such expenses incurred by a director or officer in
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<PAGE>
his or her capacity as a director or officer (and not in any other capacity in
which service was or is rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of a proceeding, shall be made only upon delivery to
the Corporation of an undertaking, by or on behalf of such director or
officer, to repay all amounts so advanced if it shall ultimately be determined
that such director or officer is not entitled to be indemnified under this
Paragraph SIXTH or otherwise. The Corporation may, by action of its Board of
Directors, provide indemnification to employees and agents of the Corporation
with the same scope and effect as the foregoing indemnification of directors
and officers.
d) If a claim under sub-paragraph (c) of this Paragraph SIXTH
is not paid in full by the Corporation within thirty (30) days after a written
claim has been received by the Corporation, the claimant may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim and, if successful in whole or in part, the claimant shall be
entitled to be paid also the expense of prosecuting such claim. It shall be a
defense to any such action (other than an action brought to enforce a claim
for expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any is required, has been
tendered to the Corporation) that the claimant has not met the standards of
conduct which make it permissible under the Delaware General Corporation Law
for the Corporation to indemnify the claimant for the amount claimed, but the
burden of proving such defense shall be on the Corporation. Neither the
failure of the Corporation (including its Board of Directors, independent
legal counsel, or its stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he or she has met the applicable standard of conduct
set forth in the Delaware General Corporation Law, nor an actual determination
by the Corporation (including its Board of Directors, independent legal
counsel, or its stockholders) that the claimant has not met such applicable
standard or conduct, shall be a defense to the action or create a presumption
that the claimant has not met the applicable standard of conduct.
e) The right to indemnification and the payment of expenses
incurred in defending a proceeding in advance of its final disposition
conferred in this Paragraph SIXTH shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, provision of
the Certificate of Incorporation, by-laws, agreement, vote of stockholders or
disinterested directors or otherwise.
f) The Corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the Corporation
would have the power to indemnify such person against such expense, liability
or loss under the Delaware General Corporation Law.
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<PAGE>
g) The Corporation's obligation, if any, to indemnify any
person who was or is serving as a director, officer, employee, or agent of any
direct or indirect subsidiary of the Corporation or, at the request of the
Corporation, of any other corporation or of a partnership, joint venture,
trust, or other enterprise shall be reduced by any amount such person may
collect as indemnification from such other corporation, partnership, joint
venture, trust or other enterprise.
h) Any repeal or modification of the foregoing provisions of
this Paragraph SIXTH shall not adversely affect any right or protection
hereunder of any person in respect of any act or omission occurring prior to
the time of such repeal or modification.
i) Each person who serves as a director of the Corporation
while this Paragraph SIXTH is in effect shall be deemed to be doing so in
reliance on the provisions of this Paragraph SIXTH, and neither the amendment
or repeal of this Paragraph SIXTH, nor the adoption of any provision of this
Certificate of Incorporation inconsistent with this Paragraph SIXTH, shall
apply to or have any effect on the liability or alleged liability of any
director of the Corporation for, arising out of, based upon, or in connection
with any acts or omissions of such director occurring prior to such amendment,
repeal, or adoption of an inconsistent provision. The provisions of this
Paragraph SIXTH are cumulative and shall be in addition to and independent of
any and all other limitations on or eliminations of the liabilities of
directors of the Corporation, as such, whether such limitations or
eliminations arise under or are created by any law, rule, regulation, by-law,
agreement, vote of stockholders or disinterested directors, or otherwise.
SEVENTH: Whenever a compromise or arrangement is proposed between
this corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware, may, on the application in a
summary way of this corporation or of any creditor or stockholder thereof or
on the application of any receiver or receivers appointed for this corporation
under the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers
appointed for this corporation under the provisions of Section 279 of Title 8
of the Delaware Code order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this corporation, as
the case may be, to be summoned in such manner as the said court directs. If a
majority in number representing three-fourths (3/4) in value of the creditors
or class of creditors, and/or of the stockholders or class of stockholders of
this corporation, as the case may be, agree to any compromise or arrangement
and to any reorganization of this corporation as consequence of such
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or
on all the stockholders or class of stockholders, of this corporation, as the
case may be, and also on this corporation.
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<PAGE>
EIGHTH: The corporation reserves the right to amend, alter, change or
repeal any provision contained in this certificate of incorporation in the
manner now or hereafter prescribed by law, and all rights and powers conferred
herein on stockholders, directors and officers are subject to this reserved
power.
NINTH: The Board of Directors is authorized to adopt, amend, or
repeal the by-laws of the Corporation except as and to the extent provided in
the by-laws.
IN WITNESS WHEREOF, the undersigned hereby executes this document and
affirms that the statements set forth herein are true under the penalties of
perjury this 14th day of November, 1997.
/s/ Michael D. DiGiovanna
------------------------------------
Michael D. DiGiovanna, Incorporator
5
<PAGE>
BY-LAWS
OF
KALEIDOSCOPE MEDIA GROUP, INC.
ARTICLE I.
MEETINGS OF STOCKHOLDERS
SECTION l. Annual Meeting. A meeting of stockholders shall be held
annually for the election of directors and the transaction of such other
business as is related to the purpose or purposes set forth in the notice of
meeting on such date as may be fixed by the Board of Directors, or if no date
is so fixed on the second Tuesday in April in each and every year, unless such
day shall fall on a legal holiday, in which case such meeting shall be held on
the next succeeding business day, at such time and at such place as may be
fixed by the Board of Directors.
SECTION 2. Special Meetings. Special meetings of the stockholders for
any purpose may be called by the Board of Directors, the Chairman of the
Board, the President or the Secretary, and shall be called by the Chairman of
the Board, the President or the Secretary at the written request of the
holders of record of a majority of the outstanding shares of the Corporation
entitled to vote at such meeting. Special meetings shall be held at such time
as may be fixed in the call and stated in the notices of meeting or waiver
thereof. At any special meeting only such business may be transacted as is
related to the purpose or purposes for which the meeting is convened.
SECTION 3. Place of Meetings. Meetings of stockholders shall be held
at such place, within or without the State of Delaware or the United States of
America, as may be fixed in the call and stated in the notice of meeting or
waiver thereof.
SECTION 4. Notice of Meetings: Adjourned Meetings. Notice of each
meeting of stockholders shall be given in writing and shall state the place,
date and hour of the meeting. The purpose or purposes for which the meeting is
called shall be stated in the notices of each special meeting and of each
annual meeting at which any business other than the election of directors is
to be transacted.
A copy of the notice of any meeting shall be given, personally or by
mail, not less then ten (l0) nor more than sixty (60) days before the date of
the meeting, to each stockholder entitled to vote at such meeting. If mailed,
such notice shall be deemed given when deposited in the United States mail,
with postage thereon prepaid, directed to the stockholder at his address as it
appears on the record of stockholders.
When a meeting is adjourned for less than thirty (30) days in any one
adjournment, it shall not be necessary to give any notice of the adjourned
meeting if the time and place to which the meeting is adjourned are announced
at the meeting at which the adjournment
1
<PAGE>
is taken, and at the adjourned meeting any business may be transacted that
might have been transacted on the original date of the meeting. When a meeting
is adjourned for thirty (30) days or more, notice of the adjourned meeting
shall be given as in the case of an original meeting.
SECTION 5. Waiver of Notice. The transactions of any meeting of
stockholders, however called and with whatever notice, if any, are as valid as
though had at a meeting duly held after regular call and notice, if: (a) all
the stockholders entitled to vote are present in person or by proxy and no
objection to holding the meeting is made by anyone so present, and if, either
before or after the meeting, each of the persons entitled to vote, not present
in person or by proxy, signed a written waiver of notice, or a consent to the
holding of the meeting, or an approval of the action taken as shown by the
minutes thereof.
Whenever notice is required to be given to any stockholder, a written
waiver thereof signed by such stockholder, whether before or after the time
thereon stated, shall be deemed equivalent to such notice. Attendance of a
person at a meeting of stockholders shall constitute a waiver of notice of
such meeting, except when such stockholder attends for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business
to be transacted at, nor the purpose of any meeting of stockholders need be
specified in any written waiver of notice thereof.
SECTION 6. Qualification of Voters. Except as may be otherwise
provided in the Certificate of Incorporation, every stockholder of record
shall be entitled to one vote on each matter submitted to a vote at a meeting
of stockholders for every share standing in his name on the record of
stockholders.
SECTION 7. Quorum. At any meeting of the stockholders the presence,
in person or by proxy, of the holders of a majority of the shares entitled to
vote thereat shall constitute a quorum for the transaction of any business.
When a quorum is once present to organize a meeting, it is not broken
by the subsequent withdrawal of any stockholders.
The stockholders present may adjourn the meeting despite the absence
of a quorum.
SECTION 8. Proxies. Every stockholder entitled to vote at a meeting
of stockholders or to express consent or dissent without a meeting may
authorize another person or persons to act for him by proxy.
Every proxy must be executed by the stockholder or his
attorney-in-fact. No proxy shall be valid after the expiration of three (3)
years from the date thereof unless otherwise provided in the proxy. Every
proxy shall be revocable at the pleasure of the stockholder executing it,
except as otherwise provided therein and as permitted by law. Except as
2
<PAGE>
otherwise provided in the proxy, any proxy holder may appoint in writing a
substitute to act in his place.
SECTION 9. Voting. Except as otherwise required by law, directors
shall be elected by a plurality of the votes cast at a meeting of stockholders
by the holders of shares entitled to vote in the election.
Whenever any corporate action, other than the election of directors,
is to be taken by vote of the stockholders at a meeting, it shall, except as
otherwise required by law or the Certificate of Incorporation, be authorized
by a majority of the votes cast thereat, in person or by proxy.
SECTION l0. Action Without A Meeting. Whenever stockholders are
required or permitted to take any action at a meeting or by vote, such action
may be taken without a meeting, without prior notice and without a vote, by
consent in writing setting forth the action so taken, signed by the holders of
outstanding shares having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking
of the corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in
writing.
SECTION ll. Record Date. The Board of Directors is authorized to fix
a day not more than sixty (60) days nor less than ten (l0) days prior to the
day of holding any meeting of stockholders as the day as of which stockholders
entitled to notice of and to vote at such meeting shall be determined; and
only stockholders of record on such day shall be entitled to notice or to vote
at such meeting.
SECTION l2. Inspectors of Election. The Chairman of any meeting of
the stockholders may appoint one or more Inspectors of Election. Any Inspector
so appointed to act at any meeting of the stockholders, before entering upon
the discharge of his or her duties, shall be sworn faithfully to execute the
duties of an Inspector at such meeting with strict impartiality, and according
to the best of his or her ability.
ARTICLE II.
BOARD OF DIRECTORS
SECTION l. Power of Board and Qualification of Directors. The
business and affairs of the Corporation shall be managed by the Board of
Directors.
SECTION 2. Number of Directors. The number of directors constituting
the entire Board of Directors shall be such number not less than one (l) nor
more than fifteen (l5) as may be fixed from time to time by resolution adopted
by the stockholders or by the Board.
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<PAGE>
SECTION 3. Election and Term of Directors. At each annual meeting of
stockholders, directors shall be elected to serve until the next annual
meeting.
SECTION 4. Resignations. Any director of the Corporation may resign
at any time by giving written notice to the Board of Directors, the Chairman
of the Board, the President or the Secretary of the Corporation. Such
resignation shall take effect at the time specified therein; and unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
SECTION 5. Removal of Directors. Any or all of the directors may be
removed with or without cause by vote of the stockholders.
SECTION 6. Newly Created Directorships and Vacancies. Newly created
directorships resulting from an increase in the number of directors and
vacancies occurring in the Board of Directors for any reason except the
removal of directors by stockholders without cause may be filled by vote of a
majority of the directors then in office, although less than a quorum exists,
or may be filled by the stockholders. Vacancies occurring as a result of the
removal of directors by stockholders, without cause, shall be filled by the
stockholders. A director elected to fill a vacancy or a newly created
directorship shall be elected to hold office until the next annual meeting of
stockholders.
SECTION 7. Executive and Other Committee of Directors. The Board of
Directors, by resolution adopted by a majority of the entire Board, may
designate from among its members an executive committee and other committees,
each consisting of one or more directors, and each of which, to the extent
provided in the resolution, shall have all the authority of the Board to the
full extent authorized by law and including the power and authority to declare
a dividend or to authorize the issuance of stock.
The Board of Directors may designate one or more directors as
alternate members of any such committee, who may replace any absent member or
members at any meeting of such committee.
SECTION 8. Compensation of Directors. The Board of Directors shall
have authority to fix the compensation of directors for services in any
capacity, or to allow a fixed sum plus expenses, if any, for attendance at
meetings of the Board or of committees designated thereby.
SECTION 9. Interest of Director in a Transaction. (a) No contract or
transaction between the Corporation and one or more of its directors or
officers, or between the Corporation and any other corporation, partnership,
association or other organization in which one or more of its directors or
officers are directors or officers, or have a financial interest, shall be
void or voidable solely for this reason, or solely because the director or
officer is present at or participates in the meeting of the Board or committee
thereof which authorized the contract or transaction, or solely because his or
their votes are counted for such purpose, if:
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(l) The material facts as to his relationship or interest
and as to the contract or transaction are disclosed or are known to
the Board of Directors or the committee, and the Board or committee,
in good faith, authorizes the contract or transaction by the
affirmative vote of a majority of the disinterested directors, even
though the disinterested directors be less than as quorum; or
(2) The material facts as to his relationship or interest
and as to the contract or transaction are disclosed or are known to
the stockholders entitled to vote thereon, and the contract or
transaction is specifically approved, in good faith, by vote of the
stockholders; or
(3) The contract or transaction is fair as to the
Corporation as of the time it is authorized, approved or ratified, by
the Board of Directors, a committee thereof, or the stockholders.
(b) Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorized the contract or transaction.
ARTICLE III.
MEETINGS OF THE BOARD
SECTION l. Regular Meetings. Regular meetings of the Board of
Directors may be held without notice at such time and places, within or
without the State of Delaware, or the United States of America, as may from
time to time be fixed by the Board.
SECTION 2. Special Meetings; Notice; Waiver. Special meetings of the
Board of Directors may be held at any time, place, within or without the State
of Delaware or the United States of America, upon the call of the Chairman of
the Board, the President or the Secretary, by oral, telegraphic or written
notice, duly given to or sent or mailed to each director not less than two (2)
days before such meeting. Special meetings shall be called by the Chairman of
the Board, the President or the Secretary on the written request of any two
directors.
Notice of a special meeting need not be given to any director who
submits a signed waiver or notice whether before or after the meeting, or who
attends the meeting without protesting, prior thereto or at its commencement,
the lack of notice to him.
A notice, or waiver of notice, need not specify the purpose of any
special meeting of the Board of Directors.
SECTION 3. Quorum; Action by the Board; Adjournment. At all meetings
of the Board of Directors, a majority of the whole Board shall constitute a
quorum for the
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<PAGE>
transaction of business, except that when the number of directors constituting
the whole Board shall be an even number, one-half of that number shall
constitute a quorum.
The vote of a majority of the directors present at the time of the
vote, if a quorum is present at such time, shall be the act of the Board,
except as may be otherwise specifically provided by law or by the Certificate
of Incorporation or by these By-Laws.
A majority of the directors present, whether or not a quorum is
present, may adjourn any meeting to another time and place.
SECTION 4. Action Without a Meeting. Any action required or permitted
to be taken at any meeting of the Board, or any committee thereof, may be
taken without a meeting if all members of the Board or committee, as the case
may be, consent thereto in writing, and the writing or writings are filed with
the minutes or proceedings of the Board or committee, whether done before or
after the action so taken.
SECTION 5. Action Taken by Conference Telephone. Members of the Board
of Directors or any committee thereof may participate in a meeting by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other.
ARTICLE IV.
OFFICERS
SECTION l. Officers. The Board of Directors shall elect a President,
one or more Vice Presidents, a Secretary and a Treasurer of the Corporation
and from time to time may elect or appoint such other officers as it may
determine. Any two or more offices may be held by the same person.
Securities of other corporations held by the corporation may be voted
by any officer designated by the Board and, in the absence of any such
designation, by the President, any Vice President, the Secretary, or the
Treasurer.
The Board may require any officer to give security for the faithful
performance of his duties.
SECTION 2. President. The President shall be the chief executive and
chief operating officer of the Corporation with all the rights and powers
incident to that position.
SECTION 3. Vice President. The Vice Presidents shall perform such
duties as may be prescribed or assigned to them by the Board of Directors, the
Chairman of the Board or President. In the absence of the President the
first-elected Vice President shall perform the duties of the President. In the
event of the refusal or incapacity of the President to function as such, the
first-elected Vice President shall perform the duties of the President until
such time as the Board of Directors elects a new President. In the event of
the
6
<PAGE>
absence, refusal or incapacity of the first-elected Vice President, the other
Vice Presidents, in order of their rank, shall so perform the duties of the
President; and the order of rank of such other Vice Presidents shall be
determined by the designated rank of their offices or, in the absence of such
designation, by seniority in the office of Vice President; provided that said
order or rank may be established otherwise by action of the Board of
Directors.
SECTION 4. Treasurer. The Treasurer shall perform all the duties
customary to that office, and shall have the care and custody of the funds and
securities of the Corporation. He shall at all reasonable times exhibit his
books and accounts to any director upon application, and shall give such bond
or bonds for the faithful performance of his duties with such surety or
sureties as the Board of Directors from time to time may determine.
SECTION 5. Secretary. The Secretary shall act as secretary of and
shall keep the minutes of the Board of Directors and of the stockholders, have
the custody of the seal of the Corporation and perform all of the other duties
usual to that office.
SECTION 6. Assistant Treasurer and Assistant Secretary. Any Assistant
Treasurer or Assistant Secretary shall perform such duties as may be
prescribed or assigned to him by the Board of Directors, the Chairman of the
Board, or the President. An Assistant Treasurer shall give such bond or bonds
for the faithful performance of his duties with such surety or sureties as the
Board of Directors from time to time may determine.
SECTION 7. Term of Office: Removal. Each officer shall hold office
for such term as may be prescribed by the Board. Any officer may be removed at
any time by the Board with or without cause. The removal of an officer without
cause shall be without prejudice to his contract rights, if any. The election
or appointment of an officer shall not, of itself, create contract rights.
SECTION 8. Compensation. The compensation of all officers of the
Corporation shall be fixed by the Board of Directors.
ARTICLE V.
SHARE CERTIFICATES
SECTION l. Form of Share Certificates. The shares of the Corporation
shall be represented by certificates, in such form as the Board of Directors
may from time to time prescribe, signed by the Chairman of the Board, the
President, or a Vice President, and by the Secretary, an Assistant Secretary,
the Treasurer or an Assistant Treasurer, and shall be sealed with the seal of
the Corporation or a facsimile thereof. The signatures of the officers upon a
certificate may be facsimiles if the certificate is countersigned by a
transfer agent or registered by a registrar other than the Corporation or its
employees. In case any such officer who has signed or whose facsimile
signature has been placed upon
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<PAGE>
a certificate shall have ceased to be such officer before such certificate is
issued, it may be issued by the Corporation with the same effect as if he were
such officer at the date of issue.
SECTION 2. Lost Certificates. In case of the loss, theft, mutilation
or destruction of a stock certificate, a duplicate certificate will be issued
by the Corporation upon notification thereof and receipt of such proper
indemnity or assurances as the Board of Directors may require.
SECTION 3. Transfer of Shares. Transfers of shares of stock shall be
made upon the books of the Corporation by the registered holder in person or
by duly authorized attorney, upon surrender of the certificate or certificates
for such shares properly endorsed.
SECTION 4. Registered Stockholders. Except as otherwise provided by
law, the Corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends or
other distributions and to vote as such owner, and to hold such person liable
for calls and assessments, and shall not be bound to recognize any equitable
or legal claim to or interest in such shares on the part of any other person.
ARTICLE VI.
INDEMNIFICATION
SECTION 1. Actions by or in the Right of the Corporation. Any person
made a party to an action by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that he, his testator or
intestate, is or was a Director or officer of the Corporation shall be
indemnified by the Corporation against the reasonable expenses, including
attorneys fees, actually and necessarily incurred by him in connection with
the defense of such action or in connection with an appeal therein, to the
fullest extent permitted by the General Corporation Law or any successor
thereto.
SECTION 2. Action or Proceeding Other Than by or in The Right of the
Corporation. Any person made or threatened to be made a party to an action or
proceeding other than one by or in the right of the Corporation to procure a
judgment in its favor, whether civil or criminal, including an action by or in
the right of any other corporation of any type or kind, domestic or foreign,
which any Director or officer of the Corporation served in any capacity at the
request of the Corporation, by reason of the fact that he, his testator or
intestate, was a Director or officer of the Corporation, or served such other
corporation in any capacity, shall be indemnified by the Corporation against
judgments, fines, amounts paid in settlement and reasonable expenses,
including attorneys fees actually and necessarily incurred as a result of such
action or proceeding, or any appeal therein, if such Director or officer acted
in good faith for a purpose which he reasonably believed to be in the best
interests of the Corporation and, in criminal actions
8
<PAGE>
or proceedings, in which he had no reasonable cause to believe that his
conduct was unlawful. The termination of any such civil or criminal action or
proceeding by judgment, settlement, conviction or upon a plea of nolo
contendere, or its equivalent, shall not in itself create a presumption that
any such Director or officer did not act in good faith for a purpose which he
reasonably believed to be in the best interests of the Corporation or that he
had reasonable cause to believe that his conduct was unlawful.
SECTION 3. Opinion of the Counsel. In taking any action or making any
determination pursuant to this Article, the Board of Directors and each
Director, officer or employee, whether or not interested in any such action or
determination, may rely upon an opinion of counsel selected by the Board.
SECTION 4. Other Indemnification; Limitation. The Corporation's
obligations under this Article shall not be exclusive or in limitation of but
shall be in addition to any other rights to which any such person may be
entitled under any other provision of these By-Laws, or by contract, or as a
matter of law, or otherwise. All of the provisions of this Article VI of the
By-Laws shall be valid only to the extent permitted by the Certificate of
Incorporation and the laws of the State of Delaware.
ARTICLE VII.
MISCELLANEOUS PROVISIONS
SECTION 1. Corporate Seal. The corporate seal shall have inscribed
thereon the name of the Corporation and shall be in such form as the Board of
Directors may from time to time determine.
SECTION 2. Fiscal Year. The fiscal year of the Corporation shall be
the twelve month period prescribed by the Board of Directors.
SECTION 3. Checks and Notes. All checks and demands for money and
notes or other instrument evidencing indebtedness or obligations of the
Corporation shall be signed by such officer or officers or other person or
persons as shall be authorized from time to time by the Board of Directors.
ARTICLE VIII.
AMENDMENTS
SECTION l. Power to Amend. By-Laws of the Corporation may be adopted,
amended or repealed by the Board of Directors, subject to amendment or repeal
by the stockholders entitled to vote thereon.
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<PAGE>
NOT VALID UNLESS COUNTERSIGNED BY TRANSFER AGENT
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
CUSIP NO. 483348 10 8
NUMBER SHARES
KALEIDOSCOPE
MEDIA GROUP, INC.
AUTHORIZED COMMON STOCK: 100,000,000 SHARES
PAR VALUE: $.001
THIS CERTIFIES THAT
IS THE RECORD HOLDER OF
--SHARES OF KALEIDOSCOPE MEDIA GROUP, INC. COMMON STOCK--
transferable on the books of the Corporation in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This Certificate
is not valid until countersigned by the Transfer Agent and Registerd by the
Registrar.
Witness the facsimile seal of the Corporation and the fascimile
signatures of its duly authorized officers.
Dated:
KALEIDOSCOPE MEDIA GROUP, INC.
CORPORATE
SEAL
DELAWARE
******
SECRETARY PRESIDENT
COUNTERSIGNED REGISTERED:
HOLLADAY STOCK TRANSFER, INC.
4350 E. CAMELBACK ROAD, SUITE 100F
PHOENIX, AR 85018
BY:________________________
AUTHORIZED SIGNATURE
NOT VALID UNLESS COUNTERSIGNED BY TRANSFER AGENT
<PAGE>
NOTICE: Signature must be guaranteed by a firm which is a member of a
registered national stock exchange, or by a bank (other than a saving
bank), or a trust company. The following abbreviations, when used in
the inscription on the face of this certificate, shall be construed as
though they were written out in full according to applicable laws or
regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT- _____Custodian______
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants
with right of survivorship under Uniform Gifts to Minors
and not as tenants in common Act__________________________
(State)
Additional abbreviations may also be used though not in the above list.
For Value Received, _____________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
_______________________________________
| |
| |
|_______________________________________|
_______________________________________________________________________________
(PLEASE PRINT OF TYPEWRITE NAME AND ADDRESS,
INCLUDING POSTAL ZIP CODE OF ASSIGNEE)
_______________________________________________________________________________
_______________________________________________________________________________
________________________________________________________________________Shares
of the capital stock represented by the within certificate, and do hereby
irrevocably constitute and appoint____________________________________________
___________________________Attorney to transfer the said stock on the books of
the within named Corporation with full power of substitution in the premises.
Dated ________________________________
________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN
EVERY PARTICULAR WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
<PAGE>
EMPLOYMENT AGREEMENT
Employment Agreement ("Agreement") made and entered into as of
January 1, 1997 by and between BNN Corporation, a Nevada corporation which
will be reincorporated in Delaware under the name of Kaleidoscope Media Group,
Inc., (the "Company"), and Henry Siegel (the "Executive").
The Executive is being employed by the Company as an executive
officer. The parties desire to enter into an employment agreement and to set
forth herein the terms and conditions of the Executive's continued employment
by the Company and its subsidiaries.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein and the mutual benefits to be derived herefrom,
the Company and the Executive agree as follows:
1. Employment.
a. Duties. The Company shall employ the Executive, on the
terms set forth in this Agreement, as its Chairman of the Board of Directors
and Chief Executive Officer. The Executive accepts such employment with the
Company and shall perform and fulfill such duties as are assigned to him
hereunder consistent with his status as a senior executive of the Company,
devoting his best efforts and entire professional time and attention to the
performance and fulfillment of his duties and to the advancement of the
interests of the Company, subject only to the direction, approval, control and
directives of the Company's Board of Directors (the "Board"). Nothing
contained herein shall be construed, however, to prevent the Executive from
trading in or managing, for his own account and benefit, in stocks, bonds,
securities, real estate, commodities or other forms of investments (subject to
law and Company policy with respect to trading in Company securities). Without
any additional consideration, Executive shall also serve as the Chairman of
the Board of Directors and Chief Executive Officer of any or all subsidiaries
of the Company. Unless otherwise indicated by the context, the term "Company"
shall include the Company and all its subsidiaries.
b. Place of Performance. In connection with his employment
by the Company, the Executive shall be based at the Company's principal place
of business in the New York, New York, except when required for travel on
Company business.
c. Nomination as Director. The Company agrees that it will
nominate the Executive as a member of the Board of Directors each year during
the term of this Agreement and will use its best efforts to ensure that the
Executive is elected to the Board of Directors.
2. Term. The Executive's employment under this Agreement shall
commence as of January 1, 1997 (the "Commencement Date") and shall, unless
sooner terminated in accordance with the provisions hereof, continue
uninterrupted until December 31, 1999 ("Term"). As used herein "Year" shall
refer to a twelve month period ending December 31st. Unless notice of
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nonrenewal is given by either party at least sixty (60) days prior to the end
of the Term or prior to the end of any Year thereafter, the Term of this
Agreement shall be automatically extended for an additional period of one
year.
3. Compensation.
a. Base Salary. During each Year of the Term, the Executive
shall be entitled to receive an annual salary (the "Base Salary") of three
hundred fifty thousand Dollars ($350,000) in installments at such times as the
Company customarily pays its other executive officers (but in any event not
less often than monthly). For each Year thereafter, the Company shall increase
the Base Salary by an amount to be determined by the Board of Directors.
b. Bonus. The Board of Directors may at its sole discretion
grant bonuses to the Executive.
c. Health Insurance and Other Benefits. During the Term, the
Executive shall be entitled to all employee benefits generally offered by the
Company to its executive officers and key management employees, including,
without limitation, all pension, profit sharing, retirement, stock option,
salary continuation, deferred compensation, disability insurance,
hospitalization insurance, major medical insurance, medical reimbursement,
survivor income, life insurance or any other benefit plan or arrangement
established and maintained by the Company, subject to the rules and
regulations then in effect regarding participation therein.
d. Keyman Insurance. The Company will obtain keyman life
insurance upon the life of the Executive. In amounts to be determined from
time to time by Executive and the Company.
4. Reimbursement of Expenses. The Executive shall be reimbursed for
all items of travel, entertainment and miscellaneous expenses that the
Executive reasonably incurs in connection with the performance of his duties
hereunder, provided the Executive submits to the Company such statements and
other evidence supporting said expenses as the Company may reasonably require.
5. Automobile Allowance. The Executive shall be reimbursed for the
expenses of owning or leasing an automobile suitable for his position and
consistent with Company practices, including the expenses of operating,
insuring and parking such automobile, provided the Executive submits to the
Company such statements and other evidence supporting such expenses as the
Company may require.
6. Vacation. The Executive shall be entitled to not less than four
(4) weeks of vacation in any calendar year.
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<PAGE>
7. Termination of Employment.
a. Death or Total Disability. In the event of the death of
the Executive during the Term, this Agreement shall terminate as of the date
of the Executive's death. In the event of the Total Disability (as that term
is defined below) of the Executive for sixty (60) days in the aggregate during
any consecutive nine (9) month period during the Term, the Company shall have
the right to terminate this Agreement by giving the Executive thirty (30)
days' prior written notice thereof, and upon the expiration of such thirty
(30) day period, the Executive's employment under this Agreement shall
terminate. If the Executive shall resume his duties within thirty (30) days
after receipt of such a notice of termination and continue to perform such
duties for four (4) consecutive weeks thereafter, this Agreement shall
continue in full force and effect, without any reduction in Base Salary and
other benefits, and the notice of termination shall be considered null and
void and of no effect. Upon termination of this Agreement under this Paragraph
7(a), the Company shall have no further obligations or liabilities under this
Agreement, except to pay to the Executive's estate or the Executive, as the
case may be, (i) the portion, if any, that remains unpaid of the Base Salary
for the Year in which termination occurred, but in no event less than six (6)
months' Base Salary; and (ii) the amount of any expenses reimbursable in
accordance with Paragraph 4 above, and any automobile allowance due under
Paragraph 5 above; and (iii) any amounts due under any Company benefit,
welfare or pension plan. Except as otherwise provided by their terms, any
stock options not vested at the time of the termination of this Agreement
under this Paragraph 7(a) shall immediately become fully vested.
The term "Total Disability," as used herein, shall
mean a mental or physical condition which in the reasonable opinion of an
independent medical doctor selected by the Company renders the Executive
unable or incompetent to carry out the material duties and responsibilities of
the Executive under this Agreement at the time the disabling condition was
incurred. In the event the Executive disagrees with such opinion, the
Executive may, at his sole expense, select an independent medical doctor and,
in the event that doctor disagrees with the opinion of the doctor selected by
the Company, they shall select a third independent medical doctor, and the
three doctors shall, by majority vote, determine whether the employee has
suffered Total Disability. The expense of the third doctor shall be shared
equally by the Company and the Executive. Notwithstanding the foregoing, if
the Executive is covered under any policy of disability insurance under
Paragraph 3(c) above, under no circumstances shall the definition of Total
Disability be different from the definition of that term in such policy.
b. Discharge for Cause. The Company may discharge the
Executive for "Cause" upon notice and thereby immediately terminate his
employment under this Agreement. For purposes of this Agreement, the Company
shall have "Cause" to terminate the Executive's employment if the Executive,
in the reasonable judgment of the Company, (i) materially breaches any of his
agreements, duties or obligations under this Agreement and has not cured such
breach or commenced in good faith to correct such breach within thirty (30)
days after notice; (ii) embezzles or converts to his own use any funds of the
Company or any client or customer of the Company; (iii) converts to his own
use or unreasonably destroys, intentionally, any property of
3
<PAGE>
the Company, without the Company's consent; (iv) is convicted of a crime; (v)
is adjudicated an incompetent; or (vi) is habitually intoxicated or is
diagnosed by an independent medical doctor to be addicted to a controlled
substance (any disagreement of Executive shall be resolved using the procedure
provided in Paragraph 7(a) above).
c. Termination by Executive. Executive may terminate this
Agreement for the failure by the Company to comply with the material
provisions of this Agreement which failure is not cured within thirty (30)
days after notice ("Good Reason").
d. No Mitigation. The Executive shall not be required to
mitigate the amount of any payment or benefit provided for in this Agreement
by seeking other employment or otherwise, not shall the amount of any payment
provided for in this Agreement be reduced by any compensation earned by the
Executive as the result of his employment by another employer.
8. Restrictive Covenant.
a. Competition. As used herein "Company Project" shall mean
any project which the Company is actively pursuing or actively considering
while the Executive was employed by the Company. The Executive undertakes and
agrees that during the term of this Agreement and for a period of two years
after the date of termination or expiration of this Agreement he will not
compete, directly or indirectly, with respect to a Company Project or
participate as a director, officer, employee, agent, consultant,
representative or otherwise, or as a stockholder, partner or joint venturer,
or have any direct or indirect financial interest, including, without
limitation, the interest of a creditor, in any business competing with respect
to a Company Project. Executive acknowledges that such prospects represent a
corporate opportunity or are the property of the Company and Executive should
have no rights with respect to such properties on projects. Executive further
undertakes and agrees that during the term of the Agreement and for a period
of one year after the date of termination or expiration of this Agreement he
will not, directly or indirectly employ, cause to be employed, or solicit for
employment any of Company's or its subsidiaries' employees.
b. Scope of Covenant. Should the duration, geographical area
or range or proscribed activities contained in Paragraph 8(a) above be held
unreasonable by any court of competent jurisdiction, then such duration,
geographical area or range of proscribed activities shall be modified to such
degree as to make it or them reasonable and enforceable.
c. Non-Disclosure of Information.
(1) The Executive shall (i) never, directly or
indirectly, disclose to any person or entity for any reason, or use for his
own personal benefit, any "Confidential Information" (as hereinafter defined)
either during his employment with the Company or following termination of that
employment for any reason (ii) at all times take all precautions necessary to
protect from loss or disclosure by him of any and all documents or other
information containing,
4
<PAGE>
referring or relating to such Confidential Information, and (iii) upon
termination of his employment with the Company for any reason, the Executive
shall promptly return to the Company any and all documents or other tangible
property containing, referring or relating to such Confidential Information,
whether prepared by him or others.
(2) Notwithstanding any provision to the contrary
in this Paragraph 8(c), this paragraph shall not apply to information which
the Executive is called upon by legal process regular on its face (including,
without limitation, by subpoena or discovery requirement) to disclose or to
information which has become part of the public domain or is otherwise
publicly disclosed through no fault or action of the Executive.
(3) For purposes of this Agreement, "Confidential
Information" means any information relating in any way to the business of the
Company disclosed to or known to the Executive as a consequence of, result of,
or through the Executive's employment by the Company which consists of
technical and nontechnical information about the Company's products,
processes, computer programs, concepts, forms, business methods, data, any and
all financial and accounting data, marketing, customers, customer lists, and
services and information corresponding thereto acquired by the Executive
during the term of the Executive's employment by the Company. Confidential
Information shall not include any of such items which are published or are
otherwise part of the public domain, or freely available from trade sources or
otherwise.
(4) Upon termination of this Agreement for any
reason, the Executive shall turn over to the Company all tangible property
then in the Executive's possession or custody which belongs or relates to the
Company. The Executive shall not retain any copies or reproductions of
computer programs, correspondence, memoranda, reports, notebooks, drawings,
photographs, or other documents which constitute Confidential Information.
9. Arbitration
(a) Any and all other disputes, controversies and claims
arising out of or relating to this Agreement, or with respect to the
interpretation of this Agreement, or the rights or obligations of the parties
and their successors and permitted assigns, whether by operation of law or
otherwise, shall be settled and determed by arbitration in New York City, New
York pursuant to the then existing rules of the American Arbitration
Association ("AAA") for commercial arbitration.
(b) In the event that the Executive disputes a determination
that Cause exists for terminating his employment hereunder pursuant to
paragraph 7(b), or the Company disputes the determination that Good Reason
exists for the Executive's termination of this Agreement pursuant to paragraph
7(c), either party disputing this determination shall serve the other with
written notice of such dispute ("Dispute Notice") within thirty (30) days
after the date the Executive is terminated for Cause or the date the Executive
terminates this Agreement for Good Reason. Within fifteen (15) days
thereafter, the Executive or the Company, as the case may be, shall, in
5
<PAGE>
accordance with the Rules of the AAA, file a petition with the AAA for
arbitration of the dispute, the costs thereof to be shared equally by the
Executive and the Company unless an order of the AAA provides otherwise. If
the Executive serves a Dispute Notice upon the Company, an amount equal to the
portion of the Base Salary Executive would be entitled to receive hereunder
shall be placed by the Company in an interest-bearing escrow account mutually
agreeable to the parties or the Company shall deliver an irrevocable letter of
credit for such amount plus interest containing terms mutually agreeable to
the parties. If the AAA determines that Cause existed for the termination, the
escrowed funds and accrued interest shall be paid to the Company. However, in
the event the AAA determines that the Executive was terminated without Cause
or that Executive resigned for Good Reason, the escrowed funds and accrued
interest shall be paid to the Executive.
(c) Any proceeding referred to in paragraph 9(a) or (b)
shall also determine Executive's entitlement to legal fees as well as all
other disputes between the parties relating to Executive's employment.
(d) The parties covenant and agree that the decision of the
AAA shall be final and binding and hereby waive their right to appeal
therefrom.
10. Indemnity. The Company shall indemnify and hold executive
harmless from all liability to the full extent permitted by the laws of its
state of incorporation.
11. Miscellaneous.
a. Notices. Any notice, demand or communication required or
permitted under this Agreement shall be in writing and shall either be
hand-delivered to the other party or mailed to the addresses set forth below
by registered or certified mail, return receipt requested or sent by overnight
express mail or courier or facsimile to such address, if a party has a
facsimile machine. Notice shall be deemed to have been given and received when
so hand-delivered or after three (3) business days when so deposited in the
U.S. Mail, or when transmitted and received by facsimile or sent by express
mail properly addressed to the other party. The addresses are:
To the Company:
BNN Corporation
345 Park Avenue South
New York, New York 10010
Facsimile No.: (212) 685-0797 Attn: President
To the Executive:
Henry Siegel
38 Shinglehouse Road
Millwood, New York 10546
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<PAGE>
The foregoing addresses may be changed at any time by notice given in the
manner herein provided.
b. Integration; Modification. This Agreement constitutes the
entire understanding and agreement between the Company and the Executive
regarding its subject matter and supersedes all prior negotiations and
agreements, whether oral or written, between them with respect to its subject
matter. This Agreement may not be modified except by a written agreement
signed by the Executive and a duly authorized officer of the Company.
c. Enforceability. If any provision of this Agreement shall
be invalid or unenforceable, in whole or in part, such provision shall be
deemed to be modified or restricted to the extent and in the manner necessary
to render the same valid and enforceable, or shall be deemed excised from this
Agreement, as the case may require, and this Agreement shall be construed and
enforced to the maximum extent permitted by law as if such provision had been
originally incorporated herein as so modified or restricted, or as if such
provision had not been originally incorporated herein, as the case may be.
d. Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the parties, including and their respective heirs,
executors, successors and assigns, except that this Agreement may not be
assigned by the Executive.
e. Waiver of Breach. No waiver by either party of any
condition or of the breach by the other of any term or covenant contained in
this Agreement, whether by conduct or otherwise, in any one (1) or more
instances shall be deemed or construed as a further or continuing waiver of
any such condition or breach or a waiver of any other condition, or the breach
of any other term or covenant set forth in this Agreement. Moreover, the
failure of either party to exercise any right hereunder shall not bar the
later exercise thereof with respect to other future breaches.
f. Governing Law. This Agreement shall be governed by the
internal laws of the State of New York.
g. Headings. The headings of the various sections and
paragraphs have been included herein for convenience only and shall not be
considered in interpreting this Agreement.
h. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
i. Due Authorization. The Company represents that all
corporate action required to authorize the execution, delivery and performance
of this Agreement has been duly taken.
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<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by the Executive
and, on behalf of the Company, by its duly authorized officer on the day and
year first above written.
BNN CORPORATION
By: /s/ Paul Siegel
--------------------------------------
Paul Siegel, Executive Officer
/s/ Henry Siegel
--------------------------------------
Henry Siegel, Executive
<PAGE>
EMPLOYMENT AGREEMENT
Employment Agreement ("Agreement") made and entered into as of
January 1, 1997 by and between BNN Corporation, a Nevada corporation which
will be reincorporated in Delaware under the name of Kaleidoscope Media Group,
Inc., (the "Company"), and Paul Siegel (the "Executive").
The Executive is being employed by the Company as an executive
officer. The parties desire to enter into an employment agreement and to set
forth herein the terms and conditions of the Executive's continued employment
by the Company and its subsidiaries.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein and the mutual benefits to be derived herefrom,
the Company and the Executive agree as follows:
1. Employment.
a. Duties. The Company shall employ the Executive, on the
terms set forth in this Agreement, as an Executive Officer. The Executive
accepts such employment with the Company and shall perform and fulfill such
duties as are assigned to him hereunder consistent with his status as a senior
executive of the Company, devoting his best efforts and entire professional
time and attention to the performance and fulfillment of his duties and to the
advancement of the interests of the Company, subject only to the direction,
approval, control and directives of the Company's Board of Directors (the
"Board"). Nothing contained herein shall be construed, however, to prevent the
Executive from trading in or managing, for his own account and benefit, in
stocks, bonds, securities, real estate, commodities or other forms of
investments (subject to law and Company policy with respect to trading in
Company securities). Without any additional consideration, Executive shall
also serve as the Chairman of the Board of Directors and Chief Executive
Officer of any or all subsidiaries of the Company. Unless otherwise indicated
by the context, the term "Company" shall include the Company and all its
subsidiaries.
b. Place of Performance. In connection with his employment
by the Company, the Executive shall be based at the Company's principal place
of business in the Los Angeles, California, except when required for travel on
Company business.
c. Nomination as Director. The Company agrees that it will
nominate the Executive as a member of the Board of Directors each year during
the term of this Agreement and will use its best efforts to ensure that the
Executive is elected to the Board of Directors.
2. Term. The Executive's employment under this Agreement shall
commence as of January 1, 1997 (the "Commencement Date") and shall, unless
sooner terminated in accordance with the provisions hereof, continue
uninterrupted until December 31, 1999 ("Term"). As used herein "Year" shall
refer to a twelve month period ending December 31st. Unless notice of
nonrenewal is given by either party at least sixty (60) days prior to the end
of the Term or prior
1
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to the end of any Year thereafter, the Term of this Agreement shall be
automatically extended for an additional period of one year.
3. Compensation.
a. Base Salary. During each Year of the Term, the Executive
shall be entitled to receive an annual salary (the "Base Salary") of three
hundred fifty thousand Dollars ($350,000) in installments at such times as the
Company customarily pays its other executive officers (but in any event not
less often than monthly). For each Year thereafter, the Company shall increase
the Base Salary by an amount to be determined by the Board of Directors.
b. Bonus. The Board of Directors may at its sole discretion
grant bonuses to the Executive.
c. Health Insurance and Other Benefits. During the Term, the
Executive shall be entitled to all employee benefits generally offered by the
Company to its executive officers and key management employees, including,
without limitation, all pension, profit sharing, retirement, stock option,
salary continuation, deferred compensation, disability insurance,
hospitalization insurance, major medical insurance, medical reimbursement,
survivor income, life insurance or any other benefit plan or arrangement
established and maintained by the Company, subject to the rules and
regulations then in effect regarding participation therein.
d. Keyman Insurance. The Company will obtain keyman life
insurance upon the life of the Executive. In amounts to be determined from
time to time by Executive and the Company.
4. Reimbursement of Expenses. The Executive shall be reimbursed for
all items of travel, entertainment and miscellaneous expenses that the
Executive reasonably incurs in connection with the performance of his duties
hereunder, provided the Executive submits to the Company such statements and
other evidence supporting said expenses as the Company may reasonably require.
5. Automobile Allowance. The Executive shall be reimbursed for the
expenses of owning or leasing an automobile suitable for his position and
consistent with Company practices, including the expenses of operating,
insuring and parking such automobile, provided the Executive submits to the
Company such statements and other evidence supporting such expenses as the
Company may require.
6. Vacation. The Executive shall be entitled to not less than four
(4) weeks of vacation in any calendar year.
7. Termination of Employment.
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<PAGE>
a. Death or Total Disability. In the event of the death of
the Executive during the Term, this Agreement shall terminate as of the date
of the Executive's death. In the event of the Total Disability (as that term
is defined below) of the Executive for sixty (60) days in the aggregate during
any consecutive nine (9) month period during the Term, the Company shall have
the right to terminate this Agreement by giving the Executive thirty (30)
days' prior written notice thereof, and upon the expiration of such thirty
(30) day period, the Executive's employment under this Agreement shall
terminate. If the Executive shall resume his duties within thirty (30) days
after receipt of such a notice of termination and continue to perform such
duties for four (4) consecutive weeks thereafter, this Agreement shall
continue in full force and effect, without any reduction in Base Salary and
other benefits, and the notice of termination shall be considered null and
void and of no effect. Upon termination of this Agreement under this Paragraph
7(a), the Company shall have no further obligations or liabilities under this
Agreement, except to pay to the Executive's estate or the Executive, as the
case may be, (i) the portion, if any, that remains unpaid of the Base Salary
for the Year in which termination occurred, but in no event less than six (6)
months' Base Salary; and (ii) the amount of any expenses reimbursable in
accordance with Paragraph 4 above, and any automobile allowance due under
Paragraph 5 above; and (iii) any amounts due under any Company benefit,
welfare or pension plan. Except as otherwise provided by their terms, any
stock options not vested at the time of the termination of this Agreement
under this Paragraph 7(a) shall immediately become fully vested.
The term "Total Disability," as used herein, shall
mean a mental or physical condition which in the reasonable opinion of an
independent medical doctor selected by the Company renders the Executive
unable or incompetent to carry out the material duties and responsibilities of
the Executive under this Agreement at the time the disabling condition was
incurred. In the event the Executive disagrees with such opinion, the
Executive may, at his sole expense, select an independent medical doctor and,
in the event that doctor disagrees with the opinion of the doctor selected by
the Company, they shall select a third independent medical doctor, and the
three doctors shall, by majority vote, determine whether the employee has
suffered Total Disability. The expense of the third doctor shall be shared
equally by the Company and the Executive. Notwithstanding the foregoing, if
the Executive is covered under any policy of disability insurance under
Paragraph 3(c) above, under no circumstances shall the definition of Total
Disability be different from the definition of that term in such policy.
b. Discharge for Cause. The Company may discharge the
Executive for "Cause" upon notice and thereby immediately terminate his
employment under this Agreement. For purposes of this Agreement, the Company
shall have "Cause" to terminate the Executive's employment if the Executive,
in the reasonable judgment of the Company, (i) materially breaches any of his
agreements, duties or obligations under this Agreement and has not cured such
breach or commenced in good faith to correct such breach within thirty (30)
days after notice; (ii) embezzles or converts to his own use any funds of the
Company or any client or customer of the Company; (iii) converts to his own
use or unreasonably destroys, intentionally, any property of the Company,
without the Company's consent; (iv) is convicted of a crime; (v) is
adjudicated an incompetent; or (vi) is habitually intoxicated or is diagnosed
by an independent medical doctor to
3
<PAGE>
be addicted to a controlled substance (any disagreement of Executive shall be
resolved using the procedure provided in Paragraph 7(a) above).
c. Termination by Executive. Executive may terminate this
Agreement for the failure by the Company to comply with the material
provisions of this Agreement which failure is not cured within thirty (30)
days after notice ("Good Reason").
d. No Mitigation. The Executive shall not be required to
mitigate the amount of any payment or benefit provided for in this Agreement
by seeking other employment or otherwise, not shall the amount of any payment
provided for in this Agreement be reduced by any compensation earned by the
Executive as the result of his employment by another employer.
8. Restrictive Covenant.
a. Competition. As used herein "Company Project" shall mean
any project which the Company is actively pursuing or actively considering
while the Executive was employed by the Company. The Executive undertakes and
agrees that during the term of this Agreement and for a period of two years
after the date of termination or expiration of this Agreement he will not
compete, directly or indirectly, with respect to a Company Project or
participate as a director, officer, employee, agent, consultant,
representative or otherwise, or as a stockholder, partner or joint venturer,
or have any direct or indirect financial interest, including, without
limitation, the interest of a creditor, in any business competing with respect
to a Company Project. Executive acknowledges that such prospects represent a
corporate opportunity or are the property of the Company and Executive should
have no rights with respect to such properties on projects. Executive further
undertakes and agrees that during the term of the Agreement and for a period
of one year after the date of termination or expiration of this Agreement he
will not, directly or indirectly employ, cause to be employed, or solicit for
employment any of Company's or its subsidiaries' employees.
b. Scope of Covenant. Should the duration, geographical area
or range or proscribed activities contained in Paragraph 8(a) above be held
unreasonable by any court of competent jurisdiction, then such duration,
geographical area or range of proscribed activities shall be modified to such
degree as to make it or them reasonable and enforceable.
c. Non-Disclosure of Information.
(1) The Executive shall (i) never, directly or
indirectly, disclose to any person or entity for any reason, or use for his
own personal benefit, any "Confidential Information" (as hereinafter defined)
either during his employment with the Company or following termination of that
employment for any reason (ii) at all times take all precautions necessary to
protect from loss or disclosure by him of any and all documents or other
information containing, referring or relating to such Confidential
Information, and (iii) upon termination of his employment with the Company for
any reason, the Executive shall promptly return to the
4
<PAGE>
Company any and all documents or other tangible property containing, referring
or relating to such Confidential Information, whether prepared by him or
others.
(2) Notwithstanding any provision to the contrary
in this Paragraph 8(c), this paragraph shall not apply to information which
the Executive is called upon by legal process regular on its face (including,
without limitation, by subpoena or discovery requirement) to disclose or to
information which has become part of the public domain or is otherwise
publicly disclosed through no fault or action of the Executive.
(3) For purposes of this Agreement, "Confidential
Information" means any information relating in any way to the business of the
Company disclosed to or known to the Executive as a consequence of, result of,
or through the Executive's employment by the Company which consists of
technical and nontechnical information about the Company's products,
processes, computer programs, concepts, forms, business methods, data, any and
all financial and accounting data, marketing, customers, customer lists, and
services and information corresponding thereto acquired by the Executive
during the term of the Executive's employment by the Company. Confidential
Information shall not include any of such items which are published or are
otherwise part of the public domain, or freely available from trade sources or
otherwise.
(4) Upon termination of this Agreement for any
reason, the Executive shall turn over to the Company all tangible property
then in the Executive's possession or custody which belongs or relates to the
Company. The Executive shall not retain any copies or reproductions of
computer programs, correspondence, memoranda, reports, notebooks, drawings,
photographs, or other documents which constitute Confidential Information.
9. Arbitration
(a) Any and all other disputes, controversies and claims
arising out of or relating to this Agreement, or with respect to the
interpretation of this Agreement, or the rights or obligations of the parties
and their successors and permitted assigns, whether by operation of law or
otherwise, shall be settled and determed by arbitration in New York City, New
York pursuant to the then existing rules of the American Arbitration
Association ("AAA") for commercial arbitration.
(b) In the event that the Executive disputes a determination
that Cause exists for terminating his employment hereunder pursuant to
paragraph 7(b), or the Company disputes the determination that Good Reason
exists for the Executive's termination of this Agreement pursuant to paragraph
7(c), either party disputing this determination shall serve the other with
written notice of such dispute ("Dispute Notice") within thirty (30) days
after the date the Executive is terminated for Cause or the date the Executive
terminates this Agreement for Good Reason. Within fifteen (15) days
thereafter, the Executive or the Company, as the case may be, shall, in
accordance with the Rules of the AAA, file a petition with the AAA for
arbitration of the dispute, the costs thereof to be shared equally by the
Executive and the Company unless an order of the
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<PAGE>
AAA provides otherwise. If the Executive serves a Dispute Notice upon the
Company, an amount equal to the portion of the Base Salary Executive would be
entitled to receive hereunder shall be placed by the Company in an
interest-bearing escrow account mutually agreeable to the parties or the
Company shall deliver an irrevocable letter of credit for such amount plus
interest containing terms mutually agreeable to the parties. If the AAA
determines that Cause existed for the termination, the escrowed funds and
accrued interest shall be paid to the Company. However, in the event the AAA
determines that the Executive was terminated without Cause or that Executive
resigned for Good Reason, the escrowed funds and accrued interest shall be
paid to the Executive.
(c) Any proceeding referred to in paragraph 9(a) or (b)
shall also determine Executive's entitlement to legal fees as well as all
other disputes between the parties relating to Executive's employment.
(d) The parties covenant and agree that the decision of the
AAA shall be final and binding and hereby waive their right to appeal
therefrom.
10. Indemnity. The Company shall indemnify and hold executive
harmless from all liability to the full extent permitted by the laws of its
state of incorporation.
11. Miscellaneous.
a. Notices. Any notice, demand or communication required or
permitted under this Agreement shall be in writing and shall either be
hand-delivered to the other party or mailed to the addresses set forth below
by registered or certified mail, return receipt requested or sent by overnight
express mail or courier or facsimile to such address, if a party has a
facsimile machine. Notice shall be deemed to have been given and received when
so hand-delivered or after three (3) business days when so deposited in the
U.S. Mail, or when transmitted and received by facsimile or sent by express
mail properly addressed to the other party. The addresses are:
To the Company:
BNN Corporation
345 Park Avenue South
New York, New York 10010
Facsimile No.: (212) 685-0797 Attn: President
To the Executive:
Paul Siegel
3052 Inverness Drive
Los Alamitos, California 90720
The foregoing addresses may be changed at any time by notice given in the
manner herein provided.
6
<PAGE>
b. Integration; Modification. This Agreement constitutes the
entire understanding and agreement between the Company and the Executive
regarding its subject matter and supersedes all prior negotiations and
agreements, whether oral or written, between them with respect to its subject
matter. This Agreement may not be modified except by a written agreement
signed by the Executive and a duly authorized officer of the Company.
c. Enforceability. If any provision of this Agreement shall
be invalid or unenforceable, in whole or in part, such provision shall be
deemed to be modified or restricted to the extent and in the manner necessary
to render the same valid and enforceable, or shall be deemed excised from this
Agreement, as the case may require, and this Agreement shall be construed and
enforced to the maximum extent permitted by law as if such provision had been
originally incorporated herein as so modified or restricted, or as if such
provision had not been originally incorporated herein, as the case may be.
d. Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the parties, including and their respective heirs,
executors, successors and assigns, except that this Agreement may not be
assigned by the Executive.
e. Waiver of Breach. No waiver by either party of any
condition or of the breach by the other of any term or covenant contained in
this Agreement, whether by conduct or otherwise, in any one (1) or more
instances shall be deemed or construed as a further or continuing waiver of
any such condition or breach or a waiver of any other condition, or the breach
of any other term or covenant set forth in this Agreement. Moreover, the
failure of either party to exercise any right hereunder shall not bar the
later exercise thereof with respect to other future breaches.
f. Governing Law. This Agreement shall be governed by the
internal laws of the State of New York.
g. Headings. The headings of the various sections and
paragraphs have been included herein for convenience only and shall not be
considered in interpreting this Agreement.
h. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
i. Due Authorization. The Company represents that all
corporate action required to authorize the execution, delivery and performance
of this Agreement has been duly taken.
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<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by the Executive
and, on behalf of the Company, by its duly authorized officer on the day and
year first above written.
BNN CORPORATION
By: /s/ Henry Siegel
---------------------------------------
Henry Siegel, Chief Executive Officer
/s/ Paul Siegel
---------------------------------------
Paul Siegel, Executive
<PAGE>
NUMBER 4 OE
ORIGINAL 5 EXECUTED
COUNTERPARTS
********************************************************************************
AGREEMENT OF LEASE
between
PARK AVENUE SOUTH/ARMORY, INC.
Landlord,
and
KALEIDOSCOPE HOLDINGS, INC.
Tenant,
Dated: June 5, 1992
PREMISES:
Entire Second Floor
345 Park Avenue South
New York, New York
********************************************************************************
<PAGE>
TABLE OF CONTENTS
Page
----
Article 1 Rent ........................................................ 1
Article 2 Preparation of the Demised Premises ......................... 3
Article 3 Adjustments of Rent ......................................... 3
Article 4 Electricity ................................................. 9
Article 5 Use ......................................................... 11
Article 6 Alterations and Installations ............................... 11
Article 7 Repairs ..................................................... 15
Article 8 Requirements of Law ......................................... 16
Article 9 Insurance, Loss, Reimbursement, Liability ................... 17
Article 10 Damage by Fire or other Cause ............................... 20
Article 11 Assignment, Mortgaging, Subletting, Etc ..................... 22
Article 12 Certificate of Occupancy .................................... 27
Article 13 Adjacent Excavation - Shoring ............................... 27
Article 14 Condemnation ................................................ 28
Article 15 Access to Demised Premises; Changes ......................... 29
Article 16 Conditions of Limitation .................................... 30
Article 17 Re-entry by Landlord, Injunction ............................ 32
Article 18 Damages ..................................................... 33
Article 19 Landlord's Right to Perform Tenant's Obligations ............ 35
Article 2O Quiet Enjoyment ............................................. 36
Article 2l Services and Equipment ...................................... 36
Article 22 Definitions ................................................. 38
Article 23 Invalidity of Any Provision ................................. 39
i
<PAGE>
TABLE OF CONTENTS
Page
----
Article 24 Brokerage 40
Article 25 Subordination 40
Article 26 Certificate of Tenant 42
Article 27 Legal Proceedings, Waiver of Jury Trial 42
Article 28 Surrender of Premises 43
Article 29 Rules and Regulations 43
Article 30 Consents and Approvals 43
Article 31 Notices 44
Article 32 No Waiver 44
Article 33 Captions 45
Article 34 Inability to Perform 45
Article 35 No Representations by Landlord 45
Article 36 Name of Building 46
Article 37 Restrictions Upon Use 46
Article 38 Arbitration 46
Article 39 Indemnity 47
Article 40 Memorandum of Lease 47
Article 41 Miscellaneous 47
Article 42 Security 48
Article 43 Partnership 51
Article 44 Work Credit 52
Article 45 Landlord's Option to Terminate 54
SCHEDULES
A - Floor Plan A-l
B - Rules and Regulations B-l
C - Landlord's Work C-l
D - Cleaning Specifications D-l
ii
<PAGE>
AGREEMENT OF LEASE made as of this ____ day of May, 1992, between PARK
AVENUE SOUTH/ARMORY, INC., an ___________ corporation, having an office at c/o
Montrose Realty Corporation, 380 Madison Avenue, New York, New York 10017-2593,
Attn: Thomas Warren, Vice President (hereinafter referred to as "Landlord") and
KALEIDOSCOPE HOLDINGS, INC., a New York corporation, having an office at 345
Hudson Street, New York, New York (hereinafter referred to as Tenant").
WITNESSETH:
Landlord hereby leases and Tenant hereby hires from Landlord, in the
building (hereinafter referred to as the "Building") known as 345 Park Avenue
South, New York, New York, the following space: the entire second (2nd) floor as
shown on the plan annexed hereto as Schedule A (which space is hereinafter
referred to as "the demised premises"); for a term to commence on the date
hereof (hereinafter referred to as the "Commencement Date"), and shall end on
the last day of the month preceding the month in which occurs the tenth (l0th,
anniversary of the Rent Commencement Date (as such term is defined in Section
1.01 hereof; such date on which the term of the Lease expires is hereinafter
referred to as the "Expiration Date") or on such date as such term shall sooner
cease and terminate as hereinafter provided.
The parties hereto, for themselves, their heirs, distributees, executors,
administrators, legal representatives, trustees, successors and assigns, hereby
covenant as follows:
ARTICLE 1
RENT
1.01. (a) Tenant shall pay to Landlord a fixed annual rent (hereinafter
referred to as "fixed annual rent") as follows:
(i) THREE HUNDRED NINETY-SEVEN THOUSAND FORTY-FOUR and 00/100
($397,044.00) DOLLARS per year for the period commencing on a date (herein
referred to as the "Rent Commencement Date"), which shall be the earlier of
(i) the date the demised premises are ready for occupancy (as defined in
Section 1.05 hereof), (ii) the date Tenant or anyone claiming under or
through Tenant first occupies the demised premises for the conduct of its
business, and (iii) November 1, 1992 and ending on the last day of the
month preceding the month in which occurs the third (3rd) anniversary of
the Rent Commencement Date;
(ii) FOUR HUNDRED FORTY-ONE THOUSAND ONE HUNDRED SIXTY and 00/100
($441,160.00) DOLLARS per year for the period beginning on the first day of
the month in which occurs the third (3rd) anniversary of
<PAGE>
the Rent Commencement Date and ending on the last day of the month
preceding the month in which occurs the sixth (6th) anniversary of the Rent
Commencement Date;
(iii) FOUR HUNDRED SIXTY-THREE THOUSAND TWO HUNDRED EIGHTEEN and
00/100 ($463,218.00) DOLLARS per year for the period beginning on the first
day of the month in which occurs the sixth (6th) anniversary of the Rent
Commencement Date and ending on the last day of the month preceding the
month in which occurs the eighth (8th) anniversary of the Rent Commencement
Date; and
(iv) FOUR HUNDRED EIGHTY-Five THOUSAND TWO HUNDRED SEVENTY-SIX and
00/100 ($485,276.00) DOLLARS per year for the period commencing on the
first day of the month in which occurs the eighth (8th) anniversary of the
Rent Commencement Date and ending on the Expiration Date.
(b) Notwithstanding anything contained herein to the contrary, the fixed
annual rent payable by Tenant pursuant to subsection 1.01(a) hereof shall be
abated for:
(i) The one hundred eighty (180) day period beginning on the Rent
Commencement Date and ending on the date to occur one hundred
seventy-nine (179) days thereafter;
(ii) The four (4) month period beginning on the first day of the month in
which occurs the first (1st) anniversary of the Rent Commencement
Date; and
(iii) The two (2) month period beginning on the first day of the month in
which occurs the second (2nd) anniversary of the Rent Commencement
Date.
(c) Tenant agrees to pay the fixed annual rent in lawful money of the
United States of America, in equal monthly installments in advance on the first
day of each calendar month during said term, at the office of Landlord or such
other place in the United States of America as Landlord may designate, without
any setoff or deduction whatsoever, except such deduction as may be occasioned
by the occurrence of any event permitting or requiring a deduction from or
abatement of rent as specifically set forth in Articles 10 and 14 hereof. Should
the obligation to pay fixed annual rent commence on any day other than on the
first day of a month, then the fixed annual rent for such month shall be
prorated on a per diem basis.
(d) The first month's installment of fixed annual rent due under this Lease
and the security to be deposited under Article 42 hereof shall be paid by Tenant
upon the execution of this Lease.
1.02. Tenant shall pay the fixed annual rent and additional rent as above
and as hereinafter provided, by good and sufficient check (subject to
collection) drawn on a New York City bank which is a member of the New York
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<PAGE>
Clearinghouse Association or a successor thereto. All sums other than fixed
annual rent payable by Tenant hereunder shall be deemed additional rent (for
default in the payment of which Landlord shall have the same remedies as for a
default in the payment of fixed annual rent), and shall be payable on demand,
unless other payment dates are hereinafter provided.
1.03. If Tenant shall fail to pay when due any installment of fixed annual
rent or any payment of additional rent for a period of five (5) days after such
installment or payment shall have become due, Tenant shall pay interest thereon
at the Interest Rate (as such term is defined in Article 22 hereof), from the
date when such installment or payment shall have become due to the date of the
payment thereof, and such interest shall be deemed additional rent.
1.04. If any of the fixed annual rent or additional rent payable under the
terms and provisions of this Lease shall be or become uncollectible, reduced or
required to be refunded because of any Legal Requirement (as such term is
defined in Article 22 hereof), Tenant shall enter into such agreement(s) and
take such other steps (without additional expense to Tenant) as Landlord may
request and as may be legally permissible to permit Landlord to collect the
maximum rents which from time to time during the continuance of such legal rent
restriction may be legally permissible (and not in excess of the amounts
reserved therefor under this Lease). Upon the termination of such legal rent
restriction, (a) the rents shall become and thereafter be payable in accordance
with the amounts reserved herein for the periods following such termination and
(b) Tenant shall pay to Landlord, to the maximum extent legally permissible, an
amount equal to (i) the rents which would have been paid pursuant to this Lease
but for such legal rent restriction less (ii) the rents paid by Tenant during
the period such legal rent restriction was in effect.
1.05. The demised premises shall be deemed ready for occupancy on the date
that "Tenant's Work", as defined in Article 44 hereof, in the demised premises
shall have been substantially completed; and it shall be so deemed
notwithstanding the fact that minor or insubstantial details of construction,
mechanical adjustment, or decoration remain to be performed, the non-completion
of which do not materially interfere with Tenant's use of the demised premises.
ARTICLE 2
PREPARATION OF THE DEMISED PREMISES
2.01. Tenant has examined the demised premises and agrees to accept same in
their "as is" condition as of the date hereof, and understands and agrees that
Landlord shall not be required to perform any work, supply any materials or
incur any expense to prepare the demised premises for Tenant's occupancy.
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<PAGE>
2.02. Landlord shall, at Landlord's expense, perform the work in the
demised premises described on Schedule C annexed hereto. All such work as
Landlord is required to perform pursuant to Schedule C at Landlord's expense is
hereinafter called "Landlord's Work".
2.03. Landlord shall, at Landlord's expense, refurbish the elevator cabs
servicing the demised premises. All such work is hereinafter called "Building
Work".
2.04. Within ten (10) business days of the date hereof, Landlord shall
provide Tenant with a New York City Buildings Department Form ACP-5 for the
demised premises, based on, and issued in connection with, Landlord's plans for
the demolition of the demised premises previously performed by Landlord.
ARTICLE 3
ADJUSTMENTS OF RENT
3.01. For the purposes of this Article 3, the following definitions shall
apply:
(a) The term "Base Tax" shall mean the product obtained by multiplying
(i) the assessed values of the Building and the parcel of land on which the
Building is constructed (hereinafter called the "Land") on which the real
estate taxes payable by Landlord would be based for the Tax Year
commencing July 1, 1992, and ending on June 30, 1993 by (ii) the real
property tax rate for such Tax Year.
(b) The term "Tenant's Proportionate Tax Share" shall be deemed to
mean 8.54 (8.54%) percent.
(c) The term "Taxes" shall mean (i) all real estate taxes,
assessments, sewer rents and water charges, governmental levies, municipal
taxes, county taxes or any other governmental charge, general or special,
ordinary or extraordinary, unforeseen as well as foreseen, of any kind or
nature whatsoever, which are or may be assessed levied or imposed upon all
or any part of the Land, the Building and the sidewalks, plazas or streets
in front of or adjacent thereto, including any tax, excise or fee measured
by or payable with respect to any rent, and levied against Landlord and/or
the Land and/or Building, under the laws of the United States, the State of
New York, or any political subdivision thereof, or by the City of New York,
or any political subdivision thereof, and (ii) any expenses incurred by
Landlord in contesting any of the foregoing set forth in clause (i) of this
sentence or the assessed valuations of all or any part of the Land and
Building, etc. or collecting any refund. If, due to a future change in the
method of taxation or in the taxing authority, a new or additional real
estate tax, or a franchise, income, transit, profit or other tax or
governmental imposition, however designated, shall be levied against
Landlord, and/or the Land and/or Building, in addition to, or in
substitution in whole or in part for any tax
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<PAGE>
which would constitute "Taxes", or in lieu of additional Taxes, such tax or
imposition shall be deemed for the purposes hereof to be included within
the term "Taxes".
(d) The term "Tax Year" shall mean each period of twelve months,
commencing on the first day of July of each such period, in which occurs
any part of the term of this Lease or such other period of twelve months
occurring during the term of this Lease as hereafter may be duly adopted as
the fiscal year for real estate tax purposes of the City of New York.
(e) The term "Operating Year" shall mean the full calendar year in
which the term of this lease commences and each succeeding calendar year
thereafter.
(f) The term "Base Year" shall mean the calendar year 1992.
(g) "Operating Expenses" shall mean the total of all the costs and
expenses incurred or borne by Landlord in connection with the operation and
maintenance of the Building, and the services provided tenants therein,
including all expenses incurred as a result of Landlord's compliance with
any of its obligations hereunder other than Landlord's Work. Operating
Expenses shall include, without being limited thereto, the following: (i)
salaries, wages, medical, surgical and general welfare benefits (including
group life insurance) and pension payments of employees of the managing
agent for the Building (or, in the event of a successor Landlord the
employees of such managing agent or Landlord) engaged in the operation and
maintenance of the Building; (ii) payroll taxes, workmen's compensation,
uniforms and dry cleaning for the employees referred to in subdivision (i);
(iii) the cost of all charges for steam, heat, ventilation,
air-conditioning and water (including sewer rental) furnished to the
Building (including common areas thereof), together with any taxes on any
such utilities; (iv) the cost of all charges for rent, casualty, war risk,
(if obtainable from the United States government) and liability insurance,
(v) the cost of all building and cleaning supplies and charges for
telephone for the Building; (vi) the cost of all charges for management,
cleaning, window cleaning and service contracts for any areas of the
Building; (vii) the cost of Building electric current. For the purposes of
this clause (viii), the cost of Building electric current shall be deemed
to mean the cost of all electricity purchased, including any taxes thereon
or fuel or other adjustments in connection therewith, for use in the
Building other than that which is furnished to the demised space of other
tenants in the Building; the parties agree that fifty (50%) percent of the
Building's payment to the public utility for the purchase of electricity
shall be deemed to be payment for Building electric current; (viii) the
cost relating to the elevators and escalators; (ix) the cost relating to
protection and security; (x) the cost relating to lobby decorations and
interior and exterior landscape maintenance; (xi) repairs, replacements and
improvements which are appropriate for the continued operation of the
Building as a first class office building; (xii) painting of non-tenanted
areas; (xiii) professional and consulting fees; (xiv) association fees or
dues and (xv) the cost of capital expenditures made to the Building, after
the expiration of the
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<PAGE>
Base Year, by reason of the laws and requirements of any public authorities
or the requirements of insurance bodies. The term "Operating Expenses," as
used and defined under this subsection 3.01 (g), shall not, however,
include the following items: (l) depreciation and amortization (except as
otherwise provided in this subsection); (2) interest on and amortization of
debts; (3) the cost of tenant improvements made for new tenant(s) of the
Building; (4) brokerage commissions; (5) financing or refinancing costs;
(6) the cost of any electricity consumed in the demised premises or any
other space in the Building demised to tenant(s); (8) Taxes; and (9) the
cost of the Building Work and other renovation work currently being
performed by Landlord with respect to the Building lobby.
If, after the expiration of the Base Year, Landlord shall purchase any
item of capital equipment or make any capital expenditure designed to
result in savings or reductions in Operating Expenses, then the cost
thereof shall be included in Operating Expenses. The costs of capital
equipment or capital expenditures are so to be included in Operating
Expenses for the Operating Year in which the costs are incurred and
subsequent Operating Years, on a straight line basis, to the extent that
such items are amortized over such period of time as reasonably can be
estimated as the time in which such savings or reductions in Operating
Expenses are expected to equal Landlord's costs for such capital equipment
or capital expenditure, with an interest factor equal to the Interest Rate
at the time of Landlord's having incurred said costs. If Landlord shall
lease any such item of capital equipment designed to result in savings or
reductions in Operating Expenses, then the rentals and other costs paid or
incurred in connection with such leasing shall be included in Operating
Expenses for the Operating Year in which they were incurred.
If during all or part of any Operating Year including the Base Year,
Landlord shall not furnish any particular item(s) of work or service (which
would constitute an Operating Expenses hereunder) to portions of the
Building (including without limitation the demised premises) due to the
fact that such portions are not occupied or leased, or because such item of
work or service is not required or desired by the tenant (including without
limitations Tenant) or such portion, or such tenant is itself obtaining and
providing such item of work of service, or for any other reasons, then, for
the purposes of computing the additional rent payable hereunder pursuant to
Section 3.02 hereof, the amount of the expenses for such item(s) for such
period shall be deemed to be increased by an amount equal to the additional
operating and maintenance expenses which would reasonably have been
incurred during such period by Landlord if it had at its own expense
furnished such items(s) of work or services to such portion of the
Building.
(h) The term "Tenant's Proportionate Operating Share" shall be deemed
to mean 9.1 (9.1%) percent.
(i) "Tenant's Proportionate Share of Increase" shall mean the
percentage set forth in Section 3.01(h) multiplied by the increase in
Operating Expenses for an Operating Year over Operating Expenses in
the Base Year.
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(j) "Tenant's Projected Share of Increase" shall mean Tenant's
Proportionate Share of Increase for the prior Operating Year and the
reasonably estimated increase in costs for the current Operating Year
divided by twelve (12) and payable monthly by Tenant to Landlord as
additional rent.
(k) The term "Escalation Statement" shall mean a statement setting
forth the amount payable by Tenant for a specified Tax Year or Operating
Year (as the case may be) pursuant to this Article 3.
3.02. A. After the expiration of the Base Year and any Operating Year,
Landlord shall furnish Tenant an Escalation Statement setting forth Tenant's
Proportionate Share of Increase, with respect to the Operating Expenses incurred
for such Base Year or Operating Year. Within thirty (30) days after receipt of
such Escalation Statement for any Operating Year, Tenant shall pay Tenant's
Proportionate Share of Increase to Landlord as additional rent.
B. Commencing with the 1993 Operating Year, Tenant shall pay to Landlord as
additional rent for the then Operating Year, Tenant's Projected Share of
Increase. If the Escalation Statement furnished by Landlord to Tenant pursuant
to this Section 3.02 at the end of the then Operating Year shall indicate that
Tenant's Projected Share of Increase exceeded Tenant's Proportionate Share of
Increase, Landlord shall forthwith either (i) pay the amount of excess directly
to Tenant concurrently with the notice or (ii) permit Tenant to credit the
amount of such excess against the subsequent payments of rent due hereunder; if
such statement furnished by Landlord to Tenant hereunder shall indicate that
Tenant's Proportionate Share of Increase exceeded Tenant's Projected Share of
Increase for the then Operating Year, Tenant shall forthwith pay the amount of
such excess to Landlord.
(C) Notwithstanding anything herein to the contrary, the payment of
additional rent payable by Tenant pursuant to this Section 3.02 with respect to
the period prior to June 1, 1993 shall be deferred and shall not be required to
be paid until such date.
3.03. A. Tenant shall pay as additional rent for each Tax Year a sum
(hereinafter referred to as "Tenant's Tax Payment") equal to Tenant's
Proportionate Share of the amount by which the Taxes for such Tax Year exceed
the Base Tax. Tenant's Tax Payment for each Tax Year shall be due and payable in
twelve (12) equal monthly installments, in advance, (on the first day of each
month during such Tax Year) based upon the Escalation Statement furnished prior
to the commencement of such Tax Year, until such time as a new Escalation
Statement for a subsequent Tax Year shall become effective. If an Escalation
Statement is furnished to Tenant after the commencement of a Tax Year in respect
of which such Escalation Statement is rendered, then (a) until the first day of
the month following the month in which the Escalation Statement is furnished to
Tenant, Tenant shall pay to Landlord on the first day of each month an amount
equal to one-twelfth of the Tax Payment for the preceding Tax Year; and (b)
within 15 days after the Escalation Statement for such Tax Year is furnished to
Tenant, Tenant shall pay to Landlord an amount equal to the amount of any
underpayment of Tenant's Tax Payment with respect
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to such Tax Year and, in the event of an overpayment, Landlord shall permit
Tenant to credit against subsequent payments under this Section 3.03 the amount
of Tenant's overpayment. If there shall be any increase in Taxes for any Tax
Year, whether during or after such Tax Year, Landlord shall furnish a revised
Escalation Statement for such Tax Year, and Tenant's Tax Payment for such Tax
Year shall be adjusted and paid in the same manner as provided in the preceding
sentence. If during the term of this Lease, Taxes are required to be paid
(either to the appropriate taxing authorities or as tax escrow payments to a
superior mortgagee) in full or in monthly, quarterly, or other installments, on
any other date or dates than as presently required, then at Landlord's option,
Tenant's Tax Payments shall be correspondingly accelerated or revised so that
said Tenant's Tax Payments are due at least 30 days prior to the date payments
are due to the taxing authorities or the superior mortgagee. The benefit of any
discount for any early payment or prepayment of Taxes shall accrue solely to the
benefit of Landlord and such discount shall not be subtracted from Taxes.
B. If the real estate tax fiscal year of The City of New York shall be
changed during the term of this Lease, any Taxes for such fiscal year, a part of
which is included within a particular Tax Year and a part of which is not so
included, shall be apportioned on the basis of the number of days in such fiscal
year included in the particular Tax Year for the purpose of making the
computations under this Section 3.03.
C. If Landlord shall receive a refund of Taxes for any Tax Year, Landlord
shall permit Tenant to credit against subsequent payments under this Section
3.03 Tenant's Proportionate Share of the net refund (after deducting from such
total refund the costs and expenses, including but not limited to, appraisal,
accounting and legal fees of obtaining the same, to the extent that such costs
and expenses were not included in the Taxes for such Tax Year); provided such
credit to Tenant shall in no event exceed Tenant's Tax Payment paid for such Tax
Year.
D. If the Base Tax is reduced as a result of an appropriate proceeding or
otherwise, Landlord shall give notice to Tenant of the amount by which the Tax
Payments previously made were less than the Tax Payments required to be made
under this Article, and Tenant shall pay the amount of the deficiency within 10
days after demand therefor.
3.04. Tenant shall pay to Landlord upon demand, as additional rent, any
occupancy tax or rent tax now in effect or hereafter enacted, if payable by
Landlord in the first instance or hereafter required to be paid by Landlord.
3.05. Upon the date of any expiration or termination of this Lease (except
termination because of Tenant's default), whether the same be the date
hereinabove set forth for the expiration of the term or any prior or subsequent
date, a proportionate share of said additional rent for the Tax Year or
Operating Year during which such expiration or termination occurs shall
immediately become due and payable by Tenant to Landlord. The said proportionate
share shall be based upon the length of time that this Lease
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shall have been in existence during such Tax Year or Operating Year. Prior to or
promptly after said expiration or termination, Landlord shall compute the
additional rent, if any, due from Tenant as aforesaid, which computations shall
either be based on amounts payable during such Tax Year or Operating Year or be
an estimate based upon the most recent statements theretofore prepared by
Landlord and furnished to Tenant. If an estimate is used, then Landlord shall
cause statements to be prepared on the basis of amounts payable during such Tax
Year or Operating Year, and upon Landlord's furnishing such statement to Tenant,
Landlord and Tenant shall make appropriate adjustments of amounts then owing.
3.06. Payments shall be made pursuant to this Article 3 notwithstanding the
fact that an Escalation Statement is furnished to Tenant after the expiration of
the term of this Lease.
3.07. In no event shall the fixed annual rent ever be reduced by operation
of this Article 3 and the rights and obligations of Landlord and Tenant under
the provisions of this Article 3 with respect to any additional rent shall
survive the termination of this Lease.
3.08. Landlord's failure to render an Escalation Statement with respect to
any Tax Year or Operating Year, respectively, shall not prejudice Landlord's
right to thereafter render an Escalation Statement with respect thereto or with
respect to any subsequent Tax Year or Operating Year. Tenant's obligation to pay
escalation for any Tax or Operating Year during the term of this Lease shall
survive the expiration or earlier termination of this Lease.
3.09. Each Escalation Statement shall be conclusive and binding upon Tenant
unless within 30 days after receipt of such Escalation Statement. Tenant shall
notify Landlord that it disputes the correctness of such Escalation Statement,
specifying the particular respects in which such Escalation Statement is claimed
to be incorrect. Any dispute relating to any Escalation Statement shall be
resolved by arbitration pursuant to Article 38 hereof, which arbitration shall
be by three (3) arbitrators each of whom shall have at least ten (10) years'
experience in the supervision of the operation and management of major office
buildings in Manhattan. Pending the determination of such dispute, Tenant shall
pay additional rent in accordance with the Escalation Statement that Tenant is
disputing, without prejudice to Tenant's position.
ARTICLE 4
ELECTRICITY
4.01. Submeters are installed to measure Tenant's consumption of electric
energy in the demised premises. Tenant agrees that electric current will be
supplied by Landlord to the demised premises and Tenant will pay Landlord or
Landlord's designated agent, as additional rent for the supplying of electric
current, an amount or amounts set by Landlord. The amount to be
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charged to Tenant by Landlord per "KW" and "KWHR" pursuant to this Article for
electricity consumed within the demised premises, shall be 110% of the amount at
which Landlord from time to time purchases each KW and KWHR of electricity for
the same period from the utility company, which amount (herein, as adjusted from
time to time, called "Landlord's Rate") shall be determined by dividing the cost
established by said utility company (averaged separately for KWs and KWHRs)
during each respective billing period by the number of KWs and KWHRs consumed by
the Building appearing on the utility company invoice for such period. In no
event shall the additional rent billed to Tenant pursuant to this Article 4 for
submetered electricity supplied to the demised premises be less than Landlord's
actual cost therefor. Where more than one meter measures the service of Tenant,
the service rendered through each meter shall be aggregated and billed in
accordance with the rates herein. Bills therefor shall be rendered at such times
as Landlord may elect and the amount shall be deemed to be, and be paid as,
additional rent. In the event that such bills are not paid within five (5) days
after the same are rendered, Landlord may, without further notice, discontinue
the service of electric current to the demised premises without releasing Tenant
from any liability under this Lease and without Landlord or Landlord's agent
incurring any liability for any damage or loss sustained by Tenant by such
discontinuance of service. At the option of Landlord, Tenant also agrees to
purchase from Landlord or its agent all lamps or bulbs used in the demised
premises and to pay for the cost of installation thereof. Landlord shall not in
any way be liable or responsible to Tenant for any loss or damage or expense
which Tenant may sustain or incur if either the quantity or character of
electric service is changed or is no longer available or suitable for Tenant's
requirements. In the event that in Landlord's sole judgment Tenant's electrical
requirements necessitate the installation of an additional riser, risers or
other proper and necessary equipment in connection with Tenant's electrical
requirements, the same shall be installed by Landlord at Tenant's sole expense.
Tenant agrees that at all times its installations and use of electric current
shall never exceed the capacity of existing feeders to the Building or the
risers or wiring installations serving the demised premises. Landlord agrees
that there shall be available for Tenant's use and distribution through the
demised premises, at Tenant's cost and expense, up to 800 amperes of 230 volt
electric connected load. If (i) in Landlord's reasonable opinion Tenant's
installation overloads the electrical vaults/feeders or any riser(s) and/or
switch(es) in or servicing the Building or (ii) Tenant requests additional power
in addition to that which is being supplied by Landlord on the date of initial
occupancy, then if and to the extent allocated power is available in the
Building for use by Tenant without resulting in allocation to Tenant of a
disproportionate amount of allocated power, Landlord shall, at Tenant's cost and
expense, provide and install in conformity with law any additional riser or
risers and/or any and all switch or switches to connect additional power to the
demised premises, and Tenant agrees to pay Landlord its then-established
connection charge for each additional amp of power or portion hereof so supplied
to the demised premises, together with the cost of installing such additional
risers, switches and related equipment. It is further agreed by Tenant that all
of the aforesaid costs and expenses are chargeable and collectible as additional
rent and shall be paid by Tenant to Landlord within five (5) days after
rendition of any bill
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or statement to Tenant therefor. Landlord may discontinue any of the aforesaid
services upon thirty (30) days notice to Tenant without being liable to Tenant
therefor or without in any way affecting this Lease or the liability of Tenant
hereunder or causing a diminution of rent and the same shall not be deemed to be
a lessening or diminution of services within the meaning of any law, rule or
regulation now or hereafter enacted, promulgated or issued. In the event
Landlord gives such notice of discontinuance Landlord shall permit Tenant to
receive such service direct from the public utility corporation upon condition
that Tenant shall at its sole expense entirely segregate Tenant's electrical
system so that the same is in no way dependent upon or connected to the circuits
or distribution facilities of Landlord or any other tenant and that upon
vacating the demised premises, Tenant will restore at its sole expense same to
the condition existing prior to such segregation. Tenant shall make no
electrical installations, alterations, additions or changes to electrical
equipment or appliances without the prior written consent of Landlord in each
instance, which consent will not be unreasonably withheld. Tenant will comply
with the General Rules, Regulations, Terms and Conditions applicable to Service,
Equipment, Wiring and Changes in Requirements in accordance with the
requirements of the public utility supplying electricity to the Building in the
same manner as if Tenant was serviced directly by such utility. If any tax is
imposed upon Landlord's receipt from the sale or resale of electrical energy or
gas or telephone service to Tenant by any Federal, State or Municipal Authority,
Tenant agrees that, where permitted by law, Tenant's pro-rata share of such
taxes shall be passed on to, and included in the bill of, and paid by Tenant to
Landlord.
4.02. In the event that as of the Commencement Date, there exist in the
feeders and switches to the point of entry to the demised premises conditions
which constitute violations of New York City Building Code, as promulgated as of
the Commencement Date, then provided that Tenant shall not alter or affect such
conditions in connection with the performance of alterations or improvements in
the demised premises or in any other manner, Tenant shall have no obligation to
cure such conditions and Landlord agrees to cure same reasonably promptly after
receipt from Tenant of notice thereof.
ARTICLE 5
USE
5.01. The demised premises shall be used solely as and for executive and
general offices of Tenant and/or its "Affiliates," as defined in Section 22.05
hereof, and for no other purposes.
5.02. Tenant shall not use or permit the use of the demised premises or any
part thereof in any way which would violate any of the covenants, agreements,
terms, provisions and conditions of this Lease or for any unlawful purposes or
in any unlawful manner or in violation of the Certificate of Occupancy for the
demised premises or the Building, and Tenant shall not suffer or permit the
demised premises or any part thereof to be used
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in any manner or anything to be done therein or anything to be brought into or
kept therein which, in the judgment of Landlord, shall in any way impair or tend
to impair the character, reputation or appearance of the Building as a high
quality office building, impair or interfere with or tend to impair or interfere
with any of the Building services or the proper and economic heating, cleaning,
air conditioning or other servicing of the Building or the demised premises, or
impair or interfere with or tend to impair or interfere with the use of any of
the other areas of the Building by, or occasion discomfort, inconvenience or
annoyance to, any of the other tenants or occupants of the Building. Tenant
further agrees that it will not commit any act of waste upon the demised
premises and Tenant hereby waives any rights it may have under Section 8.03 of
the Real Property and Proceedings Law of the State of New York. Tenant shall not
install any electrical or other equipment of any kind which, in the judgment of
Landlord, might cause any such impairment, interference, discomfort,
inconvenience or annoyance.
ARTICLE 6
ALTERATIONS AND INSTALLATIONS
6.01. Tenant shall make no alterations, installations, additions or
improvements in or to the demised premises without Landlord's prior written
consent and then only by contractors or mechanics first approved by Landlord.
All such work, alterations, installations, additions and improvements shall be
done at Tenant's sole expense and at such times and in such manner as Landlord
may from time to time designate. Prior to commencement of such work, Tenant
shall obtain and deliver to Landlord written, unconditional waivers of
mechanic's or other liens on the real property in which the demised premises are
located, signed by all architects, engineers, contractors, mechanics and
designers to become involved in such work.
Any installations, materials and work which may be undertaken by or for the
account of Tenant to prepare, equip, decorate and furnish the demised premises
for Tenant's occupancy (such work hereinafter sometimes called "Tenant's Finish
Work") and any future work in the demised premises shall be effected solely in
accordance with plans and specifications first approved in writing by Landlord.
Tenant shall reimburse Landlord promptly upon demand for any costs and expenses
incurred by Landlord in connection with Landlord's review of such Tenant's plans
and specifications. Landlord will not unreasonably withhold or delay its consent
to requests for nonstructural alterations, additions and improvements (provided
they will not affect the outside of the Building or adversely affect its
structure, electrical, HVAC, plumbing or mechanical systems).
Any such approved alterations and improvements shall be performed in
accordance with the foregoing and the following provisions of this Article 6:
1. All work shall be done in a good and workmanlike manner.
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2. (a) In the event Tenant shall employ any contractor to do in the
demised premises any work permitted by this Lease, such contractor and any
subcontractor shall agree to employ only such labor as will not result in
jurisdictional disputes or strikes or result in causing disharmony with
other workers employed at the Building. Tenant will inform Landlord in
writing of the names of any contractor or subcontractor Tenant proposes to
use in the demised premises at least fourteen (14) days prior to the
beginning of work by such contractor or subcontractor.
(b) Tenant covenants and agrees to pay to contractor, as the work
progresses, the entire cost of supplying the materials and performing the
work shown on Tenant's approved plans and specifications.
3. All such alterations shall be effected in compliance with all
applicable laws, ordinances, rules and regulations of governmental bodies
having or asserting jurisdiction in the demised premises.
4. Tenant shall keep the Building and the demised premises free and
clear of all liens for any work or material claimed to have been furnished
to Tenant or to the demised premises on Tenant's behalf, and all work to be
performed by Tenant shall be done in a manner which will not unreasonably
interfere with or disturb other tenants or occupants of the Building.
5. During the progress of the work to be done by Tenant, said work
shall be subject to inspection by representatives of Landlord who shall be
permitted access to the demised premises and the opportunity to inspect, at
all reasonable times, but this provision shall not in any way whatsoever
create any obligation on Landlord to conduct such an inspection.
6. With respect to alteration or improvement work costing more than
$10,000.00, Tenant agrees to pay to Landlord's managing agent, as
additional rent, promptly upon being billed therefor, a sum equal to
fifteen (15%) percent of the cost of such work or alteration, for
Landlord's indirect costs, field supervision and coordination in connection
with such work. However, such payment shall not be required of Tenant with
respect to Tenant's Work.
7. Prior to commencement of any work, Tenant shall furnish to Landlord
certificates evidencing the existence of:
(i) workmen's compensation insurance covering all persons
employed for such work; and
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(ii) reasonable comprehensive general liability and property
damage insurance naming Landlord, its designees and Tenant as
insureds, with coverage of at least $3,000,000 single limit.
8. Before commencing any work Tenant shall furnish to Landlord such
bonds for payment and completion or such other security for completion
thereof and payment therefor as Landlord shall require and in such form as
is satisfactory to Landlord and in an amount which will be 110% of
Landlord's estimate of the cost of performing such work. Such payment shall
not be required from the Tenant named herein with respect to Tenant's Work
or with respect to future alterations in the demised premises provided that
the Tenant named herein shall furnish to Landlord reasonable written
evidence that Tenant has sufficient funds available for completion thereof.
Notice is hereby given that Landlord shall not be liable for any labor or
materials furnished or to be furnished to Tenant upon credit, and that no
mechanic's or other lien for any such labor or materials shall attach to or
affect the reversion or other estate or interest of Landlord in and to the
demised premises.
6.02. Any mechanic's lien, filed against the demised premises or the
Building for work claimed to have been done for, or materials claimed to have
been furnished to, Tenant shall be discharged by Tenant at its expense within
thirty (30) days after such filing, by payment, filing of the bond required by
law or otherwise.
6.03. All alterations, installations, additions and improvements made and
installed by Landlord, including without limitation any work referred to in
Article 2 hereof shall be the property of Landlord and shall remain upon and be
surrendered with the demised premises as a part thereof at the end of the term
of this Lease.
6.04. All alterations, installations, additions and improvements made and
installed by Tenant, or at Tenant's expense, upon or in the demised premises
which are of a permanent nature and which cannot be removed without damage to
the demised premises or Building shall become and be the property of Landlord,
and shall remain upon and be surrendered with the demised premises as a part
thereof at the end of the term of this Lease, except that Landlord shall have
the right and privilege at any time up to six months prior to the expiration of
the term of this Lease to serve notice upon Tenant that any of such alterations,
installations, additions and improvements which are "Non-Standard Building
Alternations" (as defined below) shall be removed and, in the event of service
of such notice, Tenant will, at Tenant's own cost and expense, remove the same
in accordance with such request, and restore the demised premises to their
original condition, ordinary wear and tear and casualty excepted. For the
purposes hereof, a "Non-Standard Building Alteration" shall include: auditoriums
or similar type special use areas, vaults, atriums, kitchen equipment or
cafeterias (but excluding Dwyer Units), and slab reinforcements which reduce the
height of the finished ceiling within the demised premises or impede the
installation of duct work and other normal installations above the finished
ceiling.
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6.05. Where furnished by or at the expense of Tenant all furniture,
furnishings and trade fixtures, including without limitation, murals, business
machines and equipment, counters, screens, grille work, special paneled doors,
cages, movable partitions, metal railings, movable closets, paneling, lighting
fixtures and equipment, drinking fountains, refrigeration and air handling
equipment, and any other movable property shall remain the property of Tenant
which may, at its option, remove all or any part thereof at any time prior to
the expiration of the term of this Lease. In case Tenant shall decide not to
remove any part of such property, Tenant shall notify Landlord in writing not
less than three (3) months prior to the expiration of the term of this Lease,
specifying the items of property which it has decided not to remove. If, within
thirty (30) days after the service of such notice, Landlord shall request Tenant
to remove any of the said property, Tenant shall, at its expense, remove the
same and at Landlord's option either repair any damage caused by such removal or
restore the affected portion of the demised premises to its original condition.
As to such property which Landlord does not request Tenant to remove, the same
shall be, if left by Tenant, deemed abandoned by Tenant and thereupon the same
shall become the property of Landlord.
6.06. If any alterations, installations, additions, improvements or other
property which Tenant shall have the right to remove or be requested by Landlord
to remove as provided in Sections 6.04 and 6.05 hereof (herein in this Section
6.06 called the "property") are not removed on or prior to the expiration of the
term of this Lease, Landlord shall have the right to remove the property and to
dispose of the same without accountability to Tenant and at the sole cost and
expense of Tenant. In case of any damage to the demised premises or the Building
resulting from the removal of the property Tenant shall repair such damage or,
in default thereof, shall reimburse Landlord for Landlord's cost in repairing
such damage. This obligation shall survive any termination of this Lease.
6.07. Tenant shall keep records of Tenant's alterations, installations,
additions and improvements costing in excess of $5,000, and of the cost thereof.
Tenant shall, within 30 days after demand by Landlord, furnish to Landlord
copies of such records and cost if Landlord shall require same in connection
with any proceeding to reduce the assessed valuation of the Building, or in
connection with any proceeding instituted pursuant to Article 16 hereof.
ARTICLE 7
REPAIRS
7.01. Tenant shall take good care of the demised premises and shall, at its
sole cost and expense, make such repairs to the demised premises and the
fixtures and appurtenances therein as are necessitated by the act, omission,
occupancy or negligence of Tenant or by the use of the demised premises in a
manner contrary to the purposes for which same are leased to Tenant, as and when
needed to preserve them in good working order and
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condition. Tenant, at its expense, shall promptly replace all scratched, damaged
or broken doors and glass in and about the demised premises and shall be
responsible for all repairs, maintenance and replacement of wall and floor
coverings in the demised premises and for the repair and maintenance of all
sanitary and electrical fixtures and equipment therein. Tenant shall promptly
make, at Tenant's expense, all repairs in or to the demised premises for which
Tenant is responsible, and any repairs required to be made by Tenant to the
mechanical, electrical, sanitary, heating, ventilating, air-conditioning or
other systems of the Building shall be performed only by contractor(s)
designated by Landlord. Any other repairs in or to the Building and the
facilities and systems thereof for which Tenant is responsible, shall be
performed by Landlord at Tenant's expense. Except as otherwise provided in
Section 9.05 hereof, all damage or injury to the demised premises and to its
fixtures, appurtenances and equipment or to the Building or to its fixtures,
appurtenances and equipment caused by Tenant moving property into or out of the
Building or by installation or removal of furniture, fixtures or other property,
shall be repaired, restored or replaced promptly by Tenant at its sole cost and
expense, which repairs, restorations and replacements shall be in quality and
class equal to the original work or installations. If Tenant fails to make such
repairs, restoration or replacements, the same may be made by Landlord at the
expense of Tenant and such expense shall be collectible as additional rent and
shall be paid by Tenant within 15 days after rendition of a bill therefor.
The exterior walls of the Building, the portions of any window sills
outside the windows, the windows, the fire stairs, any terraces or Building set
back areas, utility closets and any shafts passing through the floor on which
the demised premises are located are not part of the premises demised by this
Lease, and Landlord reserves all rights to such parts of the Building.
7.02. Tenant shall not place a load upon any floor of the demised premises
exceeding the floor load per square foot area which such floor was designed to
carry and which is allowed by law.
7.03. Business machines and mechanical equipment used by Tenant which cause
vibration, noise, cold or heat that may be transmitted to the Building structure
or to any leased space to such a degree as to be objectionable to Landlord or to
any other tenant in the Building shall be placed and maintained by Tenant at its
expense in settings of cork, rubber or spring type vibration eliminators
sufficient to absorb and prevent such vibration or noise, or prevent
transmission of such cold or heat. The parties hereto recognize that the
operation of elevators, air conditioning and heating equipment will cause some
vibration, noise, heat or cold which may be transmitted to other parts of the
Building and demised premises. Landlord shall be under no obligation to endeavor
to reduce such vibration, noise, heat or cold.
7.04. Except as otherwise specifically provided in this Lease, there shall
be no allowance to Tenant for a diminution of rental value and no
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liability on the part of Landlord by reason of inconvenience, annoyance or
injury to business arising from the making of any repairs, alterations,
additions or improvements in or to any portion of the Building or the demised
premises or in or to fixtures, appurtenances or equipment thereof.
ARTICLE 8
REQUIREMENTS OF LAW
8.01. Tenant, at Tenant's sole cost and expense, shall comply with all
laws, orders and regulations of federal, state, county and municipal
authorities, and with any direction of any public officer or officers, pursuant
to law, which shall impose any violation, order or duty upon Landlord or Tenant
with respect to the demised premises, or the use or occupation thereof.
8.02. Notwithstanding the provisions of Section 8.01 hereof, Tenant, at its
own cost and expense, in its name and/or (whenever necessary) Landlord's name,
may contest, in any manner permitted by law (including appeals to a court, or
governmental department or authority having jurisdiction in the matter), the
validity or the enforcement of any governmental act, regulation or directive
with which Tenant is required to comply pursuant to this Lease, and may defer
compliance therewith provided that:
(a) such non-compliance shall not subject Landlord to criminal
prosecution or subject the Land and/or Building to lien or sale;
(b) such non-compliance shall not be in violation of any fee mortgage,
or of any ground or underlying lease or any mortgage thereon;
(c) Tenant shall first deliver to Landlord a surety bond issued by a
surety company of recognized responsibility, or other security satisfactory
to Landlord, indemnifying and protecting Landlord against any loss or
injury by reason of such non-compliance; and
(d) Tenant shall promptly and diligently prosecute such contest.
Landlord, without expense or liability to it, shall cooperate with Tenant
and execute any documents or pleadings required for such purpose, provided that
Landlord shall reasonably be satisfied that the facts set forth in any such
documents or pleadings are accurate.
8.03. In the event that as of the Commencement Date, there exist in the
demised premises conditions with respect to the Class E System or fire stopping
which constitute violations of New York City Building Code or other conditions
which constitute violations of New York City Local Law No. 5, as promulgated as
of the Commencement Date, then provided that Tenant shall not
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alter or affect such conditions in connection with the performance of
alterations or improvements in the demised premises or in any other manner,
Tenant shall have no obligation to cure such conditions and Landlord agrees to
cure same reasonably promptly after receipt from Tenant of notice thereof.
ARTICLE 9
INSURANCE, LOSS, REIMBURSEMENT, LIABILITY
9.01. Tenant shall not cause, do, or permit to be done any act or thing
upon the demised premises, which will invalidate or be in conflict with New York
standard fire insurance policies covering the Building, and fixtures and
property therein, or which would increase the rate of fire insurance applicable
to the Building to an amount higher than it otherwise would be; and Tenant shall
neither do nor permit to be done any act or thing upon the demised premises
which shall or might subject Landlord to any liability or responsibility for
injury to any person or persons or to property by reason of any business or
operation being carried on within the demised premises.
9.02. If, as a result of any act or omission by Tenant or violation of this
Lease, the rate of fire insurance applicable to the Building shall be increased
to an amount higher than it otherwise would be, Tenant shall reimburse Landlord
for all increases of Landlord's fire insurance premiums so caused; such
reimbursement to be additional rent payable upon the first day of the month
following any outlay by Landlord for such increased fire insurance premiums. In
any action or proceeding wherein Landlord and Tenant are parties, a schedule or
"make-up" of rates for the Building or demised premises issued by the body
making fire insurance rates for the demised premises, shall be presumptive
evidence of the facts therein stated and of the several items and charges in the
fire insurance rate then applicable to the demised premises.
9.03. Landlord or its agents shall not be liable for any injury or damage
to persons or property resulting from fire, explosion, falling plaster, steam,
gas, electricity, water, rain or snow or leaks from any part of the Building, or
from the pipes, appliances or plumbing works or from the roof, street or
subsurface or from any other place or by dampness or by any other cause of
whatsoever nature, unless any of the foregoing shall be caused by or due to the
negligence of Landlord, its agents, servants or employees.
9.04. Landlord or its agents shall not be liable for any damage which
Tenant may sustain, if at any time any window of the demised premises is broken,
or temporarily or permanently (restricted to windows on a lot line, if
permanet1y) closed, darkened or bricked up for any reason whatsoever, except
only Landlord's arbitrary acts if the result is permanent, and Tenant shall not
be entitled to any compensation therefor or abatement of rent or to any release
from any of Tenant's obligations under this Lease, nor shall the same constitute
an eviction.
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9.05. Tenant shall reimburse Landlord for all expenses damages or fines
incurred or suffered by Landlord, by reason of any breach, violation or
non-performance by Tenant, or its agents, servants or employees, of any covenant
or provision of this Lease, or by reason of damage to persons or property caused
by moving property of or for Tenant in or out of the Building, or by the
installation or removal of furniture or other property of or for Tenant except
as provided in Section 6.05 of this Lease, or by reason of or arising out of the
carelessness, negligence or improper conduct of Tenant, or its agents, servants
or employees, in the use or occupancy of the demised premises. Subject to the
provisions of Section 8.02 hereof, where applicable, Tenant shall have the
right, at Tenant's own cost and expense, to participate in the defense of any
action or proceeding brought against Landlord, and in negotiations for
settlement thereof if, pursuant to this Section 9.05, Tenant would be obligated
to reimburse Landlord for expenses, damages or fines incurred or suffered by
Landlord.
9.06. Tenant shall give Landlord notice in case of fire or accidents in the
demised premises promptly after Tenant is aware of such event.
9.07. Tenant agrees to look solely to Landlord's estate and interest in the
Land and Building, or the lease of the Building, or of the Land and Building,
and the demised premises, for the satisfaction of any right or remedy of Tenant
for the collection of a judgment (or other judicial process) requiring the
payment of money by Landlord, in the event of any liability by Landlord, and no
other property or assets of Landlord (or the partners or members thereof if
Landlord is other than an individual or corporation) shall be subject to levy,
execution, attachment, or other enforcement procedure for the satisfaction of
Tenant's remedies under or with respect to this Lease, the relationship of
Landlord and Tenant hereunder, or Tenant's use and occupancy of the demised
premises, or any other liability of Landlord to Tenant.
9.08. (a) Landlord agrees that, if obtainable at no additional cost, it
will include in its fire insurance policies appropriate clauses pursuant to
which the insurance companies (i) waive all right of subrogation against Tenant
with respect to losses payable under such policies and/or (ii) agree that such
policies shall not be invalidated should the insured waive in writing prior to a
loss any or all right of recovery against any party for losses covered by such
policies. But should any additional premiums be exacted for any such clause or
clauses, Landlord shall be released from the obligation hereby imposed unless
Tenant shall agree to pay such additional premium.
(b) Tenant agrees to include, if obtainable at no additional cost, in its
fire insurance policy or policies on its furniture, furnishings, fixtures and
other property removable by Tenant under the provisions of this Lease
appropriate clauses pursuant to which the insurance company or companies (i)
waive the right of subrogation against Landlord and/or any tenant of space in
the Building with respect to losses payable under such policy or policies
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and/or (ii) agree that such policy or policies shall not be invalidated should
the insured waive in writing prior to a loss any or all right of recovery
against any party for losses covered by such policy or policies. But should any
additional premium be exacted for any such clause or clauses, Tenant shall be
released from the obligation hereby imposed unless Landlord or the other tenants
shall agree to pay such additional premium.
(c) Provided that Landlord's right of full recovery under its policy or
policies aforesaid is not adversely affected or prejudiced thereby, Landlord
hereby waives any and all right of recovery which it might otherwise have
against Tenant, its servants, agents and employees, for loss or damage occurring
to the Building and the fixtures, appurtenances and equipment therein, to the
extent the same is covered by Landlord's insurance, notwithstanding that such
loss or damage may result from the negligence or fault of Tenant, its servants,
agents or employees. Provided that Tenant's right of full recovery under its
aforesaid policy or policies is not adversely affected or prejudiced thereby,
Tenant hereby waives any and all right of recovery which it might otherwise have
against Landlord, its servants, and employees, and against every other tenant in
the Building who shall have executed a similar waiver as set forth in this
Section 9.08(c) for loss or damage to, Tenant's furniture, furnishings, fixtures
and other property removable by Tenant under the provisions hereof to the extent
that same is covered by Tenant's insurance, notwithstanding that such loss or
damage may result from the negligence or fault of Landlord, its servants, agents
or employees, or such other tenant and the servants, agents or employees
thereof.
(d) Landlord and Tenant hereby agree to advise the other promptly if the
clauses to be included in their respective insurance policies pursuant to
subdivisions 9.08 (a) and (b) hereof cannot be obtained. Landlord and Tenant
hereby also agree to notify the other promptly of any cancellation or change of
the terms of any such policy which would affect such clauses.
9.10. Tenant covenants and agrees to provide on or before the Commencement
Date and to keep in force during the term hereof for the benefit of Landlord and
Tenant a paid-up comprehensive general liability insurance policy protecting
Landlord, Landlord's managing agent, lessors under superior leases and the
holders of any mortgages affecting the Land and/or Building and Tenant against
any liability whatsoever, occasioned by any occurrence on or about the demised
premises or any appurtenances thereto. Such policy is to be written by good and
solvent insurance companies satisfactory to Landlord, and shall be in such
limits as Landlord may reasonably require and as of the date of this Lease
Landlord reasonably requires limits of liability thereunder of not 1ess than the
amount of Three Million ($3,000,000) Dollars per occurrence for bodily or
personal injury (including death) and in the amount of Three Hundred Thousand
($300,000) Dollars in respect of property damage. Such insurance may be carried
under a blanket policy covering the demised premises and other locations of
Tenant, if any. Prior to the time such insurance is first required to be carried
by Tenant and thereafter, at least fifteen (15) days prior to the effective date
of any such policy, Tenant agrees to deliver
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to Landlord either a duplicate original of the aforesaid policy or a certificate
evidencing such insurance. Said certificate shall contain an endorsement that
such insurance may not be cancelled except upon ten (10) days' notice to
Landlord. Tenant shall also maintain during the term hereof "all risk" property
insurance covering Tenant's Property and improvements and betterments to a limit
of the replacement cost thereof. and Tenant's failure to provide and keep in
force the aforementioned insurance shall be regarded as a material default
hereunder entitling Landlord to exercise any or all of the remedies provided in
this Lease in the event of Tenant's default.
ARTICLE 10
DAMAGE BY FIRE OR OTHER CAUSE
10.01. If the Building or the demised premises shall be partially or
totally damaged or destroyed by fire or other cause, then whether or not the
damage or destruction shall have resulted from the fault or neglect of Tenant,
or its employees, agents or visitors (and if this Lease shall not have been
terminated as in this Article 10 hereinafter provided), Landlord shall repair
the damage and restore and rebuild the Building and/or the demised premises, at
its expense (without limiting the rights of Landlord under any other provisions
of this Lease), with reasonable dispatch after notice to it of the damage or
destruction; provided, however, that Landlord shall not be required to repair or
replace any property installed by or on behalf of Tenant.
10.02. If the Building or the demised premises shall be partially damaged
or partially destroyed by fire or other cause, then unless such fire or damage
shall have resulted from the negligence of Tenant, the rents payable hereunder
shall be abated to the extent that the demised premises shall have been rendered
untenantable for the period from the date of such damage or destruction to the
date the damage shall be repaired or restored. If the demised premises or a
major part thereof shall. be totally (which shall be deemed to include
substantially totally) damaged or destroyed or rendered completely (which shall
be deemed to include substantially completely) untenantable on account of fire
or other cause, the rents shall abate as of the date of the damage or
destruction and until Landlord shall repair, restore and rebuild the Building
and the demised premises, provided, however, that should Tenant reoccupy a
portion of the demised premises during the period the restoration work is taking
place and prior to the date that the same are made completely tenantable, rents
allocable to such portion shall be payable by Tenant from the date of such
occupancy.
10.03. If the Building or the demised premises shall be totally damaged or
destroyed by fire or other cause, or if the Building shall be so damaged or
destroyed by fire or other cause (whether or not the demised premises are
damaged or destroyed as to require a reasonably estimated expenditure of more
than forty (40%) per cent of the full insurable value of
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the Building immediately prior to the casualty, then in either such case
Landlord may terminate this Lease by giving Tenant notice to such effect within
one hundred eighty (180) days after the date of the casualty. In case of any
damage or destruction mentioned in this Article 10, Tenant may terminate this
Lease by notice to Landlord, if Landlord has not completed the making of the
required repairs and restored and rebuilt the Building and the demised premises
within eighteen (18) months from the date of such damage or destruction, or
within such period after such date (not exceeding six (6) months) as shall equal
the aggregate period Landlord may have been delayed in doing so by adjustment of
insurance, labor trouble, governmental controls, act of God, or any other cause
beyond Landlord's reasonable control.
10.04. No damages, compensation or claim shall be payable by Landlord for
inconvenience, loss of business or annoyance arising from any repair or
restoration of any portion of the demised premises or of the Building pursuant
to this Article 10.
10.05. Notwithstanding any of the foregoing provisions of this Article 10,
if Landlord or the lessor of any superior lease or the holder of any superior
mortgage shall be unable to collect all of the insurance proceeds (including
rent insurance proceeds) applicable to damage or destruction of the demised
premises or the Building by fire or other cause, by reason of some action or
inaction on the part of Tenant or any of its employees, agents or contractors,
then, without prejudice to any other remedies which may be available against
Tenant, there shall be no abatement of Tenant's rents, but the total amount of
such rents not abated (which would otherwise have been abated) shall not exceed
the amount of uncollected insurance proceeds.
10.06. Landlord will not carry separate insurance of any kind on Tenant's
property, and, except as provided by law or by reason of its breach of any of
its obligations hereunder, shall not be obligated to repair any damage thereto
or replace the same. Tenant shall maintain insurance on Tenant's property, and
Landlord shall not be obligated to repair any damage thereto or replace the
same.
10.07. Landlord and Tenant shall each look first to any insurance in its
favor before making any claim against the other party for recovery for loss or
damage resulting from fire or other casualty.
10.08. The provisions of this Article 10 shall be considered an express
agreement governing any cause of damage or destruction of the demised
premises by fire or other casualty, and Section 227 of the Real Property Law of
the State of New York, providing for such a contingency in the absence of an
express agreement, and any other law of like import, now or hereafter in force,
shall have no application in such case.
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ARTICLE 11
ASSIGNMENT, MORTGAGING, SUBLETTING, ETC.
11.01. Tenant shall not (a) assign or otherwise transfer this Lease or the
term and estate hereby granted, (b) sublet the demised premises or any part
thereof or allow the same to be used or occupied by others or in violation of
Article 5 hereof, (c) mortgage, pledge or encumber this Lease or the demised
premises or any part thereof in any manner or permit any lien to be filed
against the Lease, the demised premises or the Building by reason of any act or
omission on the part of Tenant or enter into any agreement which would permit
the filing of a lien by any broker, or (d) advertise, or authorize a broker to
advertise, for a subtenant or an assignee, without, in each instance, obtaining
the prior consent of Landlord, except as otherwise expressly provided in this
Article 11. For purposes of this Article 11, (i) the transfer of a majority of
the issued and outstanding capital stock of any corporate tenant, or of a
corporate subtenant, or the transfer of a majority of the total interest in any
partnership tenant or subtenant, however accomplished, whether in a single
transaction or in a series of related or unrelated transactions, shall be deemed
an assignment of this Lease, or of such sublease, as the case may be, except
that the transfer of the outstanding capital stock of any corporate tenant, or
subtenant, shall be deemed not to include the sale of such stock by persons or
parties, through the "over-the-counter market" or through any recognized stock
exchange, other than those deemed "insiders" within the meaning of the
Securities Exchange Act of 1934 as amended, (ii) a takeover agreement shall be
deemed a transfer of this Lease, (iii) any person or legal representative of
Tenant, to whom Tenant's interest under this Lease passes by operation of law,
or otherwise, shall be bound by the provisions of this Article 11, and (iv) a
modification, amendment or extension of a sublease shall be deemed a sublease.
11.02. The provisions of Section 11.01 hereof shall not apply to
transactions with (a) a corporation into or with which Tenant is merged or
consolidated or with an entity to which substantially all of Tenant's assets are
transferred (provided such merger or transfer of assets is for a good business
purpose and not principally for the purpose of transferring the leasehold estate
created hereby, and provided further, that the assignee has a net worth at least
equal to or in excess of the net worth of Tenant immediately prior to such
merger or transfer) or, if Tenant is a partnership, with a successor
partnership, and (b) an "Affiliate" of Tenant, as defined in Section 22.05
hereof.
11.03. Any assignment or transfer, whether made with Landlord's consent as
required by Section 11.01 or without Landlord's consent pursuant to
Section ll.02, shall be made only if, and shall not be effective until, the
assignee shall execute, acknowledge and deliver to Landlord a recordable
agreement, in form and substance reasonably satisfactory to Landlord, whereby
the assignee shall assume the obligations and performance of this Lease and
agree to be personally bound by and upon all of the covenants, agreements,
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any and all covenants, obligations and liabilities of Landlord hereunder, and it
shall be deemed and construed as a covenant running with the land without
further agreement between the parties or their successors in interest, or
between the parties and the transferee of title to said Land and Building or
said lease, or the said lessee of the Building, or of the Land and Building,
that the transferee or the lessee has assumed and agreed to carry out any and
all such covenants, obligations and liabilities of Landlord hereunder.
22.02. The term "Business Days" as used in this Lease shall exclude
Saturdays, Sundays and all days observed by the Federal, State or local
government as legal holidays as well as all other days recognized as holidays
under applicable union contracts.
22.03. "Interest Rate" shall mean a rate per annum equal to the lesser of
(a) 2% above the commercial lending rate announced from time to time by Bankers
Trust Company, as its prime rate for 90-day unsecured loans, or (b) the maximum
applicable legal rate, if any.
22.04. "Legal Requirements" shall mean laws, statutes and ordinances
(including building codes and zoning regulations and ordinances) and the orders,
rules, regulations, directives and requirements of all federal, state, county,
city and borough departments, bureaus, boards, agencies, offices, commissions
and other subdivisions thereof, or of any official thereof, or of any other
governmental public or quasi-public authority, whether now or hereafter in
force, including, without limitation, The Americans with Disabilities Act of
1990, Public Law 101-336, 42 U.S.C. ss.ss. 12101 et seq., which may be
applicable to the Land or Building or the demised premises or any part thereof,
or the sidewalks, curbs or areas adjacent thereto and all requirements,
obligations and conditions of all instruments of record on the date of this
Lease.
22.05. "Affiliate" shall mean (i) an individual, partnership, corporation,
unincorporated association or other entity controlling, controlled by or under
common control with the Tenant named herein and for the purposes of the
foregoing, "control" shall mean ownership of 50% or more of the legal and
beneficial interest in such corporation or other entity; and (ii) any of the
Guarantors and Kaleidoscope Entertainment for so long as the aggregate ownership
interest in any of the foregoing entities of each of Ray Volpe and/or Don Dixon
is at least equal to 90% of the ownership interest therein of Ray Volpe and/or
Don Dixon as of the date hereof.
ARTICLE 23
INVALIDITY OF ANY PROVISION
23.01. If any term, covenant, condition or provision of this Lease or the
application thereof to any circumstance or to any person, firm or corporation
shall be invalid or unenforceable to any extent, the remaining terms, covenants,
conditions and provisions of this Lease or the application
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thereof to any circumstances or to any person, firm or corporation other than
those as to which any term, covenant, condition or provision is held invalid or
unenforceable, shall not be affected thereby and each remaining term, covenant,
condition and provision of this Lease shall be valid and shall be enforceable to
the fullest extent permitted by law.
ARTICLE 24
BROKERAGE
24.01. Tenant covenants, represents and warrants that Tenant has had no
dealings or communications with any broker, or agent other than Riverbank Realty
Company (which is currently representing Landlord) and Stuart Marshak Real
Estate Corp., in connection with the consummation of this Lease. Landlord and
Tenant each covenants and agrees to pay, hold harmless and indemnify the other
from and against any and all cost, expense (including reasonable attorneys'
fees) or liability for any compensation, commissions or charges claimed by any
broker or agent, other than the brokers set forth in this Section 24.01,
claiming to have dealt with the indemnifying party with respect to this Lease or
the negotiation thereof.
ARTICLE 25
SUBORDINATION
25.01. Subject to the provisions of Section 25.06 hereof, this Lease is and
shall be subject and subordinate to all ground or underlying leases which may
now or hereafter affect the real property of which the demised premises form a
part and to all mortgages which may now or hereafter affect such leases or such
real property, and to all renewals, modifications, replacements and extensions
thereof. The provisions of this Section 25.01 shall be self-operative and no
further instrument of subordination shall be required. In confirmation of such
subordination, Tenant shall promptly execute and deliver at its own cost and
expense any instrument, in recordable form if required, that Landlord, the
lessor of the ground or underlying lease or the holder of any such mortgage or
any of their respective successors in interest may request to evidence such
subordination, and Tenant hereby constitutes and appoints Landlord or its
successors in interest to be Tenant's attorney-in-fact, irrevocably and coupled
with an interest, to execute and deliver any such instrument for and on behalf
of Tenant.
25.02. In the event of a termination of any ground or underlying lease, or
if the interests of Landlord under this Lease are transferred by reason of, or
assigned in lieu of, foreclosure or other proceedings for enforcement of any
mortgage, or if the holder of any mortgage acquires a lease in substitution
therefor, then Tenant under this Lease will, at the option to be exercised in
writing by the lessor under such ground or underlying lease or such mortgagee or
purchaser, assignee or lessee, as the case may be, either (i) attorn to it and
will perform for its benefit all the terms, covenants and
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conditions of this Lease on Tenant's part to be performed with the same force
and effect as if said lessor, such mortgagee or purchaser, assignee or lessee,
were the landlord originally named in this Lease, or (ii) enter into a new lease
with said lessor or such mortgagee or purchaser, assignee or lessee, as
landlord, for the remaining term of this Lease and otherwise on the same terms
and conditions and with the same options, if any, then remaining. The foregoing
provisions of clause (i) of this Section 25.02 shall enure to the benefit of
such lessor, mortgagee, purchaser, assignee or lessee, shall be self-operative
upon the exercise of such option, and no further instrument shall be required to
give effect to said provisions. Tenant, however, upon demand of any such lessor,
mortgagee, purchaser, assignee or lessee agrees to execute, from time to time,
instruments in confirmation of the foregoing provisions of this Section 25.02,
satisfactory to any such lessor, mortgagee, purchaser, assignee or lessee,
acknowledging such attornment and setting forth the terms and conditions of its
tenancy. Tenant hereby constitutes and appoints Landlord or its successors in
interest to be the Tenant's attorney-in-fact, irrevocably and coupled with an
interest, to execute and deliver such instrument of attornment, or such new
lease, if the Tenant refuses or fails to do so promptly upon request.
25.03. Anything herein contained to the contrary notwithstanding, under no
circumstances shall the aforedescribed lessor under the ground lease or
mortgagee or purchaser, assignee or lessee, as the case may be, whether or not
it shall have succeeded to the interests of the landlord under this Lease, be
(a) liable for any act, omission or default of any prior landlord; or
(b) subject to any offsets, claims or defenses which the Tenant might have
against any prior landlord; or
(c) bound by any fixed annual rent or additional rent which Tenant might
have paid to any prior landlord for more than one month in advance or for more
than three months in advance where such rent payments are payable at intervals
of more than one month; or
(d) bound by any modification, amendment or abridgment of the Lease, or any
cancellation or surrender of the same, made without its prior written approval.
25.04. If, in connection with the financing of the Building, the holder of
any mortgage shall request reasonable modifications in this Lease as a condition
of approval thereof, Tenant will not unreasonably withhold, delay or defer
making such modifications.
25.05. Tenant agrees that, except for the first month's rent hereunder, it
will pay no rent under this Lease more than thirty (30) days in advance of its
due date, if so restricted by any existing or future ground lease or mortgage to
which this Lease is subordinated or by an assignment of this Lease to the ground
lessor or the holder of such mortgage, and, in the
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event of any act or omission by Landlord, Tenant will not exercise any right to
terminate this Lease or to remedy the default and deduct the cost thereof from
rent due hereunder until Tenant shall have given written notice of such act or
omission to the ground lessor and to the holder of any mortgage on the fee or
the ground lease who shall have furnished such lessor's or holder's last address
to Tenant, and until a reasonable period for remedying such act or omission
shall have elapsed following the giving of such notices, during which time such
lessor or holder shall have the right, but shall not be obligated, to remedy or
cause to be remedied such act or omission. Tenant shall not exercise any right
pursuant to this Section 26.02 if the holder of any mortgage or such aforesaid
lessor commences to cure such aforesaid act or omission within a reasonable time
and diligently prosecutes such cure thereafter.
25.06. Landlord represents that there are no mortgages currently affecting
Landlord's leasehold interest in the Building. With respect to future superior
mortgages affecting Landlord's leasehold interest in the Building, the
provisions of Section 25.01 hereof shall be conditioned upon the execution and
delivery by and between Tenant and any such superior mortgagee of a so-called
non-disturbance agreement on the customary form of such superior mortgagee which
shall provide in substance that so long as no default exists hereunder beyond
any applicable grace period (if any), Tenant shall not be disturbed in its
possession of the demised premises pursuant to the provisions of this Lease.
Tenant agrees to execute such agreements and return same to Landlord within ten
(10) days after Landlord's written request therefor. If Tenant shall fail to
execute, acknowledge and return any such agreement within such ten (10) day
period, then (x) the provisions of Section 25.01 shall apply, and (y) this Lease
shall be subordinate to such future superior mortgages pursuant to the terms and
conditions of such agreement, and Tenant shall be deemed to have executed and
delivered such agreement to the superior mortgagee requesting such execution,
notwithstanding the fact that Tenant has not, in fact, executed and delivered
such agreement.
ARTICLE 26
CERTIFICATE OF TENANT
26.01. Tenant agrees, at any time and from time to time, as requested by
Landlord, upon not less than ten (10) days prior notice, to execute and deliver
to Landlord a statement certifying that this Lease is unmodified and in full
force and effect (or if there have been modifications that the same is in full
force as modified and stating the modifications), certifying the dates to which
the annual fixed rent and additional rent have been paid, and stating whether or
not, to the best knowledge of Tenant, Landlord is in default in performance of
any of its obligations under this Lease, and, if so, specifying each such
default of which Tenant may have knowledge, it being intended that any such
statement delivered pursuant hereto may be relied upon by others with whom
Landlord may be dealing.
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ARTICLE 27
LEGAL PROCEEDINGS, WAIVER OF JURY TRIAL
27.01. Landlord and Tenant do hereby waive trial by jury in any action,
proceeding or counterclaim brought by either of the parties hereto against the
other on any matters whatsoever arising out of or in any way connected with this
Lease, the relationship of Landlord and Tenant, Tenant's use or occupancy of the
demised premises, and/or any other claims (except claims for personal injury or
property damage), and any emergency statutory or any other statutory remedy. It
is further mutually agreed that in the event Landlord commences any summary
proceeding for non-payment of rent, Tenant will not interpose and does hereby
waive the right to interpose any counterclaim of whatever nature or description
in any such proceeding.
ARTICLE 28
SURRENDER OF PREMISES
28.01. Upon the expiration or other termination of the term of this Lease,
Tenant shall quit and surrender to Landlord the demised premises, broom clean,
in good order and condition, ordinary wear and tear and damage by fire, the
elements or other casualty excepted, and Tenant shall remove all of its property
as herein provided. Tenant's obligation to observe or perform this covenant
shall survive the expiration or other termination of the term of this Lease.
ARTICLE 29
RULES AND REGULATIONS
29.01. Tenant and Tenant's servants, employees and agents shall observe
faithfully and comply strictly with the Rules and Regulations set forth in
Schedule B attached hereto and made part hereof entitled "Rules and Regulations"
and such other and further reasonable Rules and Regulations as Landlord or
Landlord's agents may from time to time adopt provided, however, that in case of
any conflict or inconsistency between the provisions of this Lease and of any of
the Rules and Regulations as originally or as hereafter adopted, the provisions
of this Lease shall control. Reasonable written notice of any additional Rules
and Regulations shall be given to Tenant.
Nothing in this Lease contained shall be construed to impose upon Landlord
any duty or obligation to enforce the Rules and Regulations of the terms,
covenants or conditions in any other lease, against any other tenant of the
Building, and Landlord shall not be liable to Tenant for violation of the same
by any other tenant, its servants, employees, agents, visitors or licensees.
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ARTICLE 30
CONSENTS AND APPROVALS
30.01. Wherever in this Lease Landlord's consent or approval is required,
if Landlord shall delay or refuse such consent or approval, Tenant in no event
shall be entitled to make, nor shall Tenant make, any claim, and Tenant hereby
waives any claim, for money damages (nor shall Tenant claim any money damages by
way of set-off, counterclaim or defense) based upon any claim or assertion by
Tenant that Landlord unreasonably withheld or unreasonably delayed its consent
or approval. Tenant's sole remedy shall be an action or proceeding to enforce
any such provision, for specific performance, injunction or declaratory
judgment.
ARTICLE 31
NOTICES
31.01. Any notice or demand, consent, approval or disapproval, or statement
required to be given by the terms and provisions of this Lease, or by any law or
governmental regulation, either by Landlord to Tenant or by Tenant to Landlord,
shall be in writing. Unless otherwise required by such law or regulation, such
notice or demand shall be given, and shall be deemed to have been served and
given when such notice or demand is mailed by registered or certified mail
deposited enclosed in a securely closed post-paid wrapper, in a United States
Government general or branch post office, or official depository with the
exclusive care and custody thereof, addressed to either party, at its address
set forth on page 1 of this Lease. After Tenant shall occupy the demised
premises, the address of Tenant for notices, demands, consents, approvals or
disapprovals shall be the Building. Either party may, by notice as aforesaid,
designate a different address or addresses for notices, demands, consents,
approvals or disapprovals.
31.02. In addition to the foregoing, either Landlord or Tenant may, from
time to time, request in writing that the other party serve a copy of any notice
or demand, consent, approval or disapproval, or statement, on one other person
or entity designated in such request, such service to be effected as provided in
Section 31.01 hereof.
31.03. Pursuant to Section 31.02 hereof, a copy of any of the aforesaid
notices, demands, consents, approvals, disapprovals or statements to be served
upon Landlord at its address on page 1 of this Lease shall also simultaneously
be served upon Landlord at the following address: 280 Park Avenue--23 West, New
York, New York 10017, Attn: Susan Cox, Vice President.
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ARTICLE 32
NO WAIVER
32.01. No agreement to accept a surrender of this Lease shall be valid
unless in writing signed by Landlord. No employee of Landlord or of Landlord's
agents shall have any power to accept the keys of the demised premises prior to
the termination of this Lease. The delivery of keys to any employee of Landlord
or of Landlord's agent shall not operate as a termination of this Lease or a
surrender of the demised premises. In the event of Tenant at any time desiring
to have Landlord sublet the premises for Tenant's account, Landlord or
Landlord's agents are authorized to receive said keys for such purpose without
releasing Tenant from any of the obligations under this Lease. The failure of
Landlord to seek redress for violation of, or to insist upon the strict
performance of, any covenant or condition of this Lease or any of the Rules and
Regulations set forth herein, or hereafter adopted by Landlord, shall not
prevent a subsequent act, which would have originally constituted a violation,
from having all the force and effect of an original violation. The receipt by
Landlord of rent with knowledge of the breach of any covenant of this Lease
shall not be deemed a waiver of such breach. The failure of Landlord to enforce
any of the Rules and Regulations set forth herein, or hereafter adopted, against
Tenant and/or any other tenant in the Building shall not be deemed a waiver of
any such Rules and Regulations. No provision of this Lease shall be deemed to
have been waived by Landlord, unless such waiver be in writing signed by
Landlord. No payment by Tenant or receipt by Landlord of a lesser amount than
the monthly rent herein stipulated shall be deemed to be other than on the
account of the earliest stipulated rent, nor shall any endorsement or statement
on any check or any letter accompanying any check or payment of rent be deemed
an accord and satisfaction, and Landlord may accept such check or payment
without prejudice to Landlord's right to recover the balance of such rent or
pursue any other remedy in this Lease provided.
32.02. This Lease contains the entire agreement between the parties, and
any executory agreement hereafter made shall be ineffective to change, modify,
discharge or effect an abandonment of it in whole or in part unless such
executory agreement is in writing and signed by the party against whom
enforcement of the change, modification, discharge or abandonment is sought.
ARTICLE 33
CAPTIONS
33.01. The captions are inserted only as a matter of convenience and for
reference, and in no way define, limit or describe the scope of this Lease nor
the intent of any provision thereof.
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ARTICLE 34
INABILITY TO PERFORM
34.01. If, by reason of (1) strike, (2) labor troubles, (3) governmental
pre-emption in connection with a national emergency, (4) any rule, order or
regulation of any governmental agency, (5) conditions of supply or demand which
are affected by war or other national, state or municipal emergency, or any
other cause or (6) any cause beyond Landlord's reasonable control, Landlord
shall be unable to fulfill its obligations under this Lease or shall be unable
to supply any service which Landlord is obligated to supply, this Lease and
Tenant's obligation to pay rent hereunder shall in no wise be affected, impaired
or excused.
ARTICLE 35
NO REPRESENTATIONS BY LANDLORD
35.01. Landlord or Landlord's agents have made no representations or
promises with respect to the Building or demised premises except as herein
expressly set forth.
ARTICLE 36
NAME OF BUILDING
36.01. Landlord shall have the full right at any time to name and change
the name of the Building and to change the designated address of the Building.
The Building may be named after any person, firm, or otherwise, whether or not
such name is, or resembles, the name of a tenant of the Building.
ARTICLE 37
RESTRICTIONS UPON USE
37.01. It is expressly understood that no portion of the demised premises
shall be used as, by or for (i) a bank, trust company, savings bank, industrial
bank, savings and loan association or personal loan bank (or any branch office
or public accommodation office of any of the foregoing), or (ii) a public
stenographer or typist, barber shop, beauty shop, beauty parlor or shop,
telephone or telegraph agency, telephone or secretarial service, messenger
service, travel or tourist agency (but the foregoing shall not preclude Tenant
from providing travel or tourist services to its employees and customers in
connection with the conduct of Tenant's business), employment agency, public
restaurant or bar, commercial document reproduction or offset printing service
(but the foregoing shall not preclude Tenant from engaging in
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document reproduction or offset printing in connection with the conduct of its
business), public vending machines, retail, wholesale or discount shop for sale
of merchandise, retail service shop, labor union, school or classroom,
governmental or quasi-governmental bureau, department or agency, including an
autonomous governmental corporation, a firm whose principal business is real
estate brokerage, or a company engaged in the business of renting office or desk
space.
ARTICLE 38
ARBITRATION
38.01. In each case specified in this Lease in which resort to arbitration
shall be required, such arbitration (unless otherwise specifically provided in
other Sections of this Lease) shall be in New York City in accordance with the
Commercial Arbitration Rules of the American Arbitration Association and the
provisions of this Lease. The decision and award of the arbitrators shall be in
writing, shall be final and conclusive on the parties, and counterpart copies
thereof shall be delivered to each of the parties. In rendering such decision
and awards, the arbitrators shall not add to, subtract from or otherwise modify
the provisions of this Lease. Judgment may be had on the decision and award of
the arbitrators so rendered in any court of competent jurisdiction.
38.02. If Tenant gives notice requesting arbitration as provided in Section
38.01, Tenant shall simultaneously serve a duplicate of the notice on each
Superior Mortgagee and Superior Lessor whose name and address shall previously
have been furnished to Tenant, and such Superior Mortgagees and Superior Lessors
shall have the right to participate in such arbitration.
38.03. The fees and expenses of any arbitration shall be borne by the
parties equally, but each party shall bear the expense of its own attorneys and
experts and the additional expenses of presenting its own proof.
ARTICLE 39
INDEMNITY
39.01. Tenant shall indemnify, defend and save Landlord harmless from and
against any liability or expense arising from the use or occupation of the
demised premises by Tenant or anyone in the demised premises with Tenant's
permission, or from any breach of this Lease by Tenant.
ARTICLE 40
MEMORANDUM OF LEASE
40.01. Tenant shall, at the request of Landlord execute and deliver a
statutory form of memorandum of this Lease for the purpose of
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recording, but said memorandum of this Lease shall not in any circumstances be
deemed to modify or to change any of the provisions of this Lease.
ARTICLE 41
MISCELLANEOUS
41.01. Irrespective of the place of execution or performance, this Lease
shall be governed and construed in accordance with the laws of the State of New
York.
41.02. This Lease shall be construed without regard to any presumption or
other rule requiring construction against the party causing this Lease to be
drafted.
41.03. Except as otherwise expressly provided in this Lease, each covenant,
agreement, obligation or other provision of this Lease on Tenant's part to be
performed shall be deemed and construed as a separate and independent covenant
of Tenant, not dependent on any other provision of this Lease.
41.04. All terms and words used in this Lease, regardless of the number or
gender in which they are used, shall be deemed to include any other number and
any other gender as the context may require.
41.05. Time shall be of the essence with respect to the exercise of any
option granted under this Lease.
41.06. Except as otherwise provided herein whenever payment of interest is
required by the terms hereof it shall be at the Interest Rate.
41.07. If the demised premises or any additional space to be included
within the demised premises shall not be available for occupancy by Tenant on
the specific date hereinbefore designated for the commencement of the term of
this Lease or for the inclusion of such space for any reason whatsoever, then
this Lease shall not be affected thereby but, in such case, said specific date
shall be deemed to be postponed until the date when the demised premises or such
additional space shall be available for occupancy by Tenant, and Tenant shall
not be entitled to possession of the demised premises or such additional space
until the same are available for occupancy by Tenant, provided, however, that
Tenant shall have no claim against Landlord, and Landlord shall have no
liability to Tenant by reason of any such postponement of said specific date,
and the parties hereto further agree that any failure to have the demised
premises or such additional space available for occupancy by Tenant on said
specific date or on the Commencement Date shall in no wise affect the
obligations of Tenant hereunder nor shall the same be construed in any wise to
extend the term of this Lease unless specifically provided to the contrary in
the preamble to this Lease and furthermore, this Section 41.07 shall be deemed
to be an express provision to the contrary of Section 223-a of
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the Real Property Law of the State of New York and any other law of like import
now or hereafter in force.
41.08. In the event that Tenant is in arrears in payment of fixed annual
rent or additional rent hereunder, Tenant waives Tenant's right, if any, to
designate the items against which any payments made by Tenant are to be
credited, and Tenant agrees that Landlord may apply any payments made by Tenant
to any items it sees fit, irrespective of and notwithstanding any designation or
request by Tenant as to the items against which any such payments shall be
credited.
41.09. This Lease shall not be binding upon Landlord until the same is
executed by Landlord and Tenant and an executed copy thereof has been delivered
to Tenant.
ARTICLE 42
SECURITY
42.01. Tenant has deposited with Landlord the sum of $220,580.00 as
security for the faithful performance and observance by Tenant of the terms,
provisions, covenants and conditions of this Lease; it is agreed that in the
event Tenant defaults in respect of any of the terms, provisions, covenants and
conditions of this Lease, including, but not limited to, the payment of fixed
annual rent and additional rent, Landlord may use, apply or retain the whole or
any part of the security so deposited to the extent required for the payment of
any fixed annual rent and additional rent or any other sum as to which Tenant is
in default or for any sum which Landlord may expend or may be required to expend
by reason of Tenant's default in respect of any of the terms, provisions,
covenants and conditions of this Lease, including but not limited to, any
damages or deficiency accrued before or after summary proceedings or other
re-entry by Landlord. In the event that Tenant shall fully and faithfully comply
with all of the terms, provisions, covenants and conditions of this Lease, the
security shall be returned to Tenant after the date fixed as the end of the
Lease and after delivery of entire possession of the demised premises to
Landlord. In the event of a sale of the Land and Building or leasing of the
Building, of which the demised premises form a part, Landlord shall have the
right to transfer the security to the vendee or lessee and Landlord shall
thereupon be released by Tenant from all liability for the return of such
security; and Tenant agrees to look solely to the new landlord for the return of
said security; and it is agreed that the provisions hereof shall apply to every
transfer or assignment made of the security to a new landlord. Tenant further
covenants that it will not assign or encumber or attempt to assign or encumber
the monies deposited herein as security and that neither Landlord nor its
successors or assigns shall be bound by any such assignment, encumbrance,
attempted assignment or attempted encumbrance. In the event Landlord applies or
retains any portion or all of the security deposited, Tenant shall forthwith
restore the amount so
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applied or retained so that at all times the amount deposited shall be $220,
580.00.
42.02. In lieu of the cash security provided for in Section 42.01 hereof,
Tenant may, at any time during the term of this lease, deliver to Landlord and,
shall, except as otherwise provided herein, maintain in effect at all times
during the term hereof, an irrevocable letter of credit, in form and substance
satisfactory to Landlord in the amount of the security required pursuant to this
Article 42 issued by a banking corporation satisfactory to Landlord and having
its principal place of business or its duly licensed branch or agency in the
State of New York. Such letter of credit shall have an expiration date no
earlier than the first anniversary of the date of issuance thereof and shall be
automatically renewed from year to year unless terminated by the issuer thereof
by notice to Landlord given not less than 45 days prior to the expiration
thereof. Except as otherwise provided in this Article 42, Tenant shall,
throughout the term of this Lease deliver to Landlord, in the event of the
termination of any such letter of credit, replacement letters of credit in lieu
thereof (each such letter of credit and such extensions or replacements thereof,
as the case may be, is hereinafter referred to as a "Security Letter") no later
than 45 days prior to the expiration date of the preceding Security Letter. The
term of each such Security Letter shall be not less than one year and shall be
automatically renewable from year to year as aforesaid. If Tenant shall fail to
obtain any replacement of a Security Letter within the time limits set forth in
this Section 42.02, Landlord may draw down the full amount of the existing
Security Letter and retain the same as security hereunder.
42.03. In the event Tenant defaults in respect of any of the terms,
provisions, covenants and conditions of this Lease, including, but not limited
to, the payment of rent and additional rent, Landlord may use, apply or retain
the whole or any part of the security so deposited to the extent required for
the payment of any rent and additional rent or any other sum as to which Tenant
is in default or for any sum which Landlord may expend or may be required to
expend by reason of Tenant's default in respect of any of the terms, provisions,
covenants, and conditions of this Lease, including but not limited to, any
damages or deficiency accrued before or after summary proceedings or other
re-entry by Landlord. To insure that Landlord may utilize the security
represented by the Security Letter in the manner, for the purposes, and to the
extent provided in this Article 42, each Security Letter shall provide that the
full amount thereof may be drawn down by Landlord upon the presentation to the
issuing bank of Landlord's sight draft drawn on the issuing bank.
42.04. In the event that Tenant defaults in respect of any of the terms,
provisions, covenants and conditions of the Lease and Landlord utilizes all or
any part of the security represented by the Security Letter but does not
terminate this Lease as provided in Article 16 hereof, Landlord may, in addition
to exercising its rights as provided in Section 42.03, retain the unapplied and
unused balance of the principal amount of the Security Letter as security for
the faithful performance and observance by Tenant thereafter of
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the terms, provisions, and conditions of this Lease, and may use, apply, or
retain the whole or any part of said balance to the extent required for payment
of rent, additional rent, or any other sum as to which Tenant is in default or
for any sum which Landlord may expend or be required to expend by reason of
Tenant's default in respect of any of the terms, covenants, and conditions of
this Lease. In the event Landlord applies or retains any portion or all of the
security delivered hereunder, Tenant shall forthwith restore the amount so
applied or retained so that at all times the amount deposited shall be not less
than the security required by Section 42.02.
42.05. In the event that Tenant shall fully and faithfully comply with all
of the terms, provisions, covenants and conditions of this Lease, the security
shall be returned to Tenant after the date fixed as the end of the Lease and
after delivery of entire possession of the demised premises to Landlord. In the
event of a sale of the Land and Building or leasing of the Building, of which
the demised premises form a part, Landlord shall have the right to transfer any
interest it may have in the Security Letter to the vendee or lessee and Landlord
shall thereupon be released by Tenant from all liability for the return of such
Security Letter, provided such vendee or lessee assumes any responsibilities of
Landlord with respect to such Security Letter and Tenant agrees to look solely
to the new landlord for the return of said Security Letter; and it is agreed
that the provisions hereof shall apply to every transfer or assignment made of
the Security Letter to a new landlord. Tenant further covenants that it will not
assign or encumber or attempt to assign or encumber the monies deposited herein
as security and that neither Landlord nor its successors or assigns shall be
bound by any such assignment, encumbrance, attempted assignment or attempted
encumbrance. In the event of a sale of the Building Landlord shall have the
right to require Tenant to deliver a replacement Security Letter naming the new
landlord as beneficiary and, if Tenant shall fail to timely deliver the same, to
draw down the existing Security Letter and retain the proceeds as security
hereunder until a replacement Security Letter is delivered.
42.06. For so long as Tenant shall fully and faithfully comply with all of
the terms, provisions, covenants and conditions of this lease, and shall have
paid all installments of fixed annual rent and additional rent due hereunder
within seven (7) days of the due date therefor, the security, as represented by
the Security Letter, shall be reduced on the third (3rd) and fifth (5th)
anniversaries of the Commencement Date such that the remaining amount upon each
such anniversary date shall be as follows:
Amount
------
Third (3rd) Anniversary Date $183,816.67
Fifth (5th) Anniversary Date $147,053.33
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ARTICLE 43
PARTNERSHIP
43.01. If Tenant is a partnership, the liability of each of the partners
comprising the parternship Tenant shall be joint and several. The technical
dissolution of Tenant by reason of the death, retirement, resignation,
bankruptcy or adjudication of incompetency of one or more partners, shall not
affect this Lease or the liability thereunder of the partners, and Tenant agrees
that the partnership shall nevertheless continue as Tenant with respect to the
remaining partners. Similarly, a merger or consolidation with another firm shall
not be deemed a sublease or assignment or a violation of the provisions of this
Lease.
43.02. Upon execution of this Lease by Landlord and Tenant Tenant shall
promptly deliver to Landlord a list of the names and residence addresses of all
existing partners comprising the partnership Tenant. In the event Tenant admits
any new partners, Tenant agrees, within thirty (30) days thereafter, to give
notice to Landlord of that fact and of the name and residence address of each
new partner, together with such reasonable proof as Landlord shall require that
all of such new partners have in writing assumed performance of Tenant's
obligations under this Lease.
43.03. In the event of a merger or consolidation, Tenant agrees, within
thirty (30) days thereafter, to give notice to Landlord of that fact and all of
the names and residence addresses of the partners of the merged or consolidated
firm, together with such reasonable proof as Landlord shall require that all of
such partners have in writing assumed performance of Tenant's obligations under
this Lease.
ARTICLE 44
WORK CREDIT
44.01. Tenant hereby covenants and agrees that Tenant will, at Tenant's own
cost and expense, and in a good and workmanlike manner, make and complete the
work and installations in and to the demised premises set forth below in such
manner so that the demised premises will be tasteful and dignified executive and
general offices.
Tenant, at Tenant's expense, shall prepare a final plan or final set of
plans and specifications (which said final plan or final set of plans, as the
case may be, and specifications are hereinafter called the "final plan") which
shall contain complete information and dimensions necessary for the construction
and finishing of the demised premises and for the engineering in connection
therewith. The final plan shall be submitted by Tenant to Landlord for
Landlord's written approval, which approval shall not be given or withheld in
accordance with the provisions of Article 6 hereof. Tenant shall promptly
reimburse Landlord upon demand for any costs and expenses incurred by
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Landlord in connection with Landlord's review of Tenant's final plan. If
Landlord shall disapprove the final plan, Landlord shall set forth its reasons
for such disapproval and itemize those portions of the final plan so
disapproved. Landlord shall not be deemed unreasonable in withholding its
consent to the extent that the final plan prepared by Tenant pursuant hereto
involves the performance of work or the installation in the demised premises of
materials or equipment which do not equal or exceed the standard of quality
adopted by Landlord for the Building.
In accordance with the final plan, Tenant, at Tenant's expense, will make
and complete in and to the demised premises (hereinafter sometimes called the
"Work Area") the work and installations (hereinafter called "Tenant's Work")
specified in the final plan. Tenant agrees that Tenant's Work will be performed
with the least possible disturbance to the occupants of other parts of the
Building and to the structural and mechanical parts of the Building and Tenant
will, at its own cost and expense leave all structural and mechanical parts of
the Building which shall or may be affected by Tenant's Work in good and
workmanlike operating condition. At any and all times during the progress of
Tenant's Work, Landlord shall be entitled to have a representative or
representatives on the site to inspect Tenant's Work and such representative or
representatives shall have free and unrestricted access to any and every part of
the demised premises. Tenant shall advise Landlord in writing of Tenant's
general contractor and subcontractor(s) who are to do Tenant's Work, and such
general contractor and subcontractor(s) shall be subject to Landlord's prior
written approval which approval will not be unreasonably withheld or delayed;
such general contractor and subcontractors(s) shall, to the extent permitted by
law, use employees for Tenant's Work who will work harmoniously with other
employees on the job. Landlord shall be deemed to approve of Plaza Construction
Corp. as the general contractor to do Tenant's Work.
Tenant shall at Tenant's sole cost and expense file all necessary
architectural plans and obtain all necessary approvals and permits in connection
with Tenant's Work being performed by it pursuant to this Article 44.
44.02. The following conditions shall also apply to Tenant's Work:
(a) all Tenant's Work shall be of material, manufacture, design,
capacity and color at least equal to the standard adopted by Landlord for
the Building (hereinafter called "Building Standard");
(b) Tenant, at Tenant's expense shall (i) file all required
architectural, mechanical and electrical drawings and obtain all necessary
permits, and (ii) furnish and perform all engineering and engineering
drawings in connection with Tenant's Work. Tenant shall obtain Landlord's
approval of the drawings referred to in (i) and (ii) hereof, which approval
shall not be unreasonably withheld or delayed;
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(c) Tenant shall use Lehr Associates or the engineer designated by
Landlord with respect to the preparation of Tenant's engineering drawings
in connection with Tenant's Work; and
(d) all Tenant's Work shall be performed by Tenant in accordance with
the provisions of Article 6 hereof and Landlord's Building Rules and
Regulations for Alterations.
44.03. It is understood that of the services to be furnished by Landlord
referred to in Article 21 hereof, Landlord shall not furnish any cleaning
services until Tenant commences occupancy of the demised premises for the
conduct of its business. Tenant shall be responsible for removal of Tenant's
refuse and rubbish during the period that Tenant's Work is in progress in the
demised premises.
44.04. Landlord shall, at Tenant's written request, cooperate in all
reasonable respects with Tenant in the performance by Tenant of Tenant's Work in
preparing the demised premises for Tenant's occupancy and Landlord shall
instruct its employees and contractors to render such assistance and to
cooperate with Tenant's employees, representatives and contractors provided that
to the extent that Landlord shall incur any expense in so cooperating or in
rendering such assistance, Tenant shall reimburse Landlord for such expense as
additional rent hereunder.
44.05. (a) Landlord shall allow Tenant a credit in the amount of
$1,058,784.00 (hereinafter called the "Work Credit"), which credit shall be
solely applied against the actual construction costs and expenses incurred by
Tenant, including architectural fees which are not reimbursed to Tenant pursuant
to Section 44.06(i) hereof and engineering fees incurred in connection with
Tenant's Work. In the event that such costs and expenses of Tenant's Work shall
exceed the amount of the Work Credit, Tenant shall be entirely responsible for
such excess. In the event that the amount of the Work Credit shall exceed such
costs and expenses of Tenant's Work, such excess may be applied by Tenant
against the installments of fixed annual rent next becoming due hereunder after
the completion of Tenant's Work, provided, however, that the amount so applied
shall not exceed $198,522.00. The Work Credit shall be payable by Landlord to
Tenant in four equal installments as follows (provided and on condition that the
submissions required pursuant to subsection 44.05(c) hereof shall have been
timely submitted):
(i) The first (1st) installment of the Work Credit shall be payable after
Tenant shall complete 25% of Tenant's Work.
(ii) The second (2nd) installment of the Work Credit shall be payable after
Tenant shall complete 50% of Tenant's Work.
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(iii) The third (3rd) installment of the Work Credit shall be payable after
Tenant shall complete 75% of Tenant's Work.
(iv) The fourth (4th) installment of the Work Credit shall be payable after
Tenant shall complete 100% of Tenant's Work.
In no event shall the aggregate amount of such installments exceed the Work
Credit.
(b) At any and all times during the progress of Tenant's Work,
representatives of Landlord shall have the right of access to the demised
premises and inspection thereof and shall have the right to withhold all or any
portion of the Work Credit as shall equal the cost of correcting any portions of
Tenant's Work which shall not have been performed in accordance with plans for
same previously approved by Landlord. Landlord shall incur no liability
obligation or responsibility to Tenant or any third party by reason of the
access and inspection provided in this subsection 44.05(b).
(c) In connection with the payment of each installment of the Work Credit,
Tenant shall promptly after the completion of each quarterly portion of Tenant's
Work and prior to the payment of each installment of the Work Credit furnish to
Landlord (1) invoices for such portion of Tenant's Work, (2) a statement of the
contractor or contractors performing Tenant's Work, acknowledging payment for
such portion of Tenant's Work and releasing Tenant from all further liability
for payment in connection therewith, (3) a certificate signed by Tenant's
architect or an officer of Tenant certifying that such portion of Tenant's Work
has been satisfactorily completed in accordance with the final plan, and (4)
with respect to the final installment of the Work Credit, all Building
Department sign-offs, inspection certificates and any permits required to be
issued by any governmental entities having jurisdiction thereover.
44.06. Landlord shall reimburse Tenant for: (i) Tenant's architectural fees
incurred in preparing the final plans, in an amount not to exceed $20,000.00,
and (ii) Tenant's reasonable moving expenses incurred in relocating its property
to the demised premises from temporary space in the Building provided to Tenant
on the 8th floor of the Building; provided that in both cases Tenant shall
submit to Landlord copies of paid invoices evidencing Tenant's payment of such
fees and expenses.
ARTICLE 45
LANDLORD'S OPTION TO TERMINATE
45.01. The following terms shall be defined as follows:
(a) "Guarantor" shall mean each of Lifestyle Marketing Group, Inc. ("LMG"),
Robert Towers Advertising, Inc. ("Towers") and People and Properties, Inc.
("P&P") (collectively, the "Guarantors").
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(b) "Guaranty" with respect to any of the Guarantors shall mean the
guaranty agreement executed by such Guarantor concurrently with the execution
and delivery hereof with respect to the obligations of Tenant under this Lease.
(c) "Insolvency Event" with respect to any of the Guarantors shall mean:
(1) whenever such Guarantor shall make an assignment of its property for the
benefit of creditors, or shall file a voluntary petition under any bankruptcy or
insolvency law, or any involuntary petition alleging an act of bankruptcy or
insolvency shall be filed against such Guarantor under any bankruptcy or
insolvency law, or whenever a petition shall be filed by or against such
Guarantor under the reorganization provisions of the United States Bankruptcy
Act or under the provisions of any law of like import, or whenever a petition
shall be filed by such Guarantor under the arrangement provisions of the United
States Bankruptcy Act or under the provisions of any law of like import, or
whenever a permanent receiver of such Guarantor or of or for the property of
such Guarantor shall be appointed, or (2) whenever such Guarantor shall be
deemed to be in default of its Guaranty pursuant to the terms thereof.
(d) "Premises Reduction Event" shall mean:
(i) the occurrence of an Insolvency Event with respect to LMG, or
(ii) The cumulative occurrence of Insolvency Events with respect to
P&P and Towers,
(iii) The cumulative occurrence of Insolvency Events with respect to
LMG and P&P; or
(iv) The cumulative occurrence of Insolvency Events with respect to
LMG and Towers.
(e) "Applicable Reduction Percentage" shall mean:
(i) 50% with respect to a Premises Reduction Event described in clause
(i) or clause (ii) of Section 45.01(c) hereof, or
(ii) 80% with respect to a Premises Reduction Event described in
clause (iii) of Section 45.01(c) hereof; or
(iii) 70% with respect to a Premises Reduction Event described in
clause (iv) of Section 45.01(c) hereof.
45.02. In the event that a Premises Reduction Event shall occur, then in
such event Tenant shall have the option, at Tenant's sole election, but subject
to Landlord's rights hereinafter set forth in this Article 45, to
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offer to surrender to Landlord a portion of the demised premises, to be
designated by Landlord as hereinafter set forth, containing the Applicable
Reduction Percentage of rentable square feet thereof (such portion is herein
called the "Take Back Space"). Tenant shall exercise such option by giving
notice thereof ("Tenant's Reduction Notice") to Landlord within thirty (30) days
after the occurrence of such Premises Reduction Event.
45.03. If Tenant shall timely give the Reduction Notice, then such
Reduction Notice shall be deemed an offer by Tenant to Landlord whereby Landlord
may, at Landlord's option (A) terminate this Lease with respect to the entire
demised premises, or (B) to accept Tenant's surrender of the Take Back Space.
Landlord shall exercise its option by notice ("Landlord's Exercise Notice") to
Tenant given within sixty (60) days after Landlord's receipt of Tenant's
Reduction Notice. If Tenant shall not timely give the Reduction Notice, then
this Lease and Tenant's obligations hereunder shall remain unmodified and in
full force and effect.
45.04. If Landlord exercises its option to terminate this Lease with
respect to the entire demised premises pursuant to clause (A) of Section 45.03
hereof, then this Lease and the term and estate hereby granted shall end and
expire upon the date ("Landlord's Option Date") occurring thirty (30) days after
the giving of Landlord's Exercise Notice, and the fixed rent and additional rent
payable hereunder shall be apportioned as of Landlord's Option Date.
45.05. If Landlord shall exercise its option to accept Tenant's surrender
of the Take Back Space pursuant to clause (B) of Section 45.03 hereof, then
(i) Landlord shall designate the Take Back Space, on a floor plan submitted
to Tenant with Landlord's Exercise Notice, which Take Back Space shall contain
approximately the Applicable Reduction Percentage of rentable square feet
originally contained in the demised premises and Tenant shall surrender to
Landlord the Take Back Space as of the Landlord's Option Date and the term of
this Lease with respect to the Take Back Space shall terminate and expire as of
the Landlord's Option Date;
(ii) Landlord, at Landlord's expense, shall construct demising walls to
separate the area remaining in the demised premises from the Take Back Space;
(iii) From and after the Landlord's Option Date, this Lease shall be
modified as follows:
(a) The demised premises shall mean the rentable area of the second
floor less the Take Back Space; and
(b) The original fixed annual rent set forth in Section 1.01 hereof
and the original Tenant's Proportionate Operating Share
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and the original Tenant's Proportionate Tax Share set forth in Article 3
hereof shall each be reduced by the Applicable Reduction Percentage.
(iv) Except as otherwise provided, Tenant's occupancy during the remainder
of the term of this Lease shall be on the same terms and conditions as were in
effect immediately prior to the modification of this Lease.
45.06. Tenant shall to cause each of the Guarantors to deliver to Landlord
on or before March 31 of each year during the term of this Lease such
Guarantor's financial statement for the preceding year prepared by a Certified
Public Accountant in accordance with generally accepted accounting principles
and certified by such Guarantor's chief financial officer to be true and
correct.
IN WITNESS WHEREOF, Landlord and Tenant have respectively executed this
Lease as of the day and year first above written.
LANDLORD:
PARK AVENUE SOUTH/ARMORY, INC.
Attest:
/s/ Colleen Robertson By: /s/ Susan Cox
- -------------------------------- ---------------------------------
TENANT:
ATTEST: KALEIDOSCOPE HOLDINGS, INC.
/s/ [ILLEGIBLE] By: /s/ Peter Chapman
- -------------------------------- ---------------------------------
Secretary President
Tenant's Tax Identification Number is
----------------.
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STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK)
On this 9th day of June, 1992, before me personally came Susan E. Cox, to
me known, who, being duly sworn by me, did depose and say that he resides at 1
W. 64th St., NY, NY, that he is the Vice President of PARK AVENUE SOUTH/ARMORY,
INC., a corporation, the corporation mentioned in, and which executed the
foregoing instrument as Landlord; and that he signed his name thereto by order
of the Board of Directors of said corporation.
JUNE A. POLITANO
Notary Public, State of New York
No. 30-4905885
Qualified in Nassau County June A. Politano
Certificate Filed in New York County ------------------
Commission Expires 9/28/93 Notary Public
CORPORATE TENANT
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On this 2nd day of June, 1992, before me personally came Peter Chapman to
me known, who being by me duly sworn, did say that he resides at 16 Willow Road,
Riverside, CT, that he is President of KALEIDOSCOPE HOLDINGS, INC., the
corporation described in and which executed the foregoing instrument as Tenant;
and that he signed his name thereto by order of the board of directors of said
corporation.
/s/ Jenny G. H. Lam
-------------------------------
Notary Public
JENNY G. H. LAM
Notary Public, State of New York
No. 31-4919183
Qualified in New York County
Commission Expires 2/8/94
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This guaranty (hereinafter called the "Guaranty") is made as of this 5th
day of June, 1992 by and between LIFESTYLE MARKETING GROUP, INC., a
______________ corporation, having an office at 375 Hudson Street, New York, New
York (hereinafter called "Guarantor"), and PARK AVENUE SOUTH/ARMORY, INC., a
________________ corporation, having an office at c/o Montrose Realty
Corporation, 380 Madison Avenue, New York, New York 10017-2593 (hereinafter
called "Landlord").
WITNESSETH:
WHEREAS:
A. Concurrently with the execution and delivery hereof, Kaleidoscope
Holdings, Inc. (hereinafter called "Tenant") is entering into a lease and a
certain temporary space agreement (hereinafter collectively called the "Lease")
with Landlord covering certain space in 345 Park Avenue South, New York, New
York;
B. As an inducement for Landlord to enter into the Lease, Landlord desires
to have Guarantor guarantee the payment, performance and observance of the
obligations of Tenant under the Lease as hereinafter set forth.
NOW THEREFORE, for value received, and to induce Landlord to enter into the
Lease, Guarantor covenants and agrees as follows:
1. Definitions. As used in this Guaranty, the terms set forth below will
have the following meanings:
(a) "Affiliate" when used with respect to any Person (as such term is
hereinafter defined) shall mean a corporation, partnership,
tenancy-in-common or other business entity or individual which, directly
or indirectly, controls, is controlled by or is under common control with
such Person. For purposes of the foregoing definition and as used in this
Guaranty, "control" (including "control by" and "under common control
with") shall mean ownership of not less than fifty percent (50%) of each
class of the authorized and outstanding stock of a corporation and not less
than fifty percent (50%) of all of the legal and equitable interests in a
partnership or other business entity (determined without regard to cash
flow preferences and similar items).
(b) "Person" shall mean a natural person, a partnership, a corporation
and any other form of business or legal entity.
<PAGE>
(c) "Prime Rate" shall mean the rate announced as the prime rate by
Bankers Trust Company, or its successor. Any interest payable with
reference to the Prime Rate shall be adjusted on a daily basis based upon
the Prime Rate in effect at the time in question and shall be calculated
with respect to the actual number of days elapsed on the basis of a 360 day
year with 12 months of 30 days each.
(d) "Business Days" shall mean all days which are not a Saturday,
Sunday, or a day observed as a holiday by either the State of New York or
the Federal Government.
(e) "Other Guarantors" shall mean Robert Towers Advertising, Inc.
("Towers") and People and Properties, Inc. ("P&P").
(f) "Other Guaranty" with respect to any of the Other Guarantors shall
mean the guaranty agreement executed by such Other Guarantor concurrently
with the execution and delivery hereof.
(g) "Insolvency Event" when used with respect to either of the Other
Guarantors shall mean: (1) whenever such Other Guarantor shall make an
assignment of its property for the benefit of creditors, or shall file a
voluntary petition under any bankruptcy or insolvency law, or any
involuntary petition alleging an act of bankruptcy or insolvency shall be
filed against such Other Guarantor under any bankruptcy or insolvency law,
or whenever a petition shall be filed by or against such Other Guarantor
under the reorganization provisions of the United States Bankruptcy Act or
under the provisions of any law of like import, or whenever a petition
shall be filed by such Other Guarantor under the arrangement provisions of
the United States Bankruptcy Act or under the provisions of any law of like
import, or whenever a permanent receiver of such Other Guarantor or of or
for the property of such Guarantor shall be appointed, provided, however,
that if such event occurs without the acquiescence of such Other Guarantor,
then an Insolvency Event shall not be deemed to occur until after the event
continues for thirty (30) days; (2) whenever such Other Guarantor shall be
deemed to be in default of its Other Guaranty pursuant to the terms
thereof.
(h) "Applicable Percentage" shall mean 50%, provided, however that
such percentage shall be increased as follows:
(i) from and after the occurrence of an Insolvency Event with
respect to Towers (and an Insolvency
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Event shall not have occurred with respect to P&P), the Applicable
Percentage shall mean 62.5%;
(ii) from and after the occurrence of an Insolvency Event with
respect to P&P (and an Insolvency Event shall not have occurred with
respect to Towers), the Applicable Percentage shall mean 71.43%; and
(iii) if an Insolvency Event shall have occurred with respect to
Towers and P&P, then from and after the occurrence of the later
Insolvency Event, the Applicable Percentage shall mean 100%.
2. Obligations Guaranteed. Guarantor absolutely, unconditionally and
irrevocably, without offset or deduction, guarantees to Landlord the full and
timely payment, performance and observance of all the terms, covenants and
conditions, whether monetary or non-monetary or both (hereinafter collectively
called the "Obligations") to be paid, performed and observed under the Lease by
Tenant, provided, however, that Guarantor's liability hereunder shall not exceed
the Applicable Percentage of any such Obligations.
3. Absolute, Unconditional Guarantee. This Guaranty is an absolute,
present, primary, continuing, unlimited and unconditional guarantee and
undertaking of payment, performance and observance of all the Obligations, and,
without limitation, is in no way conditioned or contingent upon any effort or
attempt by Landlord to seek performance or payment from Tenant or upon any other
condition or contingency. Irrespective of whether or the extent to which the
Tenant may have undertaken to Landlord to pay or perform any of the Obligations,
(y) if the Tenant at any time shall default in the payment, performance or
observance of any of the Obligations, upon notice of such default, Guarantor
shall pay and perform such Obligations in the place and stead of the Tenant, and
(z) Landlord is not and shall not be required first to pursue any right or
remedy against or seek any redress from the Tenant or any other Person.
4. Reliance. Guarantor makes this Guaranty knowing that Landlord is relying
and will rely on this Guaranty in executing and delivering the Lease.
5. Obligations Not Affected. (a) The obligations and liability of Guarantor
in respect of each of the Obligations and otherwise under this Guaranty shall
not be impaired, abated, deferred, diminished, modified or otherwise affected by
any event, condition, occurrence, circumstance,
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proceeding, action or failure to act, with or without notice to, or the
knowledge or consent of, Guarantor, including but not limited to: (a) any
amendment, extension or modification of or addition or supplement to the Lease,
except that insofar as the Obligations change by reason thereof, this Guaranty
shall extend to the Obligations as they may be extended, diminished, reduced, or
otherwise changed by reason thereof; (b) any modification, compromise,
settlement, adjustment or extension of any obligation or liability under the
Lease, except that insofar as the Obligations change by reason thereof, this
Guaranty shall extend to the Obligations as they may be extended, diminished,
reduced, or otherwise changed by reason thereof; (c) any waiver, consent,
indulgence, forbearance, lack of diligence, action or inaction on the part of
Landlord in enforcing any Obligations of Tenant, or Guarantor, or any other
Person in connection with the Lease; (d) any irregularity in or invalidity or
unenforceability of all or any part of the Lease, or the obligations or
liability of Tenant thereunder; (e) any bankruptcy, insolvency, reorganization,
arrangement, readjustment, composition, liquidation, rehabilitation or similar
or dissimilar proceeding involving or affecting Tenant or the Lease, including,
without limitation, any termination or rejection of the Lease in connection with
such proceedings (and any limitation on the liability of Tenant in such
proceeding shall not diminish or limit the liability of Guarantor); (f) any
assignment, conveyance, mortgage, merger or other transfer, voluntarily or
involuntarily (whether by operation of law or otherwise), of all or any part of
Tenant's interest in the Lease; (g) any assignment, conveyance, mortgage, merger
or other transfer, voluntarily or involuntarily (whether by operation of law or
otherwise), of all or any part of Landlord's interest in the Lease except that
insofar as same diminishes or extinguishes the Obligations of Tenant under the
Lease, this Guaranty shall extend to the Obligations as they may be so
diminished or extinguished; (h) any failure ~ Landlord to mitigate damages
arising from a breach, violation or default by Tenant or Guarantor except
insofar as such failure would limit the Obligations of Tenant under the Lease;
and (i) any other circumstance or condition whatsoever which might give rise to
a discharge, limitation or reduction of liability of a surety or guarantor,
other than actual payment and performance.
(b) If, pursuant to law or to any option granted by the Lease, the Lease
shall be renewed, or its term extended, for any period beyond the date specified
in the Lease for the expiration of said term, or if pursuant to any such option,
additional space shall be included in, or substituted for all or any part of,
the premises demised by the Lease, or if the
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Lease be modified by agreement between Landlord and Tenant in any other similar
or dissimilar respect, the obligations hereunder of Guarantor shall extend and
apply with respect to the full and faithful keeping, performance and observance
of all of the covenants, agreements, terms, provisions and conditions which
under such renewal of the Lease or extension of its term and/or with respect to
any such additional space, or which under any supplemental indenture or new
lease or modification agreement, entered into for the purpose of expressing or
confirming any such renewal, extension, inclusion, substitution or
modification, are to be kept, performed and observed by Tenant (expressly
including, without being limited to, the payment as and when due of Fixed Rent,
Additional Charges and damages provided for thereunder) and the payment of any
and all other damages for which Tenant shall be liable by reason of any act or
omission contrary to any of said covenants, agreements, terms, provisions or
conditions.
6. Recovery Against Guarantor. Recovery may be had against Guarantor in any
action, suit or proceeding or in an independent action, suit or proceeding
without any requirement that Landlord first or simultaneously assert, prosecute
or exhaust any right, power or remedy against Tenant. In addition, if Landlord
shall obtain a judgment against Tenant in any jurisdiction as a result of the
default in the payment, performance or observance of any of the Obligations,
Guarantor shall be bound thereby, as if Guarantor were a party to the action,
suit or proceeding in which the judgment was obtained (even though Guarantor was
not a party thereto).
7. Indemnity; Costs of Enforcement; Interest. Guarantor shall indemnify and
hold Landlord harmless from and against any and all damages, losses, expenses,
liabilities and claims arising from any breach by Guarantor of its obligations
under this Guaranty. Guarantor shall also reimburse Landlord for all costs and
expenses (including reasonable counsel fees) incurred by or on behalf of
Landlord in enforcing the obligations or liability of Guarantor hereunder. If
Guarantor shall fail to pay to Landlord any sum of money (other than interest)
under this Guaranty prior to the expiration of the grace period, if any,
provided in the Lease, then Guarantor shall pay to Landlord interest on such
overdue amount at a rate equal to two (2%) percent per annum in excess of the
Prime Rate from the later to occur of (i) the date such payment is due and (ii)
the expiration of such grace period, if any, until the date such payment is
made.
8. Waiver. Guarantor absolutely and unconditionally waives all requirements
of diligence and all notices and
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consents which may otherwise be necessary, whether by statute, rule of law or
otherwise, to charge Guarantor or to preserve Landlord's rights and remedies
against Guarantor under this Guaranty, including notice of the acceptance of
this Guaranty and notice of default, notice of the performance or nonperformance
of any of the Obligations, demand of payment from Tenant except to the extent
required by the Lease, and notice of nonpayment or failure to perform on the
part of Tenant; provided, however, that prior to commencing an action or
proceeding against Guarantor for payment or performance pursuant to this
Guaranty, Landlord shall send to Guarantor demand for payment or performance by
Guarantor under this Guaranty.
9. Term. This Guaranty shall remain in full force and effect in favor of
Landlord with respect to the Lease until all of the Obligations under Lease have
been fully paid and performed or are no longer required to be paid and performed
under the Lease. Upon Guarantor's request after all the Obligations have been
fully paid and performed with respect to either Agreement, or are no longer
required to be paid and performed, Landlord shall confirm the same in a written
instrument delivered to Guarantor.
10. No Subrogation. Until all of the Obligations are fully paid and
performed or are no longer required to be paid and performed, Guarantor (a)
shall have no right of subrogation against Tenant by reason of any payments or
acts of performance by Guarantor in compliance with such Obligations; (b) waives
any right to enforce any remedy which Guarantor now has or hereafter may have
against Tenant by reason of any one or more payments or acts of performance in
compliance with such Obligations; and (c) subordinates any liability or
indebtedness of Tenant now or hereafter held by Guarantor to the obligations of
Tenant to Landlord under the Lease.
11. Amendment; No Waiver. No right or benefit in favor of Landlord under
this Guaranty shall be deemed waived, no obligation or liability of Guarantor
under this Guaranty shall be deemed modified, diminished, released, compromised,
extended, discharged (other than to the extent of actual payment and performance
and except as otherwise provided herein), terminated or otherwise affected, and
no provision or term of this Guaranty may be amended, modified, terminated or
otherwise changed except by an instrument in writing, specifying the same,
signed by an officer of Landlord. Any such waiver shall be applicable only to
the specific instance with respect to which it is given. No delay on the part of
Landlord in exercising any right, power or privilege under this
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Guaranty nor any failure to exercise the same shall operate as a waiver of or
otherwise affect any right, power or privilege, nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right, power or privilege.
12. Liability of Co-Guarantors. (a) The liability of Guarantor hereunder
is coextensive and also joint and several with that of any other guarantor,
including, without limitation, the Other Guarantors, pursuant to any other
guaranty now or hereafter executed, and action or suit may be brought against
Guarantor and carried to final judgment and/or completion and final recovery
had, without making any such other guarantor a party hereto, provided, however,
that Guarantor's liability hereunder shall not exceed the Applicable Percentage
of the Obligations. The liability of Guarantor hereunder shall not be impaired,
released, terminated or discharged, in whole or in part, by the release of any
such other guarantor from liability for the performance or observance of any of
the covenants under the Lease on the part of Tenant to be performed, whether by
operation of law or otherwise and whether or not notice of such release is given
to such Co-Guarantor.
(b) Guarantor will not merge or consolidate with any corporation unless (A)
either (i) Guarantor is the surviving corporation or (ii) contemporaneously with
such merger or consolidation, the surviving corporation executes and delivers to
Landlord a guaranty of the obligations, substantially in the form and substance
of this Guaranty, together with reasonably satisfactory evidence of the due
authorization, execution, delivery, validity, binding effect and enforceability
thereof, and (B) the financial condition of the surviving entity shall not be
materially adversely changed from the financial condition of the Guarantor prior
to such merger or consolidation.
(c) Guarantor shall not assign, transfer or otherwise dispose of, by
operation of law or otherwise, any material part of Guarantor's assets for less
than the fair value thereof if as a result of such assignment, transfer or
disposition, the financial condition of Guarantor shall be materially adversely
changed from its financial condition as of the date hereof.
(d) Guarantor agrees to submit to Landlord on or before March 31 of each
year during which this Guaranty is in effect the Guarantor's certified audited
financial statement for the preceding year prepared by a Certified Public
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Accountant in accordance with generally accepted accounting principles
consistently applied.
13. Representations and Warranties of the Guarantor. Guarantor represents
and warrants to Landlord that as of the date hereof:
(a) It has full power, authority and legal right to execute, deliver,
perform and observe the provisions of this Guaranty, including, without
limitation, the payment of all moneys hereunder.
(b) The execution, delivery and performance by Guarantor of this
Guaranty has been duly authorized by all necessary corporate action.
(c) This Guaranty constitutes the legal, valid and binding obligation
of Guarantor, enforceable in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, and other laws affecting
creditors' rights generally.
(d) Guarantor is not in violation of any decree, ruling, judgment,
order or injunction applicable to it or of any law, ordinance, rule or
regulation of whatever nature which would materially and adversely affect
its ability to carry out any of the terms, covenants and conditions of this
Guaranty, nor, are there any actions, proceedings, or investigations
pending or, to the best knowledge of Guarantor, threatened, against or
affecting it (or any basis therefor known to it) before or by any court,
arbitrator, administrative agency or other governmental authority or
entity, any of which, if adversely decided, would materially and adversely
affect its ability to carry out any of the terms, covenants and conditions
of this Guaranty.
(e) No authorization, approval, consent or permission (governmental or
otherwise) of any court, agency, commission or other authority or entity is
required for the due execution, delivery, performance or observance by
Guarantor of this Guaranty or for the payment of any sums hereunder.
(f) Guarantor is not in default in the observance or performance of
the terms and conditions of any loan or other agreement to which it is a
party or by which it is bound, which default might materially and adversely
affect its ability to carry out any of the terms, covenants and conditions
of this Guaranty.
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(g) Neither the execution and delivery of this Guaranty, nor the
consummation of the transactions herein contemplated, nor compliance with
the terms and provisions hereof, conflict or will conflict with or result
in a breach of any of the terms, conditions or provisions of the
certificate of incorporation or by-laws of Guarantor, or similar documents
of Guarantor, or of any law, order, writ, injunction or decree of any court
of governmental authority, or of any agreement or instrument to which
Guarantor is a party or by which it is bound, or constitutes or will
constitute a default thereunder.
(h) Tenant is an Affiliate of Guarantor and is directly or indirectly
controlled by Guarantor.
(i) The Internal Income Statement of Guarantor for 1991 previously
submitted to Landlord is true and correct.
14. Events of Default.
(a) Guarantor acknowledges and agrees that it shall be deemed to be in
default under this Guaranty if at any time during the term of this Guaranty any
of the following (hereinafter called an "Event of Default") shall occur:
(i) If, after notice to Guarantor of a default continuing beyond any
applicable grace period under the Lease by Tenant, Guarantor shall fail to
pay and perform or cause the payment and performance of the Obligations
thereunder;
(ii) If Guarantor shall otherwise default in the performance of its
obligations under this Guaranty and such default shall continue for ten
(10) days after Landlord notifies Guarantor thereof, provided that if by
its nature any default cannot be cured within said ten (10) day period,
then Guarantor shall not be deemed in default hereunder so long as within
such period Guarantor commences and thereafter diligently proceeds to cure
such default; or
(iii) If any of the representations made by Guarantor in this Guaranty
shall be untrue in any material respect.
(b) If an Event of Default shall occur, Landlord may elect to proceed by
appropriate judicial proceedings, either at law or in equity, to enforce the
performance or observance by Guarantor of the applicable provisions of this
Guaranty or recover damages for the breach thereof, or both.
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15. Notices. All notices, demands, requests, consents, approvals or other
communications (hereinafter collectively called "Notices") desired or required
to be given under this Guaranty shall be in writing, and, any law or statute to
the contrary notwithstanding, shall be effective for any purpose if given or
served by (i) prepaid certified or registered mail, return receipt requested, or
(ii) nationally recognized overnight courier service, such as Federal Express or
Purolator, addressed as follows:
If to Landlord, to it at:
c/o Montrose Realty Corporation
380 Madison Avenue
New York, New York 10017-2593
Attn: Tom Warren, Vice President
with a copy to:
Park Avenue South/Armory, Inc.
280 Park Avenue, 23 West
New York, New York 10017
Attn: Susan Cox, Vice President
If to Guarantor, to it at:
Attn:
and
All Notices shall be deemed given or served, in the case of Notices given or
served by certified or registered mail, on the third Business Day after deposit
thereof (including all required copies thereof as set forth above) in the United
States mails, postage prepaid, notices given and in the case of notices given
served by a nationally recognized overnight courier, one Business Day after
deposit thereof with such courier. In the event a postal strike shall be in
progress at the time a Notice is given or served, that Notice shall not be
deemed given or served unless and until a copy thereof is personally delivered
to the addressee or, in the case of a Notice to an addressee having an address
outside New York City, until a copy thereof is sent by telex to the addressee at
the telex number provided by such addressee. A Person entitled to notice under
this Guaranty may change or add to the addresses to which Notices to it shall be
delivered by notice in accordance with this section, except that at no time
shall any
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Person giving a Notice under this Guaranty be required to give, in the
aggregate, more than four copies of such Notice.
16. Miscellaneous.
(a) If Landlord shall be obligated by reason of any bankruptcy, insolvency
or other legal proceeding to repay to Guarantor or pay to an Affiliate of
Guarantor or to any trustee, receiver or other representative of any of them,
any amounts previously paid by Guarantor pursuant to this Guaranty, this
Guaranty shall be deemed reinstated to the extent of such repayment made by
Landlord, except to the extent, if any, that such repayment is prohibited by law
or that such repayment constituted merely a reimbursement of any overpayment.
The Landlord shall not be required to litigate or otherwise dispute its
obligation to make such repayments if in good faith and on the advice of counsel
it believes that such obligation exists.
(b) The validity and enforcement of this Guaranty shall be governed by and
construed in accordance with the laws of the State of New York applicable to
agreements made and to be performed in said State, without the aid of any
presumption against the party drafting or causing any provision of this Guaranty
to be drafted.
(c) The Landlord and Guarantor shall each, at any time and from time to
time, within ten (10) Business Days following the request by the other, execute,
acknowledge and deliver to the other a statement certifying that this Guaranty
is unmodified and in full force and effect (or if there have been modifications,
that the same is in full force and effect as modified and stating such
modifications) and that to the best of the certifying party's knowledge,
Guarantor is not in default hereunder (or if there is such a default, describing
such default in reasonable detail).
(d) This Guaranty shall inure to the benefit of Landlord and its respective
successors and permitted assigns under the Lease, and shall be binding upon
Guarantor and its successors and assigns.
(e) All remedies afforded to Landlord by reason of this Guaranty or the
Lease, or otherwise available at law or in equity, are separate and cumulative
remedies and it is agreed that no one remedy, whether or not exercised by
Landlord shall be deemed to be in exclusion of any other remedy available to
Landlord and shall not limit or prejudice any other legal or equitable remedy
which Landlord may have.
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(f) If any provision of this Guaranty or the application thereof to any
Person or circumstance shall to any extent be held void, unenforceable or
invalid, then the remainder of this Guaranty or the application of such
provision to Persons or circumstances other than those as to which it is held
void, unenforceable or invalid, shall not be affected thereby and each provision
of this Guaranty shall be valid and enforceable to the fullest extent permitted
by law.
(g) This Guaranty may not be changed or terminated and no provisions hereof
may be waived orally, but only by a writing signed by the party against whom
such change, termination or waiver is sought.
(h) Guarantor hereby expressly waives: (i) trial by jury of any and all
issues arising in any action, suit or proceeding to which Landlord and Guarantor
may be parties upon, under or connected with this Guaranty or any of its
provisions, directly or indirectly; (ii) the right to interpose all substantive
and procedural defenses of the law of guaranty, indemnification and suretyship,
except the defenses of prior payment or prior performance or any other defense
which Tenant might properly assert under the terms of its Lease other than any
defense based in whole or in part or any bankruptcy, insolvency, reorganization,
arrangement, assignment for the benefit of creditors, receivership or
trusteeship affecting Tenant; and (iii) all rights and remedies including,
without limitation, any extension of time conferred by any law now or hereafter
in effect.
(i) The captions of this Guaranty are for convenience of reference only and
in no way define, limit or describe the scope or intent of this Guaranty or in
any way affect this Guaranty.
IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be duly executed
as of the day and year first above written.
LIFESTYLE MARKETING GROUP,
INC., Guarantor
By: /s/ [ILLEGIBLE]
-----------------------------
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The Landlord is executing this Guaranty solely to evidence its acceptance
hereof:
PARK AVENUE SOUTH/ARMORY,
INC., Landlord
By: /s/ Susan Cox
-----------------------------
Susan Cox
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STATE OF NEW YORK )
)
COUNTY OF NEW YORK )
On this 3rd day of June, 1992, before me personally came Edward I. Shapers,
to me known, who, being by me duly sworn, did depose and say that he resides at
315 East 68th St., #8.0, New York, N.Y.
; that he is Vice President of LIFESTYLE MARKETING GROUP, INC., the
guaranty described in and which executed the foregoing instrument; and that he
signed his name thereto by order of the Board of Directors of said corporation.
/s/ Jenny G. H. Lam
-------------------------------
Notary Public
JENNY G. H. LAM
Notary Public, State of New York
No. 31-4919183
Qualified in New York County
Commission Expires 2/8/94
STATE OF NEW YORK )
)
COUNTY OF NEW YORK )
On this 9th day of June, 1992, before me personally came Susan E. Cox, to
me known, who, being by me duly sworn, did depose and say that he resides at 1
W. 64th St., New York, NY.
; that he is Vice President of PARK AVENUE SOUTH/ARMORY, INC., the
corporation described in and which executed the foregoing instrument; and that
he signed his name thereto by order of the Board of Directors of said
corporation.
JUNE A. POLITANO /s/ June A. Politano
Notary Public, State of New York -----------------------
No. 30-4905885 Notary Public
Qualified in Nassau County
Certificate Filed in New York County
Commission Expires 9/28/93
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OFFICE SPACE LEASE
This Office Space Lease is dated this 31st day of May, 1995, between
KGK Enterprises, Inc., a California corporation organized and existing under the
laws of the State of California ("Landlord") and Seagull Entertainment, Inc.,
("Tenant").
BASIC LEASE PROVISIONS
The following provisions shall be referred to in this Lease as the
"Basic Lease Provisions." The terms set forth in the Basic Lease Provisions
shall be defined terms and shall have a meaning consistent with the Basic Lease
Provisions when used in this Lease consisting of the Basic Lease Provisions, the
Standard Lease Provisions and the Exhibits and/or Addenda attached hereto.
a. Tenant: Seagull Entertainment, Inc.
b. Building: Cornerstone Plaza
1990 South Bundy Drive
Los Angeles, California 90025
Building Rentable Area: 164,311 square feet of office space.
c. Premises:
(1) Floor: Seventh (7th)
(2) Suite: 725
(3) Rentable Area: 2,804 rentable square feet
d. Basic Rent:
(a) Annual Basic Rent: $58,884.00
(b) Monthly Basic Rent: $4,907.00
e. Increases in Annual Basic Rent: None.
f. Tenant's Building Expense Percentage: 1.71%
g. Tenant's Expense Stop Base or Base Year: 1995
h. Rent Abatement: One and one half months (1 1/2) of free rent.
i. Term:
(1) Length of Term: Five (5) years.
(2) Estimated Commencement Date: June 23, 1995
j. Option to Extend: One (1) five (5) year Option to Extend at
Fair Market Value and six (6) months written notice.
k. Prepaid Rent: $4,907.00
1. Security Deposit: $4,907.00
m. Tenant Improvement Allowance: Refer to Exhibit B herein.
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n. Broker: Beitler Commercial Realty Services -- Lark Christensen
o. Guarantor: Paul Siegel and Henry Siegel (Jointly and Severally)
p. Permitted Use: General Office.
q. Parking Spaces:
(1) On-site: Three (3) unreserved permits for every 1,000
rentable square feet leased at prevailing
building rates.
(2) Off-site: N/A
r. Building Directory Board: Tenant at Tenant's expense, may
purchase one directory strip for the directory board in the
main building lobby.
s. Addresses for Payments and Notice:
(1) If to Landlord:
KGK Enterprises, Inc.
c/o Trammell Crow Company
1990 South Bundy Drive
Los Angeles, California 90025
(2) If to Tenant:
To the Premises.
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OFFICE SPACE LEASE
STANDARD LEASE PROVISIONS
ARTICLE I PREMISES.
Landlord leases to Tenant, and Tenant leases from Landlord the Premises,
shown in the drawing attached to this Lease as Exhibit "A" and by this reference
incorporated herein, in the Building, which Building together with the
underlying land, landscaping, plaza area, parking facilities and other
improvements are referred to in this Lease as the "Project". This Lease is
subject to all of the terms, covenants and conditions set forth in the Basic
Lease Provisions, the Standard Lease Provisions, and the Exhibits and/or addenda
attached to this Lease.
1.2 Right of First Offer. If during the first thirty (30) months of the
Initial Lease Term, the 2,478 square foot space immediately adjacent to the
Premises on the seventh floor ("Additional Space") shall become available for
lease and provided that Tenant is not then in default of any of its Lease
obligations and has not assigned the Lease or sublet the entire Premises, Tenant
shall hare the first right option to lease the Additional Space. When the
Additional Space becomes available, or at Landlord's option, up to six (6)
months prior to the date that the Additional Space is scheduled to become
available, Landlord. Shall first offer in writing to lease such space to Tenant
upon the same terms and conditions and at the same rental rate as would be
offered by Landlord to third parties. If within five (5) days after Landlord
delivers to Tenant such written offer if, Landlord does not receive notice in
writing that Tenant elects to lease all of the Additional Space and within ten
(10) days thereafter Tenant does not execute a lease amendment incorporating all
of the terms of this Lease, except as said provisions are clearly inapplicable
to the Additional Space, then Landlord shall have the right to lease the
Additional Space (or any part thereof) to a third party. Provided, however, if
during the initial term, the Additional Space becomes available after it has
been initially leased to a third party, then Tenant's right pursuant to this
paragraph shall continue.
Additionally, if after Landlord has first offered the Additional Space to
Tenant and Tenant has refused to lease said Additional Space and then Landlord
decides to offer said Additional Space to third parties at a Rental Rate in
excess of ten percent (10%) below Landlord's original offer to Tenant, then
Landlord must offer said Additional Space to Tenant at this lower rate. Upon
Landlord's delivery of such written offer, Tenant shall have three (3) days to
elect to exercise said option by providing Landlord written notice of its intent
to lease said Additional Space. If Landlord does not receive notice in writing
that Tenant elects to lease all of the Additional Space and within ten (10) days
thereafter Tenant does not execute a lease amendment on the Additional Space,
then Landlord shall have the right to lease the Additional Space to a third
party.
ARTICLE II TERM.
2.1 Commencement Date. The term shall commence on the earliest of the
following three dates, which earliest date shall be referred to in this Lease as
the "Commencement Date":
(a) The seventh day following the Beneficial Occupancy Date (as
defined in Section 2.4 below);
(b) The date when Tenant enters or occupies the Premises for any use
other than for purposes of construction of improvements or inspection of
the Premises under construction; or
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(c) The date upon which the parties agree as the Commencement Date.
When the Commencement Date is ascertained as above, the term shall commence
and upon request of Landlord, Tenant shall execute a certificate or memorandum
confirming the Commencement Date and the Expiration Date. Upon termination of
this Lease, whether upon expiration of the entire term of this Lease or
otherwise, Tenant agrees to execute and deliver to Landlord within ten (10) days
after written request therefor any documents reasonably required by Landlord to
confirm or evidence the termination of this Lease.
2.2 Measurement of Lease Term and Expiration Date. The Lease term shall be
for the number of years and/or months set forth in the Basic Lease Provisions
measured from the Commencement Date if such date is the first day of a calendar
month or otherwise measured from the first day of the calendar month beginning
after the Commencement Date, which date shall be the "Measurement Date" of this
Lease. The Lease term shall include any period of less than one (1) month from
the Commencement Date to the first day of the next calendar month. The
"Expiration Date" shall be the last day of the last calendar month occurring
upon lapse of the number of years and/or months stated in the Basic Lease
Provisions as Length of Term measured from the Measurement Date. The period from
the Commencement Date through and including the Expiration Date shall be
referred to in this Lease as the "Term".
2.3 Estimated Commencement Date. The Basic Lease Provisions contain an
Estimated Commencement Date stating the date on which Landlord reasonably
believes the Premises will be available for beneficial occupancy by Tenant.
Landlord shall use all reasonable efforts to make the Premises available on the
Estimated Commencement Date; provided, however, that Landlord and Tenant
acknowledge that delays or time savings which are beyond the control of Landlord
may cause the Commencement Date to occur on a date other than the Estimated
Commencement Date. Accordingly, failure of the Commencement Date to occur on the
Estimated Commencement Date shall not affect the terms, conditions, validity or
commencement of this Lease, and Landlord shall have no liability to Tenant for
any loss, cost, expense or liability arising out of or related to failure of
this Lease to commence on the Estimated Commencement Date.
2.4 Beneficial Occupancy Date. The Premises shall be deemed available for
beneficial occupancy when all of the following conditions have been satisfied:
(a) Landlord has placed in operating condition the plumbing, heating,
air conditioning and electrical systems serving the Premises;
(b) Landlord shall have substantially completed all of the work, if
any, required to be performed by Landlord pursuant to any Work Letter
Agreement attached to this Lease as an exhibit; provided, however, that the
date of such substantial completion shall be advanced by any period of
delay which Landlord determines has been caused by Tenant (including any
delay referred to in the Work Letter Agreement as Tenant Delay). If no Work
Letter Agreement is attached to this Lease, then this condition shall be
deemed satisfied; and
(c) Any previous tenant or occupants of the Premises shall have
vacated the Premises.
The date when the Premises are available for beneficial occupancy shall be
the "Beneficial Occupancy Date."
2.5 Option to Renew. Tenant shall have the right, at its option, to extend
the term for (1) period of five (5) years (the "Option Term") immediately
following the expiration of the initial term. Tenant shall exercise its right to
extend the Term by delivery of written notice to Landlord at least six (6)
months prior to the then scheduled Expiration Date of the Term. This Option to
Extend is personal to Tenant and may not be exercised by any assignee or
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subtenant of Tenant, even if Landlord has consented to the assignment or
subletting.
(a) Incorporation of Lease by Reference, All of the terms, covenants
and conditions (including without limitation defined terms contained in
this Lease shall be applicable to the Option Term in the event of exercise
by Tenant.
Term, Annual Basic Rent and the Monthly Basic Rent shall be modified
as provided herein and Tenant shall not be entitled to any further option
to extend this Lease.
(b) Rent. Subject to adjustment as hereafter provided, the Annual
Basic Rent for the Option Term should be adjusted to one hundred percent
(100%) of the Prevailing Market Rent, described below. The Monthly Basic
Rent shall be adjusted to one-twelfth (1/12} of the adjusted Annual Basic
Rent.
(c) Prevailing Market Rent. The "Prevailing Market Rent" shall be
equal to the then prevailing market rate for comparable office space in
first class office buildings in the West Los Angeles area. In determining
the Prevailing Market Rent, whether for comparable space within the
Building or in the West Los Angeles area of Los Angeles County, California,
the following factors shall be taken into account:
(i) The particular configuration, frontage along a public
thoroughfare, signage visible to the public, parking facilities, and
general level of quality of improvements and location of each
comparison building shall be relevant.
(ii) Charges for parking, if any, shall be taken into
consideration and adjustments shall be made for variations, if any, in
charges paid as additional rent by Tenants.
(iii) No rent which has not been set or adjusted during the
twelve month period immediately preceding the Expiration Date of the
Initial Term shall be considered prevailing or current.
(iv) Periods of free rent or other rent concessions shall be
taken into account.
If Tenant has timely exercised the 0ption, Landlord shall notify Tenant in
writing of the proposed new Annual Basic Rent determined by Landlord for the
Option Term at least one hundred twenty (120) days prior to the Commencement
Date of the Option Term. Unless Tenant objects to the amount determined by
Landlord within fifteen (15) days after receipt of such notice, the amount
stated in such notice shall be the new Annual Basic Rent. If Tenant objects to
Landlord's proposal, then the new Annual Basic Rent shall be determined by a MAI
appraiser chosen by Landlord and approved by Tenant. If Tenant does not
disapprove Landlord's choice of an appraiser by delivery of written notice of
disapproval within five (5) days of written notice of such choice by Landlord,
then landlord's appraiser shall be deemed to be approved by Tenant. If Tenant
does not approve Landlord's choice of an appraiser, then Tenant's notice of
disapproval shall name a MAI appraiser designated by Tenant, and each of
Landlord's appraiser and Tenant's appraiser shall appoint a third MAI appraiser
and each appraiser shall determine the Prevailing Market Rent. The two amounts
which are closest shall be averaged, and such average shall be the Prevailing
Market Rent for purposes of this Option. The cost of any common appraiser shall
be split equally by Landlord and Tenant, and if three appraisers are utilized,
Landlord and Tenant shall each be responsible for the fees and costs of the
appraiser which it appoints. If the Annual Basic Rent shall not have been
determined by the Commencement Date of the Option Term, until it is determined,
Tenant shall pay Monthly Basic Rent when due during the Option Term determined
using Landlord's proposed Annual Basic Rent, and when the actual adjusted Annual
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Basic Rent is determined, either Tenant shall pay to Landlord any additional
rent due for the months which have elapsed in the Option Term, or Landlord shall
credit any excess payment for the elapsed months to the next Monthly Basic Rent
becoming due.
ARTICLE III TENANT IMPROVEMENTS AND ACCEPTANCE OF PREMISES.
Landlord's sole obligation with respect to Tenant improvements shall be to
perform the work set forth in any Work Letter Agreement attached to this Lease
as Exhibit "B". If a Work Letter Agreement is not attached to this Lease, then
Landlord shall have no obligation to construct leasehold improvements for Tenant
or to repair or refurbish the Premises whatsoever. By taking possession of the
Premises, Tenant shall have acknowledged that (i) it has inspected the Premises,
(ii) it accepts the Premises, (iii) the Premises are in good and sanitary order,
and (iv) all work to be performed by Landlord has been satisfactorily completed
except for those minor items which Landlord and Tenant shall agree require
further completion and which items shall be incorporated into a written punch
list executed by Landlord and Tenant prior to the Beneficial Occupancy Date.
Landlord shall use all reasonable efforts to cause the items listed on the punch
list to be completed within a reasonable time. Tenant acknowledges that neither
Landlord nor any agent of Landlord has made any promise, representation or
warranty with respect to the Premises, the Building or the Project, or with
respect to the suitability of any part of the Project for the conduct of
Tenant's business unless otherwise set forth in this Lease or its exhibits.
ARTICLE IV RENT.
4.1 Basic Rent. Tenant shall pay to Landlord the Annual Basic Rent for the
Premises set forth in the Basic Lease Provisions, as the same may be increased
pursuant to this Lease. Tenant's obligation to pay rent shall begin on the
Commencement Date and shall continue until all rent due for the Term has been
paid. The Monthly Basic Rent is an amount equal to one-twelfth of the Annual
Basic Rent, as adjusted. The Monthly Basic Rent shall be paid in advance on or
before the first day of each and every calendar month during the Term. If the
Commencement Date occurs on a day other than the first day of a calendar month,
then the rent payable by Tenant to Landlord for the period from the Commencement
Date to the Measurement Date shall be prorated and the rent for the partial
month following the Commencement Date shall be payable on the Commencement Date.
Any rent due for a period other than a full month will be pro rated on a daily
basis using a 30 day month. The rent payable for the first full calendar month
of the Term shall be payable upon execution of this Lease by Tenant. Rent shall
be payable without notice, demand, reduction or setoff in lawful money of the
United States of America to Landlord or its agent at the address set forth in
the Basic Lease Provisions, or to such other person or such other places
Landlord may from time to time designate in writing. If (a) any check submitted
by Tenant in payment of rent or any other charge due under this Lease shall be
returned for insufficient funds, or (b) Tenant shall fail to pay when due its
rent or any other charge due under this Lease for two (2) consecutive months or
three (3) times in any twelve (12) month period, then in addition to any other
rights and remedies of Landlord, Landlord may require that Tenant thereafter pay
its basic rent and other charges by cashiers' check and/or pay its basic rent
and other charges in quarterly payments covering three (3) months each, instead
of monthly.
4.2 Increases in Annual Basic Rent. The Annual Basic Rent shall be
increased annually on each anniversary of the Measurement Date beginning with
the first anniversary of the Measurement Date. If Tenant remains in possession
of the Premises for any period of a partial year after the last anniversary of
the Measurement Date, then the increase in the Annual Basic Rent shall apply to
such partial year. If Tenant exercises any option to extend the Term, and unless
the instrument containing such option to extend the Term contains inconsistent
provisions for annual increases of the rent for the option term (which
provisions for increases in rent shall control over inconsistent provisions of
this
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Section), then the Annual Basic Rent for the option term shall be increased on
the first day of the option term and each anniversary thereof in accordance with
this Section 4.2 substituting the first day of such option term as a
"Measurement Date".
Each increase shall be determined as follows:
(a) The month immediately preceding the month in which the Measurement
Date occurs shall be the "Base Month". The same month occurring one year
later shall be the "Comparison Month". In each succeeding year, the most
recent Comparison Month shall be substituted as the Base Month, and the
next Comparison Month shall be the same calendar month occurring one year
later. The Annual Basic Rent for each succeeding full or partial year of
the Term beginning on each anniversary of the Measurement Date shall be
equal to the Annual Basic Rent then in effect increased by a percentage
equal to the percentage increase in the Index (defined below) for the
Comparison Month over the Index for the Base Month applicable to such year.
In no event shall the Annual Basic Rent for any year be less than the
Annual Basic Rent for the preceding year. The Monthly Basic Rent shall be
recomputed as one-twelfth (1/12) of the increased Annual Basic Rent and the
Monthly Basic Rent as recomputed shall be due in accordance with Section
4.1 of this Lease.
(b) The term "Index" shall mean the "Consumer Price Index for All
Urban Consumers, Los Angeles -- Anaheim Riverside CMSA, All Items,
(1982--1984=100)" compiled by the United States Department of Labor, Bureau
of Labor Statistics.
(c) If the Index is changed in any material respect, including without
limitation, any change in the base of the Index at 100 for 1982-1984, then
Landlord may at its election adjust the Index as appropriate to provide for
comparison of relative changes in prices of goods and services to consumers
in the area where the Index is measured. If the Bureau of Labor Statistics
shall cease to publish the Index, then Landlord shall substitute any
official index published by the Bureau of Labor Statistics or any successor
or similar governmental agency as may then be in existence and
substantially equivalent, and Landlord shall be entitled at its election to
make any adjustments in the substituted index, as appropriate, to provide
for comparison of relative changes in the prices of goods and services to
consumers in the area where the index is measured.
(d) The rent as increased by the annual rent increases shall be due
and payable regardless of notice of such increase by Landlord to Tenant;
provided, however, that Tenant shall not be in default because of payment
of less than the increased amount until Landlord notifies Tenant of the
increased amount of rent as long as Tenant pays the Monthly Basic Rent set
for the prior year when due, Tenant pays any deficiency to Landlord within
five (5) days after notice of the increased rent, and thereafter, Tenant
pays the increased amount as Monthly Basic Rent for such year.
4.3 Late Charges. If Tenant fails to pay any installment of rent within
five (5) days of the date due or if Tenant fails to make any other payment due
under this Lease within five (5) days of the date due, then Tenant shall pay to
Landlord a late charge equal to the greater of five percent (5%) of the amount
due or $100 to compensate Landlord for the extra cost incurred as a result of
such late payment.
ARTICLE V ADDITIONAL RENT.
5.1 Obligations to Pay Additional Rent. In addition to the Annual Basic
Rent and other sums to be paid by Tenant to Landlord, Tenant shall pay to
Landlord as additional rent the amount by which Tenant's share of Operating
Expenses (defined below) for any calendar year or part thereof during the Term
exceeds Tenant's Expense Stop Base. If the Basic Lease Provisions state the
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Tenant's Expense Stop Base in terms of a Base Year, then the Tenant's Expense
Stop Base shall be equal to the Tenant's share of Operating Expenses for such
Base Year. Tenant's share of Operating Expenses shall be an amount equal to the
product of the Operating Expenses times Tenant's Building Expense Percentage. If
any part of the Term begins or ends on any day other than the first or last day
of a calendar year respectively, then the annual Operating Expense and Tenant's
Expense Stop Base shall be prorated for such partial year on a daily basis using
a 30 day month and 360 day year to determine the amount of additional rent due
to Landlord.
5.2 Estimated Operating Expenses. Landlord shall be entitled to make a
reasonable estimate of Operating Expenses projected for each calendar year.
Landlord shall be entitled to revise such estimates at any time and from time to
time during the calendar year to increase or decrease the estimate of Operating
Expenses. If Landlord notifies Tenant that Landlord's estimate (or any revised
estimate) of Operating Expenses would result in an obligation of Tenant to pay
additional rent, then upon request by Landlord, Tenant shall pay one-twelfth
(1/12) of such estimated additional rent on the first day of each month in
advance together with the Monthly Basic Rent. If Landlord shall so notify Tenant
after the commencement of a calendar year, then with the next payment of Monthly
Basic Rent due, Tenant shall also pay to Landlord one--twelfth (1/12) of such
estimated additional rent for each month of such calendar year which has already
elapsed.
5.3 Annual Statement. Landlord shall provide Tenant with an annual
statement showing Tenant's share of the annual Operating Expenses over Tenant's
Expense Stop Base, if any, for the prior calendar year, together with any
proration. Landlord shall use all reasonable efforts to deliver the annual
statement within one hundred twenty (120) days after the end of the calendar
year; provided, however, that failure of Landlord to deliver the annual
statement within such period shall not impair or constitute waiver of Tenant's
obligations to pay additional rent or cause Landlord to incur any obligation for
damages. If the amount of the additional rent due for the calendar year exceeds
any amounts paid by Tenant as estimated additional rent for such calendar year,
then Tenant shall pay such excess to Landlord within ten (10) days of receipt of
the Landlord's statement. If the amounts paid as estimated additional rent for a
calendar year exceed the amount of Tenant's obligation shown on the annual
statement, then Tenant shall be entitled to a credit against monthly
installments of estimated additional rent due for the then current year. If no
further sums of additional rent are or will become due against which the excess
can be credited, then, subject to offset at Landlord's election against other
sums owed by Tenant, Landlord shall pay such excess to Tenant within ten (10)
days after delivery of the annual statement. If Landlord has not required Tenant
to pay installments of estimated additional rent, then Tenant shall pay Landlord
any sum of additional rent due within ten (10) days of any statement by Landlord
reflecting the amount of overall additional rent. All obligations to pay
additional rent and/or the obligation of Landlord to credit or reimburse Tenant
for any excess payment of estimated additional rent shall survive expiration of
the Term or earlier termination of this Lease.
Tenant shall have a period of thirty (30) days after delivery of the annual
statement of Operating Expenses to question or challenge the amount shown
thereon as being the annual Operating Expenses or Tenant's share thereof by
giving written notice to Landlord specifying the items which are challenged.
Tenant waives and relinquishes the right to challenge or object to the amounts
shown at any time after expiration of such thirty (30) day period. If Tenant
timely challenges any item shown on the annual statement, Tenant shall then have
a period of sixty (60) days in which to inspect during business hours upon
reasonable written notice to Landlord at Landlord's office Landlord's records
relating to the challenged item or items. Tenant shall give written notice to
Landlord prior to expiration of such sixty (60) day of whether Tenant continues
to challenge any of the items originally objected to, in which case a
certification as to proper amount shall be made, at Tenant's expense, by
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Landlord's independent certified public accountant, which certification shall be
final and conclusive. If Tenant fails to review the records or fails to give
timely written notice to Landlord that it continues to object, then Tenant shall
be deemed to have waived its objection and shall have no further right to
challenge or object thereto. Notwithstanding any objection or challenge of
Tenant, Tenant shall pay the amount claimed by Landlord to be due as and when
provided for herein, pending the resolution of Tenant's objection.
5.4 Operating Expenses. "Operating Expenses" of the Building and the
Project mean any and all costs and expenses of ownership, operation, management,
maintenance and repair of the Project and Building, including the parking
facilities and Common Areas. Operating Expenses include but are not limited to
each of the following costs and expenses:
(a) All costs and expenses of utilities furnished to the Building and
the Project including, without limitation, all costs and expenses
attributable to supply of electrical service, water and sewage service,
natural gas, cable television or other electronic or microwave signal
reception, telephone service or other communication, steam, heat, cooling,
or any other service which is now or in the future considered a utility
furnished to the Building and/or the Project.
(b) All real property taxes which shall include (i) any form of tax or
assessment, license fee, license tax, tax or excise on rent or any other
levy, charge, expense or imposition made or required by any federal, state,
county, city, district or other political subdivision on any interest of
Landlord and/or Tenant in the Premises, the Building, or the remainder of
the Project, including without limitation, the underlying real property and
appurtenances; (ii) any fee for services charged by any governmental agency
or quasi-governmental agency for any services such as fire protection,
street, sidewalk and road maintenance, refuse collection, school systems,
or other services provided or formerly provided to property owners and
residents within the general area of the Project at no cost or minimal
cost; (iii) any governmental impositions allocable to or measured by the
area of the Premises or the amount of any rent payable under this Lease,
including, without limitation, any tax on gross receipts or any excise tax
or other charges levied by any federal, state, county, city, district or
other governmental agency or political subdivision with respect to rent or
upon or with respect to the possession, leasing, operation, maintenance,
alteration, repair, use or occupancy of the Premises or any portion
thereof; (iv) any impositions by any governmental agency on this Lease
transaction or charge with respect to any document to which Tenant is a
party creating or transferring an interest or an estate in the Premises;
and (v) any increase in any of the foregoing based upon construction of
improvements on the Project or changes in ownership (as defined in the
California Revenue and Taxation Code) of the Property. Real property taxes
shall not include taxes on the Landlord's net income including state
franchise taxes or any inheritance, estate or gift taxes.
(c) The sum of building operating costs and common facilities costs
which shall include all costs of managing, operating and maintaining and
repairing the Project including all Common Areas and facilities of the
Project. Such costs shall include, without limitation, all expenses for
insurance obtained by Landlord (including, without limitation, public
liability, contractual liability, property damage, fire and extended
coverage, sprinkler damage, theft, malicious mischief and vandalism, flood,
rental loss, rent continuation, boiler and machinery, business
interruption, earthquake, all risk coverage, and other coverages in such
amounts as Landlord determines appropriate to carry in connection with
ownership and operation of a first class building in Los Angeles County,
California, or such other insurance as may be required by any present of
future lender on loans secured by the Project), labor and supplies,
license, permit and inspection fees, all assessments and special
assessments due to deed restrictions, declarations and/or owners
associations which accrue against the Project, the cost of compensation
(including employment taxes, similar governmental charges, and fringe
benefits) with respect to all persons who
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perform duties in connection with landscaping, janitorial, painting, window
washing and general cleaning services, security services and any other
services related to the operation, maintenance or repair of the Project (as
well as the cost of all personal property equipment used in conjunction
therewith), costs of clean-up and removal of Hazardous Materials (as
hereafter defined) and any fines and penalties imposed by reason of the
existence of Hazardous Materials on, in or about the Project, the fair
market rental value of the Project management office, management fees,
legal expenses and accounting expenses.
(d) If the Building is not at least 95% occupied during all or a
portion of any calendar year, then Landlord shall make an appropriate
adjustment of the Operating Expenses for such calendar year to determine
what the Operating Expenses would have been for such year if the Building
had been 95% occupied and the amount so determined shall be deemed to be
the amount of the Operating Expenses for the year. Such adjustment shall be
made by Landlord increasing those costs included in Operating Expenses
which in Landlord's judgment vary based upon the level of occupancy of the
Building to the amount of cost which in Landlord's judgment would have been
incurred if the Building had been 95% occupied for the entire calendar
year.
(e) Operating Expenses shall not include depreciation of or capital
expenditures made in connection with the Project or any equipment therein
or thereon, payments of principal and interest on any loans secured by the
Project, commissions paid for leasing, building construction permits and
fees, or costs of alteration of the Project; provided, however, that
Operating Expenses shall include the costs of any capital improvements made
to the Project for the purposes of reducing Operating Expenses or pursuant
to the requirements of any governmental entity, such costs to be amortized
over a reasonable period as Landlord shall determine, together with
interest on the unamortized balance at the rate of interest which would be
payable on sums due under this Lease at the time such capital improvements
are performed.
(f) Charges for any services, goods or materials furnished by Landlord
at Tenant's request and charges for services, goods and materials furnished
by Landlord as a result of uses or demands by Tenant in excess of those
charges which are normally furnished to other tenants in the Building with
general office usage, and all other sums payable by Tenant under this Lease
shall not be included in Operating Expenses but shall be payable by Tenant
pursuant to this Lease (or if not provided for in this Lease, within ten
(10) days after Landlord delivers a statement for such services, goods or
materials to Tenant). If any other tenant of the Project either pays sums
directly to third parties or specifically reimburses Landlord sums which
otherwise would be included in Operating Expenses, such payments or
reimbursements shall not be included in Operating Expenses for the purpose
of determining the amount of Operating Expenses allocable to Tenant.
ARTICLE VI SECURITY DEPOSIT.
Tenant has deposited with Landlord the Security Deposit in the amount set
forth in the Basic Lease Provisions. The Security Deposit shall be held by
Landlord as security for the performance and observance by Tenant of all
Tenant's obligations hereunder. If the Annual Basic Rent is increased during the
Term, then, within fifteen (15) days of notification by Landlord of the
increased Annual Basic Rent, without further notice, Tenant shall pay to
Landlord an additional amount to be held as part of the Security Deposit so that
the total Security Deposit held by Landlord is in the same proportion to the
increased Annual Basic Rent as the original Security Deposit bore to the
original Annual Basic Rent. No interest shall accrue with respect to the
Security Deposit. If Tenant performs and observes all of the terms, covenants
and conditions of this Lease which are required to be performed and observed by
it and pays all sums due Landlord, then Landlord shall return the Security
Deposit, or balance thereof then held by Landlord, without interest, to Tenant
within two weeks after Landlord recovers and accepts possession of the Premises.
If Tenant defaults,
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Landlord may, at its option and without notice, apply all or any part of the
Security Deposit in payment of rent or to cure any other default. If Landlord
does so, then Tenant shall, upon notice of such application, deposit with the
Landlord the amount so applied so that Landlord will have on hand at all times
during the Term the full amount of the Security Deposit. Landlord shall not be
required to hold the Security Deposit as a separate account, but may commingle
it with Landlord's other funds. In the event of a sale or other disposition of
the Premises, Landlord shall have the right to transfer the Security Deposit to
the new owner and deliver to Tenant the notice required by Section 1950.7 of the
Civil Code of California. Thereafter, Landlord shall be released by Tenant from
all responsibility for the return of such Security Deposit, and Tenant shall
look solely to the new owner for the return of such Security Deposit. If Tenant
assigns this Lease, Tenant's rights in the Security Deposit shall be deemed to
be assigned to the assignee, such Security Deposit shall be held by Landlord as
a Security Deposit made by the assignee and Landlord shall have no further
responsibility for the return of the Security Deposit to Tenant.
ARTICLE VII USE.
7.1 Use in General. Tenant shall use the Premises for the use set forth in
the Basic Lease Provisions and shall not use or permit the Premises to be used
for any other purpose without the prior written consent of Landlord, which may
be withheld by Landlord in its sole and absolute discretion. Nothing contained
herein shall be deemed to give Tenant any exclusive right to such use in the
Building. Tenant shall not use or occupy the Premises in violation of law, any
permit or the certificate of occupancy issued for the Building or the Premises.
Upon written notice from Landlord, Tenant shall discontinue any use of the
Premises which is declared by any governmental authority having jurisdiction to
be a violation of law, any permit or any certificate of occupancy. Tenant shall
comply with any direction of any governmental authority, having jurisdiction
which shall, by reason of the nature of Tenant's use or occupancy of the
Premises, impose any duty upon Tenant or Landlord respecting the Premises or use
or occupation thereof. Tenant shall not do or permit to be done anything which
will invalidate or increase the cost of any fire, extended coverage or any other
insurance policy covering the Project and/or property located therein and shall
comply with all rules, orders, regulations and requirements of any fire rating
bureau or any other organization performing a similar function. If Landlord
shall request Tenant to designate a fire warden or other responsible person from
among the persons regularly located at the Premises, Tenant shall make such
person available at reasonable times for training, briefing and drills. Tenant
shall promptly, upon demand, reimburse Landlord for any additional premium
charged for any insurance policy by reason of Tenant's failure to comply with
the provisions of this Article. Tenant shall not do or permit anything to be
done in or about the Premises which will in any way obstruct or interfere with
the rights of other tenants or occupants of the Building, or injure or annoy
them, or use or allow the Premises to be used for any improper, immoral,
unlawful or objectionable purpose, nor shall Tenant cause, maintain or permit
any nuisance in, on or about the Premises. Tenant shall not commit or suffer to
be committed any waste in or upon the Premises.
7.2 Hazardous Material. Tenant shall not bring, place, hold or dispose of
any Hazardous Material (defined hereafter) on, under or at the Premises, the
Building or the Project. Tenant shall not cause or allow any material with
asbestos, polychlorinated biphenyls (PCBS) or formaldehyde or other Hazardous
Materials to be incorporated into any improvements or alterations which it makes
or causes to be made to the Premises. Tenant shall comply with the requirements
of Section 25359.7(b) of the California Health and Safety Code to provide
Landlord with notice that any Hazardous Material has come to be located on the
Premises, the Building or the Project if Tenant discovers or suspects the
presence of such materials. Tenant shall not take any remedial action related to
Hazardous Materials located in or about the Premises, the Building or the
Project and shall not enter into a settlement, consent decree or compromise in
response to any claim related to Hazardous Materials without first notifying
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Landlord in writing of Tenant's proposed action and affording Landlord a
reasonable opportunity to appear, intervene, or otherwise participate in any
discussion or proceeding for the purposes of protecting Landlord's interest in
the Premises, the Building and the Project. Tenant shall immediately notify
Landlord in writing of (i) any enforcement, clean-up, removal or other
governmental action instituted, completed or threatened with regard to Hazardous
Materials involving the Premises, the Building or the Project, (ii) any claim
made or threatened by any person against Tenant, Landlord, the Premises, the
Building or the Project related to damage, contribution, cost recovery,
compensation, loss or injury resulting from or claimed to result from any
Hazardous Materials and (iii) any reports made to any environmental agency
arising out of or in connection with any Hazardous Materials at or removed from
the Premises, the Building or the Project, including any complaints, notices,
warnings or assertions of any violation in connection therewith.
In addition to any other indemnity contained in this Lease, Tenant hereby
shall defend, indemnify and hold Landlord harmless from and against any and all
losses, liabilities, general, special, consequential and/or incidental damages,
injuries, costs, expenses, claims of any and every kind whatsoever (including
without limitation, court costs, attorney's fees, damages to any person, the
Premises, the Building, the Project or any other property or loss of rents)
which at any time or from time to time may be paid, incurred or suffered by or
asserted against Landlord or, with respect to, or as direct or indirect result
of breach by Tenant of any of the covenants set forth in this Article, or to the
extent caused or allowed by Tenant, or any agent, employee, contractor, invitee
or licensee of Tenant, the presence on, under or the escape, seepage, leakage,
spillage, discharge, emission, release from, onto or into the Premises, the
Building, the Project, any land, the atmosphere, or any watercourse, body of
water or ground water of any Hazardous Material (including, without limitation,
any losses, liabilities, damages, injuries, costs, expenses or claims asserted
or arising under the Comprehensive Environmental Response, Compensation and
Liability Act, as amended, any so--called "Superfund" or "Superlien" law, the
Resource Conservation and Recovery Act, as amended, the Clean Water Act, as
amended, or any other federal, state, local or other statute, law, ordinance,
code, rule, regulation, permit, order or decree regulating, relating to or
imposing liability or standards of conduct of Hazardous Material). The
provisions of an undertaking and indemnification set forth in this Paragraph
shall survive the termination of this Lease and shall continue to be the
personal liability and obligation of Tenant, binding upon Tenant forever.
"Hazardous Material" means any hazardous, harmful, odorous, radioactive,
toxic or dangerous waste, substance or material, including, without limitation,
any hazardous substance or any pollutant or contaminant defined as such (or for
purposes of) the Comprehensive Environmental Response, Compensation and
Liability Act, as amended, or any "Superfund" or "Superlien" law, the Toxic
Substances Control Act, the Resource Conservation and Recovery Act, as amended,
the Clean Water Act, as amended, or any other federal, state or local statute,
law, ordinance, code, rule, regulation, permit, order or decree regulating,
relating to, or imposing liability or standards of conduct concerning, any
hazardous, toxic or dangerous waste, substance or material as is now or at any
time hereafter may be, in effect. Tenant's liability under this Section shall
extend to any and all such Hazardous Materials whether or not such substance was
defined, recognized or known or suspected of being toxic, dangerous or wasteful,
at the time of any act or emission giving rise to Tenant's liability. If Tenant
or its agents, employees or contractors cause any Hazardous Materials to be
located on or about the Premises, the Building or the Project, then Tenant shall
obtain insurance or other means of financial capability satisfactory to Landlord
to assure compliance with the obligations of Tenant related to Hazardous
Materials set forth in this Lease or otherwise now or in the future required by
law. Such assurance shall be on forms, in amounts and with persons as from time
to time reasonably requested by Landlord.
ARTICLE VIII TAXES ON TENANT'S PROPERTY.
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8.1 Payment By Tenant. Tenant shall be liable for and shall pay, at least
ten (10) days before delinquency, all taxes levied against any personal property
or trade fixtures located in or about the Premises. If any taxes on Tenant's
personal property or trade fixtures are levied against Landlord or Landlord's
property or if the assessed value of the Premises, the Building or the Project
is increased by the inclusion of the value of personal property or trade
fixtures located at the Premises in the assessed value of Landlord's property,
then Tenant shall pay to Landlord the amount of taxes reasonably determined by
Landlord as levied on Landlord's property or attributable to any increased
assessment within ten (10) days after delivery of notice of such amount by
Landlord.
8.2 Excess Taxes on Tenant Improvements. If the Tenant Improvements in the
Premises, whether installed, and/or paid for by Landlord or Tenant and whether
or not affixed to the real property so as to become a part thereof, are assessed
for real property tax purposes at a valuation higher than the valuation at which
Tenant Improvements conforming to Landlord's building standard for the Building
are assessed, then the real property taxes and assessments levied against the
Building by reason of such excess assessed valuation shall be deemed to be taxes
levied against personal property of Tenant and shall be governed by the
provisions of Section 8.1 above. If the records of the County Assessor are
available and sufficiently detailed to serve as a basis for determining whether
such Tenant Improvements are assessed at a higher valuation than Landlord's
building standard, such records shall be binding on both the Landlord and the
Tenant. If the records of the County Assessor are not available or not
sufficiently detailed to serve as a basis for making said determination, then
Landlord shall determine the real property or other taxes allocable to Tenant
based on Landlord's good faith estimate of the taxes attributable to the excess
of the actual cost of construction of the Tenant Improvements over Landlord's
estimate of the cost to construct Tenant Improvements according to building
standard.
ARTICLE IX CONDITION OF PREMISES.
9.1 Tenant's Obligations to Maintain. Tenant shall, at Tenant's sole cost
and expense, keep the Premises in good, clean and sanitary order. Tenant shall
use all electrical, gas and plumbing fixtures properly and keep them in a good,
clean and sanitary condition. Neither Tenant nor any subtenant, agent, employee
or contractor of Tenant shall destroy, deface, damage, impair or remove any part
of the Premises, the Building or the Project or the facilities, equipment or
appurtenances of the Premises, the Building or the Project. Tenant shall not
place any object or series of objects on the floors of the Premises in such a
manner as to exceed the load capacity of the floors on a per square inch basis
as determined by any architect, engineer or other consultant of Landlord, or as
otherwise limited by any law, code, regulation, permit or certificate of any
governmental authority. Tenant shall, at its sole cost and expense, make all
repairs to the Premises which are required to correct any damage or deficiency
caused by failure of Tenant to keep the Premises in the condition required by
this Section. Tenant shall reimburse Landlord for the cost of any repair to the
Premises, the Building or the Project required as a result of any misuse or
neglect committed or permitted by Tenant or by any subtenant, agent, employee or
contractor of Tenant. Tenant shall, at its sole cost and expense, repair or
reimburse Landlord for any damage to the Premises, the Building or the Project
caused by any person who has entered the Premises as a result of the express or
implied invitation or permission of Tenant. If Tenant does not make repairs
promptly and adequately or fails to maintain the Premises as required by this
Section within five (5) days after delivery of written notice of any deficiency
by Landlord (or if such deficiency cannot be reasonably corrected within five
(5) days and Tenant shall not commence to correct such deficiency within such
five (5) day period and diligently pursue completion of such correction, then
Landlord may, but shall not be required to, perform such repairs, maintenance
and/or correction to the Premises and any amounts expended by Landlord to
prosecute correction shall be reimbursed by Tenant to Landlord together with a
20% overhead
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charge upon demand; provided, however, that if in Landlord's judgment, there is
an emergency, Landlord may perform the repairs prior to delivery of notice to
Tenant or expiration of Tenant's cure period. If Landlord performs such repairs,
maintenance and/or corrections on behalf of Tenant, Landlord shall not be liable
to Tenant for any loss or damage that may accrue to Tenant's personal property,
trade fixtures and/or records and data occasioned or resulting from such repair,
maintenance and/or correction by Landlord. Entry by Landlord to pursue repair,
maintenance and/or correction shall not be deemed an actual or constructive
eviction and shall not entitle Tenant to any abatement or reduction of rent.
Tenant shall notify Landlord in writing promptly upon discovery of any damage,
defect or malfunction of any structural or mechanical portions of the Building
which Landlord is required to repair and maintain pursuant to Article 10 below.
9.2 Condition Upon Surrender. Upon expiration or earlier termination of
this Lease, Tenant shall remove from the Premises all movable furniture and
movable personal property, and shall promptly repair any damage to the Premises
or the Building caused by such removal. All removal and repair shall be at
Tenant's sole cost and expense. Tenant shall not remove any wall covering, floor
covering, shelving, cabinet units (whether for storage, for library purposes or
for any other purpose), or other improvements affixed to the Premises unless
requested to do so by Landlord. At any time within fifteen (15) days prior to
expiration of the scheduled Term, or within a reasonable time promptly after any
other termination of this Lease, Landlord may demand that Tenant remove from the
Premises any alterations, additions, improvements, fixtures, equipment,
shelving, cabinet units or other personal property designated by Landlord to be
removed. In such event Tenant shall complete such removal (including the repair
of any damage caused by such removal) entirely at its own expense and within
fifteen (15) days of Landlord's demand. All repairs required by Tenant in this
Section shall be performed in a manner satisfactory to Landlord, and shall
include, without limitation, the following: cap all plumbing, cap all electrical
wiring, repair all holes in walls, restore damage to the floors and/or ceiling,
repair any other cosmetic damage, and clean the Premises. If Tenant fails to
remove from the Premises all of its personal property (together with any other
items requested by Landlord to be removed in accordance with this Section) prior
to the expiration or earlier termination of this Lease, then Landlord may, at
its sole option (i) treat Tenant as a holdover in which event the provisions of
Article 26 of this Lease shall apply or (ii) handle the items as provided in
Section 19.2(b) of this Lease.
Unless Landlord demands otherwise pursuant to this Article, Tenant shall,
upon expiration or earlier termination of this Lease, surrender to Landlord the
Premises in the same condition as the Premises were upon delivery of possession
to Tenant, broom clean, reasonable wear and tear excepted, shall surrender all
keys to the Landlord at the place then fixed for the payment of rent, and shall
inform the Landlord of all combinations of locks, safes and vaults, if any, on
the Premises. Promptly upon request by Landlord following expiration or earlier
termination of this Lease, Tenant shall execute, acknowledge and deliver to
Landlord an instrument in recordable form releasing, remising and quitclaiming
to Landlord all right, title and interest of Tenant in the Premises by reason of
this Lease or otherwise.
ARTICLE X MAINTENANCE AND REPAIRS BY LANDLORD.
Landlord shall repair and maintain the structural and mechanical portions
of the Building, including basic plumbing, heating, ventilating, air
conditioning and electrical systems installed or furnished by Landlord, and
Landlord shall keep all Common Areas in good, clean and sanitary order;
provided, however, that if maintenance and repairs are caused in part or in
whole by the act, neglect, or omission of any duty by Tenant, its agents,
servants, employees or invitees, then Tenant shall pay to Landlord, as
additional rent, the reasonable cost of such maintenance and repairs. Landlord
shall not be liable for any failure to make any such repairs or to perform any
maintenance, and Tenant shall be entitled to any abatement or reduction in rent
by reason of such failure, no actual or
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constructive eviction of Tenant shall result from such failure, Tenant shall not
have the right to terminate this Lease, and Tenant shall not be relieved from
the performance of any covenant or agreement in this Lease because of such
failure. Except as provided in Article 17 hereof, there shall be no abatement of
rent and no liability of Landlord by reason of any injury to or interference
with Tenant's business arising from the making of any repairs, alterations or
improvements in or to any portion of the Building or the Premises or in or to
fixtures, appurtenances and equipment therein. Tenant hereby waives the
provisions of Section 1932, 1933(4) and 1942 of the Civil Code of California or
any similar or successor statutes to the fullest extent permitted by law and
Tenant acknowledges that Tenant shall not be entitled to terminate this Lease,
withhold rent or make any repair and deduct the cost of repair from rent payable
under this Lease in the event Landlord fails to make a repair or perform
maintenance. Tenant acknowledges that Tenant's sole remedy for breach of this
Article by Landlord shall be an action for damages.
ARTICLE XI ALTERATIONS.
Tenant shall make no alterations, additions or improvements in or to the
Premises without Landlord's prior written consent. If Tenant shall request
Landlord's consent for any alterations, additions or improvements, then Tenant
shall submit detailed plans, specifications and an itemized budget for making
such alterations, additions or improvements. Tenant shall pay to Landlord all
costs incurred by Landlord for any architectural, engineering, supervisory or
legal services in connection with making a determination concerning consent for
any alteration, addition or improvement requested by Tenant or in connection
with making any correction to any work or improvement performed by or at the
request of Tenant. Landlord may impose any conditions and the requirements to
any consent as Landlord shall in its discretion deem to be necessary or
advisable, including without limitation the hours when work may be performed.
Any approved alteration, addition or improvement shall be made only by
contractors or mechanics approved by Landlord. The review, approval, inspection
or examination by Landlord or any of its agents of any plans, specifications,
contractors or any other items shall be solely for Landlord's benefit and to
protect its interests, and neither Landlord nor its agents shall be deemed to
have assumed any responsibility for the quality of work of any contractor or the
accuracy, sufficiency, quality or suitability of such plans, specifications or
other items. Tenant agrees that there shall be no construction of partitions or
other obstructions which might interfere with Landlord's free access to
mechanical installations or service facilities of the Building or interfere with
the moving of Landlord's equipment to or from the enclosures containing said
installations or facilities. Tenant covenants and agrees that all work done by
Tenant shall be performed in full compliance with all laws, rules, orders,
ordinances, regulations, permits and requirements of any insurance rating bureau
used by insurers selected to carry Landlord's insurance, and of any similar
body. Before commencing any work, Tenant shall give Landlord at least ten (10)
days written notice of the proposed commencement of such work and shall, if
required by Landlord, secure at Tenant's own cost and expense, a completion and
lien indemnity bond satisfactory to Landlord for said work and such other
comprehensive general public liability insurance, builders risk insurance, and
other such insurance coverages so as to protect the insurable interests of
Landlord, Tenant, contractors and subcontractors in amounts and on forms as may
be requested by Landlord. Tenant further covenants and agrees that any
mechanic's lien filed against the Premises or against the Building for work
claimed to have been done, or materials claimed to have been furnished, will be
discharged by Tenant, by bond or otherwise, within ten (10) days after the
filing thereof, at the sole cost and expense of Tenant. All alterations,
additions or improvements upon the Premises made by either party, including
without limitation, all wall coverings, floor coverings, built-in cabinet work,
paneling and the like, shall, unless Landlord elects otherwise, become the
property of Landlord, and shall remain upon, and be surrendered with the
Premises, as a part thereof, at the end of the Term or upon earlier termination;
provided, however, that Landlord may, by written notice to Tenant, require
Tenant to remove all
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improvements, alterations and additions made by Tenant, and Tenant shall repair
all damage resulting from such removal or, at Landlord's option, shall pay to
Landlord all costs arising from such removal.
ARTICLE XII LIENS.
Tenant shall keep the Premises, the Building and the Project and all
underlying realty and appurtenances free from any mechanic's or materialmen's
liens and any other liens of a similar nature placed upon the Premises or any
realty of the Project by any reason of or in connection with any repairs,
additions, alterations or improvements contracted for or initiated by Tenant.
Tenant shall be solely responsible for making payment for such work and
discharging liens for such work. Tenant indemnifies Landlord fully with respect
to all liability for such liens, claims and demands, together with reasonable
attorneys fees and all costs and expenses in connection therewith. Landlord
shall have the right at all times to post on the Premises notices of
nonresponsibility (and to record verified copies thereof) in order to place
contractors and materialmen on notice that Landlord is not to be held
financially responsible for such work. Tenant shall, at the request of Landlord,
provide Landlord with executed and acknowledged full and unconditional lien
releases in recordable form and paid receipts from any general contractor,
subcontractor, materialman or other person furnishing labor and/or materials in
connection with any work connected with the Premises, as well as any other
evidence required by Landlord to demonstrate that there are no liens affecting
Landlord or any property of Landlord by reason of such work. Any amount paid by
Landlord to discharge or bond around any liens shall be payable by Tenant to
Landlord upon demand. Tenant shall be permitted to contest the validity of any
such lien, claim or demand provided Tenant acquires and records a bond in an
amount, in a form and from a surety reasonably satisfactory to Landlord and
Tenant shall, at its sole cost and expense, defend itself and Landlord with
counsel reasonably satisfactory to Landlord. Tenant shall pay and satisfy any
adverse judgment that may be rendered prior to any action taken to enforce such
judgment against Landlord or the Project.
ARTICLE XIII ENTRY BY LANDLORD.
Landlord reserves and shall at any and all times have the right to enter
the Premises to inspect the same, to supply janitorial service and any other
service to be provided by Landlord to Tenant hereunder, to show the Premises to
prospective purchasers or tenants, to post notices of nonresponsibility, to
alter, improve or repair the Premises or any other portion of the Building, all
without such entry constituting any actual or constructive eviction of Tenant
and without abatement of rent. Landlord may, in order to carry out such
purposes, erect scaffolding and other necessary structures where reasonably
required by the character of the work to be performed, provided that Landlord
shall use reasonable efforts to minimize interference with the business of
Tenant. Tenant hereby waives any claim for damages, for any injury or
inconvenience to or interference with Tenant's business, any loss of occupancy
or quiet enjoyment of the Premises, and any other loss in, upon and about the
Premises. Landlord shall at all times have and retain a key with which to unlock
all doors in the Premises, excluding Tenant's vaults and safes. Landlord shall
have the right to use any and all means which Landlord may deem proper to open
said doors in an emergency in order to obtain entry to the Premises. Any entry
to the Premises obtained by Landlord by any of said means, or otherwise, shall
not be construed or deemed to be a forcible or unlawful entry into the Premises,
or an eviction of Tenant from the Premises or any portion thereof, and any
damages caused on account thereof shall be paid by Tenant. No provision of this
Article shall be construed as obligating Landlord to perform any repairs,
alterations or decorations except as otherwise expressly agreed herein by
Landlord.
ARTICLE XIV UTILITIES AND SERVICES.
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Provided that Tenant is not in default under this Lease, Landlord agrees to
furnish or cause to be furnished to the Premises the utilities and services
described in the Standards for Utilities and Services, attached hereto as
Exhibit "C". Tenant agrees to perform and be bound by all of the provisions of
Exhibit "C". Interruption of utilities or services or Landlord's failure to
furnish any of such utilities or services when such interruption or failure is
caused by (i) accident, breakage, or repairs, (ii) strikes, lockouts or other
labor disturbance or labor dispute of any character, (iii) governmental
regulation, moratorium or other governmental action, (iv) inability despite the
exercise of reasonable diligence to obtain electricity, gas, water or fuel, (v)
limitation, rationing, curtailment or restriction on the use of water,
electricity, gas, heating, cooling or other forms of service or utility provided
to the Premises or the Building, or (vi) any other cause beyond Landlord's
reasonable control, shall not give rise to a claim for damages against Landlord
or otherwise result in any liability to Landlord. In addition, Tenant shall not
be entitled to any offset, abatement or reduction of rent by reason of such
failure, no actual or constructive eviction of Tenant shall result from such
failure and Tenant shall not be relieved from the performance of any covenant or
agreement in this Lease because of such failure. In the event of any failure,
stoppage or interruption thereof, Landlord shall diligently attempt to resume
service promptly.
ARTICLE XV BANKRUPTCY.
If Tenant shall file a petition in bankruptcy under any provision of the
Bankruptcy Code as then in effect, or if Tenant shall be adjudicated a bankrupt
in involuntary bankruptcy proceeding and such adjudication shall not have been
vacated within sixty (60) days from the date thereof, or if a receiver,
disbursing agent or trustee shall be appointed for Tenant's property and the
order appointing such receiver, disbursing agent or trustee shall not be set
aside or vacated within sixty (60) days after the entry thereof, or if Tenant
shall be adjudicated a bankrupt in any involuntary bankruptcy proceeding and
such adjudication shall not have been vacated within sixty (60) days from the
date thereof, or if a receiver, disbursing agent or trustee shall be appointed
for Tenant's property and the order appointing such receiver, disbursing agent
or trustee shall not be set aside or vacated within sixty (60) days after the
entry thereof, or if Tenant shall assign its estate or effects for the benefit
of creditors, or if this Lease shall, by operation of law or otherwise, pass to
any person or persons other than Tenant, then Landlord may elect to terminate
this Lease, with or without notice of such election and with or without entry or
action by Landlord. In the event of such termination, notwithstanding any other
provisions of this Lease, Landlord, in addition to any and all rights and
remedies allowed by law or equity, shall, upon such termination, be entitled to
recover damages in the amount provided in Section 19.2(a) hereof. In the event
of such termination, neither Tenant nor any person claiming through or under
Tenant or by virtue of any statute or order of any court shall be entitled to
possession of the Premises but shall surrender the Premises to Landlord. Nothing
contained herein shall limit or prejudice the right of Landlord to recover
damages by reason of any such termination equal to the maximum amount allowed by
any statute or rule of law in effect at the time when, and governing the
proceedings in which, such damages are to be proved, whether or not such amount
is greater, equal to, or less than the amount of damages recoverable under the
provisions of this Article.
ARTICLE XVI INDEMNITY AND INSURANCE.
16.1 Tenant's Indemnity. Tenant shall protect, defend, indemnify and hold
Landlord, its partners, shareholders, officers, directors, trustees, employees,
agents, authorized representatives and contractors (collectively, "Landlord's
Affiliates") harmless from and against any and all claims, demands, judgments,
loss, cost, expense, liability, damage or injury to property or persons,
resulting from or occurring by reason of: (a) the use, occupancy or nonoccupancy
of the Premises or by the actions or inactions, whether or not negligent of
Tenant and/or any subtenant, and their agents, officers, employees, contractors,
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customers, invitees, or licensees whether the active or passive negligence of
Landlord was or is a contributing factor; (b) any default or breach of this
Lease by Tenant; and (c) the failure of Tenant or any other occupant to
surrender possession of the Premises upon the expiration or earlier termination
of this Lease in accordance with the provisions of this Lease, either due to
failure of Tenant to timely perform its obligations for removal and repair of
personal property or any other reason, which indemnity shall include without
limitation any claims made by any succeeding Tenant founded upon such delay;
provided, however, that Tenant shall not be obligated to so indemnify Landlord
or any of Landlord's Affiliates from matters arising from or caused by the sole
willful misconduct or gross negligence of Landlord or any of Landlord's
Affiliates each acting within the scope of their authority on behalf of
Landlord. Payment of any sum by Landlord shall not be a condition precedent to
Tenant's obligations hereunder. If Tenant is required to defend Landlord, then
Landlord shall be entitled to select its own defense counsel and Tenant shall
pay on behalf of, or to, Landlord all defense expenses incurred by, Landlord
including, without limitation, reasonable attorneys fees and expenses, fees of
experts and accountants and court costs.
16.2 Tenant's Insurance. Tenant shall carry at its own expense throughout
the Term of this Lease, comprehensive general public liability insurance
covering the Premises and, appurtenant areas, and Tenant's use thereof, and,
covering Tenant's contractual liability under this Lease in an amount
periodically adjusted to conform to then current standard business practices for
comparable business operations, but in no case less than $2,000,000 in combined
single limit and general aggregate coverage for bodily injury or death, personal
injury and property damage. Tenant shall keep in full force and effect a policy
or policies of Worker's Compensation insurance as required by law and with
employer's liability coverage of not less than $500,000 per employee and per
occurrence. The amounts of general liability and employer's liability insurance
shall be increased on the third anniversary of the Measurement Date and every
third anniversary thereafter to an amount reasonably determined by Landlord as
may be required, given the then current economic conditions and the size of
damage awards generally, to approximate the same level of protection as was
provided on the Commencement Date. Tenant shall provide Landlord with copies of
insurance policies or other evidence of such insurance coverage prior to the
Commencement Date of the Lease and shall provide to Landlord copies of
replacement policies at least thirty (30) days prior to the date of expiration
of a policy. A binder or certificate of insurance shall be sufficient evidence
of insurance pending issuance of a policy; provided, however, that Tenant shall
forward a copy of each policy to Landlord when issued. Such insurance policies
shall be on forms reasonably acceptable to Landlord and such policies shall be
on an occurrence basis. Such insurance shall name Landlord and any management
agent from time to time designated by Landlord and any lender of Landlord as
additional insureds, and shall provide that coverage of additional insureds
shall be primary and that any insurance maintained by Landlord shall be excess
only. Such insurance shall provide that the interests of Landlord, Tenant and
other insureds shall be severable such that the act or omission of one insured
shall not avoid or reduce the coverage of other insureds. Such insurance shall
contain endorsements (i) stating that the insurer agrees to notify Landlord not
less than thirty (30) days in advance of modification or cancellation thereof,
(ii) deleting any employee exclusion on personal injury coverage, (iii)
including employees as additional insureds, (iv) deleting any exclusion from
liability caused by serving alcoholic beverages incidental to Tenant's business,
and (v) providing for coverage for employer's nonowned automobile liability.
Failure of Tenant to maintain insurance coverages required by this Lease for any
time period during the Term or failure of Tenant to deliver evidence of
insurance or copies of policies shall be material defaults under this Lease.
16.3 Tenant's Property. Tenant agrees that all personal property of
whatever kind, including, without limitation, inventory and/or goods stored at
or about the Premises, Tenant's trade fixtures and Tenant's interest in tenant
improvements which may be at any time located in, on or about the Premises, the
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Building, whether owned by Tenant or third parties shall be at Tenant's sole
risk or at the risk of those claiming through Tenant, and that Landlord shall
not be liable for any damage to or loss of such property except for loss or
damage arising from or caused by the sole gross negligence of Landlord or any of
Landlord's officers, employees, agents or authorized representatives each acting
within the scope of their authority. Tenant shall obtain and maintain policies
of fire and extended coverage and sprinkler damage insurance covering the full
replacement cost of all such property.
16.4 Form of Insurance Policies. All insurance policies required of Tenant
by this Lease shall be obtained from insurers doing business in California
having a rating of A XIII or better in the current issue of "Best's Insurance
Guide". All loss payable clauses shall name Landlord as a loss payee and/or
conform to the requirements of any mortgage lenders. Tenant's insurance may,
provided Tenant obtains the prior written approval of Landlord (which approval
shall not be unreasonably withheld), provide for deductibles in reasonable
amounts. If Tenant requests approval of a deductible, Tenant shall provide
evidence of financial responsibility reasonably satisfactory to Landlord to pay
the deductible amount in the event of a loss. Any policy of insurance required
to be maintained by Tenant under this Lease may be maintained under a policy
commonly referred to as a "blanket policy" insuring other parties and/or other
locations; provided however, that the amount of insurance and the scope and type
of coverage shall conform to the requirements contained in this Lease.
16.5 Exemption of Landlord From Liability. Except in the event of
Landlord's sole gross negligence or willful misconduct, Tenant hereby agrees
that Landlord (including Landlord's officers, trustees, partners, affiliates,
directors, agents, management contractors and representatives (collectively
referred to as "Landlord's Affiliates") shall not be liable for injury to
Tenant's business or loss of income therefrom or for damage to the goods, wares,
merchandise or other property of Tenant, Tenant's employees, invitees,
customers, or any other person in or about the Premises. Tenant further agrees
that Landlord and Landlord's Affiliates shall not be liable for injury to the
person of Tenant, Tenant's employees, agents or contractors or to Tenant's
property, whether such damage or injury is caused by or results from fire,
steam, electricity, gas, water or rain, or from the breakage, leakage,
obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing,
heating, ventilation, air conditioning, or lighting fixtures, or from any other
cause, whether damage or injury results from conditions arising upon the
Premises or upon other portions of the Building or the Project, or from other
sources or places appurtenant to the Premises and regardless of whether the
cause of such damage or injury or the means of repairing the same is
inaccessible to Tenant. Landlord and Landlord's Affiliates shall not be liable
for any damages arising from any act or neglect of any other tenant, if any, of
the Building or the Project.
16.6 Waiver of Subrogation, Landlord and Tenant hereby release each other
from any and all liability for any loss, damage or injury to person or property
occurring in, on or about or to the Premises, improvements to the Building, or
person or property in, on or about or to the Premises, improvements to the
Building or personal property within the Building by reason of fire or other
casualty which is required: to be insured against, as stipulated in this Lease
under a standard fire and extended coverage insurance policy, regardless of
cause, including the negligence of Landlord or Tenant. Each party shall notify
their insurance carrier of this waiver of subrogation. If Tenant's insurer fails
to obtain a waiver of subrogation against Landlord, then Landlord's obligation
to obtain a waiver of subrogation shall cease and terminate.
16.7 Waiver of Damages. Tenant hereby acknowledges that the City may from
time to time impose certain restrictions which will affect Tenant, its employees
and visitors during such times as it may chose to schedule/sponsor/cooperate
with various municipal and or private party events. Such restrictions may
provide for limited vehicular and pedestrian access to the Building, its parking
facilities,
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and the public streets, sidewalks and rights-of-way surrounding them. Such
restrictions may apply from before the commencement until after the conclusion
of each event. Tenant acknowledges that such restrictions will interfere with
vehicular and pedestrian access to the Building and its parking facilities.
Tenant hereby waives all claims against Landlord for damages, losses and
expenses of any kind whatsoever arising from or related to the imposition of
such restrictions.
ARTICLE XVII DAMAGE OR DESTRUCTION.
If either the Building, the Project or the Premises should be partially or
wholly destroyed or damaged by fire or other casualty and such damage or
destruction cannot in Landlord's judgment be repaired or substantially restored
within 180 days of the date of such damage or destruction, then Landlord shall
so notify Tenant and either party hereto may, at its option, terminate this
Lease by giving written notice thereof to the other party within 30 days after
the date of such casualty. In such event, rent shall be apportioned to and shall
cease as of the date of such casualty. If neither party exercises this option,
then the Premises shall be reconstructed and restored, at Landlord's expense, to
substantially the same condition as they were prior to the casualty, provided
that, if Tenant has made any alterations, additions or improvements pursuant to
Article 11 or if tenant improvements have been constructed at a cost in excess
of costs paid or reimbursed by Landlord, then Tenant shall reimburse Landlord
for the excess cost of reconstructing the same whether or not the cost of
restoration exceeds the cost of initial construction. In the event of such
reconstruction, rent shall be abated in proportion to the area of the Premises
not capable of use by Tenant from the date of the casualty until substantial
completion of the reconstruction repairs and this Lease shall continue in full
force and effect for the balance of the Term.
If the Project, the Building or the Premises should be damaged by fire or
other casualty and, in Landlord's judgment, the Premises can be substantially
restored within 180 days of the date of such damage, then such damaged part of
the Premises shall be reconstructed and restored, at Landlord's expense, to
substantially the same condition as they were prior to the casualty, provided
that if Tenant has made any alterations, additions or improvements or if tenant
improvements have been constructed for a cost in excess of amounts paid by
Landlord, then Tenant shall reimburse Landlord for the excess cost of
reconstructing the same whether or not the cost of reconstruction exceeds cost
of initial construction. Rent shall be abated in the proportion which the
approximate area of the damaged and destroyed portion of the Premises bears to
the total area in the Premises from the date of the casualty until substantial
completion of the reconstruction repairs; and this Lease shall continue in full
force and effect for the balance of the Term. Landlord shall use reasonable
diligence in completing such reconstruction repairs.
Notwithstanding anything else to the contrary contained in this Article 17,
Landlord shall have no obligation to pay for the repair or restoration of damage
or destruction to the Premises caused by fire or other casualty more than the
amount of the insurance proceeds payable for the benefit of Landlord by reason
of such damage or destruction, plus any amounts actually paid by Tenant for the
excess of the cost of reconstructing tenant improvements over the original cost
of such tenant improvements paid initially by Landlord.
ARTICLE XVIII EMINENT DOMAIN.
If the whole or any part of the Premises or appurtenant areas shall be
taken for public or quasi-public use by a governmental or other authority having
the power of eminent domain or shall be conveyed to such authority in lieu of
such taking, and if such taking or conveyance shall cause the remaining part of
the Premises or appurtenant areas not so taken to be untenantable and inadequate
for use by Tenant, then this Lease shall terminate as of the date of such
taking. If a part of the Premises and/or appurtenant areas shall be taken or
conveyed but
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the portion, remaining after restoration can be made usable for Tenant's
purposes, then this Lease shall not be terminated as provided for in this
Article 18, but this Lease shall be terminated only as to the portion of the
Premises (without consideration of appurtenant areas) taken or conveyed as of
the date Tenant surrenders possession of such portion of the Premises, and
Landlord shall make such repairs, alterations and improvements as may be
necessary to render any part not taken or conveyed tenantable; provided,
however, Landlord shall have no obligation to pay for such repairs, alterations
and improvements more than the amount of such award payable for the benefit of
Landlord for such taking, and the rent shall be reduced proportionately to the
amount (based on square footage) of the Premises taken. All compensation awarded
for such taking or conveyance shall be the property of Landlord without any
deduction therefrom for any present or future estate of Tenant, and Tenant
hereby assigns to Landlord all of its right, title and interest in and to any
such award. Tenant shall have no claim against Landlord or against the condemnor
for the value of any unexpired portion of the term of this Lease or otherwise,
and Tenant shall not be entitled to any part of any award that may be made for
such taking. However, Tenant shall have the right to recover from such
authority, but not from Landlord, such compensation as may be awarded to Tenant
on account of moving and, relocation expenses and depreciation to and removal of
Tenant s trade fixtures and personal property. It is further understood and
agreed that neither the Tenant nor the Landlord shall have any rights in any
award made to the other by any condemnation authority.
ARTICLE XIX DEFAULTS AND REMEDIES.
19.1 Tenant's Default. The occurrence of any one or more of the following
events shall be a default and breach of this Lease by Tenant:
(a) Tenant fails to pay any rent payment or other sum due under this
Lease within five (5) days after the same shall be due and payable.
(b) Tenant fails to perform or observe any term, condition, covenant
or obligation required to be performed or observed by it under this Lease
for a period of thirty (30) days (or such shorter time provided herein)
after notice thereof from Landlord; provided, however, that if the term,
condition, covenant or obligation to be performed by Tenant is of such
nature that the same cannot reasonably be cured within thirty (30) days and
if Tenant commences such performance within said thirty-day (30) period and
thereafter diligently undertakes to complete the same, then such failure
shall not be a default hereunder if it is cured within sixty (60) days
following Landlord's notice.
(c) Tenant vacates or abandons, or fails to occupy the Premises, or
any substantial portion thereof, for a period of fourteen (14) days.
(d) A trustee, disbursing agent, or receiver is appointed to take
possession of all or substantially all of Tenant's assets in, on or about
the Premises or of Tenant's interest in this Lease (and Tenant or any
guarantor of Tenant's obligations under this Lease does not regain
possession within sixty (60) days after such appointment); Tenant makes an
assignment for the benefit of creditors; or all or substantially all of
Tenant's assets in, on or about the Premises or Tenant's interest in this
Lease are attached or levied upon under execution (and Tenant does not
discharge the same within sixty (60) days thereafter).
(e) A petition in bankruptcy, insolvency, or for reorganization or
arrangement is filed by or against Tenant or any guarantor of Tenant's
obligations under this Lease pursuant to any federal or state statute, and,
with respect to any such petition filed against it, Tenant or such
guarantor fails to secure a stay or discharge thereof within sixty (60)
days after the filing of the same.
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(f) Immediately, in the event of any assignment, subletting or other
transfer for which the prior written consent of the Landlord has not been
obtained.
(g) Immediately, in the event of discovery of any false or misleading
statement concerning financial information submitted by Tenant to Landlord
in connection with obtaining this Lease or any other consent or agreement
by Landlord.
19.2 Landlord's Remedies. Upon the occurrence of any event of default,
Landlord shall have the following rights and remedies, in addition to those
allowed by law or in equity, any one or more of which may be exercised or not
exercised without precluding the Landlord from exercising any other remedy
provided in this Lease or otherwise allowed by law or in equity:
(a) Landlord may terminate this Lease and Tenant's right to possession
of the Premises. If Tenant has abandoned and vacated the Premises, the mere
entry of the Premises by Landlord in order to perform acts of maintenance,
cure defaults, preserve the Premises, or to attempt to relet the Premises,
or the appointment of a receiver in order to protect the Landlord's
interest under this Lease, shall not be deemed a termination of Tenant's
right to possession or a termination of this Lease unless Landlord has
notified Tenant in writing that this Lease is terminated. Notification of
any default in Section 19.1 of this Lease shall be in lieu of, and not in
addition to, any notice required under Section 1161, et seq., of the
California Code of Civil Procedure. If Landlord terminates this Lease and
Tenant's right to possession of the Premises pursuant to this Subsection
19.2(a), then Landlord may recover from Tenant:
(i) The worth at the time of the award of unpaid rent which had
been earned at the time of termination; plus
(ii) The worth at the time of the award of the amount by which
the unpaid rent which would have been earned after termination until
the time of award exceeds the amount of such rental loss that Tenant
proves could have been reasonably avoided; plus
(iii) The worth at the time of the award of the amount by which
the unpaid rent for the balance of the term after the time of the
award exceeds the amount of such rental loss that Tenant proves could
be reasonably avoided; plus
(iv) Any other amounts necessary to compensate the Landlord for
all of the detriment proximately caused by Tenant's failure to perform
its obligations under this Lease which in the ordinary course of
things would be likely to result therefrom, including, without
limitation, any legal expenses, brokers commissions or finders fees
(in connection with reletting the Premises and the pro rata portion of
any leasing commission paid by Landlord in connection with this Lease
which is applicable to the portion of the Term, including option
periods, which is unexpired as of the date on which this Lease
terminated), the costs of repairs, cleanup, refurbishing, removal and
storage or disposal of Tenant's personal property, equipment, fixtures
and anything else that Tenant is required under this Lease to remove
but does not remove (including those alterations which Tenant is
required to remove pursuant to an election by Landlord and Landlord
actually removes whether or not notice to remove shall be delivered to
Tenant), and any costs for alterations, additions and renovations
incurred by Landlord in regaining possession of and reletting (or
attempting to relet) the Premises. Tenant shall also reimburse
Landlord for the pro rata portion of leasehold improvement costs paid
by Landlord to install leasehold improvements on the Premises which is
applicable to that portion of the Term including any option periods
which is unexpired as of the date of this Lease discounted to present
value.
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All computations of the "worth at the time of the award" of amounts
recoverable by Landlord under Subsections (i) and (ii) hereof shall be
computed by allowing interest at the maximum lawful contract rate per
annum. The "worth at the time of the award" recoverable by Landlord under
Subsection (iii) and the discount rate for purposes of determining any
amounts recoverable under Subsection (iv), if applicable, shall be computed
by discounting the amount recoverable by Landlord at the discount rate of
the Federal Reserve Bank of California San Francisco at the time of the
award plus one percent (1%). If Tenant tenders to Landlord sums in an offer
of settlement of payment of any sums due under this Subsection 19.2(a)
after Landlord has notified Tenant of exercise of the remedies under this
Subsection 19.2(a), then the "worth at the time of the award" shall be
determined at the time a lawful tender of payment of the entire amount of
such sums by Tenant.
(b) Upon termination of this Lease, whether by lapse of time or
otherwise, Tenant shall immediately vacate the Premises and deliver
possession to Landlord. If Tenant has vacated the Premises and Landlord or
any of its agents have reason to believe that Tenant does not intend to
reoccupy the Premises, and current or past rent has been due or unpaid for
at least fourteen (14) consecutive days, then Landlord shall have the right
to send Tenant a notice of belief of abandonment pursuant to Section 1951.3
of the California Civil Code. The Premises will be deemed abandoned, and
the Tenant's right to possession of the Premises will terminate on the date
set forth in such notice, unless Landlord receives (at its address for
notices set forth in this Lease) before such date a notice from Tenant
stating (i) Tenant's intent not to abandon the Premises, and (ii) an
address at which Tenant may be served in any action for unlawful detainer
of the Premises and/or damages and other relief available at law or in
equity. If the Premises are deemed abandoned (either through the
aforementioned procedure or due to any statement by Tenant to that effect)
or if Landlord or any of its agents acts pursuant to a court order, then
Landlord or any of its agents shall have the right, without terminating
this Lease, to re-enter the Premises and remove all persons therefrom and
any or all of Tenant's fixtures, equipment, furniture and other personal
property (herein collectively referred to as "Property") from the Premises,
without being deemed in any manner liable for trespass, eviction, or
forcible entry or detainer, or conversion of Property, and without
relinquishing any right given to Landlord under this Lease or by operation
of law. If Landlord re-enters the Premises in such situation, all Property
removed from the Premises by Landlord or any of its agents and not claimed
by the owner may be handled, removed, or stored, in a commercial warehouse
or otherwise by Landlord at Tenant's risk and expense, and Landlord shall
in no event be responsible for the value, preservation or safekeeping
thereof. Before retaking of any such Property from storage, Tenant shall
pay to Landlord, upon demand, all expenses incurred in such removal and all
storage charges against such Property. Any such Property of Tenant not so
retaken from storage by Tenant within thirty (30) days after such Property
is removed from the Premises shall be deemed abandoned and may be either
disposed of by Landlord pursuant to Section 1988 of the California Civil
Code or retained by Landlord as its own property.
(c) Notwithstanding Landlord's right to terminate this Lease pursuant
to Section 19.2(a), Landlord may, at its option, even though Tenant has
breached this Lease and abandoned the Premises, continue this Lease in full
force and effect and not terminate Tenant's right to possession, and
enforce all of Landlord's rights and remedies under this Lease, including
the right to recover rent as it becomes due under this Lease pursuant to
Section 1951.4 of the California Civil Code. In such event Landlord shall
be entitled to recover from Tenant all costs of maintenance and
preservation of the Premises, and all costs, including attorneys fees and
receivers fees, incurred in connection with appointment of and performance
by a receiver to protect the Premises and Landlord's interest under this
Lease. No reentry or taking possession of the Premises by Landlord pursuant
to this Section 19.2(c) shall be construed as an election to terminate this
Lease unless a written notice (signed by a duly authorized representative
of Landlord) of intention to terminate this Lease is
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given to Tenant. Landlord may at any time after default by Tenant elect to
terminate this Lease pursuant to Section 19.2(a), notwithstanding
Landlord's prior continuance of this Lease in effect for any period of
time, and upon and after Tenant's default under this Lease, Landlord may,
but need not, relet the Premises or any part thereof for the account of
Tenant to any person, firm, partnership, corporation or other business
entity for such rent, for such time and upon such terms as Landlord, in its
sole discretion, shall determine. Subject to the provisions of this Lease
regarding assignment and subletting in Article 20, Landlord shall not be
required to accept any substitute tenant offered by Tenant or to observe
any instructions given by Tenant regarding such reletting. Landlord may
remove (and repair any damage caused by such removal) and store (or dispose
of) any of Tenant's personal property, equipment, fixtures, and anything
else Tenant is required (under this Lease at the election of Landlord or
otherwise) to remove but does not remove, and Landlord may also make
repairs, renovations, alterations and/or additions to the Premises to the
extent deemed by Landlord necessary or desirable in connection with any
attempt to relet the Premises, Tenant shall upon demand pay the cost of
such repairs, alterations, additions, removal, storage and renovations,
together with any legal expenses, brokers commissions or finders fees and
any other expenses incurred by Landlord in connection with entry of the
Premises and attempting to relet the Premises. If Landlord is able to relet
the Premises for Tenant's account during the remaining portion of the Term
and the consideration collected by Landlord from any reletting is not
sufficient to pay monthly the full amount of rent and additional rent
payable by Tenant under this Lease, together with any legal expenses,
brokers commissions or finders fees, any cost for repairs, alterations,
additions, removal, storage and renovations, and any other cost and expense
incurred by Landlord in re-entering the Premises and reletting the
Premises, then Tenant shall pay to Landlord the amount of each monthly
deficiency upon demand. Any rentals received by Landlord from any such
reletting shall be applied as follows:
(i) First, to the payment of any indebtedness other than rent due
hereunder from Tenant to Landlord;
(ii) Second, to the payment of any costs of reentry and reletting
the Premises;
(iii) Third, to the payment of costs of any such alterations,
repairs, additions, removal, storage and renovations to the Premises;
(iv) Fourth, to the payment of rent due and unpaid under this
Lease; and
(v) The residue, if any, shall be held by Landlord and applied as
payment of future rent as the same may become due and payable under
this Lease.
(d) No act or omission by Landlord or its agents during the Term shall
be an acceptance of a surrender of the Premises and no agreement to accept
a surrender of the Premises shall be valid unless made in writing and
signed by a duly authorized representative of Landlord. Neither any remedy
set forth in this Lease nor pursuit of any particular remedy shall preclude
Landlord from any other remedy set forth in this Lease or otherwise
available at law or in equity. Landlord shall be entitled to a restraining
order or injunction to prevent Tenant from breaching or defaulting under
any of its obligations under this Lease other than the payment of rent or
other sums due hereunder.
(e) Neither the termination of this Lease nor the exercise of any
remedy under this Lease or otherwise available at law or in equity shall
affect the right of Landlord to any right of indemnification set forth in
this Lease or otherwise available at law or in equity for any act or
omission of Tenant, and all rights to indemnification or other obligations
of Tenant are
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intended to be performed after termination of this Lease shall survive
termination of this Lease and termination of Tenant's right to possession
under this Lease.
19.3 Default By Landlord And Remedies Of Tenant. It shall be a default and
breach of this Lease by Landlord if it shall fail to perform or observe any
term, condition, covenant or obligation required to be performed or observed by
it under this Lease for a period of thirty (30) days after notice thereof from
Tenant; provided, however, that if the term, condition, covenant or obligation
to be performed by Landlord is of such nature that the same cannot reasonably be
performed within such thirty (30) day period, such default shall be deemed to
have been cured if Landlord commences such performance within said thirty (30)
day period and thereafter diligently undertakes to complete the same.
Tenant shall not have the right based upon a default of Landlord to
terminate this Lease or to withhold, offset or abate rent, Tenant's sole
recourse for Landlord's default being an action for damages against Landlord for
diminution in the rental value of the Premises for the period of Landlord's
default, which is proximately caused by Landlord's default. Tenant shall not
have the right to terminate this Lease or to withhold, offset or abate the
payment of rent based upon the unreasonable or arbitrary withholding by Landlord
of its consent or approval of any matter requiring Landlord's consent or
approval, including but not limited to any proposed assignment or subletting,
Tenant's remedies in such instance being limited to a declaratory relief action,
specific performance, injunctive relief or an action of actual damages. Tenant
shall not in any case be entitled to any consequential or punitive damages based
upon any Landlord default or withholding of consent or approval. Notwithstanding
anything to the contrary contained in this Lease, Tenant agrees and understands
that Tenant shall look solely to the estate and property of Landlord in the
Building of which the Premises are a part for the enforcement of any judgment
(or other judicial decree) requiring the payment of money by Landlord to Tenant
by reason of any default or breach by Landlord in the performance of its
obligations under this Lease, it being intended hereby that no other assets of
Landlord or any of Landlord's Affiliates shall be subject to levy, execution,
attachment or any other legal process for the enforcement or satisfaction of the
remedies pursued by Tenant in the event of such default or breach.
In the event of a sale or transfer of the Premises by Landlord, the
Landlord named herein, or, in the case of a subsequent transfer, the transferor,
shall, after the date of such transfer, be automatically released from all
personal liability for the performance or observance of any term, condition,
covenant or obligation required to be performed or observed by Landlord
hereunder; and the transferee shall be deemed to have assumed all of such terms,
conditions, covenants and obligations, it being intended hereby that such terms,
conditions, covenants and obligations shall be binding upon Landlord, its
successors and assigns only during and in respect of their successive periods of
ownership during the Term.
19.4 Non-waiver Of Default. The failure or delay by either party hereto to
enforce or exercise at any time any of the rights or remedies or other
provisions of this Lease shall not be construed to be a waiver thereof, nor
affect the validity of any part of this Lease or the right of either party
thereafter to enforce each and every such right or remedy or other provision. No
waiver of any default or breach of this Lease shall be held to be a waiver of
any other or subsequent default or breach. The receipt by Landlord of less than
the full rent due shall not be construed to be other than a payment on account
of rent then due, no statement on Tenant's check or any letter accompanying
Tenant's check be deemed an accord and satisfaction, and Landlord may accept any
payment without prejudice to Landlord's right to recover the balance of the rent
due or to pursue any other remedies provided in this Lease or available at law
or in equity.
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ARTICLE XX ASSIGNMENT AND SUBLETTING.
Tenant covenants and agrees that neither all nor any part of Tenant's
interest under this Lease shall be assigned, sublet, mortgaged, pledged or
otherwise transferred (whether voluntarily, involuntary or by operation of law,
or otherwise), without the prior written consent of Landlord, which consent
shall not be unreasonably withheld. Tenant agrees that it shall not be
unreasonable for Landlord to withhold its consent for any of the following
reasons which are not exclusive:
(a) The proposed assignee or sublessee is not a reputable party or
reasonable financial worth and/or financial stability in view of the
responsibilities involved;
(b) In the sole judgment of Landlord, the proposed assignee or
sublessee is of a character or engaged in a business which is not in
keeping with the standards of Landlord in the Project;
(c) The proposed assignee or sublessee is a governmental authority (or
a subdivision or agency thereof);
(d) The terms of the proposed assignment or sublease will allow the
assignee or sublessee to exercise a right of renewal or extension, right of
expansion, right of first offer or other similar right held by Tenant; or
(e) The proposed assignee or sublessee or any of its affiliates
occupies space in the Project at the time of the request for consent.
Landlord's consent may be made or withheld subject to such terms and
conditions as Landlord considers necessary in order to protect its interest in
the Premises, the Building and the Project, including but not limited to the
following: that the proposed transferee shall execute, acknowledge and deliver
to Landlord an agreement in form and substance satisfactory to Landlord whereby
such transferee shall assume and agree to perform and to be personally bound by
and upon all the covenants, agreements, terms and conditions of this Lease on
the part of Tenant to be performed and whereby such transferee shall expressly
agree that the provisions of this Article, notwithstanding such assignment and
transfer, shall continue to be binding upon it with respect to future
assignments, subleases, and/or other transfers; in the event Landlord requires
personal guarantees from financially responsible persons as a condition of
consent, that such guarantors shall execute, acknowledge and deliver an absolute
and unconditional guaranty in a form presented by Landlord which shall contain
waivers of all defenses to the maximum extent permitted by law; and that Tenant
shall continue to be liable to Landlord under this Lease for the terms,
covenants, and conditions to be complied with by Tenant whether this Lease is
assigned or sublet.
If at any time Tenant desires to enter into an assignment or subletting,
Tenant shall submit to Landlord in writing (i) the name of the proposed assignee
or sublessee, (ii) such information as to such assignee's or sublessee's
financial responsibility and standing as Landlord may reasonably require, and
(iii) the proposed sublease or instrument of assignment containing all of the
terms and conditions of the proposed assignment or sublease. At any time within
thirty (30) days after Landlord's receipt of Tenant's full submission (including
any additional information Landlord may request), Landlord may by written notice
to Tenant elect either to: (a) consent to the proposed sublease or assignment;
(b) withhold its consent to the proposed sublease or assignment; (c) terminate
this Lease in its entirety in the case of a proposed assignment or with respect
to the proposed sublease premises in the case of a proposed sublease (in which
case the rent, parking rights and any other rights or obligations under this
Lease which are based upon the square footage of the Premises shall be
proportionately adjusted, and Tenant shall pay the cost of any alterations
necessary to divide the proposed
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sublease premises from the remainder of the Premises), which termination shall
take effect on the date set forth in Landlord's notice but in no event more than
ninety (90) days after Landlord has so notified Tenant; or (d) take an
assignment or sublease, as applicable, from Tenant in its own name on the same
terms as Tenant shall propose to enter into an assignment or sublease (but
Landlord shall have the unqualified right to re-assign, sublet or sub-sublet
without Tenant's consent and Landlord may offset any sums due or to become due
to Tenant under any assignment or sublease against any sums due to Landlord
under this Lease).
If Tenant shall assign this Lease or sublet any portion of the Premises,
Tenant shall pay to Landlord as additional rent as and when received by Tenant:
(a) In the case of an assignment, an amount equal to 50% of all
consideration paid to Tenant by the assignee for or by reason of the
assignment, whether paid in a lump sum or over time, including but not
limited to any sums paid for personal property or services in excess of the
fair market value thereof and sums paid for tenant improvements or
fixtures;
(b) In the case of a sublease, an amount equal to 50% of the amount by
which the sublease rent and any other consideration paid to Tenant, whether
paid in a lump sum or over time, including but not limited to any sums paid
for personal property or services in excess of the fair market value
thereof and sums paid for tenant improvements or fixtures, exceeds the
rents payable which are proportionately allocable to the subleased premises
based on the ratio of the area of the subleased premises to the area of the
entire Premises.
Tenant shall be deemed to have assigned its interest hereunder within the
meaning of this Article if legal or beneficial interests representing 20% or
more of the interests in either voting power, capital, or profits in any
corporation, partnership, joint venture, or other entity comprising Tenant are
transferred by any means.
If this Lease is assigned, or if the Premises or any part thereof are
sublet or occupied by anyone other than Tenant, without first obtaining
Landlord's consent and complying with all conditions to such consent, then
Tenant shall be in default under this Lease and Landlord may collect rent from
the assignee, subtenant or occupant, and apply the net amount collected to the
rent herein reserved but no such assignment, subletting, occupancy or collection
shall be deemed a waiver by Landlord of any default by Tenant or of the
obligation of Tenant to perform all covenants and comply with all conditions
contained in this Lease or a release of Tenant from the performance by Tenant of
the covenants on the part of Tenant contained in this Lease.
Tenant shall reimburse Landlord for any reasonable costs and expenses,
including but not limited to legal expenses, incurred by Landlord in connection
with its review of any proposed assignment or subletting, whether or not
Landlord gives its consent.
Landlord shall have the right to sell, transfer, or assign its interest
hereunder, or any part thereof, without the prior consent of Tenant. After such
sale, transfer, or assignment, Tenant shall attorn to such purchaser,
transferee, or assignee.
ARTICLE XXI SUBORDINATION AND ESTOPPEL.
At the election of Landlord, or the holder of any mortgage or deed of trust
affecting real property of which the Premises are a part, this Lease and all of
the rights of Tenant hereunder shall be subject and subordinate at all times to
all deeds of trust or mortgages which may now or hereafter affect the real
property of which the Premises are a part, and to all renewals, modifications,
consolidations, replacements and extensions thereof. At the request of Landlord
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or the holder of such mortgage or deed of trust, Tenant shall execute,
acknowledge and deliver promptly in recordable form any instrument or
subordination agreement that Landlord or such holder may request; provided,
however, that such instrument shall include a provision requiring the purchaser
at any foreclosure sale or other execution sale to continue this Lease in full
force and effect in the same manner as if such purchaser were the Landlord so
long as Tenant is not otherwise in default and requiring Tenant to attorn to
such purchaser. If Tenant fails to execute such instrument within ten (10) days
after a request to do so, such failure shall be a material default under this
Lease.
Within ten (10) days after request therefor by Landlord, Tenant agrees to
execute and deliver in recordable form an estoppel certificate to any holder of
a mortgage or proposed mortgage or proposed purchaser or to Landlord certifying
(if such is the case) that this Lease is unmodified and in full force and effect
(and if there has been any modification, that the same is in full force and
effect as modified and stating the modifications); that there are no uncured
defaults by Landlord; that there are no defenses or offsets against the
enforcement thereof or stating those claimed by Tenant; stating the date to
which rent and other sums due hereunder are paid; and containing such other
statements regarding this Lease, the Premises or Tenant as Landlord, the
proposed mortgagee or purchaser shall reasonably require. Such certificate shall
also include such other information and agreements by Tenant to protect the
security interest of any lender as may be required or requested by such lender.
The failure by Tenant to deliver any such certificate within ten (10) days after
request therefor shall be deemed to constitute the certification by Tenant that
this Lease is in full force and effect and has not been modified except as may
be represented by Landlord, that no rent or other payment has been paid more
than one month in advance, and that there are no uncured defaults by Landlord
and there are no defenses or offsets against the enforcement thereof. If Tenant
fails to deliver such estoppel certificate within said ten (10) days, Tenant
shall and does hereby irrevocably appoint Landlord as Tenant's attorney in fact
to execute and deliver such certificate. Failure of Tenant to provide such
statement, whether Landlord acts as agent to provide a statement or not, shall
be a material default under this Lease, and Tenant shall indemnify Landlord for
all liabilities, costs, expenses and losses (including forfeited deposits, lost
opportunity to pay lower interest or to obtain additional investment funds and
other consequential damages.)
ARTICLE XXII BUILDING PLANNING.
If Landlord requires the Premises for use in conjunction with another suite
or for other reasons connected with the Landlord's Building planning program,
upon notifying Tenant in writing, Landlord shall have the right to move Tenant
to other space in the Building, which is or shall be built out by Landlord in a
manner comparable to the Premises, and the terms and conditions of the original
Lease shall remain in full force and effect, save and excepting that a revised
Exhibit "A" shall become part of this Lease and shall reflect the location of
the new space. Landlord shall pay the reasonable costs of moving Tenant's
furniture, equipment and personal property to the new space and shall reimburse
Tenant for reasonable incidental costs of moving such as reprinting stationery
with Tenant's new location.
ARTICLE XXIII NOTICES.
Any and all notices, approvals or demands required or permitted under this
Lease shall be in writing and shall be served either personally or by United
States Certified Mail, postage prepaid, return receipt requested. If served
personally service shall be deemed conclusively to occur at the time of service.
If served by Certified Mail, service shall be deemed conclusively to occur on
the second business day after the postmark, postage meter date, or the date
stamped by the United States Postal Service on a certified mail receipt provided
such item of mail reflects the correct postage and the latest known address of
the party to whom such notice or demand is to be given. Such item of mail shall
be
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presumed to have the correct postage the latest known address of the addressee
and to have been mailed on the date asserted by the party giving notice. The
burden of proving improper postage and/or address and/or date shall be on the
party seeking to prove improper notice. Any notice or demand to each respective
party shall be sent to their addresses as set forth in the Basic Lease
Provisions, or to such other address of which such party shall advise the other
in writing in the manner provided in this Article; provided, however, that any
notice or demand made upon Tenant may be made and shall be complete if delivered
to the Premises. All notices to Landlord shall be deemed incomplete and not made
unless delivered to each of the addresses set forth in the Basic Lease
Provisions and/or such other address or addresses as Landlord shall advise
Tenant by delivery of written notice to Tenant in accordance with this Section.
ARTICLE XXIV BROKERS.
Tenant warrants that it has had no dealings with any real estate broker or
agent in connection with the negotiation of this Lease, except the broker listed
in the Basic Lease Provisions whose commission shall be payable by Landlord, and
that it knows of no other real estate broker or agent who is or might be
entitled to a commission in connection with this Lease. If Tenant has dealt with
any other person or real estate broker with respect to leasing or renting space
in the Building, Tenant shall be solely responsible for the payment of any fee
due such person or broker and Tenant shall hold Landlord free and harmless,
against any liability in respect thereto, including attorneys fees and costs
ARTICLE XXV HOLDING OVER.
If Tenant holds over after the expiration or earlier termination of the
term of this Lease without the express written consent of Landlord, Tenant shall
become a Tenant at sufferance only, at a rental rate equal to two hundred
percent of the rent in effect upon the date of such expiration (subject to
adjustment as provided in Section 4.2 hereof and prorated on a daily basis), and
otherwise subject to the terms, covenants and conditions specified in this
Lease, so far as applicable. Acceptance by Landlord of rent after such
expiration or earlier termination shall not result in a renewal of this Lease or
waiver of any default or circumstances of termination. The foregoing provisions
of this Article are in addition to and do not affect Landlord's right of
re-entry or any rights of Landlord otherwise provided in this Lease or as
otherwise provided by law. If Tenant fails to surrender the Premises upon the
expiration of this Lease despite demand to do so by Landlord, Tenant shall
indemnify and hold Landlord harmless from all loss, cost, expense or liability,
including without limitation, any claim made by any succeeding tenant founded on
or resulting from such failure to surrender and any attorneys fees and other
costs of legal proceedings.
ARTICLE XXVI MISCELLANEOUS.
26.1 Rules And Regulations. Tenant shall faithfully observe and comply with
the "Rules and Regulations," a copy of which is attached hereto and marked
Exhibit D, and all reasonable and nondiscriminatory modifications thereof and
additions thereto from time to time put into effect by Landlord. Landlord shall
not be responsible to Tenant for the violation or non-performance by any other
tenant or occupant of the Building of any of the Rules and Regulations.
26.2 Interpretation. This Lease shall be construed fairly as to all parties
and not in favor of or against any party regardless of which party prepared this
Lease. This Lease and the rights of the parties hereunder shall be interpreted
in accordance with the laws of the State of California and any issue or
proceeding arising out of this Lease shall be determined by a court of competent
jurisdiction in the County of Los Angeles, California.
26.3 Successors and Assigns. This Lease and the respective rights and
obligations of the parties hereto shall inure to the benefit of and be binding
upon the successors and assigns of the parties hereto as well as the parties
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themselves; provided, however, that Landlord, its successors and assigns shall
be obligated to perform Landlord's covenants under this Lease only during and in
respect of their successive periods of ownership during the term of this Lease.
26.4 Surrender of Premises. The voluntary or other surrender of this Lease
by Tenant, or a mutual cancellation thereof, shall not work a merger, and shall,
at the option of Landlord, operate as an assignment to it of any or all
subleases or subtenancies.
26.5 Attorneys' Fees.
(a) If Landlord should bring suit for possession of the Premises, for
the recovery of any sum due under this Lease, or because of the breach of
any provisions of this Lease, or for any other relief against Tenant
hereunder, or in the event of any other litigation between the parties with
respect to this Lease, then all costs and expenses, including reasonable
attorneys fees, incurred by the prevailing party therein shall be paid by
the other party, which obligation on the part of the other party shall be
deemed to have accrued on the date of the commencement of such action and
shall be enforceable whether or not the action is prosecuted to judgment.
The "prevailing party" in any action involving recovery of possession of
the Premises shall be the Landlord if it recovers the right to possession,
shall be the Landlord if it does not recover the right to possession but
does obtain an award of damages against Tenant and shall be Tenant if
Tenant retains the right to possession and does not suffer an award of
damage against itself.
(b) If Landlord is named as a defendant in any suit brought against
Tenant in connection with or arising out of Tenant's occupancy hereunder,
Tenant shall pay to Landlord its costs and, expenses incurred in such suit,
including reasonable attorneys' fees.
26.6 Performance By Tenant. All covenants and agreements to be performed by
Tenant under any of the terms of this Lease shall be performed by Tenant at
Tenant's sole cost and expense and without any abatement of rent. If Tenant
shall fail to pay any sum of money owed to any party other than Landlord, for
which it is liable hereunder, or if Tenant shall fail to perform any other act
on its part to be performed hereunder, and such failure shall continue for ten
(10) days after notice thereof by Landlord, Landlord may, without the obligation
to do so and/or waiving or releasing Tenant from its obligations, make any such
payment or perform any such other act to be made or performed by Tenant. All
sums so paid by Landlord and all necessary incidental costs together with
interest thereon at the maximum contract rate permissible by law, from the date
of such payment by Landlord, shall be payable by Tenant to Landlord on demand.
Tenant covenants to pay any such sums, and Landlord shall have (in addition to
any other right or remedy of Landlord) all rights and remedies in the event of
the nonpayment thereof by Tenant as are set forth in Article 19 hereof.
26.7 Mortgagee Protection. In the event of any default on the part of
Landlord, Tenant shall notify, by registered or on certified mail, any
beneficiary of a deed of trust or mortgage covering the Premises whose address
shall have been furnished to Tenant, and shall offer such beneficiary or
mortgagee a reasonable opportunity to cure the default, including time to obtain
possession of the Premises by power of sale or a judicial foreclosure, if such
should prove necessary to effect a cure.
26.8 Waiver. The waiver by Landlord of any breach of any term, covenant or
condition herein contained shall not be deemed to be a waiver of any subsequent
breach of the same or any other term, covenant or condition herein contained,
nor shall any custom or practice which may grow up between the parties in the
administration of the terms hereof be deemed a waiver of or in any way affect
the right of Landlord to insist upon the performance by Tenant in strict
accordance with said terms. The subsequent acceptance of rent hereunder by
Landlord shall not be deemed to be a waiver of any preceding breach by Tenant of
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any term, covenant or condition of this Lease, other than the failure of Tenant
to pay the particular rent so accepted, regardless of Landlord's knowledge of
such preceding breach at the time of acceptance of such rent.
26.9 Identification of Tenant. If more than one person executes this Lease
as Tenant:
(a) Each of them is jointly and severally liable for the keeping,
observing and performing of all of the terms, covenants, conditions,
provisions and agreements of this Lease to be kept, observed and performed
by Tenant, and
(b) The term "Tenant" as used in this Lease shall mean and include
each of them jointly and severally. The act of or notice from, or notice or
refund to, or the signature of any one or more of them, with respect to the
tenancy of this Lease, including, but not limited to any renewal,
extension, expiration, termination or modification of this Lease, shall be
binding upon each and all of the persons executing this Lease as Tenant and
binding upon any guarantor with the same force and effect as if each and
all of them had so acted or so given or received such notice or refund or
so signed or consented.
26.10 Parking. Tenant shall have the right to lease on a monthly basis
permits for parking on an unreserved basis in the Project's parking facilities
the number of automobiles set forth in the Basic Lease Provisions. All such
permits shall be available at the same rates as established from time to time by
Landlord or Landlord's parking operator for other spaces in the same location
within the designated parking structure or lot. The use by Tenant, its employees
and invitees of the parking facilities of the Project shall be subject to such
rules and regulations as from time to time are established by Landlord or
Landlord's parking operator. The number of parking permits shall be subject to
reasonable adjustment by Landlord if such adjustment is required by any
governmental authority in connection with any traffic or pollution or other
control program of such governmental authority.
26.11 Captions, Number, Gender, and Joint and Several Liability. The
article, title or section headings of the various provisions of this Lease are
intended solely for convenience of reference and shall not in any manner
amplify, limit or modify or otherwise be used in the interpretation of any of
such provisions. As used in this Lease, the masculine, feminine, or neuter
gender and the singular or plural number shall be deemed to include the other
whether the context so indicates or requires. If Tenant consists of more than
one person or entity, they and each of them shall be bound jointly and severally
by the terms, covenants and conditions of this Lease. This Lease shall be
construed without regard to any presumption or other rule requiring construction
against the party drafting a document.
26.12 Lease Examination. Submission of this instrument for examination or
signature by Tenant does not constitute an offer or option to lease, and it
shall not be effective as a lease or otherwise until execution and delivery by
both Landlord and Tenant.
26.13 Time is of the Essence. Time is of the essence of this Lease in 11
circumstances where time is an element.
26.14 Entire Agreement. This Lease, together with its exhibits and
attachments referenced herein, which are incorporated herein by such reference
and shall constitute a part of this Lease, constitutes the entire agreement
between the parties hereto pertaining to the subject matter hereof, and the
final, complete and exclusive expression of the terms and conditions of this
Lease, all prior agreements, promises, representations, negotiations, and
understandings of the parties hereto, oral or written, express or implied, are
hereby superseded and merged herein, except for representations of financial
condition of Tenant delivered to Landlord upon which Landlord has relied in
connection with leasing of the Premises or consent to any matter.
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26.15 Severability. If any provision of this Lease, as applied to any party
or to any circumstance, shall be adjudged by a court of competent jurisdiction
to be void or unenforceable for any reason, the same shall not affect (to the
maximum extent permissible by law) any other provision of this Lease, the
application of such provision under circumstances different from those adjudged
by the court, or the validity or enforceability of this Lease as whole.
26.16 Recording. Neither Landlord nor Tenant shall attempt to record this
Lease or any memorandum or short form of this Lease.
26.17 Modifications For Lender. If, in connection with obtaining
construction, interim or permanent financing for the Building or the Project any
lender or proposed lender shall request reasonable modifications in this Lease
as a condition to such financing, then Tenant shall not unreasonably withhold,
delay or defer its consent thereto, provided that such modifications do not
increase the obligations of Tenant hereunder or materially, adversely affect the
leasehold interest hereby created or Tenant's rights hereunder.
26.18 Payments to Affiliates. Nothing in this Lease shall be construed to
prevent Landlord from paying for services rendered or materials delivered with
respect to the Building, the Project or to the Premises (including, without
limitation, management services and contracting out capital improvements or
other capital repairs or construction items) by affiliates of Landlord or its
beneficiary, provided that the fees or costs of such services and materials are
at market rates in the metropolitan area of which the Project is a part. All
such fees or costs paid by Landlord to such affiliates shall be deemed to
constitute expenses of maintenance and repair on the same terms and conditions
as if such fees and costs were paid to nonaffiliates of Landlord or its
beneficiaries.
26.19 Landlord's Inability to Perform. Landlord shall not be in default
hereunder if Landlord is unable to fulfill any of its obligations under this
Lease, provided Landlord is prevented or delayed from so doing by any accident,
breakage, repair, alteration, improvement, strike or labor troubles, moratorium,
war, civil unrest, act of God, or any outside cause whatsoever beyond the
reasonable control of Landlord, including, but not limited to, energy shortages
or governmental preemption in connection with a national emergency, or by reason
of law or any rule, order or regulation of any department or subdivision thereof
of any governmental agency, or by reason of the conditions of supply and demand
which have been or are affected by war, hostilities, or other emergency. The
performance by Landlord of its covenants contained in this Lease shall be
independent of Tenant's covenants to pay rent and perform Tenant's obligations
under this Lease. The failure of Landlord to perform its covenants under this
Lease shall not relieve Tenant of its covenants to pay rent and perform under
this Lease or entitle Tenant to any offset or abatement of rent, and Tenant
waives the benefit of any statute or rule of law now or hereafter in effect to
the contrary.
26.20 Interest. Any sum due from Tenant to Landlord not paid when due shall
bear interest from the date due until the date paid at the annual rate of two
(2) percentage points per annum above the rate of interest then most recently
announced by Citibank, N.A., New York, New York, or its successor, as its prime
rate of interest, as such rate may change from time to time during this Lease;
provided, however, that such rate shall not exceed the maximum contract rate
permitted by law. The payment of such amount shall not excuse or cure any
default of Tenant under this Lease except as to the nonpayment of such amount.
26.21 The Common Areas. The term "Common Areas" refers to the areas of the
Building and the realty in the Project which are designed for use in common by
all tenants of the Building and the Project and their respective employees,
agents, customers, invitees and others, and includes, by way of illustration and
not limitation, entrances and exits, hallways, stairwells, elevators, restrooms,
sidewalks, driveways, parking areas (subject to the right of Landlord or its
parking operator to control access thereto, charge for its use), landscaped
areas
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and other areas as may be designated as part of the Common Areas. The Premises
shall include the nonexclusive right to use the Common Areas in common with and
subject to the rights of other tenants in the Building and the Project and the
rules and regulations established by Landlord.
26.22 Authorized Signatory. If Tenant signs as a corporation, each person
executing this Lease on behalf of Tenant does hereby covenant and warrant that
Tenant is a duly authorized and existing corporation, that Tenant has and is
qualified to do business in California, that the corporation has full right and
authority to enter into this Lease, that each person executing this Lease on
behalf of the corporation is authorized to do so, and that such execution is
fully binding on the corporation. If Tenant signs as a partnership, joint
venture, or sole proprietorship (each being herein called "Entity") each person
executing on behalf of Tenant does hereby covenant and warrant that Tenant is a
duly authorized and existing Entity, that Tenant has full right and authority to
enter into this Lease, that each person executing this Lease on behalf of the
Entity is authorized to do so, and that such execution is fully binding on the
Entity and its partners, joint venturers, or principal, as the case may be.
26.23 Covenants and Conditions. Each provision of this Lease required to be
performed by Tenant shall be deemed both a covenant and a condition.
26.24 Reservations of Landlord. Landlord shall have the right to change the
name, number or designation of the Building or the Project without notice or
liability to Tenant. In addition, Tenant shall not, without Landlord's prior
written consent, use the name of the Building or the Project for any purpose
other than as the address of the business to be conducted by Tenant and the
Premises, and in no event shall Tenant acquire any rights in or to such names.
Landlord shall have the right at any time to change the arrangement and/or
location of entrances or passageways, doors and doorways, corridors, elevators,
stairs, toilets or other parts of the Common Area in the Building or the
Project, and Landlord reserves the right at any time to make alterations or
additions to the Building and to build adjoining the same. Landlord reserves the
right to construct other buildings or improvements in the vicinity of the
Building from time to time, to make alterations thereof or additions thereto,
and to build additional stories on any such buildings and to build adjoining the
same. Landlord further reserves the exclusive right to the roof of the Building.
No easement for light, air or view is included in the leasing of the Premises to
Tenant. Accordingly, any diminution or shutting off of light, air or view by any
structure which may be erected in the vicinity of the Building shall in no way
affect this Lease or impose any liability upon Landlord.
26.25 Quiet Enjoyment. Subject to payment of all rents and other sums
required of Tenant under this Lease and observance and performance of all of the
covenants, terms and conditions required to be performed on the Tenant's part
and subject to the rights of any mortgagee or ground lessor having priority over
this Lease, Tenant shall peaceably hold the Premises for the Term hereby demised
without hindrance or interruption by Landlord or any other person or persons
lawfully or equitably claiming by, through or under the Landlord, subject,
nevertheless, to the terms and conditions of this Lease.
26.26 Amendment. No amendment or addition, modification of or alteration of
any provision contained in this Lease shall be effective unless fully set forth
in writing and executed by Landlord and Tenant.
26.27 Cumulative Rights. All rights, elections and remedies of Landlord
contained in this Lease shall be construed and held to be cumulative, and no one
of them shall be exclusive of the other and Landlord shall have the right to
pursue any one or all of such remedies or any other remedy or relief which may
be provided by law or equity, whether or not stated in this Lease.
26.28 Financial Statements. Tenant represents and warrants that all
financial statements and financial information provided to Landlord prior to
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<PAGE>
execution of this Lease or in connection with obtaining any consent are true and
correct and accurately reflect the financial condition of the person or entity
covered by such statements as of the date of such statements and that no
material adverse change has occurred since such date. Tenant further agrees to
provide additional financial statements certified to be true and correct and
accurately presenting Tenant's financial condition as of Tenant's last annual
and quarterly accounting periods as from time to time requested by Landlord
within fifteen (15) days after such request.
26.29 Waiver of Right to Trial by Jury. Tenant waives the right to trial by
jury.
26.30 Exculpation. Tenant acknowledges that this Lease is being executed by
Trammell Crow Northwestern California, Inc. on behalf of Landlord, not
personally, but solely as managing agent for Landlord, and nothing in this Lease
or any other instrument, document or agreement shall create any personal
liability on the part of Trammell Crow Northwestern California, Inc., its
shareholders, officers, directors, partners or employees, nor shall any such
liability be asserted or claimed.
IN WITNESS WHEREOF, the parties have executed this Lease as of the date
first above written.
LANDLORD: TENANT:
KGK ENTERPRISES, INC., SEAGULL ENTERTAINMENT, INC.
a California corporation a Delaware corporation
By: Trammell Crow NW, Inc., By: /s/ Paul Siegel
its Managing Agent ---------------------------
By: /s/ Albert W. Sandell Its: President
------------------------------- ---------------------------
Its: TRAMMELL CROW NW. INC. By: /s/ Henry Siegel
------------------------------- ---------------------------
Executive Vice-President
Its: Chairman
---------------------------
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<PAGE>
GUARANTY OF LEASE
THIS GUARANTY OF LEASE (this "Guaranty") is made by Paul Siegel and Henry
Siegel, ("Guarantor"), to KGK Enterprises. Inc., a California corporation,
("Landlord"), with respect to the Standard Industrial Lease Agreement (the
"Lease") dated May 31, 1995, between Landlord and Seagull Entertainment. Inc., a
California corporation, ("Tenant"), with respect to certain premises (the
"Premises") located in Cornerstone Plaza, 1990 South Bundy Drive, Los Angeles,
California 90025.
As a material inducement to and in consideration of Landlord's entering
into the Lease, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Guarantor hereby covenants and
agrees with Landlord as follows:
1. Guarantor absolutely, unconditionally and fully guarantees the following
(the "Obligations"): (a) the payment of all rent, monies and charges payable by
Tenant under the Lease at the times the same are required to be paid thereunder;
(b) the performance when due of each and all of the covenants and provisions
contained in the Lease to be kept, performed or observed by Tenant; and (c) the
payment of all damages owing to Landlord by Tenant after termination of the
Lease following a default thereof by Tenant or otherwise.
2. The liability of Guarantor hereunder shall not be affected, impaired,
limited or reduced in any way by any action taken by Landlord under any
provision hereof, or by any delay, failure or refusal of Landlord to exercise
any right or remedy Landlord may have against Tenant or against any other
guarantor. Guarantor agrees that if any of the Obligations is not paid or
performed as required under the Lease, Guarantor, after receipt of written
demand therefor by Landlord, shall pay such Obligation when required of Tenant
under the Lease as if such Obligations constituted the direct and primary
obligations of Guarantor. Guarantor shall indemnify, defend, protect and hold
Landlord harmless from any losses, liabilities, costs, expenses, causes of
action and damages arising out of (a) any failure by Tenant to pay or perform
any Obligations, or (b) the recapture of any rent, monies or charges received
during a preference period provided by any state or federal bankruptcy law.
3. Satisfaction by Guarantor of any liability hereunder incident to a
particular default shall not discharge Guarantor except for the default
satisfied. This Guaranty and the obligations of Guarantor hereunder shall be
continuing and irrevocable until (a) Landlord has received full payment of all
rents, monies and charges, and full performance of all of the Obligations due
under the Lease or to become due during the term of the Lease, including any
optional extensions thereof, and (b) any applicable preference period under
state or federal bankruptcy law has expired, and (c) Landlord has released
Guarantor from the Obligations, which may be accomplished only by an instrument
in writing signed by Landlord.
4. Guarantor hereby waives all presentments, demands (including demands for
performance), protests, notices of protest, notices of dishonor and notices of
acceptance of this Guaranty by Landlord, and this Guaranty shall be binding upon
Guarantor immediately upon its delivery to Landlord.
5. Guarantor hereby waives and agrees not to assert or take advantage of
(a) any right to require Landlord to proceed against Tenant or a co-guarantor or
to proceed against or exhaust any security held by Landlord at any time; (b) any
defense of the statute of limitations in any action hereunder or in any action
for the performance of any Obligation; (c) any defense that my arise by reason
of the incapacity, lack of authority, death or disability of any other person or
persons or the failure of Landlord to file or enforce a claim against the estate
(in administration, bankruptcy or any other proceeding) of any other person or
persons; (d) any demands for performance or notice of nonperformance on the part
of Tenant of the terms of the Lease; (e) any defense based on the fact that the
liability of the Guarantor hereunder may be greater than the liability of the
Tenant by reason of (i) amendments to the Lease, (ii) the Landlord's agreement
to forebear
<PAGE>
from enforcing its rights under the Lease or at law or in equity, or (iii) any
other set of facts, acts or omissions; (f) any defense based upon an election of
remedies by Landlord, including any election which destroys or impairs any right
of subrogation, reimbursement or contribution which Guarantor may have, or any
rights or benefits under any provision of applicable law in any way qualifying,
conditioning or limiting the obligations of Guarantor based on any steps or
procedures that Landlord allegedly should take before proceeding against
Guarantor; (g) any duty on the part of Landlord to disclose to Guarantor any
facts Landlord may now or hereafter know about Tenant, regardless of whether
Landlord (i) has reason to believe that any such facts materially increase the
risk beyond that which Guarantor intends to assume, or (ii) has reason to
believe that such facts are unknown to Guarantor, or (iii) has a reasonable
opportunity to communicate such facts to Guarantor, it being understood and
agreed that Guarantor is fully responsible for becoming the remaining informed
of the financial condition of Tenant and of any and all circumstances bearing on
the risk of nonperformance of any Obligation; (h) any rights or benefits in
favor of Guarantor under Sections 2809, (which provides that the obligation of a
surety must be neither larger in amount nor in order respects more burdensome
than that of the principal), 2810 (which defines a surety's liability in the
event of disability of the principal), 2815 (which provides that a continuing
guaranty may be revoked by the guarantor unless there is continuing
consideration), 2819 (which provides for exoneration of the surety if the
original obligation of the principal is altered in any respect, or the remedies
or rights of the creditor against the principal are impaired or suspended
without the consent of the surety), 2839 (which provides that a surety is
exonerated by the performance or the offer of performance of the principal
obligation), 2845 (which provides that a surety may require the creditor to
proceed against the principal), 2849 (which provides that a surety is entitled
to the benefit of security for the performance of the principal obligation held
by the creditor), 2850 (which provides that the surety is entitled to have the
property of the principal first applied to the discharge of the obligation),
2899 (which provides for the order of resort to different funds held by the
creditor), or 3433 (which provides for the relative rights of different
creditors) of the California Civil Code or under 11 U.S.C. Sections 364 or
1111(b), or any amendment to any of the foregoing statutes; (i) any transfer of
Landlord's interest in the Premises; 6) any transfer of Tenant's interest as
tenant under the Lease or any portion thereof or any sublease or assignment by
Tenant; (k) any merger or consolidation of Tenant or sale of all or a
substantial portion of Tenant's assets; (l) any sale of all or any portion of
any capital stock of Tenant or partnership interest in Tenant owned by
Guarantor; (m) any prior or concurrent representation, understanding, promise
or condition concerning the subject matter hereof which is not expressed herein,
which are hereby declared to be of no force or effect; or (n) any right or
defense arising by reason of the absence, impairment, modification, limitation,
destruction or cessation of any rights or remedies (in bankruptcy, by an
election of remedies or otherwise).
GUARANTOR HEREBY ACKNOWLEDGES AND AGREES THAT THE WAIVERS CONTAINED IN THIS
GUARANTY HAVE BEEN KNOWINGLY AND VOLUNTARILY MADE AND THE LEGAL CONSEQUENCES OF
SUCH WAIVERS AND THE CONTENT OF THIS GUARANTY HAVE BEEN EXPLAINED TO GUARANTOR
BY ITS INDEPENDENT LEGAL COUNSEL AND GUARANTOR UNDERSTANDS THE LEGAL
CONSEQUENCES OF THE FOREGOING WAIVERS AND THE CONTENT AND NATURE OF THIS
GUARANTY.
/s/ Paul Siegel
---------------------------
GUARANTOR (Paul Siegel)
/s/ Henry Siegel
---------------------------
GUARANTOR (Henry Siegel)
6. Without limiting the generality of the foregoing, Guarantor's liability
under this Guaranty shall not be deemed to have been waived, released,
discharged, limited, impaired or affected by reason of (a) the expiration or
termination of the term of the Lease; (b) the release or discharge of Tenant in
any receivership, bankruptcy, winding-up or other creditors' proceedings or the
rejection, disaffirmance or disclaimer of the Lease by any party in any such
proceeding; (c) the repossession of the Premises, provided,
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<PAGE>
however, that the net payments received by Landlord after deducting all costs
and expenses of repossession and/or reletting the same shall be credited from
time to time by Landlord to the account of Guarantor; or (d) any amendment of
the terms of the Lease without Guarantor's consent.
7. Guarantor shall not, without the prior written consent of Landlord,
commence or join with any other person in commencing any bankruptcy,
reorganization or insolvency proceedings against Tenant.
8. Guarantor shall file in any bankruptcy or other proceeding in which the
filing of claims is required or permitted by law all claims which Guarantor may
have against Tenant relating to any indebtedness of Tenant to Guarantor and will
assign to Landlord all rights of Guarantor thereunder. Landlord shall have the
sole right to accept or reject any plan proposed in such proceedings and to take
any other action which a party filing a claim is entitled to do. In all such
cases, whether in administration, bankruptcy, or otherwise, the person or
persons authorized to pay such claim shall pay to Landlord the amount payable on
such claim and, to the full extent necessary for that purpose, Guarantor hereby
assigns to Landlord all of Guarantor's right to any such payments or
distributions to which Guarantor would otherwise be entitled; provided, however,
that Guarantor's obligations hereunder shall not be satisfied except to the
extent that Landlord receives cash by reason of any such payments or
distribution. If Landlord receives anything hereunder other than cash, the same
shall be held as collateral for amounts due under this Guaranty.
9. The amount of Guarantor's liability and all rights, powers and remedies
of Landlord hereunder shall be cumulative and not alternative and such rights,
powers and remedies shall be in addition to all rights, powers and remedies
available to Landlord at law or in equity.
10. In the event of any default hereunder, a separate action or actions may
be brought and prosecuted against Guarantor, whether or not Tenant is joined
herein or a separate action or actions are brought against Tenant. Landlord may
maintain successive actions for other defaults.
11. Guarantor shall pay Landlord, upon demand, reasonable attorney's fees
and all costs and other expenses which Landlord expends or incurs in enforcing
this Guaranty, obtaining any judgement under this Guaranty against Guarantor, or
in connection with any insolvency, bankruptcy, reorganization, arrangement or
other similar proceedings involving Tenant, Guarantor, or either of them, which
in any way affect the exercise by Landlord of its rights and remedies hereunder.
12. Should any provision of this Guaranty be determined to be illegal or
unenforceable, all other provisions hereof shall nevertheless be deemed
effective.
13. No provision of this Guaranty or right of Landlord hereunder may be
waived, nor shall Guarantor be released from performance of Guarantor's
obligations hereunder, except by a writing duly executed by Landlord, which may
be withheld in its sole and absolute discretion.
14. This Guaranty shall inure to the benefit of and bind the heirs, legal
representatives, administrators, executors, successors and assigns of Guarantor
and of Landlord. If more than one person or entity executes this Guaranty, the
obligations of each hereunder shall be joint and several.
15. The acceptance by Landlord of the performance of any of the Obligations
under the Lease by Guarantor, including, without limitation, the acceptance of
rent payments, shall constitute neither an assignment of the Lease to Guarantor
nor Landlord's consent to such an assignment.
16. Guarantor, from time to time within ten (10) days following Landlord's
request, shall execute and deliver to Landlord (i) an estoppel certificate
containing such truthful information as Landlord
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<PAGE>
may reasonably request, and (ii) such further instruments or documentation as
may reasonably be requested by Landlord to ratify and confirm this Guaranty and
the continuing liability of Guarantor hereunder.
17. This Guaranty shall be governed by and construed in accordance with the
laws of the State of California. The parties hereby consent to jurisdiction and
venue in any California court of competent jurisdiction or the United States
District Court for the county and federal judicial district, respectively, in
which the Premises are located, and agree that such courts shall constitute the
exclusive venue for any dispute arising hereunder.
IN WITNESS WHEREOF, Guarantor has executed this Guaranty as of the date
written below.
DATED: June 1, 1995. GUARANTOR:
Paul Siegel
Henry Siegel
BY: /s/ Paul Siegel
---------------------------------------
Paul Siegel
SOCIAL SECURITY #: ###-##-####
DRIVER'S LICENSE #: A175986
HOME ADDRESS: 510 Erskine Dr.
Pacific Palisades, CA 90272
HOME PHONE: (310) 454-2395
By: /s/ Henry Siegel
---------------------------------------
Henry Siegel
SOCIAL SECURITY #: ###-##-####
DRIVER'S LICENSE #: 540-426-191
HOME ADDRESS: 38 Shinglehouse Rd
Millwood NY 10546
HOME PHONE: (914) 923-4264
4 of 4
<PAGE>
FIRST AMENDMENT TO OFFICE LEASE AND GUARANTY OF LEASE
THIS FIRST AMENDMENT TO OFFICE LEASE AND GUARANTY OF LEASE ("First
Amendment") is made and entered into as of June 13, 1996, by and between KGK
Enterprises, Inc., a California Corporation ("Landlord"), and Seagull
Entertainment, Inc. ("Tenant") who agrees as follows:
RECITALS
This First Amendment is made with reference to the following facts and
objectives:
A. Landlord and Tenant entered into that certain Office Lease dated as of
May 31, 1995, (referred to as the "Lease"), covering the premises located in the
City and County of Los Angeles, State of California, commonly known as Suite 725
on the seventh floor of the Cornerstone Plaza office building (the "Building")
located at 1990 South Bundy Drive, Los Angeles, California 90025 (collectively,
the "Premises").
B. Paul Siegel and Henry Siegel (Collectively the "Guarantor") and Landlord
entered into that certain Guaranty of Lease dated as of May 31, 1995
("Guaranty") with the respect to the Lease.
C. Landlord and Tenant wish to amend the Lease and Guaranty as provided in
this First Amendment.
NOW THEREFORE, the parties hereto agree to follows:
1. Effective Date. The "Effective Date" of this First Amendment shall be
that date in which the Tenant Improvements (as defined below) for the Expansion
Premises (as defined below) are substantially complete.
2. Premises. Effective as of the Effective Date, the Premises shall be
increased by adding 3,058 rentable square feet ("Expansion Premises") to the
existing 2,804 rentable square feet ("Existing Premises") and shall thereafter
be 5,862 ("Expanded Premises") rentable square feet. The Premises shall
thereafter consist of that portion of the seventh floor that is depicted and
identified as the Expanded Premises on Exhibit A-1 to this First Amendment.
3. Proportionate Share. Effective as of the Effective Date, Tenant's
Building Expense Percentage as depicted in Item f. of the Basic Lease Provisions
shall be increased from 1.719% to 3.57%.
<PAGE>
First Amendment to Office Lease and Guaranty of Lease
Seagull Entertainment, Inc.
Page Two
4. Basic Annual Rent. Effective as of the Effective Date the Basic Annual
Rent (and Monthly Rental) for the Premises shall be as follows:
Annual Basic Rent: $123,102.00 ($21.00/sf/mo.)
Monthly Basic Rent: $ 10,258.50 ($1.75/sf/mo.)
5. Term. Effective as of the Effective Date, the Term of the Lease shall be
extended by two (2) years so that the new Lease expiration date shall,
thereafter be June 18, 2002 instead of June 18, 2000.
6. Tenant Improvements: Landlord, at its sole cost and expense shall modify
the Premises pursuant to a mutually acceptable space plan (a copy of which is
attached hereto as Exhibit A-2) using building standard materials. The following
work shall be provided by Landlord:
1 Remove existing pass thru sliding window. Replace wood transaction top
to match existing (room 701).
2 New embossed (approx. 5'0" X 7'0") glass window in totally recessed
stainless steel channels top and bottom, side edges of glass insert
into drywall (partition detail to follow). Glass: "Ultrastorm" DTO1
tempered 3/8" Starfire by Ultraglass (room #701).
3 New (approx. 2'0" X 7'0") single light solid wood paint grade door.
Min. sized styles, door size to fit existing frame. New building
standard latch set to match, re-install existing closer, paint door
semi-gloss enamel finish to match walls. Upgrade hinges as required.
Glass specification same as indicated at Note 2 above.
4 Two (2) new duplex outlet and two (2) tele/data outlets where
indicated (reception room of Existing Premises).
5 Fill opening from removed double entry door, construction to maintain
integrity of existing one hour tunnel corridor.
6 Relocate one (1) light switch.
<PAGE>
First Amendment to Office Lease and Guaranty of Lease
Seagull Entertainment, Inc.
Page Three
i. Throughout Expansion Premises, all existing wallcovering to be
removed, walls prepped to receive new paint, paint to match
Existing Premises.
ii. Throughout Expansion Premises, demo existing carpet. Provide new
to match Suite #725.
iii. Refinish wood floor at entry room #701 (Expansion Premises).
iv. At room #716 (Expansion Premises), provide two (2) new recessed,
adjustable Halogen downlights.
v. At room #710 (Expansion Premises), provide line item cost to
remove existing wood shelving, and relocate to undetermined
location in existing Premises.
7. Security Deposit. Upon execution of this First Amendment, Tenant shall
increase its Security Deposit by $5,351.50 from $4,907.00 to $10,258.50.
8. Guaranty of Lease. Effective as of the Effective Date, the Guaranty of
Lease shall be expanded to cover the Expanded Premises.
9. No Broker. Tenant represents and warrants that it has dealt with no
broker, agent or other person in connection with this transaction other than
Trammell Crow Company and that no broker, agent or other person brought about
this transaction other than Trammell Crow Company, and Tenant hereby agrees to
indemnify, defend, protect and hold Landlord harmless from and against any
claims, losses, liabilities, demands, costs, expenses or causes of action by any
broker, agent or other person claiming any commission or other form of
compensation by virtue of having dealt with Tenant with regard to this
transaction.
10. Further Assurances. In addition to the obligations required to be
performed under the Lease as amended hereby, Landlord and Tenant shall each
perform such other acts, and shall execute, acknowledge and/or/or deliver such
other instruments, documents and other materials, as may be reasonably required
in order to accomplish the intent and purposes of the Lease, as hereby amended.
<PAGE>
First Amendment to Office Lease and Guaranty of Lease
Seagull Entertainment, Inc.
Page Four
11. Authority. Each party hereby represent and warrants to the other that
it has the due power and authority to enter into this Amendment and to be bound
by the terms hereof.
12. Binding Effect. This Amendment shall be binding upon and inure to the
benefit of Landlord, its successors and assigns and Tenant and its successors
and assigns.
13. Attorney's Fees. Should any party initiate a legal proceeding against
any other party, including an arbitration, then the prevailing party shall be
entitled to receive reasonable attorney's fees and costs incurred in connection
with such legal proceeding.
14. Counterparts. This Amendment may be excluded in any number of
counterparts, each of which shall be an original, but all of which shall
constitute one and the same instrument.
15. No Other Amendment. Except as modified by this Amendment, the
provisions of the Lease (including all exhibits thereto) shall remain unaffected
and in full force and effect. To the extent that any terms or provisions of this
Amendment are inconsistent with any terms or provisions of the Lease, the terms
and provisions of this Amendment shall control.
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment
as of the day and year first above written.
LANDLORD: TENANT:
KGK ENTERPRISES, INC., Seagull Entertainment, Inc.
a California corporation
By: Trammell Crow NW Inc.
its Managing Agent
By: By: /s/ Paul Siegel
----------------------------- ------------------------------
Albert W. Sandell Paul Siegel
Its: Executive Vice President By: /s/ Henry Siegel
------------------------------
Henry Siegel
<PAGE>
JOINT VENTURE AGREEMENT
This joint venture agreement is entered into as of October 1, 1995 by and
between Keller Entertainment Group, Inc. a California corporation (referred to
herein as "KEG") and Seagull Entertainment, Inc. a Deleware corporation
(referred to herein as "SE") which are collectively referred to herein as the
"Venturers".
NOW THEREFORE, it is mutually agreed by and between the above named Venturers as
follows:
1. Name and Purpose: The Venturers hereby form a joint venture (referred to
herein as the "Joint Venture") under the name KELLER SIEGEL ENTERTAINMENT for
the purpose of the production and/or worldwide distribution of television movies
and television series. The Venturers shall mutually agree in writing to each
project and/or property the Joint Venture shall undertake to produce and/or
distribute. The Venturers agree that the initial project is the production and
distribution of a new live action one hour television series based on the Tarzan
character created by Edgar Rice Burroughs. Upon execution of this Agreement, the
Venturers shall sign and cause to be filed and published in the State of
California a certificate of fictitious business name or other appropriate
similar document indicating that the Joint Venture will be conducting business
under such name. SE shall be responsible for the domestic distribution and KEG
shall be responsible for the foreign distribution.
2. Place of Business: The Joint Venture's principal place of business shall
be 14225 Ventura Boulevard, Sherman Oaks, California 91423. The principal place
of business may be changed from time to time and other places of business may be
established by actions taken in accordance with the provisions of this
agreement.
3. Name and Domicile of each Venturer: The name and addresses of each of
the Venturers is as set out below:
a. Keller Entertainment Group, Inc.
14225 Ventura Boulevard
Sherman Oaks, California 91423
b. Seagull Entertainment, Inc..
345 Park Avenue South
2nd Floor
New York, New York 10010
3. The Term: The Joint Venture shall begin as of the date of this Agreement
and shall continue until such time as the purpose of the Joint Venture set forth
in Paragraph 1
<PAGE>
hereof has been completely fulfilled or until dissolved by mutual written
agreement of the Venturers.
4. Capital: The capital required for the business of the Joint Venture
shall be contributed equally by the Venturers. No Venturer may withdraw capital
from the Joint Venture without the consent of the other Venturer. The Venturers
agree that the business philosophy of the Venture shall be that it shall receive
capitalization for the production Costs and distribution expenses of each new
project the Venture takes on from third party financial sources. The Venturers
agree that $500,OOO for the marketing and distribution of the new Tarzan two
hour premiere and series shall be taken in by the Venture from STI and that
thereafter each Venturer shall be responsible for an additional $50,OOO to cover
the distribution costs through February 28, 1996. The Venturers shall thereafter
fund the additional preapproved distribution costs (with a maximum of an
additional $900,000 or a total of $1,500,000) on a 50/50 basis unless same are
received from third party funding.
5. Gross Income to the Venture: All sales, licenses and any other source of
income derived from the projects and/or properties of the Joint Venture shall be
made only in the name of the Joint Venture. All expenses accrued on behalf of
the Joint Venture shall be made in the individual Venturers' names., ie, either
KEG or SE. Neither Venturer shall comingle any income or projects of the Venture
with any of their other projects or companies. The Venturers and their officers
shall fully disclose to each other any possible licenses or agreements of any
kind which might be comingled or in any way receive a benefit from a project
that is owned by the Joint Venture. Any rebates or commissions received by
either Venturer, or employees thereof, or a company controlled by either
Venturer shall be disclosed and become gross income to the Joint Venture even
though paid initially to one of the Venturers' other companies or employees.
6. Cash Distribution; Compensation: It is contemplated that the Venturers'
shall receive reasonable compensation for the services provided to the Joint
Venture as specified in the budgets for the projects, or otherwise as the
Venturers may agree. Gross Income received in the Joint Venture on the Tarzan
project shall be distributed monthly as follows:
1. Payment to each Venturer of the written preapproved costs and
expenses up to $600,000.
2. an equal division of the distribution fees which are charged by the
Joint Venture on the project shall be paid out to each Venturer on a 50/50
basis.
3. Reimbursement to the Venturers of each of their additional mutually
approved marketing and distribution expenses which shall be no greater than
an additional $900,000.
<PAGE>
4. Reimbursement with STI on a pari passu basis with paragraph 6.3 of
their advanced marketing and distribution expenses.
5. Third Party profit participations (if any) due.
All production and distribution expenses allocated to the venture shall be
preapproved by both venturers and signed off on in writing on a monthly basis.
It is the intention of the Venturers that neither draw salaries for any officers
or employees nor pay their individual overhead expenses from the Joint Venture.
Both Venturers shall continue to pay all their own employee salaries and
expenses excluding travel, hotel and living expenses for the various trade
shows. As between the Venturers, approved sales trips can be submitted for
payment by the Venture, however, as between the Venturers, only coach class
shall be paid for sales trips and hotels at a maximum of $250.00 per night and
normal (non limo) transportation. Notwithstanding the above, as to 3rd parties,
all actually incurred travel, hotel and living expenses of the Venturers
including sales trips shall be charged as distribution expenses.
As between the Venture and 3rd parties, each Venturer shall be responsible for
any of its expenses which are disallowed under audit by a 3rd party.
Accordingly, any disallowed expenses shall be charged to that Venturer's account
until the matter is settled with the 3rd party. Said Venturer shall be solely
responsible to the third party for the disallowed expenses however the Venture
shall be able to keep an amount equal to the disallowed amount on the books as a
reserve and charge same to said Venturers account until the matter is resolved.
It is the intention of the Venturers that each Venturer incurs their approved
portion of expenses in their separate corporate name identity. Accordingly all
approved expenses incurred by KEG shall be billed to KEG and paid by said
corporation and all approved expenses incurred by SE shall be billed to SE and
paid by said corporation. In the event that an expense billed to either Venturer
involves a Joint Venture project and a non joint Venture project, the Venturer
shall so designate on the invoice and a mutually agreed upon apportionment
between the projects shall be made.
Cash distributions and compensation on any additional new projects of the Joint
Venture shall be agreed upon in a subsequent agreement signed by the Venturers.
7. Allocation of Profits. Losses and Taxes: (a) The net profits or net
losses of the Joint Venture shall be allocated, credited or charged as the case
may be, to the Venturers in equal shares of fifty percent (50%) each. The terms
"net profits" and "net losses" as used in this Agreement shall be defined as
gross receipts received by the Joint Venture from any and all sources in
connection with Joint Venture projects less the aggregate of all preapproved
costs and expenses of the Joint Venture incurrd by each Venturer, less a 50/50
split of the distribution fees and less third party gross or net profit
participations. For purposes of computing the Joint Venture's net profits and
net losses only the costs and expenses preapproved by both of the Venturers and
incurred by either Venturer
<PAGE>
directly on behalf of the Joint Venture projects shall be charged and shall
reduce the gross receipts of the Joint Venture in calculating the Joint
Venture's net profits or net losses.
(b) Any and all tax credits and/or deductions to which the Joint Venture
shall become entitled shall be allocated equally between the Venturers in shares
of fifty percent (50%) each or taken directly by the Joint Venture if the
Venturers so decide.
8. Management and Joint Venturer Responsibilities: The Venturers shall have
equal control over all the creative, financial aspects of the development,
production and distribution of the projects selected to be produced and/or
distributed by the Joint Venture. In the event of a deadlock disagreement
regarding creative decisions, the Venturer who brought the project and/or
property to the Joint Venture shall have final creative control. In the event of
a deadlock disagreement regarding financial, legal and/or business decisions,
either Venturer can immediately schedule a mediation (the mutually approved
mediator selected must be a former judge) which will be paid for by the Joint
Venture and which decision shall be binding on the Joint Venture and both
Venturers agree to be bound by same.
9. Books, Records and Bank Accounts: (a) The Joint Venture shall at all
times throughout its existence, keep or cause to be kept, at the principal place
of business of the Joint Venture or at such other place as the Venturers' may
determine, books and accounting records for the business and operations of the
Joint Venture. Such books shall be open to inspection by the Venturers, or their
authorized representatives, during reasonable working hours. The accounting for
the Joint Venture's purposes, including the determination of the Joint Venture's
net profits shall be in accordance with generally accepted accounting principles
consistently applied. The Joint Venture shall engage the services of a CPA who
shall be selected with the mutual approval of both Venturers.
(b) There shall be maintained for each Venturer a capital account and an
income account. Each Venturer's distributive share of profits and losses, and
monthly and end of year withdrawals not previously posted shall be credited or
debited to the respective Venturer's income account as of the close of the
calendar year. Thereafter, any debit or credit balance remaining in the income
account of a Venturer shall be debited or credited as the case may be to its
respective capital acount.
(c) The Joint Venture shall be on a calendar year basis for accounting
purposes (the Joint Venture's Fiscal Year). As soon after the close of each
fiscal year as is reasonably practicable, a full and accurate accounting shall
be made of the financial affairs of the Joint Venture as of the close of each
such fiscal year. When such accounting and accounting statement is made and
provided to the Venturers, the net profits or the net loss sustained by the
Joint Venture during such fiscal year shall be ascertained and creditd or
charged as the case may be in the books of account of the Joint Venture in the
proportions hereinabove specified.
<PAGE>
(d) From time to time, but no less than quarterly, the Venturer shall make
distributions from the capital of the Joint Venture which shall be in excess of
the reasonable needs of the Joint Venture for working capital and reserves as
mutually determined by the Venturers, provided however that so long as any
Venturer has any indebtedness or other outstanding obligation to the Joint
Venture, any distribution that would otherwise be made shall first be applied
toward any such indebtedness or other obligation.
(e) All funds of the Joint Venture shall be deposited into any account or
accounts in the name of the Joint Venture at such bank or banks as may from time
to time be selected by the Joint Venture. All withdrawals from any such account
or accounts shall be made by check or other written instrument which shall
require the signature of a representative of each Venturer.
10. Outside Activities Permitted: It is the intention of both of the
Venturers that they each continue their other ongoing businesses. The Venturers
may engage in or possess an interest in any other business venture of every
kind, nature and description, including ventures or enterprises which may
compete with the Joint Venture and neither the Joint Venture or the other
Venturer shall have any rights in said business ventures or to the income or to
the profits derived therefrom. No Venturer shall be obligated to offer any
business opportunity to the other Venturer or to the Joint Venture. Each
Venturer hereby waives any right it may have against the other Venturer for
capitalizing on information learned as a consequence of its connection with the
affairs of the Joint Venture.
11. Contracts and Agreements: All contracts and agreements must be signed
by each of the Venturers or preapproved in writing by the non signing Venturer.
If any contract or agreement is entered into by a Venturer without the written
consent of the other Venturer, the Venturer purporting to enter into such
unauthorized contract on behalf of the Joint Venture shall indemnify and hold
harmless the non contracting Venturer from all claims, liabilities, damages and
costs arising out of or pertaining to such unauthorized contract.
12. Time Commitment and Exclusivity: The Venturers agree that each Venturer
shall devote as much time as shall be reasonably necessary to fulfill its duties
and obligations in connection with the Joint Venture subject, however, to their
availability. The Venturers and the time, skill and effort of their respective
principals shall not be exclusive to the Joint Venture and each Venturer may
develop other entertainment related properties and projects and engage in other
similar activities in the entertainment and communications industries separate
and apart from the Joint Venture and the other Venturer.
13. Title to the Properties: Any and all property and assets of the Joint
Venture as well as all intangible rights, including without limitation
distribution rights, copyrights, trade names and trademarks, the productions
themselves and all other forms
<PAGE>
of exploitation of the projects and/or properties and all ancillary,
merchandising, music and book publishing rights which can contractually be owned
or controlled by the Joint Venture shall be owned or controlled by the Joint
Venture and title shall be held in the name of the Joint Venture whenever
contractually possible. KEG hereby licenses to the Joint Venture the right to
use its color logo illustration in print and tape, however KEG shall retain the
ownership rights therein.
14. Property Rights Contributions: KEG is facilitating the licensing to the
Joint Venture of the following property rights:
(a) The exclusive license to produce and distribute one (1) new one hour
Tarzan live action television series under a master agreement American First Run
holds with Edgar Rice Burroughs, Inc.
The Joint Venture acknowledges the limited and specific rights granted are
only those that American First Run may license and the Joint Venture accepts
said license subject to all the terms and conditions of the master license
agreement with Edgar Rice Burroughs, Inc. and agrees to assume all the
obligations and be contractually bound by all its terms and conditions. The
rights granted shall not be an assignment, but rather a license and
notwithstanding anything contained to the contrary, American First Run shall
retain final control over the Tarzan property and its use as between American
First Run, KEG and the Joint Venture. The copyright of the series, pursuant to
the master agreement with Edgar Rice Burroughs, Inc. shall remain in the names
of Edgar Rice Burroughs, Inc. and American First Run. The current master
agreement and all its amendments are attached hereto and marked Exhibit "A". In
the event that AFR's master license agreement is enlarged to include additional
licenses to other Burroughs literary properties, (i.e. The Tales of Edgar Rice
Burroughs- a series of 2 hour television movies or the Venus series of books,
etc.) the Joint Venture shall simultaneously receive a license to produce and
distribute under the same terms and conditions as above.
Immediately subsequent to the creation of this Joint Venture, KEG shall
facilitate the execution of a license agreement between AFRS and the Joint
Venture.
The Venturers acknowledge that William F. Cooke Television Enterprises has
claimed it should be involved in the new series because of its involvement in a
previous Tarzan half hour series and regardless that it is KEG's contention that
said claim is without basis, KEG is facilitating the licensing of the property
to the Joint Venture with said claim in existence.
(b) All projects and/or properties contributed by either Venturer to the
Joint Venture shall revert to the contributing Venturer in the event that
financing or official preproduction has not commenced within one year from the
date of the contribution.
15 Warranties: Each Venturer hereby warrants and represents to the other
that it:
<PAGE>
(a) Has the right and capacity to enter into this Agreement
(b) Shall not encumber or sell any property, assets or intangible
rights of the Joint Venture without the written consent of the other
Venturer.
(c) Shall not assign, mortgage, hypothecate or encumber its interest
in the Joint Venture without the written consent of the other Venturer.
(d) Shall not loan any funds or extend the credit of the Joint Venture
to any person or entity without the written consent of the other Venturer.
(e) Shall not incur any cost, expense, liability or obligation in the
name or on the credit of the Joint Venture without the written consent of
the other Venturer, and
(f) Shall not draw any checks on the Joint Venture without the
signature of an authorized representative of both of the Venturers.
16. Indemnification: Each Venturer hereby indemnifies and holds harmless
the other Venturer from and against any and all claims, liabilities, damages and
costs (including but not Limited to reasonable attorney's fees and court costs)
arising from any breach by such Venturer of any representation, warranty or
agreement made by such Venturer pursuant to this Agreement.
17. Dissolution and Termination: (a) The Joint Venture shall be dissolved
and terminated and its business wound up upon the first to occur of the
following:
1. The expiration of the term referred to in Paragraph 3 above;
2. The mutual agreement of the Venturers;
3. Operation of law; or
4. A material breach of this Agreement by either Venturer, if such
breach is not cured within 15 days after written notice thereof has been
provided to the breaching Venturer by the non-defaulting Venturer. Only the
non-defaulting Venturer shall have the right to terminate the Joint Venture
pursuant to this paragraph. Such termination shall not release the
defaulting Venturer from any obligations or liabilities to the other
Venturer, whether pursuant to the provisions of this agreement or a law or
in equity.
(b) Upon termination of the Joint Venture, the business of the Joint
Venture shall be wound up and assets and projects and properties of the Joint
Venture shall be liquidated. Upon the happening of any one of the events of
dissolution mentioned above, the Joint Venture shall engage in no further
business, other than that necessary to protect the assets of the Joint Venture,
wind-up its business and distribute its assets as provided for herein.
18. Miscellaneous Provisions:
<PAGE>
(a) All notices which either Venturer wishes to serve on the other shall be
in writing and certified mailed to the other Venturer.
(b) Mediation--the Venturers agree that in the event of a financial, legal
or business dispute, they shall submit the matter to mediation (mediator to be
selected must be a former judge) and the Joint Venture and each Venturer shall
be bound by same.
(c) Applicable law--This Agreement shall be construed, interpreted and
enforced in accordance with the laws of the state of California.
(d) Written Amendment--This Agreement may not be amended or changed except
by written instrument duly executed by each Venturer.
(e) Assignments--No Venturer shall sell, assign, mortgage, hypothecate or
encumber its interest, or any portion thereof, in the Joint Venture without the
prior written consent of the other Venturer.
(f) Illegal Provision--Nothing contained in this Agreement shall be
construed so as to require the commission of any act or the payment of any
compensation which is contrary to law or to require the violation of any guild
or union agreement applicable hereto which may, from time to time be in effect
and by its terms controlling of this Agreement. If there is any conflict
between any provision of this Agreement and any such applicable law or guild or
union agreement and the latter shall prevail,, then the provision or provisions
of this Agreement, affected shall be modified to the extent (but only to the
extent) necessary to remove such conflict and permit such compliance with law or
guild or union agreement
(g) Waiver--No waiver by either Venturer of any failure by the other
Venturer to keep or perform any covenant or condition hereof shall be deemed a
waiver of any preceeding, or succeeding breach of the same or any other covenant
or condition.
(h) Additional Documents--Each Venturer shall execute and deliver any and
all additional papers, documents and other instruments and shall do any and all
further acts and things reasonably necessary in connection with the performance
of its obligations hereunder to carry out the intent of the Joint Venture.
(i) Entire Agreement--This Agreement contains the sole and only agreement
of the Venturers relating to the Joint Venture and correctly sets forth the
rights, duties a obligations of each of the other as of the date of such
Agreement.
IN WITNESS WHEREOF, this Agreement is executed as of the date and year first
above
<PAGE>
written at Los Angeles, California.
KELLER ENTERTAINMENT GROUP, INC. SEAGULL ENTERTAINMENT, INC.
A California corporation A Delaware corporation
BY: /s/ ILLEGIBLE BY: /s/ ILLEGIBLE
-------------------------------- -----------------------------
Authorized Signator (Pres.) Authorized Signator (Pres.)
<PAGE>
Kaleidoscope Media Group, Inc.
345 Park Avenue South
New York, NY 10010
Vendor Agreement
This Vendor Agreement ("Agreement") is executed this December 18, 1996
between the Kaleidoscope Media Group, Inc., a Delaware Corporation with
principal offices located at 345 Park Avenue South, New York, NY ("KMG"), and
HSN Direct Int. LTD ("HSN Direct") a company in England, having an office at
11831 30th Court North, St. Petersburg, Florida 33716.
Agreement
1. Purpose
1.1. KMG is developing the Celebrity Showcase for advertiser-supported
transaction entertainment programming. HSN Direct is in the business of
providing various services in connection with the sale of products through
infomercials and transactional programming. KMG shall develop, produce and
broadcast a pilot program and, if warranted, a subsequent U.S. syndicated,
daily, sales/entertainment interactive program with thc working title Celebrity
Showcase ("CS").
1.2 It is the intent of the parties to enter into a Vendor Agreement such that
HSN Direct will provide certain services described herein, and that the pilot
and possible daily program be reformatted to be suitable for international
exploitation by HSN Direct as infomercials.
1.3 HSN Direct shall pay an "origination fee" to KMG, equal to seventy five
thousand dollars ($75,000). Payment by HSN Direct is to be made upon execution
of this Agreement but no later than December 24, 1996. By virtue of paying the
said origination fee, HSN Direct shall be entitled to earn an "origination
rebate" from KMG, (as defined herein) as relates to the pilot program. HSN shall
also be entitled to execute an option to participate in the subsequent daily
series, such option to be at the sole discretion of HSN Direct, to be
communicated in writing to KMG within sixty days (60) following broadcast of the
pilot.
1.4 Notwithstanding any other terms and conditions contained within this
Agreement, HSN Direct's right to exercise the option to continue with the series
is conditional upon written authorization from HSN Direct's Board of Directors
and written authorization of the Board of the Home Shopping Network, such
authorization as stipulated in Schedule II attached to this Agreement.
2. Definitions
2.1. As used in this Agreement, "infomercials" are defined as transactional
television programming, specifically created to introduce, promote and sell
consumer products directly, via telephone ordering. Such programming is usually
half hour in length, although shorter (e.g. 30 second, 1 minute and 2 minute
direct response shortform) programs are also utilized.
2.2. As used in this Agreement, "production costs" are defined as all costs
associated with the creation and development and delivery finished programs,
infomercials and the like, on tape, ready
<PAGE>
for broadcast. Such costs include, but are not limited to, direct costs for
research, writing, studio costs, location costs, legal fees, wardrobe, technical
personnel, directors, producers, materials, per diems, celebrity fees, etc. and
overhead allocations for administration, systems, and management.
2.3. As used in this Agreement, "net profits" are defined as the net earnings of
the program calculated as: the total of all revenues, actually received from
all sources, earned by CS, less all costs associated with CS, including, but not
limited to, distribution, promotion, production, and direct project overhead.
2.4 As used in this Agreement, "origination rebate" is defined as an amount to
be paid to HSN Direct, calculated as a percentage of the net profits as defined
in Section 2.3 above. Said percentage shall be proportional to the percentage
paid by HSN Direct into the development and production budget. Such rebates are
to be paid thirty days (30) after the close of each fiscal quarter.
2.5 As used in this Agreement, "net proceeds" are defined as gross revenues on
product sales, less the cost of the product, less the HSN Direct mark-up as
defined in Section 6.1.1 herein, less any fees or royalties payable to third
parties.
3. KMG Projects ("Programs") covered under this Agreement:
a) Celebrity Showcase - Pilot
b) Celebrity Showcase - Daily Program
4. Term
4.1. The term of this Agreement shall commence upon execution and shall
terminate thirty days subsequent to broadcast of the pilot, unless the option to
continue with the daily series is exercised by HSN Direct, as per Section 1.3
herein. Upon exercise of the said option, the Agreement shall continue until
dissolved by mutual Agreement of the Parties or as otherwise provided for in
this Agreement.
5. Place of Business
5.1. The principal place of business KMG for the projects covered under this
Agreement is 1990 South Bundy Drive, Suite 725, Los Angeles, CA.
6. Nature of Vendor Services
6.1. HSN Direct shall provide the following services in connection with the
Programs as required by KMG at cost plus a reasonable markup, with the mutual
understanding that direct costs associated with providing these services shall
be compensated by the fee provided for in Section 8.1 herein.
I. Source and obtain products;
II. Warehouse the products;
III. Fulfill orders.
6.1.1 It is the intent of the Parties to minimize financial risk regarding
purchasing of product into inventory and are agreed that initially, product
shall be acquired on the following basis: (1) Best of HSN, (2) on consignment,
(3) readily available within 30 days, (4) 3rd party financing, (5)
<PAGE>
liquidation. It is agreed by the Parties that HSN Direct shall be the exclusive
supplier of product, unless mutually agreed otherwise. Product provided by HSN
Direct shall be at true cost plus a reasonable markup.
6.2. In territories where HSN Direct shall obtain foreign distribution for the
CS broadcasts through international licensing, HSN Direct shall retain fifty
percent (50%) the net proceeds, as defined in Section 2.5 herein, of all such
international revenues received, prior to remitting the balance to KMG.
6.2.1 HSN Direct shall have the exclusive right to create or cause to be created
an infomercial, for either international or domestic use, of any length
utilizing some or all of the footage in CS with respect to products introduced
and developed by HSN Direct. For products introduced and developed for CS by any
entity other than HSN Direct, CS shall make a best effort to offer the right of
first refusal to HSN Direct to obtain the rights to the infomercial, provided
such rights are available to CS. HSN Direct shall retain fifty percent (50%) of
the net proceeds as defined in Section 2.5 herein, and remit the other fifty
percent of the net proceeds to KMG.
6.3 In territories where KMG shall obtain foreign distribution for the CS
broadcasts through international licensing, or obtain sales of CS product
through other means, KMG shall retain twenty-five percent (25%) the net
proceeds, as defined in Section 2.5 herein, of all such international revenues
received, that shall not be included when calculating the net profit of CS.
6.4. HSN Direct shall provide information related to fulfillment, product
sourcing, and other transactions related to CS activity, as may be necessary and
mutually agreed to allow accurate accounting by KMG.
6.5. KMG shall develop program concepts, obtain the services of entertainment or
sports personalities to promote the Products, shall obtain agreements with
television stations for domestic U.S. broadcast (syndication) and be responsible
for delivering Programs ready for broadcast. On any and all domestic
distribution revenues KMG shall retain a thirty-five percent (35%) distribution
fee that shall not be included when calculating the net profit of CS.
6.6. KMG shall provide personnel to manage Program development, and shall be
responsible for budget development and subsequent accounting and reporting of
actual results.
6.7. All properties created under this Agreement (such as, but not limited to,
programs and infomercials) and all rights to exploit such properties, shall
from the inception of the project, exclusively and perpetually, throughout the
universe, be owned by KMG.
6.8. Authorization to include any additional projects under the terms of this
Agreement is to be mutually agreed in writing by KMG and HSN Direct, subsequent
to concept development and creation of a project budget, and prior to costs
being incurred.
6.9. Any and all disputes and claims arising out of this Agreement shall be
settled and determined by arbitration as stipulated in Section 15.2. herein.
6.10. This Agreement shall be deemed non-exclusive to either party, with the
exception of syndicated transactional programming, such as the CS program
undertaken by the Parties through this Agreement and described herein.
<PAGE>
7. CS Program
7.1 The initial project shall be the production of a CS pilot; one hour program,
intended for broadcast in January of 1997. The budget of the pilot is not to
exceed $150,000 for production and distribution costs; any increase above this
limit that may be necessary, shall be mutually agreed by both parties in writing
in advance of any such additional expenditure. The pilot is to be produced and
broadcast from Los Angeles, California, and it is the intent of the parties to
broadcast said pilot program internationally.
7.2 Subsequent to the broadcast of the pilot, management of KMG and HSN Direct
shall meet to evaluate the results of the pilot, and if mutually agreed, KMG
shall proceed with the development of daily show, to be broadcast commencing as
early as July 1997, but no later than September 1997.
7.3 Should HSN Direct, at their sole discretion, decide not to exercise the
option to continue with the daily series, KMG shall have the sole discretion
whether to continue the program without the participation of HSN Direct.
7.4 Description of the CS format and program is attached as Exhibit I.
8. Guaranteed Fee
8.1. Notwithstanding other payment provisions herein, and conditional upon HSN
Direct's exercise of the option to continue with the daily series per Section
1.3 and Section 1.4 herein, HSN Direct shall receive a guaranteed fee of ten
thousand dollars ($10,000.00) per month during CSL's first two fiscal years, or
a shorter period of time should CS be dissolved earlier than the said two fiscal
years. Such amount shall be considered an advance of the origination rebate
specified in Section 2.4 and shall commence no later than February, 1997. No
payments beyond the said minimum guarantee shall be paid to HSN Direct until any
and all CS losses, and/or net profit shortfalls are recovered by KMG sufficient
to achieve a percentage of actual net profits equivalent to the relationship
specified in Section 2.4. Further, no payments beyond the said minimum guarantee
shall be paid to HSN Direct until KMG receives payments from net profits equal
to those received by HSN Direct.
8.2 Notwithstanding the provisions of Section 8.1 above, the Parties recognize
that consumer response to CS may be much greater than is initially anticipated,
and that the increased volume of orders of product sold through CS could
necessitate additional personnel being hired by HSN Direct. The Parties intend
that under such circumstances as described within this section, the guaranteed
fee as specified in Section 8.1 may be increased by mutual agreement of the
Parties.
8.3 KMG acknowledges that no partnership or joint venture of any kind is
intended to be created by this Agreement, and that neither party nor any of its
officers, employees, agents or representatives is an employee or agent of any
other party for any purpose whatsoever. Rather, each party is and shall at all
times remain an independent contractor. Neither party has, nor shall it hold
itself out at as having, any right, power or authority to create any contract
obligation, either express or implied, on behalf of, in the name of, or binding
upon the other party, unless such other party shall consent thereto in writing.
Each party shall have the right to appoint and shall be solely responsible for
its own employees, agents and representatives, who shall be at such party's own
risk, expense and supervision and shall not have any claim against any other
party for compensation or reimbursement.
<PAGE>
9. Accounting
9.1. HSN Direct shall provide information related to product fulfillment,
product pricing and sourcing, foreign distribution agreements and any other
transactions related to HSN Direct activity on behalf of CS, as may be necessary
and mutually agreed to provide accurate and timely accounting for CS.
9.2 At all times during the continuance of CS, KMG and HSN Direct shall keep
accurate books of account in which all matters relating to the Programs,
including all income, expenditures, assets and liabilities. KMG and HSN Direct
shall each have the right to inspect relevant accounting records pertaining to
transactions related to CS.
9.3. A complete accounting by KMG of CS as of the close of business on the last
day of each calendar month of each year shall be available within twenty (20)
days after the close of the month. On each accounting being made, status of the
net profits and losses of CS shall be provided. Except as to manifest errors
brought to the attention of KMG within thirty (30) days after its rendition,
each such accounting shall be final and conclusive.
10. Fiscal Year
10.1. The fiscal year of KMG ends on the 31st day of December of each year.
11. Termination of Agreement
11.1. Either party may terminate this Agreement upon 30 days notice to the other
party upon the breach by the other party of any of its material representations,
warranties, covenants or obligations under this Agreement. Upon the expiration
of such notice period, this Agreement shall terminate without the need for
further action by either party, provided, however, that if the breach upon which
such notice of termination is based shall have been fully cured to the
reasonable satisfaction of the non-breaching party within such 30-day notice
period, then such notice of termination shall be deemed rescinded. Such right of
termination shall be in addition to such other rights and remedies as the
terminating party may have under applicable law.
12. Force Majeure.
12.1. Neither party will be deemed in default of this Agreement to the extent
that performance of its obligations, or attempts to cure any breach, are delayed
or prevented by reason of circumstance beyond its reasonable control, including
without limitation fire, natural disaster, earthquake, accident or other acts of
God ("Force Majeure"), provided that the party seeking to delay its performance
gives the other written notice of any such Force Majeure within 15 days after
the discovery of the Force Majeure, and further provided that such party uses
its good faith efforts to cure the Force Majeure. If there is a Force Majeure,
the time for performance or cure will be extended for a period equal to the
duration of the Force Majeure. This Article shall not be applicable to any
payment obligations of either party.
13. Proprietary Information.
13.1 The customers, business, products, technology, business connections,
customer lists, procedures, operations, techniques and other aspects of the
business of either Party are established at great expense and protected as
confidential information and trade Secrets and provide the Parties with a
substantial competitive advantage. Both Parties shall have access to, and be
entrusted with,
<PAGE>
trade secrets, confidential information and proprietary information, and either
would suffer great loss and injury if the other Party would disclose this
information or use it to for competitive advantage. Consequently, the Parties
agree that during their relationship and for one year thereafter, they will not
directly or indirectly, either individually or as an employee, agent, partner,
shareholder, or in any other capacity, use or disclose, or cause to be used or
disclosed, any trade secret, confidential information or proprietary information
acquired during the relationship.
14. Indemnification.
14.1 HSN Direct agrees to defend, indemnify, and hold KMG harmless from any and
all reasonable liabilities, losses, costs, damages, penalties and any other
expenses including attorneys fees arising directly or indirectly, either from
HSN Direct's acts or omissions or HSN Direct's breach of any obligation imposed
or sought to be imposed by or according to this Agreement. KMG shall not be
liable to HSN Direct, or to anyone who may claim any right due to a relationship
with HSN Direct, for any acts or omissions by HSN Direct in the performance of
this Agreement or on the part of the employees or agents of HSN Direct.
14.2 KMG agrees to defend, indemnify, and hold HSN Direct harmless from any and
all liabilities, losses, costs, damages, penalties and any other expenses
including attorneys fees arising directly or indirectly, either from KMG's acts
or omissions or KMG's breach of any obligation imposed or sought to be imposed
by or according to this Agreement. HSN Direct shall not be liable to KMG or to
anyone who may claim any right due to a relationship with KMG for any acts or
omissions by KMG in the performance of this Agreement or on the part of the
employees or agents of KMG.
15. Resolution of Disputes:
15.1 Each party acknowledges and agrees that, if there is any breach of this
Agreement, including, without limitation, unauthorized use or disclosure of
Proprietary Information or other information of the other party, the
non-breaching party will suffer irreparable injury that cannot be compensated by
money damages and therefore will not have an adequate remedy at law.
Accordingly, if either party institutes an action or proceeding to enforce the
provisions of this Agreement, such party will be entitled to obtain such
injunctive relief, specific performance, or other equitable remedy from a court
of competent jurisdiction as may be necessary or appropriate to prevent or
curtail any such breach, threatened or actual. These will be in addition to and
without prejudice to such other rights as such party may have in law or in
equity.
15.2 Any dispute, controversy, or claim arising out of or related to this
Agreement, or the creation, validity, interpretation, breach, or termination of
this Agreement will be referred to mediation before, and as a condition
precedent to, the initiation of any adjudicative action or proceeding, including
arbitration. The mediation will be held in New York City, NY. Either party may
demand mediation in writing, serving on the other party a statement of the
dispute, controversy, or claim, and the facts relating to it, in reasonable
detail. Furthermore, if within thirty (30) days after such demand, the parties
have not agreed upon a mediator and commenced mediation, the matter will be
referred to arbitration under Section 12.
16. Notice
16.1. Any and all notices between the parties provided for or permitted under
this Agreement by law shall be in writing and shall be deemed duly served when
personally delivered to either party, or, in lieu of such personal service, when
deposited in the United States Mail, certified, postage
<PAGE>
prepaid, addressed to either party at the address of the principal place of
business and signed copy of that notice shall be filed and kept with the books
of CS.
17. Entire Agreement
17.1. This document is the entire and only Agreement of the KMG and HSN Direct
relating to CS and correctly defines the rights, duties and obligations of each
to the other in connection with CS as of its Commencement date. Any prior
Agreements, promises, negotiations, or representations not expressly defined in
this Agreement are of no force or effect. Any modifications, additions, or
alterations of this Agreement must be in writing and signed by both KMG and HSN
Direct.
For HSN Direct: /s/ [ILLEGIBLE]
----------------------------
Date: 4/7/97
For KMG: /s/ [ILLEGIBLE]
-----------------------------------
Date:
<PAGE>
Kaleidoscope Media Group, Inc.
345 Park Avenue South
New York, NY 10010
Addendum to 12/18/96 Vendor Agreement - Revised March 31,1997
This Addendum to the Vendor Agreement ("Agreement") dated December 18, 1996
and revised March 31, 1997, between the Kaleidoscope Media Group. Inc, a
Delaware Corporation with principal offices located at 345 Park Avenue South,
New York, NY ("KMG"), and HSN Direct Int. LTD.("KSN Direct") a company in
England, having an office at 11831 30th Court North, St. Petersburg, Florida
33716. is executed by KMG and HSN Direct, this day of March 31, 1997.
Notwithstanding any existing terms and conditions of the said Agreement of
December 18th 1996, KMG and HSN Direct agree to the following, and the said
Agreement is amended accordingly;
1. The guaranteed monthly fee paid to HSN Direct, per section 8.1 of the
Agreement shall be fifteen thousand dollars ($15,000.00) per month, paid by KMG
beginning March 1997, during CSL's first two fiscal years, or a shorter period
of time should CS be dissolved earlier than the said two fiscal years. HSN
Direct shall have no obligation to proceed beyond August 1997 but subject to 4
below shall have the option to continue longer. Profit shares/origination fees
in 5.6 and 7 below shall relate to the HSN Direct period of participation.
2. The program originally referred to in the Agreement as Celebrity Showcase
Live, shall be entitled Celebrity Showcase ("CS"), and shall not be broadcast
live, but shall be broadcast daily from tape.
3. KMG has created an entity, Celebrity Showcase LLC ("CS LLC") to produce the
program and enter into distribution, talent and advertising agreements
associated with CS.
4. HSN Direct's responsibility shall be for advising on product selection and
HSN Direct shall not be responsible for funding product or inventory or for
payment for product, warehousing, fulfillment or any other liabilities of CS LLC
or KMG. As such, HSN Direct shall not be responsible as a partner in the venture
and KMG shall not hold HSN Direct out as being so responsible.
5. The commitment between the Parties for the CS broadcast shall be for thirteen
(13) weeks, however, upon analysis of the actual result of the first two weeks
broadcasts, a decision may be made by the Parties, by mutual agreement, to halt
production of the program after four (4) weeks. All carriage agreements with
distributors and stations shall include a provision to allow the cancellation of
programming and station/operator guarantees, with four weeks (4) notice.
6. If a third party enters into an agreement with KMG, so that under said
agreement the third party provides funding for CS development, production and
marketing, the third party shall retain one hundred percent (100%) of all CS net
profits, until such time as all investment financing is fully recouped.
Subsequent to recoupment, the third party shall retain fifty percent of all CS
net
<PAGE>
profits and KMG shall retain twenty five percent (25%) of the net profit. HSN
Direct shall be provided an origination fee equal to the remaining twenty-five
percent (25%) of the net profit.
7. In the absence of any third party financing and KMG shall fund the
development, production and marketing of CS, then KMG shall retain one hundred
percent (100%) of all CS net profits, until such time as such funding is fully
recouped. Subsequent to recoupment, KMG shall retain seventy five percent (75%)
of the net profits and the origination fee paid to HSN Direct shall be
twenty-five percent (25%).
8. If HSN Direct and KMG jointly fund development, production and marketing of
CS, then one hundred percent (100%) of all CS net profits, shall be retained by
the Parties in proportion to their respective funding investments until such
time as all such financing is fully recouped. Subsequent to recoupment, the HSN
Direct and KMG shall equally share (fifty percent/fifty percent) of all CS net
profits. Any such funding by HSN Direct shall be at its sole option and subject
to its express agreement in writing.
For KMG: For HSN Direct Ltd.
/s/ Henry Siegel /s/ Kevin Harrington 4/7/97
- --------------------------- --------------------------------
Henry Siegel Date Kevin Harrington Date
<PAGE>
JOINT VENTURE AGREEMENT
AGREEMENT dated as of this June, 1997 between KALEIDOSCOPE, a corporation
organized under the laws of the state of Delaware ("Kaleidoscope") and SPORTS
MARKETING, INC. a corporation organized under the laws of the state of Delaware
("Sports."). Kaleidoscope and Sports Marketing, Inc. shall sometimes be referred
to collectively as the "Venture Partners and singly as a Venture Partner".
WHEREAS, the Venture Partners wish to work together in connection with the
staging of television boxing events and the exploitation of other ancillary
properties and rights in connection therewith;
WHEREAS, the Venture Partners together currently are in the process of
developing or have developed Boxcino(TM) a Latin American boxing championship,
BoxAsia, in Asian boxing championship and Pazienza pay-per-view events
(referred to as the Boxing project(s)). In addition, Sports Marketing, Inc.
desires that the Venture Partners jointly own rights pursuant to promotional
agreements with the boxers from Boxcino presently under the Promotion Agreements
with Sports Marketing, Inc and listed in Schedule A hereto as well as boxers
participating in BoxAsia, ("Subject Boxers")
NOW, THEREFORE, for good and valuable consideration, the receipt of which
is hereby acknowledged, the parties hereto agree as follows;
1. General
A. "Event" shall refer to one or more boxing matches or series of matches
pursuant to any Boxing Project or which involves a Subject Boxer.
B. At the request of either party the parties shall conduct the business of
the joint venture through a Limited Liability Company consistent with the terms
of this Joint Venture Agreement.
C. The parties shall cooperate in developing and defining the Boxing
Projects and staging Events involving the Boxing Projects and Subject Boxers.
All Events and the terms thereof shall be subject to the mutual agreement of
each Venture Partner including the budget therefore. The parties shall negotiate
the terms of each Boxing Project and Event as well as the terms of any Limited
Liability Company Agreement in good faith and use their best efforts to
conclude an agreement consistent with the terms of this Venture Agreement.
II. RESPONSIBILITIES OF KALEIDOSCOPE
A. Kaleidoscope will be responsible for, and will use responsible efforts
in connection with, selling all television rights (including the negotiation of
domestic rights fees).
B. Kaleidoscope shall also be responsible entering into arrangements for
the television production and domestic and worldwide distribution of all Events
that are televised.
C. Kaleidoscope shall be responsible for obtaining the trademark of Boxcino
transferred to or licensed the Venture partners from KS&E.
<PAGE>
III. RESPONSIBILITIES OF SPORTS MARKETING, INC.
A. Sports Marketing, Inc. shall be responsible for providing all of the
first-class boxing talent (including referees, judges and ring announcers) to be
used in connection with each of the Events.
B. Sports Marketing, Inc. shall be responsible for securing all of the
required licenses and appropriate sanctions in connection with Event to secure
that all Events are First-class events.
C. Sports Marketing, Inc. shall be responsible for obtaining the site for
each of the Events. Sports Marketing, Inc. shall not commit to using any site
without the prior approval of Kaleidoscope pursuant to Article 1C.
III. RESPONSIBILITIES OF THE VENTURE PARTNERS
A. Venture partners will be equally responsible for the international
distribution of the Events (including without limitation, the negotiation of all
international rights fees, distribution fees and advertising sales, if any).
B. Except to the extent a party is responsible for advancing such costs
pursuant to Article I or II the Venture Partners shall be equally responsible
for all cost and expenses incurred in connection with the staging and production
of all Events. Notwithstanding the foregoing, each of the Venture Partners shall
be responsible for their own travel and entertainment expenses incurred in
connection with the performance of their duties under Sections I, II and III,
respectively, of this Agreement.
C. The cost of all on-site management at each Event shall be provided by
Kaleidoscope and Sports Marketing, Inc. and all costs incurred therewith shall
be shared equally by the Venture Partners.
The sales, marketing and event management plan for the live Events shall be
agreed upon by the Venture Partners at least 3 months prior to the date
scheduled for each Event.
D. Each of the Venture Partners shall share equally in all rights to
promote and market each of the fighters used in the Events. Sports Marketing,
Inc. shall cause each fighter to enter into an exclusive agreement with the
Venture Partners and the joint venture for the marketing and promotion of their
professional fighting careers.
IV. GENERAL PROVISIONS
A. The terms of this agreement shall run for so long as the Events continue
to occur or a Subject Boxer is under a promoting agent with Sports Marketing,
Inc. This Agreement may be terminated by the Venture Partners against other
Venture Partner for non-performance of the material provisions of this Agreement
upon 30 days prior written notice with a right of such Venture Partner to cure
such non-performance of a material provision. The parties hereto may agree to
extend the term of this Agreement upon the written approval of each of the
parties.
(2)
<PAGE>
B. All net profits and losses realized in connection with the Events shall
be divided evenly between the Venture Partners. Net profits or losses shall be
determined by subtracting the gross revenues received in connection with the
Events in any one year less the direct costs incurred in connection with staging
and producing said events (including the costs of any payments made to third
parties). The travel and entertainment costs of each party are specifically to
be absorbed by such party and shall not be considered a cost of the event for
the purposes of determining net profits or losses, a more detailed example of
the calculation of Net Income is set forth in Exhibit B which contains a
description of the types of revenues to be included in the Venture.
C. The parties hereto agree that any disputes between the parties shall be
determined by arbitration (arbitration provision).
D. This Agreement may be modified only upon the mutual consent of the
parties hereto. This Agreement shall be governed by and construed in accordance
with the laws of the state of New York
E. Each of the Venture Partners hereby indemnifies and holds the other
Venture Partners, their affiliates, officers, employees, directors and agents
harmless from all claims, demands, expenses (including reasonable attorney's
fees), liabilities, suits and proceedings that arise from, or may be
attributable to their own errors, omissions or fault.
F. Each party hereto agrees to hold in confidence all confidential
information disclosed to it in connection with the services provided for by this
Agreement.
G. All bills, invoices, payments, notices and other communication required
or permitted hereunder shall be deemed to be received (1) when hand delivered,
(2) Ten (10) days after the date of deposit in the United States mail, sent by
registered or certified mail, return receipt requested, postage prepaid, (3)
when delivered by document overnight delivery service (4) when sent by telecopy
provided that a confirmation copy is sent the next business day by first class
mail, return receipt requested, postage prepaid to the party to whom the same is
directed at the following addresses ( or any other address delivered by notice
to the other parties):
KALEIDOSCOPE: Kaleidoscope Media Group, Inc.
345 Park Avenue South
New York, NY 10010
Attention: Mr. Henry Siegel
Telephone: (212) 779-6601
Telecopy: (212) 685-0797
SPORTS MARKETING, INC. Sports Marketing Inc.
2501 Wharton Street, Suite "K"
Philadelphia, Pennsylvania 19146
Attention: Mr. Arthur K. Pelullo
Telephone: (215) 755-5416
Telecopy: (215) 755-5402
(3)
<PAGE>
IN WITNESS WHEREOF, the parties hereto have set their hands as of the date
first written above
KALEIDOSCOPE MEDIA GROUP, INC. SPORTS MARKETING INC.
/s/ ILLEGIBLE /s/ ARTHUR K. PELULLO
- ------------------------------ ----------------------------
By: By:
Title: Title: PRESIDENT
(4)
<PAGE>
AGREEMENT
Agreement dated as of April 1, 1997 by and among By The Way Corp.
("BTW"), Ray Volpe ("Volpe") and BNN Corporation ("BNN").
INTRODUCTION
BNN, through subsidiaries is engaged in exploiting entertainment
properties. BTW, wholly owned by Volpe, from time to time, is engaged in
owning, acquiring or offering for exploitation various entertainment
properties. BNN, on behalf of its affiliates, desires to obtain the right to
exploit those rights owned by BTW in projects currently identified as well as
future projects co-developed by BTW and BNN.
Agreement
1. As used herein:
(i) "Property or Properties" shall refer to any entertainment
property including any television property or event such as a sporting or
awards event whether such property is in its concept stage or is completed in
whole or in part or otherwise.
(ii) "Exploitation" rights shall refer to any right to develop,
produce, distribute, market, license or otherwise exploit economically any
Property including the right to participate in any fees relating to such
Property.
2. BTW and Volpe grant to BNN in perpetuity the right at any time to
obtain exploitation rights to all its Properties (other than Properties
licensed to Kaleidoscope Sports & Entertainment) in consideration of an Option
Payment by BNN or its predecessors to BTW of (i) $112,500 prior to the date
hereof and (ii) $150,000 per annum payable in semi-monthly installments
<PAGE>
of $6,250 during the period April 1, 1997 through March 31, 1999 (the "Term").
The Option Payment shall be an offset against fees or amounts payable by the
BNN or its affiliates for any Exploitation Rights granted to BNN or its
affiliates by BTW as provided for herein.
3. BTW presently owns the Properties listed in Schedule 1 hereto. If
BTW acquires any additional Properties it shall give prompt notice thereof to
BNN. At any time from time to time BNN shall have the right to obtain
Exploitation Right to the Properties in such manner as it shall desire upon
terms and conditions mutually agreeable to the parties. If prior to a request
by BNN to BTW, BTW desires to grant Exploitation Rights to any third party
pursuant to a bona fide written offer for the Exploitation of any of its
Properties. BTW shall notify BNN in writing accompanied by a copy of such
offer. BNN shall have 30 days thereafter to Exploit such Properties upon the
same terms and conditions as set forth in such bona fide written offer.
If the parties disagree upon the terms and conditions to obtain any
Exploitation Right they shall submit such disagreement to an arbitrator
mutually acceptable to the parties who shall have experience in the
entertainment industry. If the parties cannot agree upon an arbitrator they
shall submit a list of names to the American Arbitration Association in New
York which shall select such arbitrator.
4. References to BNN shall include all successors to BNN and all
operating affiliates and joint ventures of BNN.
5. Notices. Any notice, demand or communication required or permitted
under this Agreement shall be in writing and shall either be hand-delivered to
the other party or mailed to the addresses set forth below by registered or
certified mail, return receipt requested or sent by overnight express mail or
courier or facsimile to such address, if a party has a facsimile machine.
Notice shall be deemed to have been given and received when so hand-delivered
or after three (3) business days when so deposited in the U.S. Mail, or when
transmitted and received by facsimile or sent by express mail properly
addressed to the other party. The addresses are:
2
<PAGE>
To BNN:
345 Park Avenue South, 2nd Floor
New York, New York 10010
To BTW and Ray Volpe:
c/o Kaleidoscope Sports & Exchange
345 Park Avenue South, 2nd Floor
New York, New York 10010
The foregoing addresses may be changed at any time by notice given in the
manner herein provided.
6. This Agreement constitutes the entire understanding and agreement
between the parties regarding its subject matter and supersedes all prior
negotiations and agreements, whether oral or written, between them with
respect to its subject matter. This Agreement may not be modified except by a
written agreement signed by the parties.
7. If any provision of this Agreement shall be invalid or
unenforceable, in whole or in part, such provision shall be deemed to be
modified or restricted to the extent and in the manner necessary to render the
same valid and enforceable, or shall be deemed excised from this Agreement, as
the case may require, and this Agreement shall be construed and enforced to
the maximum extent permitted by law as if such provision had been originally
incorporated herein as so modified or restricted, or as if such provision had
not been originally incorporated herein, as the case may be.
8. This Agreement shall be binding upon and inure to the benefit of
the parties, including and their respective heirs, executors, successors and
assigns, except that this Agreement may not be assigned by the Executive.
3
<PAGE>
9. No waiver by either party of any condition or of the breach by the
other of any term or covenant contained in this Agreement, whether by conduct
or otherwise, in any one (1) or more instances shall be deemed or construed as
a further or continuing waiver of any such condition or breach or a waiver of
any other condition, or the breach of any other term or covenant set forth in
this Agreement. Moreover, the failure of either party to exercise any right
hereunder shall not bar the later exercise thereof with respect to other
future breaches.
10. This Agreement shall be governed by the internal laws of the
State of New York.
11. The headings of the various sections and paragraphs have been
included herein for convenience only and shall not be considered in
interpreting this Agreement.
12. This Agreement may be executed in several counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
13. BNN represents that all corporate action required to authorize
the execution, delivery and performance of this Agreement has been duly taken.
IN WITNESS WHEREOF, this Agreement has been executed by the parties
on behalf of BNN and BTW, by its duly authorized officer on the day and year
first above written.
-------------------------------------
-------------------------------------
4
<PAGE>
Subsidiaries
State of Incorportation
-----------------------
Kaleidoscope Entertainment, Inc. New York
Kaleidoscope Holding, Inc. New York
HSPSMM Inc. Delaware
SeaGull Entertainment Inc. Delaware
People & Properties Inc. New York
Hollywood Connection LLC Delaware
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-END> DEC-31-1997 DEC-31-1996
<CASH> 252,260 154,006
<SECURITIES> 0 0
<RECEIVABLES> 746,681 976,345
<ALLOWANCES> 116,539 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 4,271,069 2,342,524
<PP&E> 188,181 203,152
<DEPRECIATION> 105,399 66,744
<TOTAL-ASSETS> 9,266,673 8,565,403
<CURRENT-LIABILITIES> 3,619,466 3,415,873
<BONDS> 0 0
0 0
0 0
<COMMON> 26,027 146,731
<OTHER-SE> 5,306,546 4,596,485
<TOTAL-LIABILITY-AND-EQUITY> 9,266,673 8,565,403
<SALES> 0 0
<TOTAL-REVENUES> 2,741,392 6,863,359
<CGS> 2,063,503 3,747,711
<TOTAL-COSTS> 2,063,503 3,747,711
<OTHER-EXPENSES> 3,335,946 3,957,103
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 20,045
<INCOME-PRETAX> 1,172,500 430,745
<INCOME-TAX> 1,452,594 194,790
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (280,094) 235,955
<EPS-PRIMARY> (0.01) 0.02
<EPS-DILUTED> (0.01) 0.02
</TABLE>
